February 28, 2013 - 10-K: Annual report pursuant to Section 13 and 15(d)

Large accelerated filer P

Accelerated filer

Non-accelerated filer

Smaller reporting company

(do not check if a smaller reporting company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)



[P]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2012



[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number:

1-6523

Exact name of registrant as specified in its charter:

Bank of America Corporation

State or other jurisdiction of incorporation or organization:

Delaware

IRS Employer Identification No.:

56-0906609

Address of principal executive offices:

Bank of America Corporate Center

100 North Tryon Street

Charlotte, North Carolina 28255

Registrant’s telephone number, including area code:

(704) 386-5681

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:



	Title of each class		Name of each exchange on which registered
	Common Stock, par value $0.01 per share		New York Stock Exchange
			London Stock Exchange
			Tokyo Stock Exchange
	Warrants to purchase Common Stock (expiring October 28, 2018)		New York Stock Exchange
	Warrants to purchase Common Stock (expiring January 16, 2019)		New York Stock Exchange
	Depositary Shares, each representing a 1/1,000th interest in a share of 6.204% Non-Cumulative Preferred Stock, Series D		New York Stock Exchange
	Depositary Shares, each representing a 1/1,000th interest in a share of Floating Rate Non-Cumulative Preferred Stock, Series E		New York Stock Exchange
	Depositary Shares, each representing a 1/1,000th Interest in a share of 8.20% Non-Cumulative Preferred Stock, Series H		New York Stock Exchange
	Depositary Shares, each representing a 1/1,000th interest in a share of 6.625% Non-Cumulative Preferred Stock, Series I		New York Stock Exchange
	Depositary Shares, each representing a 1/1,000th interest in a share of 7.25% Non-Cumulative Preferred Stock, Series J		New York Stock Exchange
	7.25% Non-Cumulative Perpetual Convertible Preferred Stock, Series L		New York Stock Exchange



	Title of each class		Name of each exchange on which registered
	Depositary Shares, each representing a 1/1,200th interest in a share of Bank of America Corporation Floating Rate Non-Cumulative Preferred Stock, Series 1		New York Stock Exchange
	Depositary Shares, each representing a 1/1,200th interest in a share of Bank of America Corporation Floating Rate Non-Cumulative Preferred Stock, Series 2		New York Stock Exchange
	Depositary Shares, each representing a 1/1,200th interest in a share of Bank of America Corporation 6.375% Non-Cumulative Preferred Stock, Series 3		New York Stock Exchange
	Depositary Shares, each representing a 1/1,200th interest in a share of Bank of America Corporation Floating Rate Non-Cumulative Preferred Stock, Series 4		New York Stock Exchange
	Depositary Shares, each representing a 1/1,200th interest in a share of Bank of America Corporation Floating Rate Non-Cumulative Preferred Stock, Series 5		New York Stock Exchange
	Depositary Shares, each representing a 1/40th interest in a share of Bank of America Corporation 6.70% Non-Cumulative Perpetual Preferred Stock, Series 6		New York Stock Exchange
	Depositary Shares, each representing a 1/40th interest in a share of Bank of America Corporation 6.25% Non-Cumulative Perpetual Preferred Stock, Series 7		New York Stock Exchange
	Depositary Shares, each representing a 1/1,200th interest in a share of Bank of America Corporation 8.625% Non-Cumulative Preferred Stock, Series 8		New York Stock Exchange
	6.75% Trust Preferred Securities of Countrywide Capital IV (and the guarantees related thereto)		New York Stock Exchange
	7.00% Capital Securities of Countrywide Capital V (and the guarantees related thereto)		New York Stock Exchange
	6% Capital Securities of BAC Capital Trust VIII (and the guarantee related thereto)		New York Stock Exchange
	Floating Rate Preferred Hybrid Income Term Securities of BAC Capital Trust XIII (and the guarantee related thereto)		New York Stock Exchange
	5.63% Fixed to Floating Rate Preferred Hybrid Income Term Securities of BAC Capital Trust XIV (and the guarantee related thereto)		New York Stock Exchange
	MBNA Capital B Floating Rate Capital Securities, Series B (and the guarantee related thereto)		New York Stock Exchange
	Market Index Target-Term Securities® Linked to the Dow Jones Industrial Average^SMdue December 2, 2014		NYSE Arca, Inc.
	Market Index Target-Term Securities® Linked to the S&P 500® Index, due September 27, 2013		NYSE Arca, Inc.
	Market Index Target-Term Securities® Linked to the S&P 500® Index, due July 26, 2013		NYSE Arca, Inc.
	Market Index Target-Term Securities® Linked to the Dow Jones Industrial Average^SM, due May 31, 2013		NYSE Arca, Inc.
	Market Index Target-Term Securities® Linked to the S&P 500® Index, due April 25, 2014		NYSE Arca, Inc.
	Market Index Target-Term Securities® Linked to the S&P 500® Index, due March 28, 2014		NYSE Arca, Inc.
	Market Index Target-Term Securities® Linked to the S&P 500® Index, due February 28, 2014		NYSE Arca, Inc.
	Market Index Target-Term Securities® Linked to the Dow Jones Industrial Average^SM, due January 30, 2015		NYSE Arca, Inc.
	Market Index Target-Term Securities® Linked to the S&P 500® Index, due February 27, 2015		NYSE Arca, Inc.
	Market Index Target-Term Securities® Linked to the Dow Jones Industrial Average^SM, due March 27, 2015		NYSE Arca, Inc.
	Market Index Target-Term Securities® Linked to the Dow Jones Industrial Average^SM, due April 24, 2015		NYSE Arca, Inc.
	Market Index Target-Term Securities® Linked to the Dow Jones Industrial Average^SM, due May 29, 2015		NYSE Arca, Inc.
	Market Index Target-Term Securities® Linked to the Dow Jones Industrial Average^SM, due June 26, 2015		NYSE Arca, Inc.
	Market Index Target-Term Securities® Linked to the S&P 500® Index, due July 31, 2015		NYSE Arca, Inc.

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ü No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No ü

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ü No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No ü

The aggregate market value of the registrant’s common stock (“Common Stock”) held on June 30, 2012 by non-affiliates was approximately $88,154,790,629 (based on the June 30, 2012 closing price of Common Stock of $8.18 per share as reported on the New York Stock Exchange). As of February 25, 2013, there were 10,820,274,944 shares of Common Stock outstanding.

Documents incorporated by reference: Portions of the definitive proxy statement relating to the registrant’s annual meeting of stockholders scheduled to be held on May 8, 2013 are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III.

Table of Contents

Bank of America Corporation and Subsidiaries



Part I		Page

Item 1.	Business	1

Item 1A.	Risk Factors	4

Item 1B.	Unresolved Staff Comments	19

Item 2.	Properties	20

Item 3.	Legal Proceedings	20

Item 4.	Mine Safety Disclosures	20

Part II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21

Item 6.	Selected Financial Data	21

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	153

Item 8.	Financial Statements and Supplementary Data	153

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	281

Item 9A.	Controls And Procedures	281

Item 9B.	Other Information	283

Part III

Item 10.	Directors, Executive Officers and Corporate Governance	284

Item 11.	Executive Compensation	284

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	285

Item 13.	Certain Relationships and Related Transactions, and Director Independence	285

Item 14.	Principal Accounting Fees and Services	285

Part IV

Item 15.	Exhibits, Financial Statement Schedules	286

Part I

Bank of America Corporation and Subsidiaries

Item 1. Business

General

Bank of America Corporation (together, with its consolidated subsidiaries, Bank of America, we or us) is a Delaware corporation, a bank holding company and a financial holding company. When used in this report, “the Corporation” may refer to Bank of America Corporation individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation’s subsidiaries or affiliates. As part of our efforts to streamline the Corporation’s organizational structure, reduce complexity and costs, the Corporation has reduced and intends to continue to reduce the number of its corporate subsidiaries, including through intercompany mergers.

Bank of America is one of the world’s largest financial institutions, serving individual consumers, small- and middle-market businesses, institutional investors, large corporations and governments with a full range of banking, investing, asset management and other financial and risk management products and services. Our principal executive offices are located in the Bank of America Corporate Center, 100 North Tryon Street, Charlotte, North Carolina 28255.

Bank of America’s website is www.bankofamerica.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available on our website at http://investor.bankofamerica.com under the heading U.S. Securities and Exchange Commission (SEC) Filings as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC. In addition, we make available on http://investor.bankofamerica.com under the heading Corporate Governance: (i) our Code of Ethics (including our insider trading policy); (ii) our Corporate Governance Guidelines; and (iii) the charter of each committee of our Board of Directors (the Board) (accessible by clicking on the committee names under the Committee Composition link), and we also intend to disclose any amendments to our Code of Ethics, or waivers of our Code of Ethics on behalf of our Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer, on our website. All of these corporate governance materials are also available free of charge in print to stockholders who request them in writing to: Bank of America Corporation, Attention: Office of the Corporate Secretary, Hearst Tower, 214 North Tryon Street, NC1-027-20-05, Charlotte, North Carolina 28202.

Segments

Through our banking and various nonbanking subsidiaries throughout the U.S. and in international markets, we provide a diversified range of banking and nonbanking financial services and products through five business segments: Consumer & Business Banking (CBB), Consumer Real Estate Services (CRES), Global Banking, Global Markets and Global Wealth & Investment Management (GWIM), with the remaining operations recorded in All Other. Additional information related to our business segments and the products and services they provide is included in the information set forth on pages 37 through 53 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), and Note 26 – Business Segment Information to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data (Consolidated Financial Statements).

Competition

We operate in a highly competitive environment. Our competitors include banks, thrifts, credit unions, investment banking firms, investment advisory firms, brokerage firms, investment companies, insurance companies, mortgage banking companies, credit card issuers, mutual fund companies and e-commerce and other internet-based companies. We compete with some of these competitors globally and with others on a regional or product basis.

Competition is based on a number of factors including, among others, customer service, quality and range of products and services offered, price, reputation, interest rates on loans and deposits, lending limits and customer convenience. Our ability to continue to compete effectively also depends in large part on our ability to attract new employees and retain and motivate our existing employees, while managing compensation and other costs.

Employees

As of December 31, 2012, we had approximately 267,000 full-time equivalent employees. None of our domestic employees are subject to a collective bargaining agreement. Management considers our employee relations to be good.



		Bank of America 2012 1

Government Supervision and Regulation

The following discussion describes, among other things, elements of an extensive regulatory framework applicable to bank holding companies, financial holding companies, banks and broker/dealers, including specific information about Bank of America. U.S. federal regulation of banks, bank holding companies and financial holding companies is intended primarily for the protection of depositors and the Deposit Insurance Fund (DIF) rather than for the protection of stockholders and creditors. For additional information about recent regulatory programs, initiatives and legislation that impact us, see Regulatory Matters in the MD&A on page 64.

General

We are subject to an extensive regulatory framework applicable to bank holding companies, financial holding companies and banks.

As a registered financial holding company and bank holding company, Bank of America Corporation is subject to the supervision of, and regular inspection by, the Board of Governors of the Federal Reserve System (Federal Reserve). Our banking subsidiaries (the Banks) organized as national banking associations are subject to regulation, supervision and examination by the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve. The Consumer Financial Protection Bureau (CFPB) regulates consumer financial products and services.

U.S. financial holding companies, and the companies under their control, are permitted to engage in activities considered “financial in nature” as defined by the Gramm-Leach-Bliley Act and related Federal Reserve interpretations. Unless otherwise limited by the Federal Reserve, a financial holding company may engage directly or indirectly in activities considered financial in nature provided the financial holding company gives the Federal Reserve after-the-fact notice of the new activities. The Gramm-Leach-Bliley Act also permits national banks to engage in activities considered financial in nature through a financial subsidiary, subject to certain conditions and limitations and with the approval of the OCC. If the Federal Reserve finds that any of our Banks is not “well-capitalized” or “well-managed,” we would be required to enter into an agreement with the Federal Reserve to comply with all applicable capital and management requirements, which may contain additional limitations or conditions relating to our activities.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permits bank holding companies to acquire banks located in states other than their home state without regard to state law, subject to certain conditions, including the condition that the bank holding company, after and as a result of the acquisition, controls no more than 10 percent of the total amount of deposits of insured depository institutions in the U.S. and no more than 30 percent or such lesser or greater amount set by state law of such deposits in that state. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Financial Reform Act) restricts acquisitions by financial companies if, as a result of the acquisition, the total liabilities of the financial company would exceed 10 percent of the total liabilities of all financial companies. At December 31, 2012, we held approximately 12 percent of the total amount of deposits of insured depository institutions in the U.S.

We are also subject to various other laws and regulations, as well as supervision and examination by other regulatory agencies,

all of which directly or indirectly affect our operations and management and our ability to make distributions to stockholders. Our U.S. broker/dealer subsidiaries are subject to regulation by and supervision of the SEC, New York Stock Exchange and Financial Industry Regulatory Authority; our commodities businesses in the U.S. are subject to regulation by and supervision of the U.S. Commodity Futures Trading Commission (CFTC); our derivatives activity is generally subject to regulation and supervision of the CFTC and National Futures Association or the SEC, and, in the case of the Banks, certain banking regulators; and our insurance activities are subject to licensing and regulation by state insurance regulatory agencies.

Our non-U.S. businesses are also subject to extensive regulation by various non-U.S. regulators, including governments, securities exchanges, central banks and other regulatory bodies, in the jurisdictions in which those businesses operate. Our financial services operations in the U.K. are subject to regulation by and supervision of the Financial Services Authority (FSA). In July of 2010, the U.K. proposed abolishing the FSA and replacing it with the Financial Policy Committee within the Bank of England (FPC) and two new regulators, the Prudential Regulatory Authority (PRA) and the Consumer Protection and Markets Authority. Under the proposal, our U.K. regulated entities will be subject to the supervision of the FPC and the PRA for prudential matters and the CPMA for conduct of business matters. The new financial regulatory structure is scheduled to be formally established on April 1, 2013. We continue to monitor the development and potential impact of this regulatory restructuring.

Financial Reform Act

On July 21, 2010, the Financial Reform Act was signed into law. As a result of the Financial Reform Act, several significant regulatory developments occurred in 2012, and additional regulatory developments may occur in 2013 and beyond. The Financial Reform Act has impacted and will continue to impact our earnings through fee reductions, higher costs and imposition of new restrictions on us. For a description of significant developments, see Regulatory Matters – Financial Reform Act in the MD&A on page 64.

Capital and Operational Requirements

As a financial services holding company, we and our banking subsidiaries are subject to the risk-based capital guidelines issued by the Federal Reserve and other U.S. banking regulators, including the FDIC and the OCC. These capital rules are complex and are evolving as U.S. and international regulatory authorities propose enhanced capital rules in response to the financial crisis and pursuant to legislation, including the Financial Reform Act. The Corporation seeks to manage its capital position to maintain sufficient capital to meet these regulatory guidelines and to support our business activities. These evolving capital rules are likely to influence our regulatory capital and liquidity planning processes, and may impose additional operational and compliance costs on the Corporation.

For a discussion of regulatory capital rules, capital composition, and pending or proposed regulatory capital changes, see Capital Management – Regulatory Capital and Capital Management – Regulatory Capital Changes in the MD&A on pages 70 and 72, and Note 17 – Regulatory Requirements and Restrictions to the Consolidated Financial Statements, which are incorporated by reference in this Item 1.



2 Bank of America 2012

Distributions

We are subject to various regulatory policies and requirements relating to the payment of dividends, including requirements to maintain capital above regulatory minimums. The appropriate federal regulatory authority is authorized to determine, under certain circumstances relating to the financial condition of a bank or bank holding company, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. For instance, under proposed rules, we are required to submit to the Federal Reserve a capital plan as part of an annual Comprehensive Capital Analysis and Review (CCAR). Supervisory review of the CCAR has a stated purpose of assessing the capital planning process of major U.S. bank holding companies, including any planned capital actions such as the payment of dividends on common stock. For additional information regarding the restrictions on our ability to receive dividends or other distributions from the Banks, see Item 1A. Risk Factors.

In addition, our ability to pay dividends is affected by the various minimum capital requirements and the capital and non-capital standards established under the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). The right of the Corporation, our stockholders and our creditors to participate in any distribution of the assets or earnings of our subsidiaries is further subject to the prior claims of creditors of the respective subsidiaries.

For additional information regarding the requirements relating to the payment of dividends, including the minimum capital requirements, see Note 14 – Shareholders’ Equity and Note 17 – Regulatory Requirements and Restrictions to the Consolidated Financial Statements.

Source of Strength

According to the Financial Reform Act and Federal Reserve policy, bank holding companies are expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each such subsidiary. Similarly, under the cross-guarantee provisions of FDICIA, in the event of a loss suffered or anticipated by the FDIC, either as a result of default of a banking subsidiary or related to FDIC assistance provided to such a subsidiary in danger of default, the affiliate banks of such a subsidiary may be assessed for the FDIC’s loss, subject to certain exceptions. For additional information about our calculation of regulatory capital and capital composition, and proposed capital rules, see Capital Management – Regulatory Capital in the MD&A on page 70, and Note 17 – Regulatory Requirements and Restrictions to the Consolidated Financial Statements.

Deposit Insurance

Deposits placed at U.S. domiciled banks (U.S. banks) are insured by the FDIC, subject to limits and conditions of applicable law and the FDIC’s regulations. Pursuant to the Financial Reform Act, FDIC insurance coverage limits were permanently increased to

$250,000 per customer. All insured depository institutions are required to pay assessments to the FDIC in order to fund the DIF.

The FDIC is required to maintain at least a designated minimum ratio of the DIF to insured deposits in the U.S. The Financial Reform Act requires the FDIC to assess insured depository institutions to achieve a DIF ratio of at least 1.35 percent by September 30, 2020. The FDIC has adopted new regulations that establish a long-term target DIF ratio of greater than two percent. The DIF ratio is currently below the required targets and the FDIC has adopted a restoration plan that will result in substantially higher deposit insurance assessments for all depository institutions over the coming years. Deposit insurance assessment rates are subject to change by the FDIC and will be impacted by the overall economy and the stability of the banking industry as a whole. For additional information regarding deposit insurance, see Item 1A. Risk Factors – Regulatory and Legal Risk on page 12 and Regulatory Matters – Financial Reform Act and Regulatory Matters – FDIC Deposit Insurance Assessments in the MD&A on pages 64 and 65.

Transactions with Affiliates

The Banks are subject to restrictions under federal law that limit certain types of transactions between the Banks and their non-bank affiliates. In general, U.S. Banks are subject to quantitative and qualitative limits on extensions of credit, purchases of assets and certain other transactions involving Bank of America and its non-bank affiliates. Transactions between U.S. Banks and their non-bank affiliates are required to be on arm’s length terms. For additional information regarding transactions with affiliates, see Regulatory Matters – Transactions with Affiliates in the MD&A on page 66.

Privacy and Information Security

We are subject to many U.S. federal, state and international laws and regulations governing requirements for maintaining policies and procedures to protect the non-public confidential information of our customers. The Gramm-Leach-Bliley Act requires the Banks to periodically disclose Bank of America’s privacy policies and practices relating to sharing such information and enables retail customers to opt out of our ability to share information with unaffiliated third parties under certain circumstances. Other laws and regulations, at both the federal and state level, impact our ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. The Gramm-Leach-Bliley Act also requires the Banks to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information. These security and privacy policies and procedures for the protection of personal and confidential information are in effect across all businesses and geographic locations.



		Bank of America 2012 3

Item 1A. Risk Factors

In the course of conducting our business operations, we are exposed to a variety of risks, some of which are inherent in the financial services industry and others of which are more specific to our own businesses. The discussion below addresses the most significant factors, of which we are aware, that could affect our businesses, results of operations and financial condition. Additional factors that could affect our businesses, results of operations and financial condition are discussed in “Forward-looking Statements.” However, other factors not discussed below or elsewhere in this Annual Report on Form 10-K could also adversely affect our businesses, results of operations and financial condition. Therefore, the risk factors below should not be considered a complete list of potential risks that we may face.

Any risk factor described in this Annual Report on Form 10-K or in any of our other SEC filings could by itself, or together with other factors, materially adversely affect our liquidity, cash flows, competitive position, business, results of operations or financial condition.

General Economic and Market Conditions Risk

Our businesses and results of operations may be adversely affected by the U.S. and international financial markets and economic conditions generally.

Our businesses and results of operations are affected by the financial markets and general economic conditions in the U.S. and abroad, including factors such as the level and volatility of short-term and long-term interest rates, inflation, home prices, unemployment and under-employment levels, bankruptcies, household income, consumer spending, fluctuations in both debt and equity capital markets, liquidity of the global financial markets, the availability and cost of capital and credit, investor sentiment and confidence in the financial markets, European sovereign debt risks and the strength of the U.S. economy and the non-U.S. economies in which we operate. The deterioration of any of these conditions could adversely affect our consumer and commercial businesses and securities portfolios, our level of charge-offs and provision for credit losses, the carrying value of our deferred tax assets, our capital levels and liquidity, and our results of operations.

Continued elevated unemployment, under-employment and household debt, along with continued stress in the consumer real estate market and certain commercial real estate markets, in the U.S. pose challenges for domestic economic performance and the financial services industry. The sustained high unemployment rate and the lengthy duration of unemployment have directly impaired consumer finances and pose risks to the financial services industry. Continued uncertainty in the housing markets and elevated levels of distressed and delinquent mortgages pose further risks to the housing market. The current environment of heightened scrutiny of financial institutions has resulted in increased public awareness of and sensitivity to banking fees and practices. Mortgage and housing market-related risks may be accentuated by attempts to forestall foreclosure proceedings, as well as state and federal investigations into foreclosure practices by mortgage servicers. Each of these factors may adversely affect our fees and costs.

For additional information about economic conditions and challenges discussed above, see Executive Summary – 2012 Economic and Business Environment in the MD&A on page 26.

Mortgage and Housing Market-Related Risk

Our mortgage loan repurchase obligations or claims from third parties could result in additional material losses.

We and our legacy companies have sold significant amounts of residential mortgage loans directly to government-sponsored enterprises, Fannie Mae (FNMA) and Freddie Mac (FHLMC) (collectively, the GSEs), and residential mortgage loans to investors other than GSEs as whole loans or private-label securitizations. In connection with these sales, we or certain of our subsidiaries or legacy companies make or have made various representations and warranties, breaches of which may result in a requirement that we repurchase the mortgage loans, or otherwise make whole or provide other remedies to counterparties. For example, we and such legacy companies sold over $2 trillion of such loans originated between 2004 and 2008.

On January 6, 2013, we entered into agreements with FNMA (FNMA Settlement) to resolve substantially all outstanding and potential repurchase and certain other claims relating to the origination, sale and delivery of residential mortgage loans originated and sold directly to FNMA from January 1, 2000 through December 31, 2008 by entities related to legacy Countrywide Financial Corporation (Countrywide) and Bank of America, N.A. (BANA). The FNMA Settlement extinguished substantially all of the unresolved repurchase claims from FNMA, as well as any future representations and warranties repurchase claims, associated with such loans, subject to certain exceptions which we do not expect to be material.

At December 31, 2012, the total notional amount of our unresolved representations and warranties repurchase claims was approximately $28.3 billion, which included $12.2 billion resolved by the FNMA Settlement, compared to $12.6 billion at December 31, 2011.

In addition to repurchase claims, we receive notices from mortgage insurance companies of claim denials, cancellations or coverage rescission (collectively, MI rescission notices) and the number of such notices has remained elevated. As of December 31, 2012, 68 percent of the MI rescission notices we have received have not yet been resolved. The FNMA Settlement clarified the parties’ obligations with respect to MI, including establishing timeframes for certain payments and other actions, setting parameters for potential bulk settlements and providing for cooperation in future dealings with mortgage insurers. As a result, we will be required to remit to FNMA the amount of certain MI coverage as a result of MI claims rescissions in advance of collection from the mortgage insurance companies and, in certain cases, we may not ultimately collect all such amounts from the mortgage insurance companies.

The total amount of our recorded liability related to representations and warranties repurchase exposures (which includes exposures related to MI rescission notices) was $19.0 billion at December 31, 2012. We currently estimate that the range of possible loss for representations and warranties exposures could be up to $4 billion over accruals at December 31, 2012. This range of possible loss reflects the impact of the FNMA Settlement and covers principally non-GSE exposures. Our estimated range of possible loss does not represent a probable loss.

Our estimated liability and range of possible loss for representations and warranties exposures is based on then-currently available information and is necessarily dependent on, and limited by a number of factors, including our historical claims and settlement experience, including the FNMA Settlement,



4 Bank of America 2012

projections of future defaults and, for private-label securitizations, the implied repurchase experience based on the pending Bank of New York Mellon settlement (BNY Mellon Settlement), as well as significant judgment and a number of assumptions that are subject to change, including the assumption that the conditions to the BNY Mellon Settlement are satisfied. As a result, our liability and estimated range of possible loss related to our representations and warranties exposures may materially change in the future based on factors beyond our control. Future provisions and/or estimated ranges of possible loss for representations and warranties may be significantly impacted if actual experiences are different from our assumptions in our predictive models, including, without limitation, ultimate resolution of the BNY Mellon Settlement, estimated repurchase rates, economic conditions, estimated home prices, consumer and counterparty behavior, and a variety of other judgmental factors. In addition, we have not recorded any representations and warranties liability for certain potential private-label securitization and whole-loan exposures where we have little to no claim experience. Additionally, reserves for certain potential monoline exposures are considered in our litigation reserves.

Adverse developments with respect to one or more of the assumptions underlying the liability for representations and warranties and the corresponding estimated range of possible loss could result in significant increases to future provisions and/or the estimated range of possible loss. For example, if courts, in the context of claims brought by private-label securitization trustees, were to disagree with our interpretation that the underlying agreements require a claimant to prove that the representations and warranties breach was the cause of the loss, it could significantly impact the estimated range of possible loss. Additionally, if recent court rulings related to monoline litigation, including one related to us, that have allowed sampling of loan files instead of requiring a loan-by-loan review to determine if a representations and warranties breach has occurred, are followed generally by the courts in other monoline litigation, private-label securitization counterparties may view litigation as a more attractive alternative compared to a loan-by-loan review.

If future representations and warranties losses occur in excess of our recorded liability and estimated range of possible loss, including as a result of the factors set forth above, such losses could have a material adverse effect on our cash flows, financial condition and results of operations. The liability for obligations under representations and warranties exposures and the corresponding estimated range of possible loss do not consider any losses related to litigation matters, including litigation brought by monoline insurers, disclosed in Note 13 – Commitments and Contingencies to the Consolidated Financial Statements, nor do they include any separate foreclosure costs and related costs, assessments and compensatory fees or any other possible losses related to potential claims for breaches of performance of servicing obligations (except as such losses are included as potential costs of the BNY Mellon Settlement), potential securities law or fraud claims or potential indemnity or other claims against us, including claims related to loans insured by the Federal Housing Administration (FHA). We are not able to reasonably estimate the amount of any possible loss with respect to any such servicing, securities law, fraud or other claims against us, except to the extent reflected in the aggregate range of possible loss for litigation and regulatory matters disclosed in Note 13 – Commitments and Contingencies to the Consolidated Financial Statements; however,

such loss could have a material adverse effect on our cash flows,

financial condition and results of operations.

For additional information about our representations and warranties exposure, see Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties in the MD&A on page 54, Consumer Portfolio Credit Risk Management in the MD&A on page 80 and Note 8 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements.

Our representations and warranties losses could be substantially higher than existing accruals and the existing estimated range of possible loss for representations and warranties liability if court approval of the BNY Mellon Settlement is not obtained or if it is otherwise abandoned.

The BNY Mellon Settlement is subject to final court approval and certain other conditions. Although the final court hearings on the settlement are scheduled to begin on May 30, 2013, we cannot currently predict the timing or ultimate outcome of the court approval process, which can include appeals and could take a substantial period of time. There can be no assurance that final court approval of the BNY Mellon Settlement will be obtained, that all conditions will be satisfied (including the receipt of private letter rulings from the IRS and other tax rulings and opinions) or, if certain conditions to the BNY Mellon Settlement permitting withdrawal are met, that the Corporation and legacy Countrywide will not withdraw from the BNY Mellon Settlement agreement.

If final court approval is not obtained with respect to the BNY Mellon Settlement, or if the Corporation and legacy Countrywide determine to withdraw from the BNY Mellon Settlement agreement in accordance with its terms, the Corporation’s future representations and warranties losses with respect to non-GSEs could substantially exceed our non-GSE reserve, together with our estimated range of reasonably possible loss for all representations and warranties exposures of up to $4 billion over existing accruals at December 31, 2012. Developments with respect to one or more of the assumptions underlying the estimated range of possible loss for representations and warranties (including the timing and ultimate outcome of the court approval process relating to the BNY Mellon Settlement) could result in significant increases in our non-GSE reserve and/or this estimated range of possible loss.

For additional information regarding the BNY Mellon Settlement, see Note 8 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements.

If the U.S. housing market weakens, or home prices decline, our consumer loan portfolios, credit quality, credit losses, representations and warranties exposures, and earnings may be adversely affected.

Although U.S. home prices have shown signs of improvement during 2012, the declines over the past several years negatively impacted the demand for many of our products and the credit performance of our consumer mortgage portfolios. Additionally, our mortgage loan production volume is generally influenced by the rate of growth in residential mortgage debt outstanding and the size of the residential mortgage market.

Conditions in the U.S. housing market over the past several years also resulted in significant write-downs of asset values in several asset classes, notably mortgage-backed securities (MBS), and exposure to monolines. If the U.S. housing market were to weaken, the value of real estate could decline, which could negatively affect our exposure to representations and warranties. While there were indications in 2012 that the U.S. economy is stabilizing, the performance of our overall consumer portfolios may



		Bank of America 2012 5

not significantly improve in the near future. A protracted continuation or worsening of difficult housing market conditions may exacerbate the adverse effects outlined above and could have a significant adverse effect on our financial condition and results of operations.

In addition, our home equity portfolio, which makes up approximately 30 percent of our total home loans portfolio, contains a significant percentage of loans in second-lien or more junior-lien positions, and such loans have elevated risk characteristics. Our home equity portfolio had an outstanding balance of $108.0 billion as of December 31, 2012, including $91.3 billion of home equity lines of credit, $15.3 billion of home equity loans and $1.4 billion of reverse mortgages. Of the total home equity portfolio at December 31, 2012, $21.1 billion, or 20 percent, were in first-lien positions (21 percent excluding the Countrywide PCI home equity portfolio) and $86.9 billion, or 80 percent (79 percent excluding the Countrywide PCI home equity portfolio) were in second-lien or more junior-lien positions.

Continued mortgage foreclosure delays and investigations into our residential mortgage foreclosure practices and our compliance with regulatory orders related to past and current servicing and foreclosure activities may significantly increase our costs. In addition, mortgage foreclosure proceedings have been slow in certain states due to a high volume of pending proceedings, which may cause us to have higher credit losses.

We temporarily suspended foreclosure sales in 2010 while we and regulatory authorities examined our foreclosure processes. Although we have resumed foreclosure sales in all states, our progress on foreclosure sales in states where foreclosure requires a court order (judicial states) has been much slower than in those states where foreclosure does not require a court order (non-judicial states). There continues to be a backlog of foreclosure inventory in judicial states as the process of obtaining a court order can significantly increase the time required to complete a foreclosure. Excluding fully-insured portfolios, approximately 30 percent of our residential mortgage loan portfolio, including 36 percent of nonperforming residential mortgage loans, and 36 percent of our home equity portfolio, including 44 percent of nonperforming home equity loans, were in judicial states as of December 31, 2012.

The implementation of changes in procedures and controls, including loss mitigation procedures related to our ability to recover on FHA insurance-related claims, and governmental, regulatory and judicial actions, may result in continuing delays in foreclosure proceedings and foreclosure sales and create obstacles to the collection of certain fees and expenses, in both judicial and non-judicial foreclosures, which could cause us to have higher credit losses.

We entered into a consent order with the Federal Reserve and BANA entered into a consent order with the OCC on April 13, 2011 (2011 OCC Consent Order). The 2011 OCC Consent Order required that we submit a plan to the OCC to remediate all financial injury to borrowers caused by any identified foreclosure deficiencies following an independent foreclosure review (IFR). On January 7, 2013, we and other mortgage servicing companies reached an agreement in principle with the Federal Reserve and the OCC to cease the IFR and replace it with an accelerated remediation process (2013 IFR Acceleration Agreement). Under the 2013 IFR Acceleration Agreement, we made a cash payment of $1.1 billion and agreed to provide approximately $1.8 billion of borrower

assistance in the form of loan modifications and other foreclosure prevention actions.

In March 2012, we entered into settlement agreements with the U.S. Department of Justice, various federal regulatory agencies and 49 state Attorneys General; the U.S. Department of Housing and Urban Development (HUD); and the Federal Reserve and the OCC (collectively, the National Mortgage Settlement). The National Mortgage Settlement became final upon a U.S. District Court order in April 2012 and (1) resolved federal and state investigations into certain origination, servicing and foreclosure practices, (2) resolved certain HUD claims relating to the origination of FHA-insured mortgage loans, primarily by Countrywide prior to and for a period following our acquisition of that lender, and (3) imposed civil monetary penalties by both the Federal Reserve and the OCC related to conduct that was the subject of the 2011 OCC Consent Order. The National Mortgage Settlement did not cover claims arising out of securitization (including representations made to investors with respect to MBS), criminal claims, private claims by borrowers, claims by certain states for injunctive relief or actual economic damages to borrowers related to Mortgage Electronic Registration Systems, Inc. (MERS), and claims by the GSEs (including repurchase demands), among other items. Under the terms of the National Mortgage Settlement, we must establish certain uniform servicing standards and make available approximately $7.6 billion in borrower assistance in the form of, among other things, principal reduction, short sales and deeds-in-lieu of foreclosure, and approximately $1.0 billion in refinancing assistance. We also entered into agreements with several states under which we committed to perform certain minimum levels of principal reduction and related activities within those states.

As part of the FNMA Settlement, we agreed to make a cash payment to FNMA to settle substantially all of FNMA’s outstanding and future claims for compensatory fees arising out of past foreclosure delays. Notwithstanding the FNMA Settlement, we expect that mortgage-related assessments and waiver costs, including compensatory fees, and other costs associated with foreclosures will remain elevated as additional loans are delayed in the foreclosure process. This will likely result in continued elevated noninterest expense, including default servicing costs and legal expenses, which may be partially offset by the impact of MSR sales. Contributing to the elevated default servicing costs are required process changes, including those required under the consent orders with federal bank regulators. Delays in foreclosure sales may result in additional costs associated with the maintenance of properties or possible home price declines, result in a greater number of nonperforming loans and increased servicing advances and may adversely impact the collectability of such advances and the value of our MSR asset, MBS and real estate owned properties. With respect to GSE MBS, the valuation of certain MBS could be negatively affected under certain scenarios due to changes in the timing of cash flows. With respect to non-GSE MBS, under certain scenarios the timing and amount of cash flows could be negatively affected.

We continue to be subject to additional borrower and non-borrower litigation and governmental and regulatory scrutiny related to our past and current servicing and foreclosure activities, including those claims not covered by the National Mortgage Settlement. This scrutiny may extend beyond our pending foreclosure matters to issues arising out of alleged irregularities with respect to previously completed foreclosure activities. The current environment of heightened regulatory scrutiny has the potential to subject us to inquiries or investigations that could



6 Bank of America 2012

adversely affect our reputation. Such investigations by state and federal authorities, as well as any other governmental or regulatory scrutiny of our foreclosure processes, could result in fines, penalties, equitable remedies, additional default servicing requirements and process changes, or other enforcement actions, and could result in higher legal costs in responding to governmental investigations and additional litigation.

For additional information regarding the temporary suspension of our foreclosure sales, see Off-Balance Sheet Arrangements and Contractual Obligations – Other Mortgage-related Matters in the MD&A on page 61.

Failure to satisfy our obligations as servicer in the residential mortgage securitization process, including residential mortgage foreclosure obligations, along with other losses we could incur in our capacity as servicer, could cause significant losses.

We and our legacy companies have securitized a significant portion of the residential mortgage loans that we originated or acquired. We service a large portion of the loans we have securitized and also service loans on behalf of third-party securitization vehicles and other investors. In addition to identifying specific servicing criteria, pooling and servicing arrangements in a securitization or whole loan sale typically impose standards of care on the servicer that may include the obligation to adhere to the accepted servicing practices of prudent mortgage lenders and/or to exercise the degree of care and skill that the servicer employs when servicing loans for its own account.

Many non-GSE residential mortgage-backed securitizations and whole-loan servicing agreements also require us to indemnify the trustee or other investor for or against failures by us to perform our servicing obligations or acts or omissions that involve willful malfeasance, bad faith or gross negligence in the performance of, or reckless disregard of, our duties. Servicing agreements with the GSEs generally provide the GSEs with broader rights relative to the servicer than are found in servicing agreements with private investors. Each GSE typically claims the right to demand that we repurchase loans that breach the seller’s representations and warranties made in connection with the initial sale of the loans, even if we were not the seller. The GSEs also claim that they have the contractual right to demand indemnification or loan repurchase for certain servicing breaches. The GSEs’ first mortgage seller/servicer guides provide for timelines to resolve delinquent loans through workout efforts or liquidation, if necessary, and purport to require the imposition of compensatory fees if those deadlines are not satisfied except for reasons beyond our control. We believe that the governing contracts, our course of dealing and collective past practices and understandings should inform resolution of these matters. Beginning in 2010, the GSEs increased the level of compensatory fees imposed and amended those servicing guides retroactively to impose significantly new and more stringent requirements relating to default activities, which could increase our exposure to claims for compensatory fees. As part of the FNMA Settlement, we agreed to make a cash payment to FNMA to settle substantially all of FNMA’s outstanding and future claims for compensatory fees arising out of past foreclosure delays.

With regard to alleged irregularities in foreclosure process-related activities referred to above, we may incur costs or losses if we elect or are required to re-execute or re-file documents or take other action in connection with pending or completed foreclosures. We may also incur costs or losses if the validity of a foreclosure action is challenged by a borrower, or overturned by a court because of errors or deficiencies in the foreclosure process. These costs and liabilities may not be reimbursable to

us. We may also incur costs or losses relating to delays or alleged deficiencies in processing documents necessary to comply with state law governing foreclosures. We may be subject to deductions by insurers for MI or guarantee benefits relating to delays or alleged deficiencies. Additionally, if we commit a material breach of our servicing obligations that is not cured within specified timeframes, including those related to default servicing and foreclosure, we could be terminated as servicer under servicing agreements in certain circumstances. Any of these actions may harm our reputation or increase our servicing costs.

Mortgage notes, assignments or other documents are often required to be maintained and are often necessary to enforce mortgages loans. There has been significant public commentary regarding the common industry practice of recording mortgages in the name of MERS, as nominee on behalf of the note holder, and whether securitization trusts own the loans purported to be conveyed to them and have valid liens securing those loans. We currently use the MERS system for a substantial portion of the residential mortgage loans that we originate, including loans that have been sold to investors or securitization trusts. A component of the 2011 OCC Consent Order requires significant changes in the manner in which we service loans identifying MERS as the mortgagee. Additionally, certain local and state governments have commenced legal actions against us, MERS, and other MERS members, questioning the validity of the MERS model. Other challenges have also been made to the process for transferring mortgage loans to securitization trusts, asserting that having a mortgagee of record that is different than the holder of the mortgage note could “break the chain of title” and cloud the ownership of the loan. In order to foreclose on a mortgage loan, in certain cases it may be necessary or prudent for an assignment of the mortgage to be made to the holder of the note, which in the case of a mortgage held in the name of MERS as nominee would need to be completed by a MERS signing officer. As such, our practice is to obtain assignments of mortgages from MERS prior to instituting foreclosure. If certain required documents are missing or defective, or if the use of MERS is found not to be valid, we could be obligated to cure certain defects or in some circumstances be subject to additional costs and expenses. Our use of MERS as nominee for the mortgage may also create reputational and other risks for us.

In addition to the adverse impact these factors could directly have on us, we may also face negative reputational costs from these servicing risks, which could reduce our future business opportunities in this area or cause that business to be on less favorable terms to us.

For additional information, see Off-Balance Sheet Arrangements and Contractual Obligations in the MD&A on page 54.

Liquidity Risk

Liquidity Risk is the Potential Inability to Meet Our Contractual and Contingent Financial Obligations, On- or Off-balance Sheet, as they Become Due.

Adverse changes to our credit ratings from the major credit rating agencies could significantly limit our access to funding or the capital markets, increase our borrowing costs, or trigger additional collateral or funding requirements.

Our borrowing costs and ability to raise funds are directly impacted by our credit ratings. In addition, credit ratings may be



		Bank of America 2012 7

important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including over-the-counter (OTC) derivatives. Credit ratings and outlooks are opinions expressed by rating agencies on our creditworthiness and that of our obligations or securities, including long-term debt, short-term borrowings, preferred stock and other securities, including asset securitizations. Our credit ratings are subject to ongoing review by the rating agencies which consider a number of factors, including our own financial strength, performance, prospects and operations as well as factors not under our control.

On June 21, 2012, Moody’s Investors Service, Inc. (Moody’s) completed its previously-announced review for possible downgrade of financial institutions with global capital markets operations, downgrading the ratings of 15 banks and securities firms, including our ratings. The Corporation’s long-term debt rating and BANA’s long-term and short-term debt ratings were downgraded one notch as part of this action. Each of the three major rating agencies downgraded the ratings for the Corporation and its rated subsidiaries in late 2011.

Currently, the Corporation’s long-term/short-term senior debt ratings and outlooks expressed by the rating agencies are as follows: Baa2/P-2 (negative) by Moody’s; A-/A-2 (negative) by Standard & Poor’s Ratings Services (S&P); and A/F1 (stable) by Fitch Ratings (Fitch). The rating agencies could make further adjustments to our credit ratings at any time. There can be no assurance that additional downgrades will not occur.

A further reduction in certain of our credit ratings could negatively affect our liquidity, access to credit markets, the related cost of funds, our businesses and certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical. If the short-term credit ratings of our parent company, bank or broker/dealer subsidiaries were downgraded by one or more levels, we may suffer the potential loss of access to short-term funding sources such as repo financing, and/or increased cost of funds.

In addition, under the terms of certain OTC derivative contracts and other trading agreements, in the event of a further downgrade of our credit ratings or certain subsidiaries’ credit ratings, counterparties to those agreements may require us or certain subsidiaries to provide additional collateral, terminate these contracts or agreements, or provide other remedies. At December 31, 2012, if the rating agencies had downgraded their long-term senior debt ratings for us or certain subsidiaries by one incremental notch, the amount of additional collateral contractually required by derivative contracts and other trading agreements would have been approximately $3.3 billion comprised of $2.9 billion for BANA and $418 million for Merrill Lynch & Co., Inc. (Merrill Lynch) and certain of its subsidiaries. If the agencies had downgraded their long-term senior debt ratings for these entities by a second incremental notch, approximately $4.4 billion in additional incremental collateral comprised of $455 million for BANA and $4.0 billion for Merrill Lynch and certain of its subsidiaries, would have been required.

Also, if the rating agencies had downgraded their long-term senior debt ratings for us or certain subsidiaries by one incremental notch, the derivative liability that would be subject to unilateral termination by counterparties as of December 31, 2012 was $3.8 billion, against which $3.0 billion of collateral has been

posted. If the rating agencies had downgraded their long-term senior debt ratings for us and certain subsidiaries by a second incremental notch, the derivative liability that would be subject to unilateral termination by counterparties as of December 31, 2012 was an incremental $1.7 billion, against which $1.1 billion of collateral has been posted.

While certain potential impacts are contractual and quantifiable, the full consequences of a credit ratings downgrade to a financial institution are inherently uncertain, as they depend upon numerous dynamic, complex and inter-related factors and assumptions, including whether any downgrade of a firm’s long-term credit ratings precipitates downgrades to its short-term credit ratings, and assumptions about the potential behaviors of various customers, investors and counterparties.

For additional information about our credit ratings and their potential effects to our liquidity, see Liquidity Risk – Credit Ratings in the MD&A on page 78 and Note 3 – Derivatives to the Consolidated Financial Statements.

If we are unable to access the capital markets, continue to maintain deposits, sell assets on favorable terms, or our borrowing costs increase, our liquidity and competitive position will be negatively affected.

Liquidity is essential to our businesses. We fund our assets primarily with globally sourced deposits in our bank entities, as well as secured and unsecured liabilities transacted in the capital markets. We rely on certain secured funding sources, such as repo markets, which are typically short-term and credit-sensitive in nature. We also engage in asset securitization transactions, including with the GSEs, to fund consumer lending activities. Our liquidity could be adversely affected by any inability to access the capital markets; illiquidity or volatility in the capital markets; unforeseen outflows of cash, including customer deposits, funding for commitments and contingencies, including Variable Rate Demand Notes; the ability to sell assets on favorable terms; increased liquidity requirements on our banking and nonbanking subsidiaries imposed by their home countries; or negative perceptions about our short- or long-term business prospects, including downgrades of our credit ratings. Several of these factors may arise due to circumstances beyond our control, such as a general market disruption, negative views about the financial services industry generally, changes in the regulatory environment, actions by credit rating agencies or an operational problem that affects third parties or us.

Our cost of obtaining funding is directly related to prevailing market interest rates and to our credit spreads. Credit spreads are the amount in excess of the interest rate of U.S. Treasury securities, or other benchmark securities, of a similar maturity that we need to pay to our funding providers. Increases in interest rates and our credit spreads can significantly increase the cost of our funding. Changes in our credit spreads are market-driven and may be influenced by market perceptions of our creditworthiness. Changes to interest rates and our credit spreads occur continuously and may be unpredictable and highly volatile.

For additional information about our liquidity position and other liquidity matters, including credit ratings and outlooks and the policies and procedures we use to manage our liquidity risks, see Capital Management and Liquidity Risk in the MD&A on pages 70 and 75.



8 Bank of America 2012

Bank of America Corporation is a holding company and we depend upon our subsidiaries for liquidity, including our ability to pay dividends to stockholders. Applicable laws and regulations, including capital and liquidity requirements, may restrict our ability to transfer funds from our subsidiaries to Bank of America Corporation or other subsidiaries.

Bank of America Corporation, as the parent company, is a separate and distinct legal entity from our banking and nonbanking subsidiaries. We evaluate and manage liquidity on a legal entity basis. Legal entity liquidity is an important consideration as there are legal and other limitations on our ability to utilize liquidity from one legal entity to satisfy the liquidity requirements of another, including the parent company. For instance, the parent company depends on dividends, distributions and other payments from our banking and nonbanking subsidiaries to fund dividend payments on our common stock and preferred stock and to fund all payments on our other obligations, including debt obligations. Many of our subsidiaries, including our bank and broker/dealer subsidiaries, are subject to laws that restrict dividend payments or authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to the parent company or other subsidiaries. In addition, our bank and broker/dealer subsidiaries are subject to restrictions on their ability to lend or transact with affiliates and to minimum regulatory capital and liquidity requirements, as well as restrictions on their ability to use funds deposited with them in bank or brokerage accounts to fund their businesses.

Additional restrictions on related party transactions, increased capital and liquidity requirements and additional limitations on the use of funds on deposit in bank or brokerage accounts, as well as lower earnings, can reduce the amount of funds available to meet the obligations of the parent company and even require the parent company to provide additional funding to such subsidiaries. Regulatory action of that kind could impede access to funds we need to make payments on our obligations or dividend payments. In addition, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. For additional information regarding our ability to pay dividends, see Note 14 – Shareholders’ Equity and Note 17 – Regulatory Requirements and Restrictions to the Consolidated Financial Statements.

Credit Risk

Credit Risk is the Risk of Loss Arising from a Borrower, Obligor or Counterparty Default when a Borrower, Obligor or Counterparty does not Meet its Obligations.

Economic or market disruptions, insufficient credit loss reserves or concentration of credit risk may necessitate an increase in the provision for credit losses, which could have an adverse effect on our financial condition and results of operations.

When we loan money, commit to loan money or enter into a letter of credit or other contract with a counterparty, we incur credit risk, or the risk of losses if our borrowers do not repay their loans or our counterparties fail to perform according to the terms of their agreements. A number of our products expose us to credit risk, including loans, leases and lending commitments, derivatives, trading account assets and assets held-for-sale. As one of the nation’s largest lenders, the credit quality of our consumer and commercial portfolios has a significant impact on our earnings.

Global and U.S. economic conditions may impact our credit portfolios. To the extent economic or market disruptions occur, such disruptions would likely increase our credit exposure to customers, obligors or other counterparties due to the increased risk that they may default on their obligations to us. These potential increases in delinquencies and default rates could adversely affect our consumer credit card, home equity, consumer real estate and purchased credit-impaired portfolios, through increased charge-offs and provision for credit losses. Additionally, increased credit risk could also adversely affect our commercial loan portfolios.

We estimate and establish an allowance for credit losses for losses inherent in our lending activities (including unfunded lending commitments), excluding those measured at fair value, through a charge to earnings. The amount of allowance is determined based on our evaluation of the potential credit losses included within our loan portfolio. The process for determining the amount of the allowance, which is critical to our financial condition and results of operations, requires difficult, subjective and complex judgments, including forecasts of economic conditions and how our borrowers will react to those conditions. Our ability to assess future economic conditions or the creditworthiness of our customers, obligors or other counterparties is imperfect. The ability of our borrowers to repay their loans will likely be impacted by changes in economic conditions, which in turn could impact the accuracy of our forecasts.

As with any such assessments, there is also the chance that we will fail to identify the proper factors or that we will fail to accurately estimate the impacts of factors that we identify. We may suffer unexpected losses if the models and assumptions we use to establish reserves and make judgments in extending credit to our borrowers and other counterparties become less predictive of future events. Although we believe that our allowance for credit losses was in compliance with applicable accounting standards at December 31, 2012, there is no guarantee that it will be sufficient to address future credit losses, particularly if economic conditions deteriorate. In such an event, we might need to increase the size of our allowance, which reduces our earnings.

In the ordinary course of our business, we also may be subject to a concentration of credit risk in a particular industry, country, counterparty, borrower or issuer. A deterioration in the financial condition or prospects of a particular industry or a failure or downgrade of, or default by, any particular entity or group of entities could negatively affect our businesses, and the processes by which we set limits and monitor the level of our credit exposure to individual entities, industries and countries may not function as we have anticipated. While our activities expose us to many different industries and counterparties, we routinely execute a high volume of transactions with counterparties in the financial services industry, including brokers/dealers, commercial banks, investment funds and insurers. This has resulted in significant credit concentration with respect to this industry. In the ordinary course of business, we also enter into transactions with sovereign nations, U.S. states and U.S. municipalities. Unfavorable economic or political conditions, disruptions to capital markets, currency fluctuations, social instability and changes in government policies could impact the operating budgets or credit ratings of sovereign nations, U.S. states and U.S. municipalities and expose us to credit risk.

We also have a concentration of credit risk with respect to our consumer real estate, consumer credit card and commercial real estate portfolios, which represent a large percentage of our overall credit portfolio. The economic downturn has adversely affected



		Bank of America 2012 9

these portfolios and further exposed us to this concentration of risk. Continued economic weakness or deterioration in real estate values or household incomes could result in higher credit losses.

For additional information about our credit risk and credit risk management policies and procedures, see Credit Risk Management in the MD&A on page 79 and Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.

We could suffer losses and our ability to engage in routine trading and funding transactions could be adversely affected as a result of the actions or deterioration in the commercial soundness of our counterparties and other financial services institutions.

We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers/dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients. Financial services institutions and other counterparties are inter-related because of trading, funding, clearing or other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to significant future liquidity problems, including losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of a counterparty or client. In addition, our credit risk may be impacted when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivatives exposure due us.

Our derivatives businesses may expose us to unexpected risks and potential losses.

We are party to a large number of derivatives transactions, including credit derivatives. Our derivatives businesses may expose us to unexpected market, credit and operational risks that could cause us to suffer unexpected losses. Severe declines in asset values, unanticipated credit events or unforeseen circumstances that may cause previously uncorrelated factors to become correlated (and vice versa) may create losses resulting from risks not appropriately taken into account in the development, structuring or pricing of a derivative instrument. The terms of certain of our OTC derivative contracts and other trading agreements provide that upon the occurrence of certain specified events, such as a change in our credit ratings, we may be required to provide additional collateral or to provide other remedies, or our counterparties may have the right to terminate or otherwise diminish our rights under these contracts or agreements.

Many derivative instruments are individually negotiated and non-standardized, which can make exiting, transferring or settling some positions difficult. Many derivatives require that we deliver to the counterparty the underlying security, loan or other obligation in order to receive payment. In a number of cases, we do not hold, and may not be able to obtain, the underlying security, loan or other obligation.

In the event of a further downgrade of the Corporation’s credit ratings, certain derivative and other counterparties may request we substitute BANA as counterparty for certain derivative contracts and other trading agreements. Our ability to substitute or make changes to these agreements to meet counterparties’ requests may be subject to certain limitations, including counterparty willingness, regulatory limitations on naming BANA as the new counterparty, and the type or amount of collateral required. It is possible that such limitations on our ability to substitute or make

changes to these agreements, including naming BANA as the new counterparty, could adversely affect our results of operations.

Derivatives contracts and other transactions entered into with third parties are not always confirmed by the counterparties or settled on a timely basis. While a transaction remains unconfirmed or during any delay in settlement, we are subject to heightened credit and operational risk and in the event of default may find it more difficult to enforce the contract. In addition, as new and more complex derivatives products have been created, covering a wider array of underlying credit and other instruments, disputes about the terms of the underlying contracts may arise, which could impair our ability to effectively manage our risk exposures from these products and subject us to increased costs.

For additional information on our derivatives exposure, see Note 3 – Derivatives to the Consolidated Financial Statements.

Market Risk

Market Risk is the Risk that Values of Assets and Liabilities or Revenues will be Adversely Affected by Changes in Market Conditions Such as Market Volatility. Market Risk is Inherent in the Financial Instruments Associated with our Operations, Including Loans, Deposits, Securities, Short-term Borrowings, Long-term Debt, Trading Account Assets and Liabilities, and Derivatives.

Negative changes in the levels of market volatility and other financial or capital market conditions may increase our market risk.

Our liquidity, cash flows, competitive position, business, results of operations and financial condition are affected by market risk factors such as changes in interest and currency exchange rates, equity and futures prices, the implied volatility of interest rates, credit spreads and other economic and business factors. These market risks may adversely affect, among other things, (i) the value of our on- and off-balance sheet securities, trading assets other financial instruments, and MSRs, (ii) the cost of debt capital and our access to credit markets, (iii) the value of assets under management, (iv) fee income relating to assets under management, (v) customer allocation of capital among investment alternatives, (vi) the volume of client activity in our trading operations, (vii) investment banking fees, and (viii) the general profitability and risk level of the transactions in which we engage. For example, the value of certain of our assets is sensitive to changes in market interest rates. If the Federal Reserve changes or signals a change in its current mortgage securities repurchase program, market interest rates could be affected, which could adversely impact the value of such assets.

We use various models and strategies to assess and control our market risk exposures but those are subject to inherent limitations. Our models, which rely on historical trends and assumptions, may not be sufficiently predictive of future results due to limited historical patterns, extreme or unanticipated market movements and illiquidity, especially during severe market downturns or stress events. The models that we use to assess and control our market risk exposures also reflect assumptions about the degree of correlation among prices of various asset classes or other market indicators.

In times of market stress or other unforeseen circumstances, such as the market conditions experienced in 2008 and 2009,



10 Bank of America 2012

previously uncorrelated indicators may become correlated, or previously correlated indicators may move in different directions. These types of market movements have at times limited the effectiveness of our hedging strategies and have caused us to incur significant losses, and they may do so in the future. These changes in correlation can be exacerbated where other market participants are using risk or trading models with assumptions or algorithms that are similar to ours. In these and other cases, it may be difficult to reduce our risk positions due to the activity of other market participants or widespread market dislocations, including circumstances where asset values are declining significantly or no market exists for certain assets. To the extent that we own securities that do not have an established liquid trading market or are otherwise subject to restrictions on sale or hedging, we may not be able to reduce our positions and therefore reduce our risk associated with such positions. In addition, challenging market conditions may also adversely affect our investment banking fees.

For additional information about market risk and our market risk management policies and procedures, see Market Risk Management in the MD&A on page 113.

Further downgrades in the U.S. government’s sovereign credit rating, or in the credit ratings of instruments issued, insured or guaranteed by related institutions, agencies or instrumentalities, could result in risks to the Corporation and its credit ratings and general economic conditions that we are not able to predict.

On June 8, 2012, S&P affirmed its AA+ long-term and A-1+ short-term sovereign credit rating on the U.S. government. The outlook remains negative. On July 10, 2012, Fitch affirmed its AAA long-term and F1+ short-term sovereign credit rating on the U.S. government. The outlook remains negative. Moody’s also rates the U.S. government AAA with a negative outlook. All three rating agencies have indicated that they will continue to assess fiscal projections and consolidation measures, as well as the medium-term economic outlook for the U.S.

There continues to be the perceived risk of a sovereign credit ratings downgrade of the U.S. government, including the ratings of U.S. Treasury securities and other government-backed securities. It is foreseeable that the ratings and perceived creditworthiness of instruments issued, insured or guaranteed by institutions, agencies or instrumentalities directly linked to the U.S. government could also be correspondingly affected by any such downgrade. Instruments of this nature are key assets on the balance sheets of financial institutions, including the Corporation, and are widely used as collateral by financial institutions to meet their day-to-day cash flows in the short-term debt market. A downgrade of the sovereign credit ratings of the U.S. government and perceived creditworthiness of U.S. government-related obligations could impact our ability to obtain funding that is collateralized by affected instruments, as well as affecting the pricing of that funding when it is available. A downgrade may also adversely affect the market value of such instruments.

We cannot predict if, when or how any changes to the credit ratings or perceived creditworthiness of these organizations will affect economic conditions. The credit rating agencies’ ratings for the Corporation or its subsidiaries could be directly or indirectly impacted by a downgrade of the U.S. government’s sovereign rating because the credit ratings of large systemically important financial institutions, including the Corporation, currently incorporate a degree of uplift due to assumptions concerning government support. In addition, the Corporation presently delivers a material portion of the residential mortgage loans it originates into GSEs,

agencies or instrumentalities (or instruments insured or guaranteed thereby). We cannot predict if, when or how any changes to the credit ratings of these organizations will affect their ability to finance residential mortgage loans.

A downgrade of the sovereign credit ratings of the U.S. government or the credit ratings of related institutions, agencies or instrumentalities would significantly exacerbate the other risks to which the Corporation is subject and any related adverse effects on our business, financial condition and results of operations.

Our businesses may be affected by uncertainty about the financial stability of several European Union (EU) countries, the risk that those countries may default on their sovereign debt and related stresses on financial markets, the Euro and the EU.

Risks and ongoing concerns about the debt crisis in Europe could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in these countries and the financial condition of European financial institutions and international financial institutions with exposure to the region, including us. Market and economic disruptions have affected, and may continue to affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and residential mortgages, and housing prices among other factors. There can be no assurance that the market disruptions in Europe, including the increased cost of funding for certain governments and financial institutions, and the possible loss of EU member states, will not spread, nor can there be any assurance that future assistance packages will be available or, even if provided, will be sufficient to stabilize the affected countries and markets in Europe or elsewhere. To the extent European economic recovery uncertainty continues to negatively impact consumer confidence and consumer credit factors, or should the EU enter a deep recession, both the U.S. economy and our business and results of operations could be adversely affected.

The Corporation has substantial U.K. net deferred tax assets, which consist primarily of net operating losses (NOLs) that are realizable by a few non-U.S. subsidiaries that have a recent history of cumulative losses. These net deferred tax assets relate to NOLs that may be realized over an extended number of years. Management has concluded that no valuation allowance is necessary with respect to such net deferred tax assets, based in part on current expectations, including regarding the cessation of certain business activities, changes to capital and funding, forecasts of business activities and the indefinite period to carry forward NOLs. Significant changes to those expectations, such as would be caused by a substantial and prolonged worsening of the condition of Europe’s capital markets, could lead management to reassess its valuation allowance conclusions.

Global economic uncertainty, regulatory initiatives and reform have impacted, and will likely continue to impact, non-U.S. credit and trading portfolios. There can be no assurance our risk mitigation efforts in this respect will be sufficient or successful. Our total sovereign and non-sovereign exposure to Greece, Italy, Ireland, Portugal and Spain, was $14.5 billion at December 31, 2012 compared to $15.2 billion at December 31, 2011. Our total net sovereign and non-sovereign exposure to these countries was $9.5 billion at December 31, 2012 compared to $10.3 billion at December 31, 2011, after taking into account net credit default protection. At December 31, 2012 and 2011, the fair value of net credit default protection purchased was $5.1 billion and $4.9 billion. Losses could still result because our credit protection contracts only pay out under certain scenarios.



		Bank of America 2012 11

For more information on our direct sovereign and non-sovereign exposures in Europe, see Non-U.S. Portfolio in the MD&A on page 105.

We may incur losses if the values of certain assets decline.

We have a large portfolio of financial instruments, including, among others, certain corporate loans and loan commitments, loans held-for-sale, repurchase agreements, long-term deposits, trading account assets and liabilities, derivatives assets and liabilities, available-for-sale debt and marketable equity securities, consumer-related MSRs and certain other assets and liabilities that we measure at fair value. We determine the fair values of these instruments based on the fair value hierarchy under applicable accounting guidance. The fair values of these financial instruments include adjustments for market liquidity, credit quality and other transaction-specific factors, where appropriate.

Gains or losses on these instruments can have a direct and significant impact on our results of operations, unless we have effectively hedged our exposures. Changes in loan prepayment speeds, which are influenced by interest rates, among other things, can impact the value of our MSRs and can result in higher or lower mortgage banking income and earnings, depending upon our ability to fully hedge the performance of our MSRs. Fair values may be impacted by declining values of the underlying assets or the prices at which observable market transactions occur and the continued availability of these transactions. The financial strength of counterparties, with whom we have economically hedged some of our exposure to these assets, also will affect the fair value of these assets. Sudden declines and volatility in the prices of assets may curtail or eliminate the trading activity for these assets, which may make it difficult to sell, hedge or value such assets. The inability to sell or effectively hedge assets reduces our ability to limit losses in such positions and the difficulty in valuing assets may increase our risk-weighted assets, which requires us to maintain additional capital and increases our funding costs.

Asset values also directly impact revenues in our asset management businesses. We receive asset-based management fees based on the value of our clients’ portfolios or investments in funds managed by us and, in some cases, we also receive incentive fees based on increases in the value of such investments. Declines in asset values can reduce the value of our clients’ portfolios or fund assets, which in turn can result in lower fees earned for managing such assets.

For additional information about fair value measurements, see Note 21 – Fair Value Measurements to the Consolidated Financial Statements. For additional information about our asset management businesses, see Business Segment Operations – Global Wealth & Investment Management in the MD&A on page 50.

Changes in interest rates, prepayment speeds and borrowers’ ability to refinance loans could have an adverse affect on our financial condition or results of operations.

Government officials and regulatory authorities have advanced various proposals to assist homeowners and the housing and mortgage markets. Certain of these proposals have included expanded access to residential mortgage loan refinancing options, including refinancing options for borrowers who may be current on their existing mortgage loans and for borrowers whose current mortgage principal balance may exceed the current appraised value of the mortgaged property. Expanded refinancing access may also result from implementing the borrower assistance and remediation programs under the National Mortgage Settlement discussed above. Adopting proposals of this nature could result in increased mortgage refinancings, and greater reductions in

interest rates and principal prepayments in our mortgage portfolio than otherwise expected without those proposals. Reductions in interest rates and increases in mortgage prepayment speeds could adversely impact the value of our MSR asset, cause a significant acceleration of purchase premium amortization on our mortgage portfolio, and adversely affect our net interest margin. Conversely, increases in interest rates and unavailability of expanded refinancing access may result in a decrease in residential mortgage loan originations.

For additional information about interest rate risk management, see Interest Rate Risk Management for Nontrading Activities in the MD&A on page 117.

Changes in the method of determining the London Interbank Offered Rate (LIBOR) or other reference rates may adversely impact the value of debt securities and other financial instruments we hold or issue that are linked to LIBOR or other reference rates in ways that are difficult to predict and could adversely impact our financial condition or results of operations.

In recent years, concerns have been raised about the accuracy of the calculation of the daily LIBOR. The method for determining how LIBOR is formulated and its use in the market going forward may change, including, but not limited to, replacing the administrator of LIBOR, reducing the currencies and tenors for which LIBOR is calculated. and requiring banks to provide LIBOR submissions based on actual transaction data or otherwise changing the structure of LIBOR, each of which could impact the volatility of LIBOR. Similar changes may occur with respect to other reference rates. Accordingly, it is not currently possible to determine whether, or to what extent, any such changes would impact the value of any debt securities we hold or issue that are linked to LIBOR or other reference rates, or any loans, derivatives and other financial obligations or extensions of credit we hold or are due to us, or for which we are an obligor, that are linked to LIBOR or other reference rates, or whether, or to what extent, such changes would impact our financial condition or results of operations.

Regulatory and Legal Risk

Bank regulatory agencies may require us to hold higher levels of regulatory capital, increase our regulatory capital ratios or increase liquidity, which could result in the need to issue additional securities that qualify as regulatory capital or to sell company assets.

We are subject to the Federal Reserve’s risk-based capital guidelines. These guidelines establish regulatory capital requirements for banking institutions to meet minimum requirements as well as to qualify as a “well-capitalized” institution. If any of our subsidiary insured depository institutions fail to maintain its status as “well-capitalized” under the applicable regulatory capital rules, the Federal Reserve will require us to agree to bring the insured depository institution or institutions back to “well-capitalized” status. For the duration of such an agreement, the Federal Reserve may impose restrictions on our activities. If we were to fail to enter into such an agreement, or fail to comply with the terms of such agreement, the Federal Reserve may impose more severe restrictions on our activities, including requiring us to cease and desist activities permitted under the Bank Holding Company Act of 1956.

It is possible that increases in regulatory capital requirements, changes in how regulatory capital is calculated or increases to liquidity requirements may cause the loss of our “well-capitalized” status unless we increase our capital levels by issuing additional



12 Bank of America 2012

common stock, thus diluting our existing shareholders, or by selling assets. On December 20, 2011, the Federal Reserve proposed rules relating to risk-based capital and leverage requirements, liquidity requirements, stress tests, single-counterparty credit limits and early remediation requirements. On October 12, 2012, the Federal Reserve issued final rules requiring covered entities to undergo annual stress tests conducted by the Federal Reserve and conduct their own “company-run” stress tests twice a year. Those rules, and the remaining rules, when finalized, are likely to influence our regulatory capital and liquidity planning process, and may impose additional operational and compliance costs on us. Any requirement that we increase our regulatory capital, regulatory capital ratios or liquidity could cause us to sell certain assets, perhaps on terms unfavorable to us and contrary to our business plans. Such a requirement could also compel us to issue additional securities, which could dilute our current stockholders.

For additional information about the proposals described above and their potential effect on our required levels of regulatory capital, see Capital Management – Regulatory Capital in the MD&A on page 70.

Government measures to regulate the financial industry, including the Financial Reform Act, have increased and will continue to increase our compliance and operating costs and could require us to change certain of our business practices, limit our product offerings, limit our ability to efficiently pursue business opportunities, require an increase to our regulatory capital, impact asset values and reduce our revenues.

As a financial institution, we are heavily regulated at the state, federal and international levels. Following the financial crisis and related global economic downturn, we have faced and expect to continue to face increased public and legislative scrutiny as well as stricter and more comprehensive regulation of our business. These regulatory and legislative measures, either individually, in combination or in the aggregate, could require us to further change our business practices, impose additional costs on us, limit our product offerings, limit our ability to efficiently pursue business opportunities, require an increase in our regulatory capital, impact asset values and reduce our revenues.

Federal banking and securities regulatory agencies have proposed regulations under the Financial Reform Act to limit proprietary trading as well as the sponsorship of or investment in hedge funds and private equity funds (the Volcker Rule). The proposed regulations include clarifications to the definition of proprietary trading and distinctions between permitted and prohibited activities. Although the comment period for these proposed regulations has expired, the regulatory agencies have not finalized the Volcker Rule regulations.

The statutory provisions of the Volcker Rule became effective on July 21, 2012 and gave financial institutions two years from the effective date, with the possibility for extensions for certain investments, to bring activities and investments into compliance with the statutory provisions and final regulations. Although Global Markets exited its stand-alone proprietary trading business as of June 30, 2011 in anticipation of the Volcker Rule and to further our initiative to optimize our balance sheet, the ultimate impact of the Volcker Rule on us remains uncertain as the regulations implementing the Volcker Rule are not final. However, based on the contents of the proposed regulations, it is possible the Volcker Rule implementation could limit or restrict our remaining trading activities. If exemptions in the Volcker Rule and the proposed regulations are not available, the Volcker Rule could also limit or restrict our ability to sponsor and hold ownership interests in hedge

funds, private equity funds, commodity pools and other subsidiary operations. Additionally, the Volcker Rule could increase our operational and compliance costs, reduce our trading revenues, and adversely affect our results of operations. The date on which final regulations will be issued is currently uncertain.

Additionally, the Financial Reform Act includes measures to broaden the scope of derivative instruments subject to regulation by requiring clearing and exchange trading of certain derivatives; imposing new capital, margin, reporting, registration and business conduct requirements for certain market participants; and imposing position limits on certain OTC derivatives. The Financial Reform Act grants the CFTC and the SEC substantial new authority and requires numerous rulemakings by these agencies. Swap dealers conducting dealing activity with U.S. persons above a specified dollar threshold were required to register with the CFTC on or before December 31, 2012. Upon registration, swap dealers became subject to additional CFTC rules relating to business conduct and reporting, and will continue to become subject to additional CFTC rules as and when such rules take effect.

The Financial Reform Act required regulators to promulgate the rulemakings necessary to implement these regulations by July 16, 2011. However, the rulemaking process was not completed as of that date, and is not expected to conclude until well into 2013. Further, the regulators granted temporary relief from certain requirements that would have taken effect on July 16, 2011 absent any rulemaking. The SEC temporary relief is effective until final rules relevant to each requirement become effective. The CFTC temporary relief largely expired on December 31, 2012. The CFTC also granted relief from some of the rules that would have become effective during the fourth quarter of 2012, either completely suspending or delaying the application of some requirements.

While the CFTC has provided temporary exemptive relief from application of derivatives requirements of the Financial Reform Act for certain non-U.S. derivatives activity, there remains some uncertainty as to how the derivatives requirements of the Financial Reform Act will apply to non-U.S. derivatives activity because the CFTC has not yet adopted final cross-border guidance. The CFTC has completed much of its other rulemakings, with the exception of final margin, capital and exchange trading rules, while the SEC has finalized a small number of clearing-related rules. The ultimate impact of the derivatives regulations that have not yet been finalized and the time it will take to comply remain uncertain. The final regulations will impose additional operational and compliance costs on us and may require us to restructure certain businesses and may negatively impact our results of operations.

In April 2011, a new Financial Reform Act regulation became effective implementing revisions to the FDIC’s assessment system that increased our FDIC expense. In addition, the FDIC has broad discretionary authority to increase assessments on large and highly complex institutions on a case by case basis. Any future increases in required deposit insurance premiums or other bank industry fees could have an adverse impact on our financial condition and results of operations.

The Financial Reform Act established an orderly liquidation process in the event of the failure of a large systemically important financial institution. Specifically, when a systemically important financial institution such as the Corporation is in default or danger of default, the FDIC may be appointed receiver in order to conduct an orderly liquidation of such systemically important financial institution. In the event of such appointment, the FDIC could invoke a new form of resolution authority, the orderly liquidation authority, instead of the U.S. Bankruptcy Code, if the Secretary of the



		Bank of America 2012 13

Treasury makes certain financial distress and systemic risk determinations. Macroprudential systemic protection is the primary objective of the orderly liquidation authority, subject to minimum threshold protections for creditors. Accordingly, in certain circumstances under the orderly liquidation authority, the FDIC could permit payment of obligations it determines to be systemically significant (e.g., short-term creditors or operating creditors) in lieu of paying other obligations (e.g., long-term creditors) without the need to obtain creditors’ consent or prior court review. The insolvency and resolution process could also lead to a large reduction or total elimination of the value of a bank holding company’s outstanding equity. For example, the FDIC could follow a “single point of entry” approach and replace a distressed bank holding company with a bridge holding company, which could continue operations and result in an orderly resolution of the underlying bank, but whose equity is held solely for the benefit of creditors of the original bank holding company. Additionally, under the orderly liquidation authority, amounts owed to the U.S. government generally receive a statutory payment priority.

In addition, under the Financial Reform Act, all bank holding companies with assets of $50 billion or more are required to develop and submit resolution plans to the FDIC and the Federal Reserve, who will review such plans to determine whether they are credible. If the FDIC and the Federal Reserve determine that our plan is not credible and we fail to cure the deficiencies in a timely manner, the FDIC and the Federal Reserve may jointly impose more stringent capital, leverage or liquidity requirements or restrictions on growth, activities or operations of the Corporation. We could be required to take certain actions that could impose operational costs and could potentially result in the divestiture or restructuring of certain businesses and subsidiaries. We submitted our initial plan in 2012, which is to be updated annually.

Similarly, in the U.K., the FSA has issued proposed rules requiring the submission of significant information about certain U.K. incorporated subsidiaries and other financial institutions, as well as branches of non-U.K. banks located in the U.K., (including information on intra-group dependencies, legal entity separation and barriers to resolution) to allow the FSA to develop resolution plans. As a result of the FSA review, we could be required to take certain actions over the next several years which could impose operational costs and potentially result in the restructuring of certain businesses and subsidiaries.

The Financial Reform Act established the CFPB, which principally regulates the offering of consumer financial products or services under federal consumer financial laws, and which has commenced its supervisory oversight. Through its rulemaking authority, the CFPB has promulgated several proposed and final rules that will affect our consumer businesses, including, but not limited to, establishing enhanced underwriting standards and new mortgage loan servicing standards. The CFPB has also proposed rules addressing items such as remittance transfer services, appraisal requirements and loan originator compensation requirements. The Corporation is evaluating the various CFPB rules and proposals and devoting substantial compliance, legal and operational business resources to facilitate compliance with these rules by their respective effective dates. We cannot predict the ultimate impact on us of the final and proposed CFPB rules, due to, among other things, uncertainty created by a recent court decision invalidating appointments to the National Labor Relations Board by President Obama, which, if upheld and applied to similar appointments to the CFPB, could call into question the validity of certain actions by the CFPB or result in the subsequent invalidation

of such rules; however, it is possible that the final and proposed rules could have a significant adverse impact on our results of operations.

On December 20, 2011, the Federal Reserve issued proposed rules to implement enhanced supervisory and prudential requirements and the early remediation requirements established under the Financial Reform Act. The enhanced standards include risk-based capital and leverage requirements, liquidity standards, requirements for overall risk management, single-counterparty credit limits, stress test requirements and a debt-to-equity limit for certain companies determined to pose a threat to financial stability. On October 12, 2012, the Federal Reserve issued final rules requiring covered entities to undergo annual stress tests conducted by the Federal Reserve and conduct their own “company-run” stress tests twice a year. Final regulations addressing the remaining items have not yet been adopted. The final rules are likely to influence our regulatory capital and liquidity planning process, and may impose additional operational and compliance costs on us.

Many of the provisions under the Financial Reform Act have only begun to be implemented or remain to be implemented in the future and will be subject both to further rulemaking and the discretion of applicable regulatory bodies. The Financial Reform Act will continue to impact our earnings through fee reductions, higher costs and imposition of new restrictions on us. The Financial Reform Act may also continue to have a material adverse impact on the value of certain assets and liabilities held on our balance sheet. The ultimate impact of the Financial Reform Act on our business will depend on regulatory interpretation and rulemaking, as well as the success of any of our actions to mitigate the negative impacts of certain provisions.

In December 2010, the Basel Committee on Banking Supervision (Basel Committee) issued “Basel 3: A global regulatory framework for more resilient banks and banking systems” and “International framework for liquidity risk measurement, standards and monitoring” (together, Basel 3). If implemented by U.S. banking regulators as proposed, Basel 3’s capital standards could significantly increase our capital requirements. Basel 3 and the Financial Reform Act propose the disqualification of trust preferred securities from Tier 1 capital, with the Financial Reform Act proposing that the disqualification be phased in from 2013 to 2015. Basel 3 also proposes the deduction of certain assets from capital (deferred tax assets, MSRs, investments in financial firms and pension assets, among others, within prescribed limitations), the inclusion of accumulated OCI in capital, increased capital requirements for counterparty credit risk, and new minimum capital and buffer requirements.

Basel 3 also proposes two minimum liquidity risk measures. The liquidity coverage ratio (LCR) measures the amount of a financial institution’s unencumbered, high-quality, liquid assets relative to the net cash outflows the institution could encounter under a significant 30-day stress scenario. The net stable funding ratio (NSFR) measures the amount of longer-term, stable sources of funding employed by a financial institution relative to the liquidity profiles of the assets funded and the potential for contingent calls on funding liquidity arising from off-balance sheet commitments and obligations over a one-year period. The Basel Committee announced in January 2013 that the initial minimum LCR requirement of 60 percent will be implemented in January 2015, and will thereafter increase in 10 percent annual increments through January 2019. The Basel Committee is currently reviewing the NSFR and has indicated that it intends for the requirement to



14 Bank of America 2012

be implemented by January 2018, following an observation period that is currently underway.

On July 19, 2011, the Basel Committee published the consultative document, “Globally systemic important banks: Assessment methodology and the additional loss absorbency requirement,” which sets out measures for global, systemically important financial institutions including the methodology for measuring systemic importance, the systemically important financial institution buffer and the arrangements by which they will be phased in. As proposed, the systemically important financial institution buffer would be met with additional Tier 1 common equity ranging from one percent to 2.5 percent, and in certain circumstances, 3.5 percent. This will be phased in from 2016 through 2018. As of December 31, 2012, we estimate our systemically important financial institution buffer would have been 1.5 percent, based on the Financial Stability Board’s “Update of group of global systemically important banks” issued on November 1, 2012.

Preparation for Basel 3 has influenced and is likely to continue to influence our regulatory capital and liquidity planning process, and is expected to impose additional operational and compliance costs on us. Any requirement that we increase the amount, or change the composition, of our regulatory capital or liquidity may have a material adverse impact on the Corporation. These impacts could include, but are not limited to, potential dilution of existing stockholders, increased funding costs and competitive disadvantage compared to financial institutions not under the same regulatory framework.

For additional information about the regulatory initiatives discussed above, see Regulatory Matters in the MD&A on page 64.

Changes in the structure of the GSEs and the relationship among the GSEs, the government and the private markets, or the conversion of the current conservatorship of the GSEs into receivership, could result in significant changes to our business operations and may adversely impact our business.

During the last ten years, we have sold over $2.0 trillion of loans to the GSEs. Each GSE is currently in a conservatorship, with its primary regulator, the Federal Housing Finance Agency, acting as conservator. We cannot predict if, when or how the conservatorships will end, or any associated changes to the GSEs’ business structure that could result. We also cannot predict whether the conservatorships will end in receivership. There are several proposed approaches to reform the GSEs which, if enacted, could change the structure of the GSEs and the relationship among the GSEs, the government and the private markets, including the trading markets for agency conforming mortgage loans and markets for mortgage-related securities in which we participate. We cannot predict the prospects for the enactment, timing or content of legislative or rulemaking proposals regarding the future status of the GSEs. Accordingly, there continues to be uncertainty regarding the future of the GSEs, including whether they will continue to exist in their current form.

We are subject to significant financial and reputational risks from potential legal liability and regulatory action.

We face significant legal risks in our business, and the volume of claims and amount of damages and penalties claimed in litigation and regulatory proceedings against us and other financial institutions remain high and are increasing. Increased litigation costs, substantial legal liability or significant regulatory action against us could have material adverse effects on our financial

condition and results of operations or cause significant reputational harm to us, which in turn could adversely impact our business prospects. In addition, we continue to face increased litigation risk and regulatory scrutiny. We continue to experience increased litigation and other disputes with counterparties regarding relative rights and responsibilities. Consumers, clients and other counterparties have grown more litigious. Our experience with certain regulatory authorities suggests a migration towards an increasing supervisory focus on enforcement, including in connection with alleged violations of law and customer harm. The current environment of additional regulation, increased regulatory compliance burdens, and enhanced regulatory enforcement, combined with ongoing uncertainty related to the continuing evolution of the regulatory environment, has resulted in significant operational and compliance costs and may limit our ability to continue providing certain products and services.

For a further discussion of litigation risks, see Note 13 – Commitments and Contingencies to the Consolidated Financial Statements.

Our business prospects are vulnerable to changes in governmental fiscal and monetary policy.

Our businesses and earnings are affected by domestic and international fiscal and monetary policy. The Federal Reserve regulates the supply of money and credit in the U.S. and its policies affect our cost of funds for lending, investing and capital raising activities and the return we earn on those loans and investments, both of which affect our net interest margin. The Federal Reserve’s actions also can affect the value of financial instruments and other assets, such as debt securities and MSRs, and its policies also can affect our borrowers, potentially increasing the risk that they may fail to repay their loans. Our businesses and earnings are also affected by the fiscal or other policies that are adopted by the U.S. government, various U.S. regulatory authorities, and non-U.S. governments and regulatory authorities. Changes in domestic and international fiscal and monetary policies are beyond our control and difficult to predict but could have an adverse impact on our capital requirements and the costs of running our business.

We may be adversely affected by changes in U.S. and non-U.S. tax and other laws and regulations.

The U.S. Congress and the Administration have signaled interest in reforming the U.S. corporate income tax code. Possible approaches include lowering the 35 percent corporate tax rate, modifying the taxation of income earned outside the U.S. and limiting or eliminating various other deductions, tax credits and/or other tax preferences. It is not possible at this time to quantify either the one-time impact from remeasuring deferred tax assets and liabilities that might result upon tax reform enactment or the ongoing impact reform might have on income tax expense.

In addition, income from certain non-U.S. subsidiaries has not been subject to U.S. income tax as a result of long-standing deferral provisions applicable to income that is derived in the active conduct of a banking and financing business abroad (active finance income). The U.S. Congress has extended the application of these deferral provisions several times, most recently in January 2013. These provisions now are set to expire for taxable years beginning on or after January 1, 2014. Absent an extension of these provisions, active financing income earned by certain non-U.S. subsidiaries will generally be subject to a tax provision that considers incremental U.S. income tax. The impact of the expiration of these provisions would depend upon the amount, composition and geographic mix of our future earnings.



		Bank of America 2012 15

Other countries have also proposed and adopted certain regulatory changes targeted at financial institutions or that otherwise affect us. The EU has adopted increased capital requirements and the U.K. has (i) increased liquidity requirements for local financial institutions, including regulated U.K. subsidiaries of non-U.K. bank holding companies and other financial institutions as well as branches of non-U.K. banks located in the U.K.; (ii) adopted a Bank Levy which will apply to the aggregate balance sheet of branches and subsidiaries of non-U.K. banks and banking groups operating in the U.K.; and (iii) proposed the creation and production of recovery and resolution plans by U.K.-regulated entities.

On July 17, 2012, the U.K. 2012 Finance Bill was enacted which reduced the corporate income tax rate one percent to 24 percent beginning on April 1, 2012, and then to 23 percent beginning on April 1, 2013. These rate reductions favorably affect income tax expense on future U.K. earnings but also required us to remeasure our U.K. net deferred tax assets using the lower tax rates. The income tax benefit for 2012 included a $788 million charge for the remeasurement, substantially all of which was recorded in Global Markets. If the corporate income tax rate were to be reduced to 21 percent by 2014 as suggested in U.K. Treasury announcements and assuming no change in the deferred tax asset balance, a charge to income tax expense of approximately $400 million for each one percent reduction in the rate would result in each period of enactment (for a total of approximately $800 million). We are also monitoring other international legislative proposals that could impact us, such as changes to corporate income tax laws. Currently, in the U.K., NOL carryforwards have an indefinite life. Were the U.K. taxing authorities to introduce limitations on the future utilization of NOLs and were the Corporation unable to document its continued ability to fully utilize its NOLs, we would be required to establish a valuation allowance by a charge to income tax expense.

Risk of the Competitive Environment in which We Operate

We face significant and increasing competition in the financial services industry.

We operate in a highly competitive environment. Over time, there has been substantial consolidation among companies in the financial services industry, and this trend accelerated in recent years. This trend has also hastened the globalization of the securities and financial services markets. We will continue to experience intensified competition as consolidation in and globalization of the financial services industry may result in larger, better-capitalized and more geographically diverse companies that are capable of offering a wider array of financial products and services at more competitive prices. To the extent we expand into new business areas and new geographic regions, we may face competitors with more experience and more established relationships with clients, regulators and industry participants in the relevant market, which could adversely affect our ability to compete. In addition, technological advances and the growth of e-commerce have made it possible for non-depository institutions to offer products and services that traditionally were banking products, and for financial institutions to compete with technology companies in providing electronic and internet-based financial solutions. Increased competition may negatively affect our earnings by creating pressure to lower prices on our products and services and/or reducing market share.

Damage to our reputation could significantly harm our businesses, including our competitive position and business prospects.

Our ability to attract and retain customers, clients, investors and employees is impacted by our reputation. We continue to face increased public and regulatory scrutiny resulting from the financial crisis and economic downturn as well as alleged irregularities in servicing, foreclosure, consumer collections, mortgage loan modifications and other practices, compensation practices, our acquisitions of Countrywide and Merrill Lynch and the suitability or reasonableness of recommending particular trading or investment strategies.

Significant harm to our reputation can also arise from other sources, including employee misconduct, unethical behavior, litigation or regulatory outcomes, failing to deliver minimum or required standards of service and quality, compliance failures, unintended disclosure of confidential information, and the activities of our clients, customers and counterparties, including vendors. Actions by the financial services industry generally or by certain members or individuals in the industry also can significantly adversely affect our reputation.

We are subject to complex and evolving laws and regulations regarding privacy, data protections and other matters. Principles concerning the appropriate scope of consumer and commercial privacy vary considerably in different jurisdictions, and regulatory and public expectations regarding the definition and scope of consumer and commercial privacy may remain fluid in the future. It is possible that these laws may be interpreted and applied by various jurisdictions in a manner inconsistent with our current or future practices, or that is inconsistent with one another. We face regulatory, reputational and operational risks if personal, confidential or proprietary information of customers or clients in our possession is mishandled or misused.

We could suffer significant reputational harm if we fail to properly identify and manage potential conflicts of interest. Management of potential conflicts of interests has become increasingly complex as we expand our business activities through more numerous transactions, obligations and interests with and among our clients. The failure to adequately address, or the perceived failure to adequately address, conflicts of interest could affect the willingness of clients to deal with us, or give rise to litigation or enforcement actions, which could adversely affect our businesses.

Our actual or perceived failure to address these and other issues gives rise to reputational risk that could cause significant harm to us and our business prospects, including failure to properly address operational risks. Failure to appropriately address any of these issues could also give rise to additional regulatory restrictions, legal risks and reputational harm, which could, among other consequences, increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties and cause us to incur related costs and expenses.

Our ability to attract and retain qualified employees is critical to the success of our business and failure to do so could hurt our business prospects and competitive position.

Our performance is heavily dependent on the talents and efforts of highly skilled individuals. Competition for qualified personnel within the financial services industry and from businesses outside the financial services industry has been, and is expected to continue to be, intense. Our competitors include non-U.S.-based institutions and institutions subject to different compensation and



16 Bank of America 2012

hiring regulations than those imposed on U.S. institutions and financial institutions. The difficulty we face in competing for key personnel is exacerbated in emerging markets, where we are often competing for qualified employees with entities that may have a significantly greater presence or more extensive experience in the region.

In order to attract and retain qualified personnel, we must provide market-level compensation. As a large financial and banking institution, we may be subject to limitations on compensation practices (which may or may not affect our competitors) by the Federal Reserve, the FDIC or other regulators around the world. Any future limitations on executive compensation imposed by legislation or regulation could adversely affect our ability to attract and maintain qualified employees. Furthermore, a substantial portion of our annual incentive compensation paid to our senior employees has in recent years taken the form of long-term equity awards. Therefore, the ultimate value of this compensation depends on the price of our common stock when the awards vest. If we are unable to continue to attract and retain qualified individuals, our business prospects and competitive position could be adversely affected.

In addition, if we fail to retain the wealth advisors that we employ in GWIM, particularly those with significant client relationships, such failure could result in a significant loss of clients or the withdrawal of significant client assets.

We may not be able to achieve expected cost savings from cost-saving initiatives, including from Project New BAC, or in accordance with currently anticipated time frames.

We are currently engaged in numerous efforts to achieve certain cost savings, including, among other things, Project New BAC.

Project New BAC is a two-phase, enterprise-wide initiative to simplify and streamline workflows and processes, align businesses and costs more closely with our overall strategic plan and operating principles, and increase revenues. Phase 1 focuses on the consumer businesses, including Deposits, Card Services and CRES, and related support, technology and operations functions. Phase 2 focuses on Global Banking, Global Markets and GWIM, and related support, technology and operations functions not subject to evaluation in Phase 1. All aspects of Phase 1 of Project New BAC are currently expected to be implemented by the end of 2013, with the full cost savings impact expected to be realized in 2014, while Phase 2 is expected to be fully implemented by mid-2015.

We may be unable to fully realize the cost savings and other anticipated benefits from our cost saving initiatives or in accordance with currently anticipated timeframes.

Our inability to adapt our products and services to evolving industry standards and consumer preferences could harm our business.

Our business model is based on a diversified mix of business that provides a broad range of financial products and services, delivered through multiple distribution channels. Our success depends on our ability to adapt our products and services to evolving industry standards. There is increasing pressure by competitors to provide products and services at lower prices. This can reduce our net interest margin and revenues from our fee-based products and services. In addition, the widespread adoption of new technologies, including internet services, could require us to incur substantial expenditures to modify or adapt our existing products and services. We might not be successful in developing or introducing new products and services, responding or adapting to changes in consumer spending and saving habits, achieving

market acceptance of our products and services, or sufficiently developing and maintaining loyal customers.

Risks Related to Risk Management

Our risk management framework may not be effective in mitigating risk and reducing the potential for significant losses.

Our risk management framework is designed to minimize risk and loss to us. We seek to identify, measure, monitor, report and control our exposure to the types of risk to which we are subject, including strategic, credit, market, liquidity, compliance, operational and reputational risks, among others. While we employ a broad and diversified set of risk monitoring and mitigation techniques, those techniques are inherently limited because they cannot anticipate the existence or future development of currently unanticipated or unknown risks. Recent economic conditions, heightened legislative and regulatory scrutiny of the financial services industry and increases in the overall complexity of our operations, among other developments, have resulted in a heightened level of risk for us. Accordingly, we could suffer losses as a result of our failure to properly anticipate and manage these risks.

For additional information about our risk management policies and procedures, see Managing Risk in the MD&A on page 66.

A failure in or breach of our operational or security systems or infrastructure, or those of third parties with which we do business, including as a result of cyber attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses.

Our businesses are highly dependent on our ability to process, record and monitor, on a continuous basis, a large number of transactions, many of which are highly complex, across numerous and diverse markets in many currencies. The potential for operational risk exposure exists throughout our organization and is not limited to operations functions. Operational risk exposures can impact our results of operations, such as losses resulting from unauthorized trades by employees, and their impact may extend beyond financial losses.

Integral to our performance is the continued efficacy of our internal processes, systems, relationships with third parties and the vast array of employees and key executives in our day-to-day and ongoing operations. With regard to the physical infrastructure and systems that support our operations, we have taken measures to implement backup systems and other safeguards, but our ability to conduct business may be adversely affected by any significant and widespread disruption to our infrastructure or systems. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our ability to process these transactions or provide these services. There could be sudden increases in customer transaction volume; electrical or telecommunications outages; natural disasters such as earthquakes, tornadoes and hurricanes; disease pandemics; events arising from local or larger scale political or social matters, including terrorist acts; and cyber attacks. We continuously update these systems to support our operations and growth. This updating entails significant costs and creates risks associated with implementing new systems and integrating them with existing ones.



		Bank of America 2012 17

Information security risks for large financial institutions like us have significantly increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors. Our operations rely on the secure processing, transmission and storage of confidential, proprietary and other information in our computer systems and networks. Our banking, brokerage, investment advisory and capital markets businesses rely on our digital technologies, computer and email systems, software, and networks to conduct their operations. In addition, to access our products and services, our customers may use personal smartphones, PCs and other computing devices, tablet PCs and other mobile devices that are beyond our control systems. Our technologies, systems, networks and our customers’ devices have been subject to, and are likely to continue to be the target of, cyber attacks, computer viruses, malicious code, phishing attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers’ confidential, proprietary and other information, or otherwise disrupt our or our customers’ or other third parties’ business operations. For example, our websites have been subject to a series of distributed denial of service cyber security incidents. Although these incidents have not had a material impact on Bank of America, nor have they resulted in unauthorized access to our or our customers’ confidential, proprietary or other information, because of our prominence, we believe that such incidents may continue.

Although to date we have not experienced any material losses relating to cyber attacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, our prominent size and scale and our role in the financial services industry, our plans to continue to implement our Internet banking and mobile banking channel strategies and develop additional remote connectivity solutions to serve our customers when and how they want to be served, our expanded geographic footprint and international presence, the outsourcing of some of our business operations, the continued uncertain global economic environment, threats of cyberterrorism, and system and customer account conversions. As a result, cybersecurity and the continued development and enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for us. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.

In addition, we also face the risk of operational failure, termination or capacity constraints of any of the third parties with which we do business or that facilitate our business activities, including clearing agents, exchanges, clearing houses or other financial intermediaries we use to facilitate our securities transactions. In recent years, there has been significant consolidation among clearing agents, exchanges and clearing houses and increased interconnectivity of multiple financial institutions with central agents, exchanges and clearing houses. This consolidation and interconnectivity increases the risk of operational failure, on both individual and industry-wide bases, as

disparate complex systems need to be integrated, often on an accelerated basis. Any such failure, termination or constraint could adversely affect our ability to effect transactions, service our clients, manage our exposure to risk or expand our businesses, and could have an adverse impact on our liquidity, financial condition and results of operations.

Disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber attacks or security breaches of the networks, systems or devices that our customers use to access our products and services could result in the loss of customers and business opportunities, significant business disruption to the Corporation’s operations and business, misappropriation of the Corporation’s confidential information and/or that of its customers, or damage to the Corporation’s computers or systems and/or those of its customers and/or counterparties, and could result in violations of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in the Corporation’s security measures, reputational damage, reimbursement or other compensatory costs, and additional compliance costs.

For more information on operational risks and our operational risk management, see Operational Risk Management in the MD&A on page 120.

Risk of Being an International Business

We are subject to numerous political, economic, market, reputational, operational, legal, regulatory and other risks in the non-U.S. jurisdictions in which we operate.

We do business throughout the world, including in developing regions of the world commonly known as emerging markets. Our businesses and revenues derived from non-U.S. jurisdictions are subject to risk of loss from currency fluctuations, social or judicial instability, changes in governmental policies or policies of central banks, expropriation, nationalization and/or confiscation of assets, price controls, capital controls, exchange controls, other restrictive actions, unfavorable political and diplomatic developments, and changes in legislation. These risks are especially acute in emerging markets. Many non-U.S. jurisdictions in which we do business have been negatively impacted by recessionary conditions. While a number of these jurisdictions are showing signs of recovery, others continue to experience increasing levels of stress. In addition, the increasing potential risk of default on sovereign debt in some non-U.S. jurisdictions could expose us to substantial losses. Risks in one country can affect our operations in another country or countries, including our operations in the U.S. As a result, any such unfavorable conditions or developments could have an adverse impact on our company.

Our non-U.S. businesses are also subject to extensive regulation by various non-U.S. regulators, including governments, securities exchanges, central banks and other regulatory bodies, in the jurisdictions in which those businesses operate. In many countries, the laws and regulations applicable to the financial services and securities industries are uncertain and evolving, and it may be difficult for us to determine the exact requirements of local laws in every market or manage our relationships with multiple regulators in various jurisdictions. Our inability to remain in compliance with local laws in a particular market and manage our relationships with regulators could have an adverse effect not only on our businesses in that market but also on our reputation generally.



18 Bank of America 2012

We also invest or trade in the securities of corporations and governments located in non-U.S. jurisdictions, including emerging markets. Revenues from the trading of non-U.S. securities may be subject to negative fluctuations as a result of the above factors. Furthermore, the impact of these fluctuations could be magnified, because non-U.S. trading markets, particularly in emerging market countries, are generally smaller, less liquid and more volatile than U.S. trading markets.

In addition to non-U.S. legislation, our international operations are also subject to U.S. legal requirements. For example, our international operations are subject to U.S. laws on foreign corrupt practices, the Office of Foreign Assets Control, and anti-money laundering regulations. Additionally, we are subject to Section 13(r) of the Securities Exchange Act of 1934, which requires a registrant to provide disclosure in its periodic reports and file a notice with the SEC if it or its affiliates knowingly engage in certain activities identified under the Iran Threat Reduction and Syria Human Rights Act of 2012. The SEC is required to report any such disclosure to the U.S. President and certain Congressional committees. The President thereafter is required to initiate an investigation into the reported activity and, within 180 days of initiating such an investigation, determine whether sanctions should be imposed. If we are required to report any such activities, whether or not any sanctions are actually imposed on us or our affiliates as a result of these activities, our reputation could be harmed and our results of operations could be adversely impacted.

We are subject to geopolitical risks, including acts or threats of terrorism, and actions taken by the U.S. or other governments in response thereto and/or military conflicts, that could adversely affect business and economic conditions abroad as well as in the U.S.

For more information on our non-U.S. credit and trading portfolios, see Non-U.S. Portfolio in the MD&A on page 105.

Risk from Accounting Changes

Changes in accounting standards or inaccurate estimates or assumptions in applying accounting policies could adversely affect us.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these policies require use of estimates and assumptions that may affect the reported value of our assets or liabilities and results of operations and are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain. If those assumptions, estimates or judgments were incorrectly made, we could be required to correct and restate prior period financial statements. Accounting standard-setters and those who interpret the accounting standards (such as the Financial Accounting Standards Board (FASB), the SEC, banking regulators and our independent registered public accounting firm) may also amend or even reverse their previous interpretations or positions on how various standards should be applied. These changes may be difficult to predict and could impact how we prepare and report our financial statements. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the Corporation needing to revise and republish prior period financial statements.

The FASB issued on December 20, 2012 a proposed standard on accounting for expected credit losses. The standard would replace multiple existing impairment models, including replacing an “incurred loss” model for loans with an “expected credit loss” model. The FASB announced it will establish the effective date when it issues the final standard. We cannot predict whether or when a final standard will be issued, when it will be effective or what its final provisions will be. It is possible that the final standard could have a material adverse impact on our results of operations once it is issued and becomes effective.

For more information on some of our critical accounting policies and standards and recent accounting changes, see Complex Accounting Estimates in the MD&A on page 121 and Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.

Item 1B. Unresolved Staff Comments

None



		Bank of America 2012 19

Item 2. Properties

As of December 31, 2012, our principal offices and other materially important properties consisted of the following:




Facility Name	Location	General Character of the Physical Property	Primary Business Segment	Property Status	Property Square Feet ⁽¹⁾
Corporate Center	Charlotte, NC	60 Story Building	Principal Executive Offices	Owned	1,200,392
One Bryant Park	New York, NY	54 Story Building	Global Banking, Global Markets and GWIM	Leased ⁽²⁾	1,798,373
Bank of America Home Loans	Calabasas, CA	3 Story Building	CRES	Owned	245,000
Merrill Lynch Financial Centre	London, UK	4 Building Campus	Global Banking, Global Markets and GWIM	Leased	568,256
Nihonbashi 1-Chome Building	Tokyo, Japan	24 Story Building	Global Banking and Global Markets	Leased	208,498


⁽¹⁾	For leased properties, property square feet represents the square footage occupied by the Corporation.


⁽²⁾	The Corporation has a 49.9 percent joint venture interest in this property.

We own or lease approximately 108.8 million square feet in 24,014 locations globally, including approximately 101.9 million square feet in the U.S. (all 50 U.S. states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico) and approximately 6.9 million square feet in more than 40 countries.

We believe our owned and leased properties are adequate for our business needs and are well maintained. We continue to evaluate our owned and leased real estate and may determine from time to time that certain of our premises and facilities, or ownership structures, are no longer necessary for our operations. In connection therewith, we are evaluating the sale or sale/

leaseback of certain properties and we may incur costs in connection with any such transactions.

Item 3. Legal Proceedings

See Litigation and Regulatory Matters in Note 13 – Commitments and Contingencies to the Consolidated Financial Statements, which is incorporated herein by reference.

Item 4. Mine Safety Disclosures

None



20 Bank of America 2012

Part II

Bank of America Corporation and Subsidiaries

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The principal market on which our common stock is traded is the New York Stock Exchange. Our common stock is also listed on the London Stock Exchange, and certain shares are listed on the Tokyo Stock Exchange. The table below sets forth the high and low closing sales prices of the common stock on the New York Stock Exchange for the periods indicated:




	Quarter	High		Low
2011	first	$	15.25	$	13.33
	second	13.72		10.50
	third	11.09		6.06
	fourth	7.35		4.99
2012	first	9.93		5.80
	second	9.68		6.83
	third	9.55		7.04
	fourth	11.61		8.93

As of February 25, 2013, there were 226,396 registered shareholders of common stock. During 2011 and 2012, we paid dividends on the common stock on a quarterly basis.

The table below sets forth dividends paid per share of our common stock for the periods indicated:




	Quarter	Dividend
2011	first	$	0.01
	second	0.01
	third	0.01
	fourth	0.01
2012	first	0.01
	second	0.01
	third	0.01
	fourth	0.01

For additional information regarding our ability to pay dividends, see Note 14 – Shareholders’ Equity and Note 17 – Regulatory Requirements and Restrictions to the Consolidated Financial Statements, which are incorporated herein by reference.

For information on our equity compensation plans, see Note 19 – Stock-based Compensation Plans to the Consolidated Financial Statements and Item 12 on page 285 of this report, which are incorporated herein by reference.

The table below presents share repurchase activity for the three months ended December 31, 2012. We did not have any unregistered sales of our equity securities in 2012.




	Common Shares Repurchased ⁽¹⁾	Weighted-Average Per Share Price		Shares Purchased as Part of Publicly Announced Programs	Remaining Buyback Authority
(Dollars in millions, except per share information; shares in thousands)	Common Shares Repurchased ⁽¹⁾	Weighted-Average Per Share Price		Shares Purchased as Part of Publicly Announced Programs	Amounts		Shares
October 1 - 31, 2012	549	$	9.03	—	$	—	—
November 1 - 30, 2012	83	9.28		—	—		—
December 1 - 31, 2012	104	9.31		—	—		—
Three months ended December 31, 2012	736	9.10


⁽¹⁾	Consists of shares acquired by the Corporation in connection with satisfaction of tax withholding obligations on vested restricted stock or restricted stock units and certain forfeitures from terminations of employment related to awards under equity incentive plans.

Item 6. Selected Financial Data

See Table 7 in the MD&A on page 33 and Table XII of the Statistical Tables in the MD&A on page 140, which are incorporated herein by reference.



		Bank of America 2012 21



Item 7. Bank of America Corporation and Subsidiaries Management’s Discussion and Analysis of Financial Condition and Results of Operations



Table of Contents
		Page
Executive Summary		25
Recent Events		26
Performance Overview		27
Financial Highlights		27
Balance Sheet Overview		29
Business Segment Results		32
Supplemental Financial Data		35
Business Segment Operations		37
Consumer & Business Banking		38
Consumer Real Estate Services		41
Global Banking		46
Global Markets		48
Global Wealth & Investment Management		50
All Other		52
Off-Balance Sheet Arrangements and Contractual Obligations		54
Regulatory Matters		64
Managing Risk		66
Strategic Risk Management		70
Capital Management		70
Liquidity Risk		75
Credit Risk Management		79
Consumer Portfolio Credit Risk Management		80
Commercial Portfolio Credit Risk Management		95
Non-U.S. Portfolio		105
Provision for Credit Losses		109
Allowance for Credit Losses		109
Market Risk Management		113
Trading Risk Management		114
Interest Rate Risk Management for Nontrading Activities		117
Mortgage Banking Risk Management		120
Compliance Risk Management		120
Operational Risk Management		120
Complex Accounting Estimates		121
2011 Compared to 2010		128
Overview		128
Business Segment Operations		129
Statistical Tables		130
Glossary		150

Throughout the MD&A, we use certain acronyms and

abbreviations which are defined in the Glossary.



22 Bank of America 2012

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report on Form 10-K, the documents that it incorporates by reference and the documents into which it may be incorporated by reference may contain, and from time to time Bank of America Corporation (collectively with its subsidiaries, the Corporation) and its management may make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “expects,” “anticipates,” “believes,” “estimates,” “targets,” “intends,” “plans,” “goal” and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.” The forward-looking statements made represent the current expectations, plans or forecasts of the Corporation regarding the Corporation’s future results and revenues, and future business and economic conditions more generally, including statements concerning: expectations regarding actions to be taken by the Federal Reserve; transfers of servicing rights scheduled to occur in stages over the course of 2013 with the delinquent loans scheduled to be transferred after the current loans; that the criteria for inclusion in the Legacy Assets & Servicing portfolios will continue to be evaluated over time; the expectation that approximately $200 million in servicing fees recognized per quarter related to servicing transferred will decrease throughout 2013 as the servicing is transferred and that over time the impact on earnings will be negligible as expenses are expected to also decrease after servicing is transferred, especially the loans which are 60 days or more past due; the expectation that liability management actions taken in the fourth quarter of 2012 will result in pre-tax net interest income benefit of approximately $350 million in 2013; effects of the FNMA Settlement and 2013 IFR Acceleration Agreement; the achievement of cost savings in certain noninterest expense categories as workflows continue to be streamlined, processes simplified and expenses aligned with the overall strategic plan and operating principles; projected New BAC Phase 1 annualized cost savings of more than $5 billion by the fourth quarter of 2013 with the full impact expected to be realized in 2014; the expectation that New BAC Phase 2 will result in an additional $3 billion of annualized cost savings by mid-2015; that the Corporation may conduct additional redemptions, tender offers, exercises and other transactions in the future depending on prevailing market conditions, liquidity, regulatory and other factors; the expectation that the Corporation would record a charge to income tax expense of approximately $800 million if the income tax rate were reduced to 21 percent by 2014 as suggested in U.K. Treasury announcements and assuming no change in the deferred tax asset balance; the goal to manage interest rate sensitivity so that movements in interest rates do not significantly adversely affect earnings and capital; that the sale of the GWIM international wealth management business and the Japanese brokerage joint venture are not expected to have a significant impact on the Corporation’s balance sheet, results of operations or capital ratios; the expectation that the Corporation will make at least $319 million of contributions to pension plans during 2013; the expectation that unresolved repurchase claims related to private-label securitization trustees and third-party securitization sponsors will continue to increase; the resolution of representations and warranties repurchase and other claims; the final resolution of the BNY Mellon Settlement; the estimates of liability and range of possible loss for representations and

warranties repurchase claims; the possibility that future representations and warranties losses may occur in excess of the amounts recorded for those exposures; that the expiration and mutual non-renewal of certain contractual delivery commitments and variances with Fannie Mae will not have a material impact on our CRES business, as the Corporation expects to rely on other sources of liquidity to actively extend mortgage credit to customers including continuing to deliver such products into Freddie Mac mortgage-backed securities pools; that there will likely be additional requests from monolines for loan files in the future leading to repurchase claims; the belief that increases in requests for loan files from certain private-label securitization trustees and requests for tolling agreements to toll the applicable statutes of limitation related to representations and warranties repurchase claims will likely lead to an increase in repurchase claims from private-label securitization trustees with standing to bring such claims; the disposition and resolution of servicing matters; that implementation of uniform servicing standards is expected to contribute to elevated costs associated with the servicing process but is not expected to result in material delays or dislocation in the performance of the mortgage servicing obligations including the completion of foreclosures; beliefs and expectations concerning the impact of the National Mortgage Settlement; the Corporation’s belief that the decline in default-related servicing costs will continue to accelerate in 2013; that swap dealers will continue to become subject to additional CFTC rules as and when such rules take effect; that the proposed rule regarding credit risk retention would likely have an adverse impact on the Corporation’s ability to engage in many types of the MBS and ABS securitizations conducted in CRES, Global Markets and other business segments, impose additional operational and compliance costs and negatively influence the value, liquidity and transferability of ABS or MBS, loans and other assets; that the Dodd-Frank Wall Street Reform and Consumer Protection Act (Financial Reform Act) will continue to have a significant and negative impact on earnings through fee reductions, higher costs and new restrictions as well as reductions to available capital; the substance and timing of the final rules implementing Basel 3; the expectation that the Corporation will comply with the final Basel 3 rules when issued and effective; that estimates under the Basel 3 Advanced Approach will be refined over time as a result of further rulemaking or clarification by U.S. banking regulators and as its understanding and interpretation of the rules evolve; that the final rules when adopted and fully implemented are likely to influence regulatory capital and liquidity planning processes and may impose additional operational and compliance costs on the Corporation; the expectation that the Liquidity Coverage Ratio requirement will be implemented in January 2015 and the Net Stable Funding Ratio requirement in January 2018, following an observation period that began in 2011; the goal to seek to maintain safety and soundness at all times, including under adverse conditions, to take advantage of organic growth opportunities, maintain ready access to financial markets, continue to serve as a credit intermediary, remain a source of strength for the Corporation’s subsidiaries, and satisfy current and future regulatory capital requirements; the goal of mitigating refinancing risk by actively managing the amount of borrowings that will likely mature within any month or quarter; the objective of maintaining high-quality credit ratings; that, if the Corporation’s analytical models for capital measurement under Basel 3 are not approved by the U.S. regulatory



		Bank of America 2012 23

agencies, it would likely lead to an increase in the Corporation’s risk-weighted assets, which in some cases could be significant; that the Market Risk Final Rule and the Basel 3 Advanced Approach, if adopted as proposed, are expected to substantially increase the Corporation’s capital requirements; that results from using stress scenario assumptions provided by the Federal Reserve will be received from the Federal Reserve on March 14, 2013; that funding trading activities in broker/dealer subsidiaries is more cost-efficient and less sensitive to changes in credit ratings than unsecured financing; that VaR model results will be supplemented if risks associated with positions that are illiquid and/or unobservable are material; the cost and availability of unsecured funding; the Corporation’s belief that it can quickly obtain cash for certain securities even in stressed market conditions, through repurchase agreements or outright sales; the Corporation’s belief that a portion of structured liability obligations will remain outstanding beyond the earliest put or redemption date; the Corporation’s anticipation that debt levels will continue to decline, primarily due to maturities, through 2013; that, of the loans in the pay option portfolio at December 31, 2012 that have not already experienced a payment reset, one percent are expected to reset in 2013 and approximately 23 percent thereafter, and that seven percent are expected to prepay and 69 percent are expected to default prior to being reset, most of which were severely delinquent as of December 31, 2012; effects of the ongoing debt crisis in Europe, including the expectation of continued volatility as long as challenges remain, the expectation that the Corporation will continue to support client activities in the region and that exposures may vary over time as the Corporation monitors the situation and manages its risk profile; the expectation that, absent unexpected deterioration in the economy, reductions in the allowance for loan and lease losses, excluding the valuation allowance for PCI loans, will continue in the near term, though at a slower pace than in 2012; the goal of mitigating market risk exposures by using techniques that encompass a variety of financial instruments in both the cash and derivatives markets; the accuracy of forward-looking forecasts of net interest income used in interest rate risk management; and other matters relating to the Corporation and the securities that it may offer from time to time. The foregoing is not an exclusive list of all forward-looking statements the Corporation makes. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and are often beyond the Corporation’s control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements.

You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties more fully discussed elsewhere in this report, under Item 1A. Risk Factors of this report and in any of the Corporation’s subsequent Securities and Exchange Commission filings: the Corporation’s ability to resolve

representations and warranties repurchase claims made by monolines and private-label and other investors, including as a result of any adverse court rulings, and the chance that the Corporation could face related servicing, securities, fraud, indemnity or other claims from one or more of the monolines or private-label and other investors; the Corporation’s resolution of remaining differences with the government-sponsored enterprises regarding representations and warranties repurchase claims, including in some cases with respect to mortgage insurance rescissions and foreclosure delays if future representations and warranties losses occur in excess of the Corporation’s recorded liability and estimated range of possible loss for its representations and warranties exposures; uncertainties about the financial stability of several countries in the EU, the increasing risk that those countries may default on their sovereign debt or exit the EU and related stresses on financial markets, the Euro and the EU and the Corporation’s exposures to such risks, including direct, indirect and operational; the uncertainty regarding the timing and final substance of any capital or liquidity standards, including the final Basel 3 requirements and their implementation for U.S. banks through rulemaking by the Federal Reserve, including anticipated requirements to hold higher levels of regulatory capital, liquidity and meet higher regulatory capital ratios as a result of final Basel 3 or other capital or liquidity standards; the negative impact of the Financial Reform Act on the Corporation’s businesses and earnings, including as a result of additional regulatory interpretation and rulemaking and the success of the Corporation’s actions to mitigate such impacts; the Corporation’s satisfaction of its borrower assistance programs under the National Mortgage Settlement with federal agencies and state Attorneys General and under the acceleration agreement with the OCC and the Federal Reserve; adverse changes to the Corporation’s credit ratings from the major credit rating agencies; estimates of the fair value of certain of the Corporation’s assets and liabilities; unexpected claims, damages and fines resulting from pending or future litigation and regulatory proceedings; the Corporation’s ability to fully realize the cost savings and other anticipated benefits from Project New BAC, including in accordance with currently anticipated timeframes; and other similar matters.

Forward-looking statements speak only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.

Notes to the Consolidated Financial Statements referred to in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) are incorporated by reference into the MD&A. Certain prior period amounts have been reclassified to conform to current period presentation. Throughout the MD&A, the Corporation uses certain acronyms and abbreviations which are defined in the Glossary.



24 Bank of America 2012

Executive Summary

Business Overview

The Corporation is a Delaware corporation, a bank holding company and a financial holding company. When used in this report, “the Corporation” may refer to Bank of America Corporation individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation’s subsidiaries or affiliates. Our principal executive offices are located in Charlotte, North Carolina. Through our banking and various nonbanking subsidiaries throughout the U.S. and in international markets, we provide a diversified range of banking and nonbanking financial services and products through five business segments: Consumer & Business Banking (CBB), Consumer Real Estate Services (CRES), Global Banking, Global Markets and Global Wealth & Investment Management (GWIM), with the remaining operations recorded in

All Other. At December 31, 2012, the Corporation had approximately $2.2 trillion in assets and approximately 267,000 full-time equivalent employees.

As of December 31, 2012, we operated in all 50 states, the District of Columbia and more than 40 countries. Our retail banking footprint covers approximately 80 percent of the U.S. population and we serve more than 53 million consumer and small business relationships with approximately 5,500 banking centers, 16,300 ATMs, nationwide call centers, and leading online and mobile banking platforms. We offer industry-leading support to more than three million small business owners. We are a global leader in corporate and investment banking and trading across a broad range of asset classes serving corporations, governments, institutions and individuals around the world.

Table 1 provides selected consolidated financial data for 2012 and 2011.




Table 1	Selected Financial Data

(Dollars in millions, except per share information)		2012			2011
Income statement
Revenue, net of interest expense (FTE basis) ⁽¹⁾		$	84,235		$	94,426
Net income		4,188			1,446
Net income, excluding goodwill impairment charges ⁽²⁾		4,188			4,630
Diluted earnings per common share		0.25			0.01
Diluted earnings per common share, excluding goodwill impairment charges ⁽²⁾		0.25			0.32
Dividends paid per common share		0.04			0.04
Performance ratios
Return on average assets		0.19		%	0.06		%
Return on average assets, excluding goodwill impairment charges ⁽²⁾		0.19			0.20
Return on average tangible shareholders’ equity ⁽¹⁾		2.60			0.96
Return on average tangible shareholders’ equity, excluding goodwill impairment charges ^{(1, 2)}		2.60			3.08
Efficiency ratio (FTE basis) ⁽¹⁾		85.59			85.01
Efficiency ratio (FTE basis), excluding goodwill impairment charges ^{(1, 2)}		85.59			81.64
Asset quality
Allowance for loan and lease losses at December 31		$	24,179		$	33,783
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31⁽³⁾		2.69		%	3.68		%
Nonperforming loans, leases and foreclosed properties at December 31 ⁽³⁾		$	23,555		$	27,708
Net charge-offs ⁽⁴⁾		14,908			20,833
Net charge-offs as a percentage of average loans and leases outstanding ^{(3, 4)}		1.67		%	2.24		%
Net charge-offs as a percentage of average loans and leases outstanding, excluding the purchased credit-impaired loan portfolio ⁽³⁾		1.73			2.32
Net charge-offs and purchased credit-impaired write-offs as a percentage of average loans and leases outstanding ^{(3, 5)}		1.99			2.24
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs ⁽⁴⁾		1.62			1.62
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs, excluding the purchased credit-impaired loan portfolio		1.25			1.22
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs and purchased credit-impaired write-offs ⁽⁵⁾		1.36			1.62
Balance sheet at year end
Total loans and leases		$	907,819		$	926,200
Total assets		2,209,974			2,129,046
Total deposits		1,105,261			1,033,041
Total common shareholders’ equity		218,188			211,704
Total shareholders’ equity		236,956			230,101
Capital ratios at year end
Tier 1 common capital		11.06		%	9.86		%
Tier 1 capital		12.89			12.40
Total capital		16.31			16.75
Tier 1 leverage		7.37			7.53

⁽¹⁾

Fully taxable-equivalent (FTE) basis, return on average tangible shareholders’ equity and the efficiency ratio are non-GAAP financial measures. Other companies may define or calculate these measures differently. For additional information on these measures and ratios, see Supplemental Financial Data on page 35, and for a corresponding reconciliation to GAAP financial measures, see Statistical Table XV.

⁽²⁾

Net income, diluted earnings per common share, return on average assets, return on average tangible shareholders’ equity and the efficiency ratio have been calculated excluding the impact of the goodwill impairment charges of $3.2 billion in 2011, and accordingly, these are non-GAAP financial measures. For additional information on these measures and ratios, see Supplemental Financial Data on page 35, and for a corresponding reconciliation to GAAP financial measures, see Statistical Table XV.


⁽³⁾	Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Nonperforming Consumer Loans and Foreclosed Properties Activity on page 93 and corresponding Table 37, and Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 101 and corresponding Table 46.


⁽⁴⁾	Net charge-offs exclude $2.8 billion of write-offs in the Countrywide home equity purchased credit-impaired loan portfolio for 2012. These write-offs decreased the purchased credit-impaired valuation allowance included as part of the allowance for loan and lease losses. For information on purchased credit-impaired write-offs, see Countrywide Purchased Credit-impaired Loan Portfolio on page 90.


⁽⁵⁾	There were no write-offs of purchased credit-impaired loans in 2011.



		Bank of America 2012 25

2012 Economic and Business Environment

The U.S. economy began 2012 with momentum in consumer spending, led by stronger vehicle sales and supported by larger private payroll gains. However, over the course of the year, consumer spending slowed and business spending continued to weaken following the expiration of 2011 tax incentives and ongoing uncertainties surrounding fiscal issues in the U.S. and Europe. Payroll gains steadied to a moderate pace, while business profits and cash flows continued to rise throughout the year. The unemployment rate ended the year at 7.8 percent. Equity markets were volatile but finished with appreciable gains in 2012. The housing sector improved as new and existing home sales rose, home prices increased and residential building activity ended the year with its seventh consecutive quarterly rise.

After briefly rising early in the year, bond yields fell as the U.S. economy slowed and economic uncertainties in Europe intensified. The low bond yields also reflected the Board of Governors of the Federal Reserve System’s (Federal Reserve) monetary easing and related efforts to keep bond yields low. In December 2012, the Federal Reserve announced that it would purchase an additional $45 billion per month of long-term U.S. Treasury securities, in addition to its $40 billion per month in mortgage-backed securities (MBS) purchases, and that any policy rate increase would be tied to a 6.5 percent unemployment rate target as long as inflation did not exceed 2.5 percent.

Europe experienced financial market turmoil, numerous policy interventions and spreading recession in 2012. The European Central Bank’s (ECB) long-term refinancing operations helped calm markets for a time but proved insufficient as emerging stresses generated renewed turmoil. In response to sharply rising sovereign bond yields, the ECB announced its willingness to intervene in sovereign debt markets under specified conditions which calmed markets and pushed down sovereign bond yields. Near year end, the benefits of structural reform, such as lower labor costs and smaller structural budget deficits, were becoming evident in select nations while sovereign spreads stabilized at lower levels. However, widespread recession persisted.

Although the Asian economy continued to expand in 2012, several key nations slowed during the year. China’s economic growth remained subdued in 2012, adversely impacting international trade and overall Asian economic performance. Japan’s economy expanded in the first half of the year but returned to recession in the second half of the year.

Recent Events

Fannie Mae Settlement

On January 6, 2013, we entered into an agreement with Fannie Mae (FNMA) to resolve substantially all outstanding and potential repurchase and certain other claims relating to the origination, sale and delivery of residential mortgage loans originated and sold directly to FNMA from January 1, 2000 through December 31, 2008 by entities related to legacy Countrywide Financial Corporation (Countrywide) and Bank of America, N.A. (BANA).

This agreement covers loans with an aggregate original principal balance of approximately $1.4 trillion. Unresolved repurchase claims submitted by FNMA for alleged breaches of selling representations and warranties with respect to these loans totaled $12.2 billion at December 31, 2012. This agreement extinguished

substantially all of those unresolved repurchase claims, as well as substantially all future representations and warranties

repurchase claims associated with the loans, subject to certain exceptions which we do not expect to be material.

In January 2013, we made a cash payment to FNMA of $3.6 billion and also repurchased for $6.6 billion certain residential mortgage loans that had previously been sold to FNMA, which we have valued at less than the purchase price.

This agreement also clarified the parties’ obligations with respect to mortgage insurance, including establishing timeframes for certain payments and other actions, setting parameters for potential bulk settlements and providing for cooperation in future dealings with mortgage insurers.

In addition, pursuant to a separate agreement, we settled substantially all of FNMA’s outstanding and future claims for compensatory fees arising out of past foreclosure delays.

Collectively, these agreements are the FNMA Settlement. For additional information, see Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 54 and Note 8 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements.

Independent Foreclosure Review Acceleration Agreement

On January 7, 2013, Bank of America and other mortgage servicing institutions entered into an agreement with the Office of the Comptroller of the Currency (OCC) and the Federal Reserve to cease the Independent Foreclosure Review (IFR) that had commenced pursuant to a consent order entered into by Bank of America with the Federal Reserve and by BANA with the OCC on April 13, 2011 (2011 OCC Consent Order) and replace it with an accelerated remediation process (2013 IFR Acceleration Agreement). Under the 2013 IFR Acceleration Agreement, the mortgage servicing institutions agreed to make aggregate cash payments totaling $3.8 billion and provide $6.0 billion of other assistance to help borrowers, such as loan modifications and forgiveness of deficiency judgments. The 2013 IFR Acceleration Agreement requires us to make a cash payment of $1.1 billion and provide $1.8 billion of borrower assistance in the form of loan modifications and other foreclosure prevention actions. For additional information, see Off-Balance Sheet Arrangements and Contractual Obligations – Other Mortgage-related Matters on page 61.

Sales of Mortgage Servicing Rights

On January 6, 2013, Bank of America entered into definitive agreements with two different counterparties, and on February 19, 2013 with an additional counterparty to sell the servicing rights on certain residential mortgage loans serviced for FNMA, Freddie Mac (FHLMC), the Government National Mortgage Association (GNMA) and private-label securitizations, with an aggregate unpaid principal balance of approximately $317 billion. The sales involve approximately 2.1 million loans currently serviced by us, including approximately 234,000 residential mortgage loans and approximately 24,000 home equity loans that were 60 days or more past due at December 31, 2012.

The transfers of servicing rights are scheduled to occur in stages throughout 2013 and are subject to the approval or consent of certain third parties. There is no assurance that all the required approvals and consents will be obtained, and accordingly, some of these transfers may not be consummated. We may conduct additional sales of mortgage servicing rights (MSRs) in the future.



26 Bank of America 2012

At December 31, 2012, we included a positive $342 million in the valuation of our MSRs based on information in the offers we had received on portions of our MSR portfolio. We will recognize as gain on sale any additional increases over the book value of the MSR asset in future periods at the time of the servicing transfers. Our ability to recognize such expected additional increases is subject to the consummation of these servicing transfers and the amount of such benefit will be dependent upon certain factors such as interest rates.

Capital and Liquidity Related Matters

In the fourth quarter of 2012, we repurchased certain of our debt and trust preferred securities with an aggregate carrying value of $5.2 billion for $5.3 billion in cash resulting in a loss of $110 million upon redemption, partially offset by a related pre-tax net interest income benefit of $57 million. We expect that these liability management actions will result in a pre-tax net interest income benefit of approximately $350 million in 2013.

We may conduct additional redemptions, tender offers, exercises and other transactions in the future depending on prevailing market conditions, capital, liquidity and other factors.

Performance Overview

Net income was $4.2 billion, or $0.25 per diluted share in 2012 compared to $1.4 billion, or $0.01 per diluted share in 2011.

Net interest income on a fully taxable-equivalent (FTE) basis decreased $4.0 billion to $41.6 billion for 2012 compared to 2011. The most significant driver of the decline was lower consumer loan balances and yields partially offset by ongoing reductions in long-term debt.

Noninterest income decreased $6.2 billion to $42.7 billion. The most significant drivers of the decline included a decrease of $5.3 billion in equity investment income, negative fair value adjustments of $5.1 billion on structured liabilities in 2012 compared to positive fair value adjustments of $3.3 billion in 2011 and debit valuation adjustment (DVA) losses on derivatives of $2.5 billion, net of hedges, compared to DVA gains on derivatives of $1.0 billion, net of hedges, in 2012 and 2011, respectively. These declines were partially offset by significantly lower representations and warranties provision of $3.9 billion in 2012 compared to $15.6 billion in 2011.

The provision for credit losses decreased $5.2 billion in 2012 to $8.2 billion. The decline was primarily in the home loans portfolio due to improved portfolio trends and increasing home prices.

Noninterest expense decreased $8.2 billion to $72.1 billion. The most significant drivers of the decline were the absence of goodwill impairment charges in 2012 compared to $3.2 billion in 2011, and declines of $1.4 billion and $1.3 billion in litigation and personnel expenses, respectively. These declines were partially offset by a provision of $1.1 billion in 2012 related to the 2013 IFR Acceleration Agreement.

Included in the income tax benefit for 2012 was a $1.7 billion tax benefit related to the recognition of certain foreign tax credits.

For summary information on the Corporation’s results, see Executive Summary – Financial Highlights below and Business Segment Results on page 32.




Table 2	Summary Income Statement

(Dollars in millions)		2012			2011
Net interest income (FTE basis)⁽¹⁾		$	41,557		$	45,588
Noninterest income		42,678			48,838
Total revenue, net of interest expense (FTE basis)⁽¹⁾		84,235			94,426
Provision for credit losses		8,169			13,410
Goodwill impairment		—			3,184
All other noninterest expense		72,093			77,090
Income before income taxes		3,973			742
Income tax benefit (FTE basis)⁽¹⁾		(215		)	(704		)
Net income		4,188			1,446
Preferred stock dividends		1,428			1,361
Net income applicable to common shareholders		$	2,760		$	85

Per common share information
Earnings		$	0.26		$	0.01
Diluted earnings		0.25			0.01


⁽¹⁾	FTE basis is a non-GAAP financial measure. For additional information on this measure, see Supplemental Financial Data on page 35, and for a corresponding reconciliation to a GAAP financial measure, see Statistical Table XV.

Financial Highlights

Net Interest Income

Net interest income on a FTE basis decreased $4.0 billion to $41.6 billion for 2012 compared to 2011. The decline was primarily due to lower consumer loan balances and yields, the asset and liability management (ALM) portfolio recouponing to a lower yield and decreased commercial loan yields. Lower trading-related net interest income also negatively impacted 2012 results. These were partially offset by ongoing reductions in long-term debt and lower rates paid on deposits. The net interest yield on a FTE basis decreased 13 basis points (bps) to 2.35 percent for 2012 compared to 2011 as the yield continued to be under pressure due to the aforementioned items and the low rate environment.

Noninterest Income




Table 3	Noninterest Income

(Dollars in millions)		2012			2011
Card income		$	6,121		$	7,184
Service charges		7,600			8,094
Investment and brokerage services		11,393			11,826
Investment banking income		5,299			5,217
Equity investment income		2,070			7,360
Trading account profits		5,870			6,697
Mortgage banking income (loss)		4,750			(8,830		)
Insurance income (loss)		(195		)	1,346
Gains on sales of debt securities		1,662			3,374
Other income (loss)		(1,839		)	6,869
Net impairment losses recognized in earnings on AFS debt securities		(53		)	(299		)
Total noninterest income		$	42,678		$	48,838



		Bank of America 2012 27

Noninterest income decreased $6.2 billion to $42.7 billion for 2012 compared to 2011. The following highlights the significant changes.


	Card income decreased $1.1 billion primarily driven by the implementation of interchange fee rules under the Durbin Amendment, which became effective on October 1, 2011.


	Service charges decreased $494 million primarily due to the impact of lower accretion on acquired portfolios and reduced reimbursed merchant processing fees.


	Investment and brokerage services income decreased $433 million primarily driven by lower transactional volumes.

Equity investment income decreased $5.3 billion. The results for 2012 included $1.6 billion of gains which primarily related to the sales of certain equity and strategic investments. The results for 2011 included $6.5 billion of gains on the sale of China Construction Bank (CCB) shares, $836 million of CCB dividends and a $377 million gain on the sale of our investment in BlackRock, Inc. (BlackRock), partially offset by $1.1 billion of impairment charges on our merchant services joint venture.


	Trading account profits decreased $827 million. Net DVA losses on derivatives were $2.5 billion in 2012 compared to net DVA gains of $1.0 billion in 2011. Excluding net DVA, trading account profits increased $2.7 billion in 2012 compared to 2011 due to an improved market environment.

Mortgage banking income increased $13.6 billion primarily due to an $11.7 billion decrease in the representations and warranties provision. The 2012 results included $2.5 billion in provision related to the FNMA Settlement, a $500 million provision for obligations to FNMA related to mortgage insurance rescissions, partially offset by an increase in servicing income of $1.1 billion due to improved MSR results. The 2011 results included $15.6 billion in representations and warranties provision related to the agreement to resolve nearly all legacy Countrywide-issued first-lien non-government-sponsored enterprise (GSE) residential mortgage-backed securities (RMBS) repurchase exposures and other non-GSE exposures.


	Insurance income decreased $1.5 billion driven by the impact of the sale of the Balboa Insurance Company’s lender-placed insurance business (Balboa) in 2011 and an increase to the provision related to payment protection insurance in the U.K. in 2012.

Other income decreased $8.7 billion due to negative fair value adjustments on our structured liabilities of $5.1 billion compared to positive fair value adjustments of $3.3 billion in 2011. In addition, 2012 included $1.6 billion of gains related to debt repurchases and exchanges of trust preferred securities compared to gains of $1.2 billion in the prior year. The prior year also included a net gain of $752 million on the sale of Balboa.

Provision for Credit Losses

The provision for credit losses decreased $5.2 billion to $8.2 billion for 2012 compared to 2011. The provision for credit losses was $6.7 billion lower than net charge-offs for 2012, resulting in a reduction in the allowance for credit losses driven by improved portfolio trends and increasing home prices in consumer real estate products, lower bankruptcy filings and delinquencies affecting the Card Services portfolio, and improvement in overall credit quality within the core commercial portfolio (total commercial products excluding U.S. small business). Absent unexpected deterioration in the economy, we expect reductions in the allowance for credit losses, excluding the valuation allowance

for purchase credit-impaired (PCI) loans, to continue in the near term, though at a slower pace than in 2012. For more information on the provision for credit losses, see Provision for Credit Losses on page 109.

Net charge-offs totaled $14.9 billion, or 1.67 percent of average loans and leases for 2012 compared to $20.8 billion, or 2.24 percent for 2011. Included in 2012 net charge-offs was $596 million related to the impact of new regulatory guidance regarding the treatment of loans discharged in Chapter 7 bankruptcy and $435 million related to loans forgiven as a part of the National Mortgage Settlement. The decrease in net charge-offs was primarily driven by fewer delinquent loans and lower bankruptcy filings in the Card Services portfolio, as well as lower net charge-offs in the consumer real estate and core commercial portfolios in 2012.

Noninterest Expense




Table 4	Noninterest Expense

(Dollars in millions)		2012		2011
Personnel		$	35,648	$	36,965
Occupancy		4,570		4,748
Equipment		2,269		2,340
Marketing		1,873		2,203
Professional fees		3,574		3,381
Amortization of intangibles		1,264		1,509
Data processing		2,961		2,652
Telecommunications		1,660		1,553
Other general operating		18,274		21,101
Goodwill impairment		—		3,184
Merger and restructuring charges		—		638
Total noninterest expense		$	72,093	$	80,274

Noninterest expense decreased $8.2 billion to $72.1 billion for 2012 compared to 2011 with the decrease primarily driven by the absence of goodwill impairment charges in 2012 compared to $3.2 billion in 2011, a $2.8 billion decrease in other general operating expense primarily related to lower litigation expense and mortgage-related assessments, waivers and similar costs related to foreclosure delays, partially offset by a provision of $1.1 billion in 2012 related to the 2013 IFR Acceleration Agreement. Personnel expense decreased $1.3 billion in 2012 as we continued to streamline processes and achieve cost savings. Partially offsetting the decreases were increases in professional fees and data processing expenses due to continuing default management activities in Legacy Assets & Servicing. The prior year also included $638 million in merger and restructuring charges.

In connection with Project New BAC, we expect to continue to achieve cost savings in certain noninterest expense categories as we continue to further streamline workflows, simplify processes and align expenses with our overall strategic plan and operating principles. During 2012, we continued implementation of Phase 1 initiatives, completed Phase 2 evaluations and began implementation of certain Phase 2 initiatives. With regard to Phase 1, we expect to realize more than $5 billion of annualized cost savings by the fourth quarter of 2013 with the full impact expected to be realized in 2014. We expect that Phase 2 will result in an additional $3 billion of annualized cost savings by mid-2015.



28 Bank of America 2012

Income Tax Benefit

The income tax benefit was $1.1 billion on pre-tax income of $3.1 billion for 2012 compared to an income tax benefit of $1.7 billion on the pre-tax loss of $230 million for 2011.

Included in the income tax benefit for 2012 was a $1.7 billion tax benefit attributable to the excess of foreign tax credits recognized in the U.S. upon repatriation of the earnings of certain subsidiaries over the related U.S. tax liability. Also included in the income tax benefit was a $788 million charge to reduce the carrying value of certain U.K. deferred tax assets due to the two percent U.K. corporate income tax rate reduction enacted in 2012. Our effective tax rate for 2012 excluding these two items was a benefit of seven percent and differed from the statutory rate due to the impact of our recurring tax preference items (e.g., affordable housing credits and tax-exempt income) on the level of pre-tax earnings.

The income tax benefit for 2011 was driven by our recurring tax preference items, a $1.0 billion benefit from the release of the remaining valuation allowance applicable to the Merrill Lynch &

Co., Inc. (Merrill Lynch) capital loss carryover deferred tax asset and a benefit of $823 million for planned realization of previously unrecognized deferred tax assets related to the tax basis in certain subsidiaries. These benefits were partially offset by a $782 million charge for the two percent U.K. corporate income tax rate reduction enacted in 2011. The $3.2 billion of goodwill impairment charges recorded during 2011 were non-deductible.

On July 17, 2012, the U.K. 2012 Finance Bill was enacted, which reduced the U.K. corporate income tax rate by two percent to 23 percent. The first one percent reduction was effective April 1, 2012 and the second will be effective April 1, 2013. These reductions favorably affect income tax expense on future U.K. earnings, but also required us to remeasure our U.K. net deferred tax assets using the lower tax rates. If the corporate income tax rate were to be reduced to 21 percent by 2014 as suggested in U.K. Treasury announcements and assuming no change in the deferred tax asset balance, we would record a charge to income tax expense of approximately $800 million in the period of enactment, which we expect to be in 2013.

Balance Sheet Overview




Table 5	Selected Balance Sheet Data

		December 31						Average Balance
(Dollars in millions)		2012			2011			2012			2011
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell		$	219,924		$	211,183		$	236,042		$	245,069
Trading account assets		237,226			169,319			182,359			187,340
Debt securities		336,387			311,416			337,653			337,120
Loans and leases		907,819			926,200			898,768			938,096
Allowance for loan and lease losses		(24,179		)	(33,783		)	(29,843		)	(37,623		)
All other assets		532,797			544,711			566,377			626,320
Total assets		$	2,209,974		$	2,129,046		$	2,191,356		$	2,296,322
Liabilities
Deposits		$	1,105,261		$	1,033,041		$	1,047,782		$	1,035,802
Federal funds purchased and securities loaned or sold under agreements to repurchase		293,259			214,864			281,899			272,375
Trading account liabilities		73,587			60,508			78,554			84,689
Commercial paper and other short-term borrowings		30,731			35,698			36,501			51,894
Long-term debt		275,585			372,265			316,393			421,229
All other liabilities		194,595			182,569			194,550			201,238
Total liabilities		1,973,018			1,898,945			1,955,679			2,067,227
Shareholders’ equity		236,956			230,101			235,677			229,095
Total liabilities and shareholders’ equity		$	2,209,974		$	2,129,046		$	2,191,356		$	2,296,322

At December 31, 2012, total assets were $2.2 trillion, an increase of $80.9 billion, or four percent, from December 31, 2011. Average total assets decreased $105.0 billion, or five percent, in 2012 compared to 2011. At December 31, 2012, total liabilities were $2.0 trillion, an increase of $74.1 billion, or four percent, from December 31, 2011. Average total liabilities decreased $111.5 billion, or five percent, in 2012 compared to 2011.

Year-end balance sheet amounts may vary from average balance sheet amounts due to liquidity and balance sheet management activities, primarily involving our portfolios of highly

liquid assets, that are designed to ensure the adequacy of capital while enhancing our ability to manage liquidity requirements for the Corporation and for our customers, and to position the balance sheet in accordance with the Corporation’s risk appetite. The execution of these activities requires the use of balance sheet and capital-related limits including spot, average and risk-weighted asset limits, particularly within the market-making activities of our trading businesses. One of our key regulatory metrics, Tier 1 leverage ratio, is calculated based on adjusted quarterly average total assets.



		Bank of America 2012 29

Assets

Federal Funds Sold and Securities Borrowed or Purchased Under Agreements to Resell

Federal funds transactions involve lending reserve balances on a short-term basis. Securities borrowed and securities purchased under agreements to resell are utilized to accommodate customer transactions, earn interest rate spreads, and obtain securities for settlement and for collateral. Year-end federal funds sold and securities borrowed under agreements to resell increased $8.7 billion due to increases in client short positions and increased collateral requirements. Average federal funds sold and securities borrowed or purchased under agreements to resell decreased $9.0 billion attributable to changes in the investment composition of excess liquidity.

Trading Account Assets

Trading account assets consist primarily of fixed-income securities including government and corporate debt, and equity and convertible instruments. Year-end trading account assets increased $67.9 billion primarily due to a strategic decision to increase U.S. Treasuries and agency securities.

Debt Securities

Debt securities primarily include U.S. Treasury and agency securities, MBS, principally agency MBS, foreign bonds, corporate bonds and municipal debt. We use the debt securities portfolio primarily to manage interest rate and liquidity risk and to take advantage of market conditions that create more economically attractive returns on these investments. Year-end balances of debt securities increased $25.0 billion primarily due to net purchases of agency MBS. For additional information on debt securities, see Note 4 – Securities to the Consolidated Financial Statements.

Loans and Leases

Year-end and average loans and leases decreased $18.4 billion and $39.3 billion. The decreases were primarily due to continued run-off in targeted portfolios partially offset by growth in non-U.S. commercial and U.S. commercial loans. For a more detailed discussion of the loan portfolio, see Credit Risk Management on page 79.

Allowance for Loan and Lease Losses

Year-end and average allowance for loan and lease losses decreased $9.6 billion and $7.8 billion primarily due to the impact of the improving economy and reserve reductions in the PCI portfolio mostly related to the National Mortgage Settlement. For a more detailed discussion, see Allowance for Credit Losses on page 109.

All Other Assets

Year-end other assets decreased $11.9 billion driven by lower cash and cash equivalent balances. Average other assets decreased $59.9 billion primarily driven by asset sales, lower derivative dealer assets and a reduction in loans held-for-sale (LHFS).

Liabilities

Deposits

Year-end and average deposits increased $72.2 billion and $12.0 billion. The increases were attributable to growth in our noninterest-bearing deposits driven by higher client balances.

Federal Funds Purchased and Securities Loaned or Sold Under Agreements to Repurchase

Federal funds transactions involve borrowing reserve balances on a short-term basis. Securities loaned and securities sold under agreements to repurchase are collateralized borrowing transactions utilized to accommodate customer transactions, earn interest rate spreads and finance assets on the balance sheet. Year-end and average federal funds purchased and securities loaned or sold under agreements to repurchase increased $78.4 billion and $9.5 billion primarily due to funding of trading inventory resulting from customer demand.

Trading Account Liabilities

Trading account liabilities consist primarily of short positions in fixed-income securities including government and corporate debt, equity and convertible instruments. Year-end trading account liabilities increased $13.1 billion primarily due to higher trading activity in equity securities. Average trading account liabilities decreased $6.1 billion primarily due to a decrease in basis trading on government debt.

Commercial Paper and Other Short-term Borrowings

Commercial paper and other short-term borrowings provide an additional funding source. Year-end and average commercial paper and other short-term borrowings decreased $5.0 billion and $15.4 billion due to planned reductions in wholesale borrowings. For additional information on Commercial Paper and Other Short-term Borrowings, see Note 11 – Federal Funds Sold, Securities Borrowed or Purchased Under Agreements to Resell and Short-term Borrowings to the Consolidated Financial Statements.

Long-term Debt

Year-end and average long-term debt decreased $96.7 billion and $104.8 billion. The decreases were attributable to planned reductions in long-term debt. For additional information on long-term debt, see Note 12 – Long-term Debt to the Consolidated Financial Statements.

All Other Liabilities

Year-end all other liabilities increased $12.0 billion primarily driven by an increase in customer margin credits. Average all other liabilities decreased $6.7 billion primarily driven by decreases in bank acceptances outstanding and accrued interest payable.

Shareholders’ Equity

Year-end and average shareholders’ equity increased $6.9 billion and $6.6 billion. The increases were primarily driven by earnings, an increase in unrealized gains on available-for-sale (AFS) debt securities in other comprehensive income (OCI), and common stock issued under employee plans and in connection with exchanges of preferred stock and trust preferred securities.



30 Bank of America 2012

Cash Flows Overview

The Corporation’s operating assets and liabilities support our global markets and lending activities. We believe that cash flows from operations, available cash balances and our ability to generate cash through short- and long-term debt are sufficient to fund our operating liquidity needs. Our investing activities primarily include the AFS securities portfolio and other short-term investments. Our financing activities reflect cash flows primarily related to increased customer deposits and net long-term debt reductions.

Cash and cash equivalents decreased $9.4 billion during 2012 due to net purchases of debt securities and planned reductions in long-term debt partially offset by higher federal funds purchased and securities loaned or sold under agreements to repurchase and growth in our deposits. Cash and cash equivalents increased $11.7 billion during 2011 due to sales of non-core assets and net sales of debt securities partially offset by repayment and maturities of certain long-term debt.

During 2012, net cash used in operating activities was $13.9 billion. The more significant adjustments to net income to arrive at cash used in operating activities included the net increase in

trading and derivative instruments and the provision for credit losses. During 2011, net cash provided by operating activities was $64.4 billion. The more significant adjustments to net income to arrive at cash provided by operating activities included the net decrease in trading and derivative instruments and the provision for credit losses.

During 2012, net cash used in investing activities was $37.2 billion primarily driven by net purchases of debt securities. During 2011, net cash provided by investing activities was $52.4 billion primarily driven by net sales of debt securities.

During 2012, net cash provided by financing activities of $42.4 billion primarily reflected an increase in federal funds purchased and securities loaned or sold under agreements to repurchase and growth in deposits partially offset by planned reductions in long-term debt as maturities outpaced new issuances. During 2011, the net cash used in financing activities of $104.7 billion primarily reflected planned reductions in long-term debt as maturities outpaced new issuances as well as the decrease in federal funds purchased and securities loaned or sold under agreements to repurchase partially offset by growth in deposits.



		Bank of America 2012 31

Business Segment Results

The following discussion provides an overview of the results of our business segments and All Other for 2012 compared to 2011. For additional information on these results, see Business Segment Operations on page 37.




Table 6	Business Segment Results

		Total Revenue ⁽¹⁾						Provision for Credit Losses						Noninterest Expense				Net Income (Loss)
(Dollars in millions)		2012			2011			2012			2011			2012		2011		2012			2011
Consumer & Business Banking		$	29,023		$	32,880		$	3,941		$	3,490		$	16,793	$	17,719	$	5,321		$	7,447
Consumer Real Estate Services		8,759			(3,154		)	1,442			4,524			17,306		21,791		(6,507		)	(19,465		)
Global Banking		17,207			17,312			(103		)	(1,118		)	8,308		8,884		5,725			6,046
Global Markets		13,519			14,798			3			(56		)	10,839		12,244		1,054			988
Global Wealth & Investment Management		16,517			16,495			266			398			12,755		13,383		2,223			1,718
All Other		(790		)	16,095			2,620			6,172			6,092		6,253		(3,628		)	4,712
Total FTE basis		84,235			94,426			8,169			13,410			72,093		80,274		4,188			1,446
FTE adjustment		(901		)	(972		)	—			—			—		—		—			—
Total Consolidated		$	83,334		$	93,454		$	8,169		$	13,410		$	72,093	$	80,274	$	4,188		$	1,446


⁽¹⁾	Total revenue is net of interest expense and is on a FTE basis which for consolidated revenue is a non-GAAP financial measure. For more information on this measure, see Supplemental Financial Data on page 35, and for a corresponding reconciliation to a GAAP financial measure, see Statistical Table XVI.

CBB net income decreased compared to the prior year. Revenue decreased driven by lower average loan balances, the continued low rate environment, the full-year impact of the Durbin Amendment, lower gains on sales of portfolios and the impact of charges related to our consumer protection products. The provision for credit losses increased as portfolio trends stabilized during 2012. Noninterest expense declined due to lower Federal Deposit Insurance Corporation (FDIC) and operating expenses, partially offset by an increase in litigation expense.

CRES net loss decreased compared to the prior year. Revenue increased due to a significantly lower representations and warranties provision, an increase in servicing income and core production income, partially offset by a decrease in insurance income. The provision for credit losses decreased due to improved portfolio trends and increasing home prices in both the non-PCI and PCI home equity loan portfolios. Noninterest expense decreased due to a decline in litigation expense, the absence of a goodwill impairment charge and lower mortgage-related assessments, waivers and similar costs related to foreclosure delays, partially offset by higher default-related servicing costs and a provision for the 2013 IFR Acceleration Agreement.

Global Banking net income decreased compared to the prior year. Revenue decreased primarily driven by lower investment banking fees, lower net interest income as a result of spread compression and the benefit in the prior year from higher accretion on acquired portfolios, partially offset by the impact of higher average loan and deposit balances and gains from certain legacy portfolios. The provision for credit losses increased as a result of stabilization of asset quality, core commercial loan growth and the impact of a higher volume of loan resolutions in the commercial real estate portfolio in the prior year. Noninterest expense

decreased primarily due to lower personnel and operating expenses.

Global Markets net income increased compared to the prior year. Sales and trading revenue decreased due to net DVA losses compared to net DVA gains in the prior year. Excluding net DVA, sales and trading revenue increased primarily driven by our fixed income, currencies and commodities (FICC) business as a result of improved performance in our rates and currencies, and credit-related businesses due to an improved global economic climate, and a gain on the sale of an equity investment. Noninterest expense decreased largely due to a reduction in personnel-related expenses.

GWIM net income increased compared to the prior year. Revenue was relatively unchanged as higher asset management fees were offset by lower transactional revenue and lower net interest income driven by the impact of the continued low rate environment. The provision for credit losses decreased driven by lower delinquencies and improving portfolio trends within the residential mortgage portfolio. Noninterest expense decreased due to lower FDIC expense, lower litigation costs and other expense reductions, partially offset by higher production-related expenses.

All Other decreased to a net loss compared to net income in the prior year. The change was primarily due to negative fair value adjustments on structured liabilities compared to positive fair value adjustments in the prior year, a decrease in equity investment income and lower gains on sales of debt securities. Partially offsetting these items were a reduction in the provision for credit losses, net gains resulting from the repurchase of certain debt and trust preferred securities and a net income tax benefit related to the recognition of certain foreign tax credits.



32 Bank of America 2012




Table 7	Five Year Summary of Selected Financial Data

(In millions, except per share information)		2012			2011			2010			2009			2008
Income statement
Net interest income		$	40,656		$	44,616		$	51,523		$	47,109		$	45,360
Noninterest income		42,678			48,838			58,697			72,534			27,422
Total revenue, net of interest expense		83,334			93,454			110,220			119,643			72,782
Provision for credit losses		8,169			13,410			28,435			48,570			26,825
Goodwill impairment		—			3,184			12,400			—			—
Merger and restructuring charges		—			638			1,820			2,721			935
All other noninterest expense ⁽¹⁾		72,093			76,452			68,888			63,992			40,594
Income (loss) before income taxes		3,072			(230		)	(1,323		)	4,360			4,428
Income tax expense (benefit)		(1,116		)	(1,676		)	915			(1,916		)	420
Net income (loss)		4,188			1,446			(2,238		)	6,276			4,008
Net income (loss) applicable to common shareholders		2,760			85			(3,595		)	(2,204		)	2,556
Average common shares issued and outstanding		10,746			10,143			9,790			7,729			4,592
Average diluted common shares issued and outstanding ⁽²⁾		10,841			10,255			9,790			7,729			4,596
Performance ratios
Return on average assets		0.19		%	0.06		%	n/m			0.26		%	0.22		%
Return on average common shareholders’ equity		1.27			0.04			n/m			n/m			1.80
Return on average tangible common shareholders’ equity ⁽³⁾		1.94			0.06			n/m			n/m			4.72
Return on average tangible shareholders’ equity ⁽³⁾		2.60			0.96			n/m			4.18			5.19
Total ending equity to total ending assets		10.72			10.81			10.08		%	10.38			9.74
Total average equity to total average assets		10.75			9.98			9.56			10.01			8.94
Dividend payout		15.86			n/m			n/m			n/m			n/m
Per common share data
Earnings (loss)		$	0.26		$	0.01		$	(0.37	)	$	(0.29	)	$	0.54
Diluted earnings (loss) ⁽²⁾		0.25			0.01			(0.37		)	(0.29		)	0.54
Dividends paid		0.04			0.04			0.04			0.04			2.24
Book value		20.24			20.09			20.99			21.48			27.77
Tangible book value ⁽³⁾		13.36			12.95			12.98			11.94			10.11
Market price per share of common stock
Closing		$	11.61		$	5.56		$	13.34		$	15.06		$	14.08
High closing		11.61			15.25			19.48			18.59			45.03
Low closing		5.80			4.99			10.95			3.14			11.25
Market capitalization		$	125,136		$	58,580		$	134,536		$	130,273		$	70,645


⁽¹⁾	Excludes merger and restructuring charges and goodwill impairment charges.


⁽²⁾	Due to a net loss applicable to common shareholders for 2010 and 2009, the impact of antidilutive equity instruments was excluded from diluted earnings (loss) per share and average diluted common shares.


⁽³⁾	Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. Other companies may define or calculate these measures differently. For additional information on these ratios and corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 35 and Statistical Table XV on page 145.


⁽⁴⁾	For more information on the impact of the PCI loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 80.


⁽⁵⁾	Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments.


⁽⁶⁾	Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Nonperforming Consumer Loans and Foreclosed Properties Activity on page 93 and corresponding Table 37, and Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 101 and corresponding Table 46.


⁽⁷⁾	Amounts included in allowance that are excluded from nonperforming loans primarily include amounts allocated to the U.S. credit card and unsecured consumer lending portfolios in CBB, PCI loans and the non-U.S. credit card portfolio in All Other.


⁽⁸⁾	Net charge-offs exclude $2.8 billion of write-offs in the Countrywide home equity PCI loan portfolio for 2012. These write-offs decreased the PCI valuation allowance included as part of the allowance for loan and lease losses. For information on PCI write-offs, see Countrywide Purchased Credit-impaired Loan Portfolio on page 90.


⁽⁹⁾	There were no write-offs of PCI loans in 2011, 2010, 2009 and 2008.

n/m = not meaningful



		Bank of America 2012 33




Table 7	Five Year Summary of Selected Financial Data (continued)

(Dollars in millions)		2012			2011			2010			2009			2008
Average balance sheet
Total loans and leases		$	898,768		$	938,096		$	958,331		$	948,805		$	910,871
Total assets		2,191,356			2,296,322			2,439,606			2,443,068			1,843,985
Total deposits		1,047,782			1,035,802			988,586			980,966			831,157
Long-term debt		316,393			421,229			490,497			446,634			231,235
Common shareholders’ equity		216,996			211,709			212,686			182,288			141,638
Total shareholders’ equity		235,677			229,095			233,235			244,645			164,831
Asset quality ⁽⁴⁾
Allowance for credit losses ⁽⁵⁾		$	24,692		$	34,497		$	43,073		$	38,687		$	23,492
Nonperforming loans, leases and foreclosed properties ⁽⁶⁾		23,555			27,708			32,664			35,747			18,212
Allowance for loan and lease losses as a percentage of total loans and leases outstanding ⁽⁶⁾		2.69		%	3.68		%	4.47		%	4.16		%	2.49		%
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases ⁽⁶⁾		107			135			136			111			141
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio ⁽⁶⁾		82			101			116			99			136
Amounts included in allowance that are excluded from nonperforming loans and leases ⁽⁷⁾		$	12,021		$	17,490		$	22,908		$	17,690		$	11,679
Allowance as a percentage of total nonperforming loans and leases, excluding amounts included in the allowance that are excluded from nonperforming loans and leases ⁽⁷⁾		54		%	65		%	62		%	58		%	70		%
Net charge-offs ⁽⁸⁾		$	14,908		$	20,833		$	34,334		$	33,688		$	16,231
Net charge-offs as a percentage of average loans and leases outstanding ^{(6, 8)}		1.67		%	2.24		%	3.60		%	3.58		%	1.79		%
Net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio ⁽⁶⁾		1.73			2.32			3.73			3.71			1.83
Net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding ^{(6, 9)}		1.99			2.24			3.60			3.58			1.79
Nonperforming loans and leases as a percentage of total loans and leases outstanding ⁽⁶⁾		2.52			2.74			3.27			3.75			1.77
Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties ⁽⁶⁾		2.62			3.01			3.48			3.98			1.96
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs ⁽⁸⁾		1.62			1.62			1.22			1.10			1.42
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs, excluding the PCI loan portfolio		1.25			1.22			1.04			1.00			1.38
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs and PCI write-offs ⁽⁹⁾		1.36			1.62			1.22			1.10			1.42
Capital ratios (year end)
Risk-based capital:
Tier 1 common		11.06		%	9.86		%	8.60		%	7.81		%	4.80		%
Tier 1		12.89			12.40			11.24			10.40			9.15
Total		16.31			16.75			15.77			14.66			13.00
Tier 1 leverage		7.37			7.53			7.21			6.88			6.44
Tangible equity ⁽³⁾		7.62			7.54			6.75			6.40			5.11
Tangible common equity ⁽³⁾		6.74			6.64			5.99			5.56			2.93

For footnotes see page 33.



34 Bank of America 2012

Supplemental Financial Data

We view net interest income and related ratios and analyses on a FTE basis, which when presented on a consolidated basis, are non-GAAP financial measures. 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 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 taxable and tax-exempt sources.

Certain performance measures including the efficiency ratio and net interest yield 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 measures the bps we earn over the cost of funds.

We also evaluate our business based on certain ratios that utilize tangible equity, a non-GAAP financial measure. Tangible equity represents an adjusted shareholders’ equity or common shareholders’ equity amount which has been reduced by goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities. These measures are used to evaluate our use of equity. In addition, profitability, relationship and investment models all use return on average tangible shareholders’ equity (ROTE) as key measures to support our overall growth goals. These ratios are as follows:


	Return on average tangible common shareholders’ equity measures our earnings contribution as a percentage of adjusted common shareholders’ equity. The tangible common equity ratio represents adjusted common shareholders’ equity divided by total assets less goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities.


	ROTE measures our earnings contribution as a percentage of adjusted average total shareholders’ equity. The tangible equity ratio represents adjusted total shareholders’ equity divided by

total assets less goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities.


	Tangible book value per common share represents adjusted ending common shareholders’ equity divided by ending common shares outstanding.

The aforementioned supplemental data and performance measures are presented in Table 7 and Statistical Table XII. In addition, in Table 8 and Statistical Table XIV, we have excluded the impact of goodwill impairment charges of $3.2 billion and $12.4 billion recorded in 2011 and 2010 when presenting certain of these metrics. Accordingly, these are non-GAAP financial measures.

In addition, we evaluate our business segment results based on measures that utilize return on average economic capital, a non-GAAP financial measure, including the following:


	Return on average economic capital for the segments is calculated as net income, adjusted for cost of funds and earnings credits and certain expenses related to intangibles, divided by average economic capital.


	Economic capital represents allocated equity less goodwill and a percentage of intangible assets (excluding MSRs).

In 2009, Common Equivalent Securities (CES) were reflected in our reconciliations given the expectation that the underlying Common Equivalent Junior Preferred Stock, Series S would convert into common stock following shareholder approval of additional authorized shares. Shareholders approved the increase in the number of authorized shares of common stock and the Common Equivalent Stock converted into common stock on February 24, 2010.

Statistical Tables XV, XVI and XVII on pages 145, 146 and 148 provide reconciliations of these non-GAAP financial measures with GAAP financial measures. We believe the use of these non-GAAP financial measures provides additional clarity in assessing the results of the Corporation and our segments. Other companies may define or calculate these measures and ratios differently.




Table 8	Five Year Supplemental Financial Data

(Dollars in millions, except per share information)		2012			2011			2010			2009			2008
Fully taxable-equivalent basis data
Net interest income		$	41,557		$	45,588		$	52,693		$	48,410		$	46,554
Total revenue, net of interest expense		84,235			94,426			111,390			120,944			73,976
Net interest yield		2.35		%	2.48		%	2.78		%	2.65		%	2.98		%
Efficiency ratio		85.59			85.01			74.61			55.16			56.14
Performance ratios, excluding goodwill impairment charges ⁽¹⁾
Per common share information
Earnings					$	0.32		$	0.87
Diluted earnings					0.32			0.86
Efficiency ratio (FTE basis)					81.64		%	63.48		%
Return on average assets					0.20			0.42
Return on average common shareholders’ equity					1.54			4.14
Return on average tangible common shareholders’ equity					2.46			7.03
Return on average tangible shareholders’ equity					3.08			7.11


⁽¹⁾	Performance ratios are calculated excluding the impact of goodwill impairment charges of $3.2 billion and $12.4 billion recorded during 2011 and 2010.



		Bank of America 2012 35

Net Interest Income Excluding Trading-related Net Interest Income

We manage net interest income on a FTE basis and excluding the impact of trading-related activities. As discussed in Global Markets on page 48, we evaluate our sales and trading results and strategies on a total market-based revenue approach by combining net interest income and noninterest income for Global Markets. An analysis of net interest income, average earning assets and net interest yield on earning assets, all of which adjust for the impact of trading-related net interest income from reported net interest income on a FTE basis, is shown below. We believe the use of this non-GAAP presentation in Table 9 provides additional clarity in assessing our results.




Table 9	Net Interest Income Excluding Trading-related Net Interest Income

(Dollars in millions)		2012			2011
Net interest income (FTE basis)
As reported ⁽¹⁾		$	41,557		$	45,588
Impact of trading-related net interest income ⁽²⁾		(3,308		)	(3,690		)
Net interest income excluding trading-related net interest income ⁽³⁾		$	38,249		$	41,898
Average earning assets
As reported		$	1,769,969		$	1,834,659
Impact of trading-related earning assets ⁽²⁾		(449,660		)	(445,574		)
Average earning assets excluding trading-related earning assets ⁽³⁾		$	1,320,309		$	1,389,085
Net interest yield contribution (FTE basis)
As reported ⁽¹⁾		2.35		%	2.48		%
Impact of trading-related activities ⁽²⁾		0.55			0.54
Net interest yield on earning assets excluding trading-related activities ⁽³⁾		2.90		%	3.02		%


⁽¹⁾	For 2012 and 2011, net interest income and net interest yield include fees earned on overnight deposits placed with the Federal Reserve and, for 2012, fees earned on deposits, primarily overnight, placed with certain non-U.S. central banks, of $189 million and $186 million.


⁽²⁾	Represents the impact of trading-related amounts included in Global Markets.


⁽³⁾	Represents a non-GAAP financial measure.

Net interest income excluding trading-related net interest income decreased $3.6 billion to $38.2 billion for 2012 compared to 2011. The decline was primarily due to lower consumer loan balances and yields, the ALM portfolio recouponing to a lower yield and decreased commercial loan yields, partially offset by ongoing reductions in long-term debt and lower interest rates paid on deposits.

Average earning assets excluding trading-related earning assets decreased $68.8 billion to $1,320.3 billion for 2012 compared to 2011. The decrease was primarily due to declines in consumer loans, securities purchased under agreement to resell, time deposits placed and LHFS, partially offset by an increase in commercial loans.

Net interest yield on earning assets excluding trading-related activities decreased 12 bps to 2.90 percent for 2012 compared to 2011 primarily due to the factors noted above for net interest income. The yield curve flattened significantly in 2012 with long-term rates near historical lows. This has resulted in net interest yield compression as assets have repriced down and liability yields have declined less significantly due to the absolute low level of short-end rates.



36 Bank of America 2012

Business Segment Operations

Segment Description and Basis of Presentation

We report the results of our operations through five business segments: CBB, CRES, Global Banking, Global Markets and GWIM, with the remaining operations recorded in All Other.

We prepare and evaluate segment results using certain non-GAAP financial measures. For additional information, see Supplemental Financial Data on page 35.

The management accounting and reporting process derives segment and business results by utilizing allocation methodologies for revenue and expense. The net income derived for the businesses is dependent upon revenue and cost allocations using an activity-based costing model, funds transfer pricing, and other methodologies and assumptions management believes are appropriate to reflect the results of the business.

Total revenue, net of interest expense, includes net interest income on a FTE basis and noninterest income. The adjustment of net interest income to a FTE basis results in a corresponding increase in income tax expense. The segment results also reflect certain revenue and expense methodologies that are utilized to determine net income. The net interest income of the businesses includes the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. For presentation purposes, in segments where the total of liabilities and equity exceeds assets, which are generally deposit-taking segments, we allocate assets to match liabilities. Net interest income of the business segments also includes an allocation of net interest income generated by certain of our ALM activities.

Our ALM activities include an overall interest rate risk management strategy that incorporates the use of various derivatives and cash instruments to manage fluctuations in earnings and capital that are caused by interest rate volatility. Our

goal is to manage interest rate sensitivity so that movements in interest rates do not significantly adversely affect earnings and capital. The majority of our ALM activities are allocated to the business segments and fluctuate based on performance. ALM activities include external product pricing decisions including deposit pricing strategies, the effects of our internal funds transfer pricing process and the net effects of other ALM activities.

Certain expenses not directly attributable to a specific business segment are allocated to the segments. The most significant of these expenses include data and 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 costs of certain other centralized or shared functions are allocated based on methodologies that reflect utilization.

We allocate economic capital to the business segments and related businesses using a risk-adjusted methodology incorporating each segment’s credit, market, interest rate, strategic and operational risk components. See Managing Risk on page 66 and Strategic Risk Management on page 70 for more information on the nature of these risks. A business segment’s allocated equity includes this economic capital allocation and also includes the portion of goodwill and intangibles specifically assigned to the business segment. We benefit from the diversification of risk across these components which is reflected as a reduction to allocated equity for each segment. The risk-adjusted methodology is periodically refined and such refinements are reflected as changes to allocated equity in each segment.

For more information on the business segments and reconciliations to consolidated total revenue, net income (loss) and year-end total assets, see Note 26 – Business Segment Information to the Consolidated Financial Statements.



		Bank of America 2012 37

Consumer & Business Banking




	Deposits						Card Services						Business Banking						Total Consumer & Business Banking
(Dollars in millions)	2012			2011			2012			2011			2012			2011			2012			2011			% Change
Net interest income (FTE basis)	$	7,857		$	8,472		$	10,047		$	11,502		$	1,221		$	1,404		$	19,125		$	21,378		(11	)%
Noninterest income:
Card income	—			—			5,261			6,286			—			—			5,261			6,286			(16	)
Service charges	3,922			4,000			1			—			361			524			4,284			4,524			(5	)
All other income (loss)	276			224			(54		)	328			131			140			353			692			(49	)
Total noninterest income	4,198			4,224			5,208			6,614			492			664			9,898			11,502			(14	)
Total revenue, net of interest expense (FTE basis)	12,055			12,696			15,255			18,116			1,713			2,068			29,023			32,880			(12	)

Provision for credit losses	208			173			3,452			3,072			281			245			3,941			3,490			13
Noninterest expense	10,409			10,600			5,496			5,961			888			1,158			16,793			17,719			(5	)
Income before income taxes	1,438			1,923			6,307			9,083			544			665			8,289			11,671			(29	)
Income tax expense (FTE basis)	521			706			2,246			3,272			201			246			2,968			4,224			(30	)
Net income	$	917		$	1,217		$	4,061		$	5,811		$	343		$	419		$	5,321		$	7,447		(29	)

Net interest yield (FTE basis)	1.81		%	2.02		%	8.93		%	9.04		%	2.68		%	3.23		%	3.88		%	4.45		%
Return on average allocated equity	3.77			5.13			19.73			27.50			3.92			5.20			9.92			14.07
Return on average economic capital	14.35			21.10			40.20			55.30			5.16			7.03			23.01			33.52
Efficiency ratio (FTE basis)	86.34			83.49			36.03			32.90			51.81			56.09			57.86			53.89

Balance Sheet

Average
Total loans and leases	n/m			n/m			$	111,642		$	126,083		$	23,764		$	26,889		$	136,171		$	153,641		(11	)
Total earning assets⁽¹⁾	$	433,908		$	419,996		112,489			127,258			45,549			43,542			492,965			480,590			3
Total assets ⁽¹⁾	460,074			446,475			118,763			130,254			52,690			51,553			532,546			518,076			3
Total deposits	434,261			421,106			n/m			n/m			42,837			40,679			477,440			462,087			3
Allocated equity	24,329			23,734			20,578			21,127			8,739			8,047			53,646			52,908			1
Economic capital	6,405			5,786			10,131			10,538			6,642			5,949			23,178			22,273			4

Year end
Total loans and leases	n/m			n/m			$	110,380		$	120,668		$	23,396		$	25,006		$	134,657		$	146,378		(8	)
Total earning assets ⁽¹⁾	$	455,999		$	419,215		110,831			121,991			44,712			46,516			514,521			480,972			7
Total assets⁽¹⁾	482,339			446,274			117,904			127,623			51,655			53,950			554,878			521,097			6
Total deposits	455,871			421,871			n/m			n/m			42,382			41,519			498,669			464,264			7


⁽¹⁾	For presentation purposes, in segments and businesses where the total of liabilities and equity exceeds assets, we allocate assets to match liabilities. As a result, total earning assets and total assets of the businesses may not equal total CBB.

n/m = not meaningful

CBB, which is comprised of Deposits, Card Services and Business Banking, offers a diversified range of credit, banking and investment products and services to consumers and businesses. Our customers and clients have access to a franchise network that stretches coast to coast through 32 states and the District of Columbia. The franchise network includes approximately 5,500 banking centers, 16,300 ATMs, nationwide call centers, and online and mobile platforms.

The Federal Reserve adopted a final rule with respect to the Durbin Amendment, which became effective October 1, 2011, that established the maximum allowable interchange fees a bank can receive for a debit card transaction. The interchange fee rules resulted in a reduction of debit card revenue of approximately $1.7 billion in 2012 compared to a $430 million reduction in 2011. For more information on the Durbin Amendment and the final interchange rules, see Regulatory Matters on page 64.

CBB Results

Net income for CBB decreased $2.1 billion to $5.3 billion in 2012 compared to 2011 primarily due to lower revenue and higher provision for credit losses, partially offset by lower noninterest expense. Net interest income decreased $2.3 billion to $19.1 billion due to lower average loan balances primarily in Card Services as well as compressed deposit spreads due to the continued low rate environment. Noninterest income decreased $1.6 billion to $9.9 billion primarily due to a decline in Card Services. The provision for credit losses increased $451 million to $3.9 billion with the increase largely in Card Services. Noninterest expense decreased $926 million to $16.8 billion primarily due to lower FDIC and operating expenses, partially offset by an increase in litigation expense.

The return on average economic capital decreased primarily due to lower net income. For more information regarding economic capital, see Supplemental Financial Data on page 35.



38 Bank of America 2012

Deposits

Deposits includes the results of consumer deposit activities which consist of a comprehensive range of products provided to consumers and small businesses. Our deposit products include traditional savings accounts, money market savings accounts, CDs and IRAs, noninterest- and interest-bearing checking accounts, as well as investment accounts and products. Deposit products provide a relatively stable source of funding and liquidity for the Corporation. We earn net interest spread revenue from investing this liquidity in earning assets through client-facing lending and ALM activities. The revenue is allocated to the deposit products using our funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics.

Deposits also generates fees such as account service fees, non-sufficient funds fees, overdraft charges and ATM fees, as well as investment and brokerage fees from Merrill Edge accounts. Merrill Edge is an integrated investing and banking service targeted at clients with less than $250,000 in investable assets. Merrill Edge provides investment advice and guidance, brokerage services, a self-directed online investing platform and key banking capabilities including access to the Corporation’s network of banking centers and ATMs. Deposits includes the net impact of migrating customers and their related deposit balances between Deposits and GWIM as well as other client-managed businesses. For more information on the migration of customer balances to or from GWIM, see GWIM on page 50.

Net income for Deposits decreased $300 million to $917 million in 2012 primarily driven by lower net interest income, partially offset by lower noninterest expense. Net interest income declined $615 million to $7.9 billion driven by compressed deposit spreads due to the continued low rate environment, partially offset by growth in deposit balances, a customer shift to higher spread liquid products and continued pricing discipline. Noninterest income of $4.2 billion remained relatively unchanged. Noninterest expense decreased $191 million to $10.4 billion as lower FDIC expense was partially offset by higher operating and litigation expenses.

Average deposits increased $13.2 billion to $434.3 billion in 2012 driven by a customer shift to more liquid products in a low rate environment as checking, traditional savings and money market savings grew $23.9 billion. Growth in liquid products was partially offset by a decline in average time deposits of $10.7 billion. As a result of the shift in the mix of deposits and our continued pricing discipline, the rate paid on average deposits declined by seven bps to 20 bps.




Key Statistics

	2012			2011
Total deposit spreads (excludes noninterest costs) ⁽¹⁾	1.81		%	2.12		%

Year end
Client brokerage assets (in millions)	$	75,946		$	66,576
Online banking active accounts (units in thousands)	29,638			29,870
Mobile banking active accounts (units in thousands)	12,013			9,166
Banking centers	5,478			5,702
ATMs	16,347			17,756


⁽¹⁾	Total deposit spreads include the Deposits and Business Banking businesses.

Mobile banking customers increased 2.8 million in 2012 reflecting a change in our customers’ banking preferences. The number of banking centers declined 224 and ATMs declined 1,409 as we continue to improve our cost-to-serve and optimize our consumer banking network.

Card Services

Card Services is one of the leading issuers of credit and debit cards to consumers and small businesses in the U.S. In addition to earning net interest spread revenue on its lending activities, Card Services generates interchange revenue from credit and debit card transactions as well as annual credit card fees and other miscellaneous fees.

Net income for Card Services decreased $1.8 billion to $4.1 billion in 2012 primarily driven by a decrease in revenue and an increase in the provision for credit losses, partially offset by lower noninterest expense. Net interest income decreased $1.5 billion to $10.0 billion driven by lower average loan balances and yields. The net interest yield decreased 11 bps to 8.93 percent due to charge-offs and paydowns of higher interest rate products. Noninterest income decreased $1.4 billion to $5.2 billion primarily due to lower interchange fees as a result of implementing the Durbin Amendment, lower gains on sales of portfolios and the impact of charges related to our consumer protection products.

The provision for credit losses increased $380 million to $3.5 billion in 2012 as portfolio trends stabilized during 2012. For more information, see Provision for Credit Losses on page 109. Noninterest expense decreased $465 million to $5.5 billion primarily due to lower personnel and operating expenses.

Average loans decreased $14.4 billion to $111.6 billion in 2012 driven by the impact of portfolio sales, charge-offs and continued run-off of non-core portfolios.




Key Statistics

(Dollars in millions)	2012			2011
U.S. credit card
Gross interest yield	10.02		%	10.25		%
Risk-adjusted margin	7.54			5.81
New accounts (in thousands)	3,258			3,035
Purchase volumes	$	193,500		$	192,358
Debit card purchase volumes	258,363			250,545

During 2012, the U.S. credit card risk-adjusted margin increased 173 bps due to a decrease in net charge-offs driven by an improvement in credit quality. U.S. credit card new accounts grew by approximately 223,000 accounts to 3.3 million. During 2012, U.S. credit card purchase volumes increased $1.1 billion to $193.5 billion reflecting higher levels of consumer spending, partially offset by the impact of portfolio sales. Debit card purchase volumes increased $7.8 billion to $258.4 billion reflecting higher levels of consumer spending.



		Bank of America 2012 39

Business Banking

Business Banking provides a wide range of lending-related products and services, integrated working capital management and treasury solutions to clients through our network of offices and client relationship teams along with various product partners. Our clients include U.S.-based companies generally with annual sales of $1 million to $50 million. Our lending products and services include commercial loans, lines of credit and real estate lending. Our capital management and treasury solutions include treasury management, foreign exchange and short-term investing options. Business Banking also includes the results of our merchant services joint venture.

Net income for Business Banking decreased $76 million to $343 million in 2012 primarily driven by lower revenue and an increase in the provision for credit losses, largely offset by lower

noninterest expense. Net interest income decreased $183 million to $1.2 billion driven by lower average loan balances. Noninterest income decreased $172 million to $492 million primarily due to the transfer of certain processing activities to our merchant services joint venture in 2012. The provision for credit losses increased $36 million to $281 million primarily driven by a slower pace of improvement in credit quality than in the prior year. Noninterest expense decreased $270 million to $888 million driven by lower FDIC and merchant processing expenses.

Average loans decreased $3.1 billion to $23.8 billion in 2012 primarily driven by the net transfer of certain loans to other businesses, higher prepayments and continued run-off of non-core portfolios. Average deposits increased $2.2 billion to $42.8 billion in 2012 due to the current client preference for liquidity and the net transfer of certain deposits from other businesses.



40 Bank of America 2012

Consumer Real Estate Services




	Home Loans						Legacy Assets & Servicing						Total Consumer Real Estate Services
(Dollars in millions)	2012			2011			2012			2011			2012			2011			% Change
Net interest income (FTE basis)	$	1,361		$	1,828		$	1,598		$	1,379		$	2,959		$	3,207		(8	)%
Noninterest income:
Mortgage banking income (loss)	3,284			2,312			2,247			(10,505		)	5,531			(8,193		)	(168	)
Insurance income	6			750			—			—			6			750			(99	)
All other income (loss)	(5		)	971			268			111			263			1,082			(76	)
Total noninterest income (loss)	3,285			4,033			2,515			(10,394		)	5,800			(6,361		)	(191	)
Total revenue, net of interest expense (FTE basis)	4,646			5,861			4,113			(9,015		)	8,759			(3,154		)	n/m

Provision for credit losses	72			233			1,370			4,291			1,442			4,524			(68	)
Goodwill impairment	—			—			—			2,603			—			2,603			(100	)
All other noninterest expense	3,171			4,563			14,135			14,625			17,306			19,188			(10	)
Income (loss) before income taxes	1,403			1,065			(11,392		)	(30,534		)	(9,989		)	(29,469		)	(66	)
Income tax expense (benefit) (FTE basis)	511			396			(3,993		)	(10,400		)	(3,482		)	(10,004		)	(65	)
Net income (loss)	$	892		$	669		$	(7,399	)	$	(20,134	)	$	(6,507	)	$	(19,465	)	(67	)

Net interest yield (FTE basis)	2.41		%	2.59		%	2.45		%	1.63		%	2.43		%	2.07		%
Efficiency ratio (FTE basis)	68.25			77.85			n/m			n/m			n/m			n/m

Balance Sheet

Average
Total loans and leases	$	50,023		$	54,663		$	54,731		$	65,157		$	104,754		$	119,820		(13	)
Total earning assets	56,581			70,488			65,288			84,402			121,869			154,890			(21	)
Total assets	57,550			71,508			89,055			118,859			146,605			190,367			(23	)
Allocated equity	n/a			n/a			n/a			n/a			13,687			16,202			(16	)
Economic capital	n/a			n/a			n/a			n/a			13,687			14,852			(8	)

Year end
Total loans and leases	$	47,742		$	52,371		$	48,230		$	59,988		$	95,972		$	112,359		(15	)
Total earning assets	54,394			58,819			53,892			73,562			108,286			132,381			(18	)
Total assets	55,463			59,647			76,925			104,065			132,388			163,712			(19	)

n/m = not meaningful

n/a = not applicable

CRES operations include Home Loans and Legacy Assets & Servicing. Home Loans is responsible for ongoing loan production activities and the CRES home equity loan portfolio not selected for inclusion in the Legacy Assets & Servicing owned portfolio. Legacy Assets & Servicing is responsible for all of our mortgage servicing activities related to loans serviced for others and loans held by the Corporation, including loans that have been designated as the Legacy Assets & Servicing Portfolios. The Legacy Assets & Servicing Portfolios (both owned and serviced), herein referred to as the Legacy Owned and Legacy Serviced Portfolios, respectively, (together, the Legacy Portfolios), and as further defined below, include those loans that would not have been originated under our underwriting standards as of December 31, 2010. For additional information on our Legacy Portfolios, see page 43. In addition, Legacy Assets & Servicing is responsible for managing legacy exposures related to CRES (e.g., representations and warranties). This alignment allows CRES management to lead the ongoing Home Loans business while also providing greater focus on legacy mortgage issues and servicing activities.

CRES, primarily through Home Loans operations, generates revenue by providing an extensive line of consumer real estate products and services to customers nationwide. CRES products offered by Home Loans include fixed- and adjustable-rate first-lien mortgage loans for home purchase and refinancing needs, home equity lines of credit (HELOCs) and home equity loans. First

mortgage products are either sold into the secondary mortgage market to investors, while we generally retain MSRs and the Bank of America customer relationships, or are held on the balance sheet in All Other for ALM purposes. Home Loans is compensated for loans held for ALM purposes on a management accounting basis with the corresponding offset in All Other. Newly originated HELOCs and home equity loans are retained on the CRES balance sheet in Home Loans.

CRES includes the impact of transferring customers and their related loan balances between GWIM and CRES. For more information on the migration of customer balances, see GWIM on page 50.

CRES Results

The net loss for CRES decreased $13.0 billion to $6.5 billion for 2012 compared to 2011 primarily driven by mortgage banking income of $5.5 billion in 2012 compared to a loss of $8.2 billion in 2011. Also contributing to the decrease in the net loss was lower provision for credit losses and a decline in noninterest expense, partially offset by lower insurance income and other income. Mortgage banking income increased $13.7 billion due to an $11.7 billion decrease in representations and warranties provision, and higher servicing income and core production revenue. The provision for credit losses decreased $3.1 billion driven by improved portfolio trends and increasing home prices in



		Bank of America 2012 41

both the non-PCI and PCI home equity loan portfolios. Noninterest expense decreased $4.5 billion primarily due to a decline in litigation expense, the absence of a goodwill impairment charge in 2012 compared to $2.6 billion in 2011, a decline in production and insurance expenses in Home Loans and a reduction in Legacy Assets & Servicing expenses.

Average economic capital decreased eight percent primarily due to a reduction in operational risk driven by the sale of Balboa and a reduction in credit risk. For more information regarding economic capital, see Supplemental Financial Data on page 35.

Home Loans

Home Loans products are available to our customers through our retail network of approximately 5,500 banking centers, mortgage loan officers in 375 locations and a sales force offering our customers direct telephone and online access to our products. These products were also offered through our correspondent lending channel which we exited in the second half of 2011 and the reverse mortgage origination business which we exited in the first half of 2011. These strategic changes were made to allow greater focus on our direct-to-consumer channels, deepen relationships with existing customers and use mortgage products to acquire new relationships.

Home Loans also included the Balboa insurance operations through June 30, 2011, when the ongoing insurance business was transferred to CBB following the sale of Balboa.

Net income for Home Loans increased $223 million to $892 million primarily driven by a decrease in noninterest expense and lower provision for credit losses, partially offset by a decline in revenue.

The $1.2 billion decline in revenue was the result of a decrease of $744 million in insurance income as a result of the Balboa sale in 2011 and a $467 million decline in net interest income primarily driven by lower LHFS balances due to our exit from the correspondent lending channel and lower home equity balances. In addition, a net gain of $752 million on the sale of Balboa in 2011 contributed to the decline in revenue. These declines were partially offset by an increase of $972 million in mortgage banking income as higher retail margins more than offset lower originations.

The $161 million decline in the provision for credit losses was driven by improved portfolio trends and increasing home prices. The $1.4 billion decline in noninterest expense was primarily due to lower insurance expense as a result of the sale of Balboa, lower production expense driven by lower retail originations and our exit from the correspondent lending channel.

Legacy Assets & Servicing

Legacy Assets & Servicing is responsible for all of our servicing activities related to the residential, home equity and discontinued real estate loan portfolios, including owned loans and loans serviced for others (collectively, the mortgage serviced portfolio). A portion of this portfolio has been designated as the Legacy Serviced Portfolio, which represents 39 percent, 42 percent and 49 percent of the total mortgage serviced portfolio, as measured by unpaid principal balance, at December 31, 2012, 2011 and 2010, respectively.

Legacy Assets & Servicing results reflect the net cost of legacy exposures that are included in the results of CRES, including

representations and warranties provision, litigation costs, financial results of the CRES home equity portfolio selected as part of the Legacy Owned Portfolio, the financial results of the servicing operations and the results of MSR activities, including net hedge results. The financial results of the servicing operations reflect certain revenues and expenses on loans serviced for others, including owned loans serviced for Home Loans, GWIM and All Other.

Servicing activities include collecting cash for principal, interest and escrow payments from borrowers, and disbursing customer draws for lines of credit and accounting for and remitting principal and interest payments to investors and escrow payments to third parties along with responding to customer inquiries. Our home retention efforts, including single point of contact resources, are also part of our servicing activities, along with supervising foreclosures and property dispositions. In an effort to help our customers avoid foreclosure, Legacy Assets & Servicing evaluates various workout options prior to foreclosure sales which, combined with our temporary halt of foreclosures announced in October 2010, has resulted in elongated default timelines. Although we have resumed foreclosure proceedings in all states, there continues to be significant inventory levels in judicial states. For additional information on our servicing activities, including the impact of foreclosure delays, see Off-Balance Sheet Arrangements and Contractual Obligations – Other Mortgage-related Matters on page 61.

The net loss for Legacy Assets & Servicing decreased $12.7 billion to $7.4 billion driven by an improvement in mortgage banking income, a decrease in noninterest expense and a decrease in the provision for credit losses. The $12.8 billion increase in mortgage banking income was primarily due to a decrease of $11.7 billion in representations and warranties provision. The 2012 representations and warranties provision of $3.9 billion included $2.5 billion in provision related to the FNMA Settlement and $500 million for obligations to FNMA related to mortgage insurance rescissions. The 2011 representations and warranties provision of $15.6 billion included $8.6 billion in provision and other costs related to the settlement with Bank of New York Mellon (BNY Mellon Settlement) to resolve nearly all of the legacy Countrywide-issued first-lien non-GSE repurchase exposures, and $7.0 billion in provision related to other non-GSE, and to a lesser extent, GSE exposures. The provision for credit losses decreased $2.9 billion due to improved portfolio trends and increasing home prices in both the non-PCI and PCI home equity loan portfolios.

Noninterest expense decreased $3.1 billion primarily due to a $3.0 billion decline in litigation expense, the absence of a goodwill impairment charge in 2012 compared to $2.6 billion in 2011, and $1.0 billion lower mortgage-related assessments, waivers and similar costs related to foreclosure delays. These declines were partially offset by an increase of $2.4 billion in default-related servicing expenses and a $1.1 billion provision for the 2013 IFR Acceleration Agreement. For more information on the 2013 IFR Acceleration Agreement, see Off-Balance Sheet Arrangements and Contractual Obligations – Servicing Matters and Foreclosure Processes on page 61. The increase in default-related servicing expenses was due to resources needed to implement new servicing standards mandated for the industry, including as part of the National Mortgage Settlement, other operational changes and costs due to delayed foreclosures.



42 Bank of America 2012

Legacy Portfolios

The Legacy Portfolios (both owned and serviced) include those loans that would not have been originated under our underwriting standards at December 31, 2010. The Countrywide PCI portfolio as well as certain loans that met a pre-defined delinquency status or probability of default threshold as of January 1, 2011 are also included in the Legacy Portfolios. Since determining the pool of loans to be included in the Legacy Portfolios as of January 1, 2011, the criteria have not changed for these portfolios, but will continue to be evaluated over time.

Legacy Owned Portfolio

The Legacy Owned Portfolio includes those loans that met the criteria as described above and are on the balance sheet of the Corporation. The home equity loan portfolio is held on the balance sheet of Legacy Assets & Servicing; whereas, the residential mortgage and discontinued real estate loan portfolios are held on the balance sheet of All Other. The financial results of the on-balance sheet loans are reported in the segment that owns the loans or in All Other. During 2012, the total loans in the Legacy Owned Portfolio decreased $23.8 billion to $131.1 billion at December 31, 2012, of which $48.2 billion was reflected on the Legacy Assets & Servicing balance sheet and the remainder was held on the balance sheet of All Other. The decline was primarily related to paydowns and payoffs, but also reflects forgiveness of loans in connection with the National Mortgage Settlement, and charge-offs recorded on loans discharged in Chapter 7 bankruptcy under new regulatory guidance implemented during 2012. For more information on the National Mortgage Settlement and the new regulatory guidance, see Consumer Portfolio Credit Risk Management on page 80.

Legacy Serviced Portfolio

The Legacy Serviced Portfolio includes the Legacy Owned Portfolio and those loans serviced for outside investors that met the criteria as described above. The following table summarizes the balances of the residential mortgage and discontinued real estate loans included in the Legacy Serviced Portfolio (collectively, the Legacy Residential Mortgage Serviced Portfolio) representing 39 percent, 41 percent and 48 percent of the total residential mortgage serviced portfolio, as measured by unpaid principal balance, of $1.2 trillion, $1.6 trillion and $1.9 trillion at December 31, 2012, 2011 and 2010, respectively. The decline in the Legacy Residential Mortgage Serviced Portfolio was primarily related to servicing transfers, paydowns and payoffs.




Legacy Residential Mortgage Serviced Portfolio, a subset of the Residential Mortgage Serviced Portfolio ⁽¹⁾

	December 31
(Dollars in billions)	2012		2011		2010
Unpaid principal balance
Residential mortgage loans ⁽²⁾
Total	$	467	$	659	$	912
60 days or more past due	137		235		312

Number of loans serviced (in thousands)
Residential mortgage loans ⁽²⁾
Total	2,542		3,440		4,660
60 days or more past due	649		1,061		1,373


⁽¹⁾	Excludes $57 billion, $84 billion and $99 billion of home equity loans and HELOCs at December 31, 2012, 2011 and 2010, respectively.


⁽²⁾	Includes discontinued real estate loans.

Non-Legacy Portfolio

As discussed above, Legacy Assets & Servicing is responsible for all of our servicing activities. The following table summarizes the balances of the residential mortgage and discontinued real estate loans that are not included in the Legacy Serviced Portfolio (the Non-Legacy Residential Mortgage Serviced Portfolio) representing 61 percent, 59 percent and 52 percent of the total residential mortgage serviced portfolio, as measured by unpaid principal balance, at December 31, 2012, 2011 and 2010, respectively. The decline in the Non-Legacy Residential Mortgage Serviced Portfolio was primarily related to servicing transfers, paydowns and payoffs.




Non-Legacy Residential Mortgage Serviced Portfolio, a subset of the Residential Mortgage Serviced Portfolio ⁽¹⁾

	December 31
(Dollars in billions)	2012		2011		2010
Unpaid principal balance
Residential mortgage loans ⁽²⁾
Total	$	744	$	953	$	977
60 days or more past due	22		17		1

Number of loans serviced (in thousands)
Residential mortgage loans ⁽²⁾
Total	4,764		5,731		5,773
60 days or more past due	124		95		—


⁽¹⁾	Excludes $64 billion, $67 billion and $69 billion of home equity loans and HELOCs at December 31, 2012, 2011 and 2010, respectively.


⁽²⁾	Includes discontinued real estate loans.

Mortgage Banking Income

CRES mortgage banking income (loss) is categorized into production and servicing income. Core production income is comprised of revenue from the fair value gains and losses recognized on our interest rate lock commitments (IRLCs) and LHFS, the related secondary market execution, and costs related to representations and warranties in the sales transactions along with other obligations incurred in the sales of mortgage loans. Ongoing costs related to representations and warranties and other obligations that were incurred in the sales of mortgage loans in prior periods are also included in production income.

Servicing income includes income earned in connection with servicing activities and MSR valuation adjustments, net of results from risk management activities used to hedge certain market risks of the MSRs. The costs associated with our servicing activities are included in noninterest expense.



		Bank of America 2012 43

The table below summarizes the components of mortgage banking income (loss).




Mortgage Banking Income (Loss)

(Dollars in millions)	2012			2011
Production income (loss):
Core production revenue	$	3,730		$	2,797
Representations and warranties provision	(3,939		)	(15,591		)
Total production loss	(209		)	(12,794		)
Servicing income:
Servicing fees	4,734			6,035
Impact of customer payments ⁽¹⁾	(1,484		)	(2,621		)
Fair value changes of MSRs, net of risk management activities used to hedge certain market risks ⁽²⁾	1,845			655
Other servicing-related revenue	645			532
Total net servicing income	5,740			4,601
Total CRES mortgage banking income (loss)	5,531			(8,193		)
Eliminations ⁽³⁾	(781		)	(637		)
Total consolidated mortgage banking income (loss)	$	4,750		$	(8,830	)


⁽¹⁾	Represents the change in the market value of the MSR asset due to the impact of customer payments received during the year.


⁽²⁾	Includes gains (losses) on sales of MSRs.


⁽³⁾	Includes the effect of transfers of mortgage loans from CRES to the ALM portfolio in All Other.

CRES first mortgage loan originations declined $80.8 billion, or 58 percent, primarily as a result of our exit from the correspondent lending channel in 2011. CRES retail first mortgage loan originations were $58.5 billion in 2012 compared to $67.8 billion in 2011, excluding correspondent lending, reflecting a drop in estimated retail market share as the overall market for mortgages increased. Our decline in market share was primarily due to our decision to price loan products in order to manage our fulfillment capacity. Core production revenue increased $933 million to $3.7 billion as the impact of our exit from the correspondent lending channel and the decline in retail originations were more than offset by higher retail margins. On an industry-wide basis margins increased as historically low mortgage rates drove strong consumer demand for refinance transactions at a time when most lenders had capacity constraints which, combined with our pricing strategy, contributed to higher retail margins. In addition, a higher proportion of refinance transactions, particularly Home Affordable Refinance Programs (HARP), contributed to higher margins. During 2012, 84 percent of our first mortgage production volume was for refinance originations and 16 percent was for purchase originations compared to 60 percent and 40 percent in 2011.

The representations and warranties provision decreased $11.7 billion to $3.9 billion as described earlier in this section.

Net servicing income increased $1.1 billion to $5.7 billion primarily due to $1.2 billion in improved MSR results, net of hedges, and $1.1 billion in reduced impact of customer payments driven by a lower MSR asset, partially offset by a $1.3 billion decrease in servicing fees primarily due to a reduction in the size of the servicing portfolio. For additional information, see Note 24 – Mortgage Servicing Rights to the Consolidated Financial Statements.




Key Statistics

(Dollars in millions, except as noted)	2012			2011
Loan production
Total Corporation ⁽¹⁾:
First mortgage	$	75,074		$	151,756
First mortgage (excluding correspondent lending)	75,074			80,300
Home equity	3,585			4,388
CRES:
First mortgage	$	58,518		$	139,273
First mortgage (excluding correspondent lending)	58,518			67,817
Home equity	2,832			3,694

Year end
Mortgage serviced portfolio (in billions) ^{(2, 3)}	$	1,332		$	1,763
Mortgage loans serviced for investors (in billions)	1,045			1,379
Mortgage servicing rights:
Balance	5,716			7,378
Capitalized mortgage servicing rights (% of loans serviced for investors)	55		bps	54		bps


⁽¹⁾	In addition to loan production in CRES, the remaining first mortgage and home equity loan production is primarily in GWIM.


⁽²⁾	Servicing of residential mortgage loans, HELOCs, home equity loans and discontinued real estate mortgage loans.


⁽³⁾	The mortgage serviced portfolio at December 31, 2010 was $2,057 billion.

Retail first mortgage loan originations for the total Corporation were $75.1 billion for 2012 compared to $80.3 billion for 2011,

excluding correspondent lending. The decrease was primarily driven by our decision to price loan products in order to manage our fulfillment capacity.

Home equity production was $3.6 billion for 2012 compared to $4.4 billion for 2011 primarily due to our decision to exit the reverse mortgage business.



44 Bank of America 2012

Mortgage Servicing Rights

At December 31, 2012, the consumer MSR balance was $5.7 billion, which represented 55 bps of the related unpaid principal balance compared to $7.4 billion or 54 bps of the related unpaid principal balance at December 31, 2011. The consumer MSR balance decreased $1.7 billion during 2012 primarily driven by lower mortgage rates, which resulted in higher forecasted prepayment speeds and the change in the MSR asset value due to customer payments received during the period. During 2012, the fair value changes of MSRs, net of results from risk management activities used to hedge certain market risks of the MSRs, were a positive $1.8 billion as the positive hedge results more than offset the impact of the market valuation decline on the MSR balance. The hedges outperformed the MSRs due to significant upward price movements in the MBS market in the later part of 2012. For additional information on our servicing activities, see Off-Balance Sheet Arrangements and Contractual Obligations – Servicing Matters and Foreclosure Processes on page 61. For additional information on MSRs, see Note 24 – Mortgage Servicing Rights to the Consolidated Financial Statements.

Sales of Mortgage Servicing Rights

On January 6, 2013, Bank of America entered into definitive agreements with two different counterparties, and on February 19, 2013 with an additional counterparty to sell the servicing rights on certain residential mortgage loans serviced for others, with an aggregate unpaid principal balance of approximately $317 billion. The sales involve approximately 2.1 million loans currently serviced by us, including approximately 234,000 residential mortgage loans and approximately 24,000 home equity loans that were 60 days or more past due at December 31, 2012. The transfers of servicing rights are scheduled to occur in stages throughout 2013 with the delinquent loans scheduled to be transferred after the current loans. Currently, we recognize approximately $200 million in servicing revenues per quarter associated with these loans, which is expected to decrease throughout 2013 as we transfer the servicing rights. Over time we expect the impact on earnings to be negligible as we expect expenses to also decrease after we transfer the servicing rights, especially for loans that are 60 days or more past due. For additional information on servicing sales, see Recent Events – Sale of Mortgage Servicing Rights on page 26.



		Bank of America 2012 45

Global Banking




(Dollars in millions)	2012			2011			% Change
Net interest income (FTE basis)	$	9,225		$	9,490		(3	)%
Noninterest income:
Service charges	3,168			3,420			(7	)
Investment banking fees	2,787			3,061			(9	)
All other income	2,027			1,341			51
Total noninterest income	7,982			7,822			2
Total revenue, net of interest expense (FTE basis)	17,207			17,312			(1	)

Provision for credit losses	(103		)	(1,118		)	(91	)
Noninterest expense	8,308			8,884			(6	)
Income before income taxes	9,002			9,546			(6	)
Income tax expense (FTE basis)	3,277			3,500			(6	)
Net income	$	5,725		$	6,046		(5	)

Net interest yield (FTE basis)	3.01		%	3.26		%
Return on average allocated equity	12.47			12.76
Return on average economic capital	27.21			26.59
Efficiency ratio (FTE basis)	48.28			51.31

Balance Sheet

Average
Total loans and leases	$	272,625		$	265,568		3
Total earning assets	306,724			290,797			5
Total assets	352,969			337,337			5
Total deposits	249,317			237,312			5
Allocated equity	45,907			47,384			(3	)
Economic capital	21,053			22,761			(8	)

Year end
Total loans and leases	$	288,261		$	278,177		4
Total earning assets	315,638			301,662			5
Total assets	362,797			348,773			4
Total deposits	269,738			246,360			9

Global Banking, which includes Global Corporate and Global Commercial Banking, and Investment Banking, provides a wide range of lending-related products and services, integrated working capital management and treasury solutions to clients, and underwriting and advisory services through our network of offices and client relationship teams. Our lending products and services include commercial loans, leases, commitment facilities, trade finance, real estate lending, asset-based lending and direct/indirect consumer loans. Our treasury solutions business includes treasury management, foreign exchange and short-term investing options. We also work with our clients to provide investment banking products such as debt and equity underwriting and distribution, and merger-related and other advisory services. Underwriting debt and equity issuances, fixed-income and equity research, and certain market-based activities are executed through our global broker/dealer affiliates which are our primary dealers in several countries. Within Global Banking, Global Commercial Banking clients generally include middle-market companies, commercial real estate firms, auto dealerships, not-for-profit companies, federal and state governments, and municipalities. Global Corporate Banking includes large global corporations, financial institutions and leasing clients.

Net income for Global Banking decreased $321 million to $5.7 billion in 2012 compared to 2011 driven by an increase in the provision for credit losses, partially offset by lower noninterest expense.

Revenue decreased $105 million in 2012 primarily due to lower investment banking fees, lower net interest income as a result of spread compression and the benefit in the prior year from higher accretion on acquired portfolios, partially offset by the impact of higher average loan and deposit balances and gains from certain legacy portfolios.

The provision for credit losses was a benefit of $103 million in 2012 compared to a benefit of $1.1 billion in 2011. The $1.0 billion reduction in benefit was primarily as a result of stabilization of asset quality, core commercial loan growth and the impact of a higher volume of loan resolutions in the commercial real estate portfolio in the prior year.

Noninterest expense decreased $576 million in 2012 primarily due to lower personnel and operating expenses.

Average loans and leases increased $7.1 billion in 2012 primarily driven by growth in U.S. and non-U.S. commercial and industrial loans in large corporate and middle-market segments, specialized industries and trade finance, partially offset by managed reductions in commercial real estate. Average deposits increased $12.0 billion in 2012 as balances continued to grow from client liquidity, growth in international balances and limited alternative investment options.

The return on average economic capital increased in 2012 as a decrease in average economic capital was partially offset by lower net income. Average economic capital decreased primarily due to a reduction in credit risk driven by decreases in reservable



46 Bank of America 2012

criticized balances and NPAs. For more information regarding economic capital, see Supplemental Financial Data on page 35.

Global Corporate and Global Commercial Banking

Global Corporate and Global Commercial Banking includes Global Treasury Services and Business Lending activities. Global Treasury Services includes deposits, treasury management, credit card,

foreign exchange, short-term investment and custody solutions to corporate and commercial banking clients. Business Lending includes various loan-related products and services including commercial loans, leases, commitment facilities, trade finance, real estate lending, asset-based lending and direct/indirect consumer loans. The table below presents a summary of Global Corporate and Global Commercial Banking results.




Global Corporate and Global Commercial Banking

	Global Corporate Banking				Global Commercial Banking				Total
(Dollars in millions)	2012		2011		2012		2011		2012		2011
Revenue
Business Lending	$	3,202	$	3,240	$	4,585	$	4,996	$	7,787	$	8,236
Global Treasury Services	2,629		2,507		3,561		3,489		6,190		5,996
Total revenue, net of interest expense	$	5,831	$	5,747	$	8,146	$	8,485	$	13,977	$	14,232

Average
Total loans and leases	$	110,109	$	101,956	$	161,951	$	162,526	$	272,060	$	264,482
Total deposits	114,185		108,749		135,096		128,513		249,281		237,262

Year end
Total loans and leases	$	116,234	$	113,978	$	172,018	$	163,256	$	288,252	$	277,234
Total deposits	131,181		110,898		138,517		135,423		269,698		246,321

Global Corporate and Global Commercial Banking revenue decreased $255 million to $14.0 billion in 2012 compared to 2011 primarily due to lower revenue in Business Lending that was partially offset by an increase in Global Treasury Services revenue.

Global Treasury Services revenue increased $122 million in Global Corporate Banking and $72 million in Global Commercial Banking in 2012 as growth in U.S. and non-U.S. deposit balances and higher service charges offset the impact of the low rate environment.

Business Lending revenue in Global Corporate Banking remained relatively unchanged in 2012 compared to 2011 as lower net interest income impacted by the low rate environment and lower accretion on acquired portfolios was offset by growth in the loan portfolio and gains on fair value option loans. Business Lending revenue decreased $411 million in Global Commercial Banking as managed reductions of commercial real estate criticized assets, run-off of a liquidating auto loan portfolio and lower accretion on acquired portfolios were partially offset by increases in the commercial and industrial loan portfolio.

Average loans and leases in Global Corporate and Global Commercial Banking increased three percent in 2012 driven by growth in U.S. and non-U.S. commercial and industrial loans from greater client demand, partially offset by managed reductions of commercial real estate criticized assets and run-off of a liquidating auto loan portfolio. Average deposits in Global Corporate and Global Commercial Banking increased five percent in 2012 compared to 2011 as balances continued to grow due to client liquidity, international growth and limited alternative investment options.

Investment Banking

Client teams and product specialists underwrite and distribute debt, equity and other loan products, and provide advisory services and tailored risk management solutions. The economics of certain investment banking and underwriting activities are shared primarily between Global Banking and Global Markets based on the contribution by and involvement of each segment. To provide a complete discussion of our consolidated investment banking fees, the table below presents total Corporation investment banking fees as well as the portion attributable to Global Banking.




Investment Banking Fees

	Global Banking						Total Corporation
(Dollars in millions)	2012			2011			2012			2011
Products
Advisory	$	995		$	1,183		$	1,066		$	1,248
Debt issuance	1,385			1,287			3,362			2,878
Equity issuance	407			591			1,026			1,459
Gross investment banking fees	$	2,787		$	3,061		$	5,454		$	5,585
Self-led	(42		)	(164		)	(155		)	(368		)
Total investment banking fees	$	2,745		$	2,897		$	5,299		$	5,217

Total Corporation investment banking fees, excluding self-led deals remained relatively unchanged in 2012 compared to 2011 as higher debt issuance fees partially offset lower equity issuance and advisory fees.



		Bank of America 2012 47

Global Markets




(Dollars in millions)	2012			2011			% Change
Net interest income (FTE basis)	$	3,310		$	3,682		(10	)%
Noninterest income:
Investment and brokerage services	1,820			2,249			(19	)
Investment banking fees	2,214			2,214			—
Trading account profits	5,706			6,417			(11	)
All other income	469			236			99
Total noninterest income	10,209			11,116			(8	)
Total revenue, net of interest expense (FTE basis)	13,519			14,798			(9	)

Provision for credit losses	3			(56		)	n/m
Noninterest expense	10,839			12,244			(11	)
Income before income taxes	2,677			2,610			3
Income tax expense (FTE basis)	1,623			1,622			—
Net income	$	1,054		$	988		7

Return on average allocated equity	5.99		%	4.36		%
Return on average economic capital	8.20			5.54
Efficiency ratio (FTE basis)	80.18			82.75

Balance Sheet

Average
Total trading-related assets ⁽¹⁾	$	466,045		$	472,446		(1	)
Total earning assets ⁽¹⁾	449,660			445,574			1
Total assets	588,459			590,474			—
Allocated equity	17,595			22,671			(22	)
Economic capital	12,956			18,046			(28	)

Year end
Total trading-related assets ⁽¹⁾	$	465,836		$	397,876		17
Total earning assets ⁽¹⁾	474,335			372,894			27
Total assets	615,297			501,867			23


⁽¹⁾	Trading-related assets include assets which are not considered earning assets (i.e., derivative assets).

n/m = not meaningful

Global Markets offers sales and trading services, including research, to institutional clients across fixed-income, credit, currency, commodity and equity businesses. Global Markets product coverage includes securities and derivative products in both the primary and secondary markets. Global Markets provides market-making, financing, securities clearing, settlement and custody services globally to our institutional investor clients in support of their investing and trading activities. We also work with our commercial and corporate clients to provide risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income and mortgage-related products. As a result of our market-making activities in these products, we may be required to manage risk in government securities, equity and equity-linked securities, high-grade and high-yield corporate debt securities, commercial paper, MBS, commodities and asset-backed securities (ABS). In addition, the economics of certain investment banking and underwriting activities are shared primarily between Global Markets and Global Banking based on the activities performed by each segment. Global Banking originates certain deal-related transactions with our corporate and commercial clients that are executed and distributed by Global Markets. For additional information on investment banking fees on a consolidated basis, see page 47.

Net income for Global Markets increased $66 million to $1.1 billion in 2012 compared to 2011. In 2012, net DVA losses were $2.4 billion compared to net DVA gains of $1.0 billion in 2011. Excluding net DVA, net income increased $2.2 billion to $2.6 billion primarily driven by higher sales and trading revenue. Noninterest expense decreased $1.4 billion to $10.8 billion due to a reduction in personnel-related expenses, brokerage, clearing and exchange fees, and other operating expenses. The income tax expense in 2012 included a $781 million charge for remeasurement of certain deferred tax assets due to decreases in the U.K. corporate tax rate compared to a similar charge of $774 million in 2011.

Year-end assets increased $113.4 billion in 2012 to $615.3 billion at December 31, 2012 largely driven by increased client-facing activity in the equity business as well as increases in trading-related assets and securities borrowed transactions.

Average economic capital decreased due to a decline in the risk composition of trading-related balances. The return on average economic capital increased primarily due to higher net income and a decline in average economic capital. For more information regarding economic capital, see Supplemental Financial Data on page 35.



48 Bank of America 2012

Sales and Trading Revenue

Sales and trading revenue includes unrealized and realized gains and losses on trading and other assets, net interest income, and fees primarily from commissions on equity securities. The table below and related discussion present total sales and trading revenue, substantially all of which is in Global Markets with the remainder in Global Banking. Sales and trading revenue is segregated into fixed income (government debt obligations, investment and non-investment grade corporate debt obligations, commercial mortgage-backed securities, RMBS and collateralized debt obligations (CDOs)), currencies (interest rate and foreign exchange contracts), commodities (primarily futures, forwards, swaps and options) and equity income from equity-linked derivatives and cash equity activity.




Sales and Trading Revenue ^{(1, 2)}

(Dollars in millions)	2012		2011
Sales and trading revenue
Fixed income, currencies and commodities	$	8,812	$	8,897
Equities	3,014		3,957
Total sales and trading revenue	$	11,826	$	12,854

Sales and trading revenue, excluding net DVA ⁽³⁾
Fixed income, currencies and commodities	$	11,007	$	8,103
Equities	3,267		3,750
Total sales and trading revenue, excluding net DVA	$	14,274	$	11,853


⁽¹⁾	Includes FTE adjustments of $219 million and $204 million for 2012 and 2011. For additional information on sales and trading revenue, see Note 3 – Derivatives to the Consolidated Financial Statements.


⁽²⁾	Includes Global Banking sales and trading revenue of $521 million and $270 million for 2012 and 2011.


⁽³⁾	Sales and trading revenue, excluding DVA is a non-GAAP financial measure. Net DVA losses included in FICC revenue and equities revenue were $2.2 billion and $253 million in 2012 compared to net DVA gains of $794 million and $207 million in 2011.

FICC revenue, including net DVA, remained relatively unchanged in 2012 compared to 2011. Excluding net DVA, FICC revenue increased $2.9 billion to $11.0 billion driven by our rates and currencies business as a result of stronger client flows and improved positioning, a gain on the sale of an equity investment, an improved global economic climate resulting in tightening of spreads in credit markets as well as higher trading volume reflecting an increase in investor confidence. This was partially offset by our exit from the stand-alone proprietary trading business in June 2011. Equities revenue, including net DVA, decreased $943 million to $3.0 billion. Excluding net DVA, equities revenue decreased $483 million to $3.3 billion as equity market volumes remained at low levels impacting commissions. Sales and trading revenue included total commissions and brokerage fee revenue of $1.8 billion in 2012 compared to $2.2 billion in 2011, substantially all from equities in both years. The $429 million decrease in commissions and brokerage fee revenue was primarily due to lower equity market volumes.



		Bank of America 2012 49

Global Wealth & Investment Management




(Dollars in millions)	2012			2011			% Change
Net interest income (FTE basis)	$	5,827		$	5,885		(1	)%
Noninterest income:
Investment and brokerage services	8,849			8,750			1
All other income	1,841			1,860			(1	)
Total noninterest income	10,690			10,610			1
Total revenue, net of interest expense (FTE basis)	16,517			16,495			—

Provision for credit losses	266			398			(33	)
Noninterest expense	12,755			13,383			(5	)
Income before income taxes	3,496			2,714			29
Income tax expense (FTE basis)	1,273			996			28
Net income	$	2,223		$	1,718		29

Net interest yield (FTE basis)	2.34		%	2.26		%
Return on average allocated equity	12.53			9.90
Return on average economic capital	30.52			25.46
Efficiency ratio (FTE basis)	77.22			81.13

Balance Sheet

Average
Total loans and leases	$	100,456		$	96,974		4
Total earning assets	249,368			260,479			(4	)
Total assets	268,490			279,815			(4	)
Total deposits	242,384			241,535			—
Allocated equity	17,739			17,352			2
Economic capital	7,359			6,866			7

Year end
Total loans and leases	$	105,928		$	98,654		7
Total earning assets	277,107			253,407			9
Total assets	297,330			273,106			9
Total deposits	266,188			240,540			11

GWIM consists of two primary businesses: Merrill Lynch Global Wealth Management (MLGWM) and U.S. Trust, Bank of America Private Wealth Management (U.S. Trust).

MLGWM’s advisory business provides a high-touch client experience through a network of financial advisors focused on clients with over $250,000 in total investable assets. MLGWM provides tailored solutions to meet our clients’ needs through a full set of brokerage, banking and retirement products.

U.S. Trust, together with MLGWM’s Private Banking & Investments Group, provides comprehensive wealth management solutions targeted to wealthy and ultra-wealthy clients with investable assets of more than $5 million, as well as customized solutions to meet clients’ wealth structuring, investment management, trust and banking needs, including specialty asset management services.

In 2012, the Corporation entered into an agreement to sell the GWIM International Wealth Management (IWM) businesses based outside of the U.S., subject to regulatory approval in multiple jurisdictions, and the first of a series of closings occurred in February 2013. Also, in late 2012, the Corporation sold its investment in a Japanese brokerage joint venture which resulted in a gain of approximately $370 million. The IWM businesses and the Japanese brokerage joint venture had combined client balances of approximately $115 billion. These transactions will not have a significant impact on the Corporation’s balance sheet,

results of operations or capital ratios. As a result of these actions, the results of these businesses were moved to All Other and the prior periods have been reclassified.

Net income increased $505 million to $2.2 billion in 2012 compared to 2011 driven by lower noninterest expense and lower provision for credit losses. Revenue was relatively unchanged as higher asset management fees due to long-term assets under management (AUM) flows and higher market levels were offset by lower transactional revenue and lower net interest income driven by the impact of the continued low rate environment. The provision for credit losses decreased $132 million to $266 million driven by lower delinquencies and improving portfolio trends within the residential mortgage portfolio. Noninterest expense decreased $628 million to $12.8 billion due to lower FDIC expense, lower litigation costs and other expense reductions, partially offset by higher production-related expenses.

In 2012, revenue from MLGWM was $13.8 billion, up one percent, due to higher noninterest income. Revenue from U.S. Trust was $2.6 billion, down four percent, driven by lower net interest income.

The return on average economic capital increased as higher net income offset the increase in average economic capital. Average economic capital was higher primarily due to loan growth. For more information regarding economic capital, see Supplemental Financial Data on page 35.



50 Bank of America 2012

Migration Summary

GWIM results are impacted by the migration of clients and their related deposit and loan balances to or from CBB, CRES and the ALM portfolio, as presented in the table below. Migration in 2011 included the movement of balances to Merrill Edge, which is included in CBB. Subsequent to the date of the migration, the associated net interest income, noninterest income and noninterest expense are recorded in the business to which the clients migrated.




Migration Summary

(Dollars in millions)	2012			2011
Average
Total deposits – GWIM from / (to) CBB	$	407		$	(2,032	)
Total loans – GWIM to CRES and the ALM portfolio	(225		)	(174		)
Year end
Total deposits – GWIM from / (to) CBB	$	1,170		$	(2,918	)
Total loans – GWIM to CRES and the ALM portfolio	(335		)	(299		)

Client Balances

The table below presents client balances which consist of AUM, brokerage assets, assets in custody, deposits, and loans and leases.




Client Balances by Type

	December 31
(Dollars in millions)	2012		2011
Assets under management	$	698,095	$	635,570
Brokerage assets	975,388		944,532
Assets in custody	117,686		107,982
Deposits	266,188		240,540
Loans and leases ⁽¹⁾	109,305		101,844
Total client balances	$	2,166,662	$	2,030,468


⁽¹⁾	Includes margin receivables which are classified in customer and other receivables on the Corporation’s Consolidated Balance Sheet.

The increase of $136.2 billion, or seven percent, in client balances was primarily driven by higher market levels and inflows into long-term AUM, as well as increases in deposits and loans.



		Bank of America 2012 51

All Other




(Dollars in millions)	2012			2011			% Change
Net interest income (FTE basis)	$	1,111		$	1,946		(43	)%
Noninterest income:
Card income	360			465			(23	)
Equity investment income	1,135			7,105			(84	)
Gains on sales of debt securities	1,510			3,097			(51	)
All other income (loss)	(4,906		)	3,482			n/m
Total noninterest income (loss)	(1,901		)	14,149			n/m
Total revenue, net of interest expense (FTE basis)	(790		)	16,095			n/m

Provision for credit losses	2,620			6,172			(58	)
Goodwill impairment	—			581			(100	)
Merger and restructuring charges	—			638			(100	)
All other noninterest expense	6,092			5,034			21
Income (loss) before income taxes	(9,502		)	3,670			n/m
Income tax benefit (FTE basis)	(5,874		)	(1,042		)	n/m
Net income (loss)	$	(3,628	)	$	4,712		n/m

Balance Sheet

Average
Loans and leases:
Residential mortgage	$	213,715		$	227,698		(6	)
Non-U.S. credit card	13,549			24,049			(44	)
Discontinued real estate	10,223			12,106			(16	)
Other	20,525			25,157			(18	)
Total loans and leases	258,012			289,010			(11	)
Total assets ⁽¹⁾	302,287			380,253			(21	)
Total deposits	43,083			62,582			(31	)
Allocated equity⁽²⁾	87,103			72,578			20

Year end
Loans and leases:
Residential mortgage	$	201,727		$	224,657		(10	)
Non-U.S. credit card	11,697			14,418			(19	)
Discontinued real estate	9,892			11,095			(11	)
Other	17,351			22,215			(22	)
Total loans and leases	240,667			272,385			(12	)
Total assets ⁽¹⁾	247,284			320,491			(23	)
Total deposits	36,061			45,532			(21	)

⁽¹⁾

For presentation purposes, in segments where the total of liabilities and equity exceeds assets, which are generally deposit-taking segments, we allocate assets from All Other to those segments to match liabilities (i.e., deposits) and allocated equity. Such allocated assets were $520.5 billion and $496.1 billion for 2012 and 2011, and $554.4 billion and $492.3 billion at December 31, 2012 and 2011.


⁽²⁾	Represents the economic capital assigned to All Other as well as the remaining portion of equity not specifically allocated to the business segments. Allocated equity increased due to the disposition of certain assets, as previously disclosed.

n/m = not meaningful

All Other consists of ALM activities, equity investments, liquidating businesses and other. ALM activities encompass the whole-loan residential mortgage portfolio and investment securities, interest rate and foreign currency risk management activities including the residual net interest income allocation, gains/losses on structured liabilities, and the impact of certain allocation methodologies and accounting hedge ineffectiveness. For more information on our ALM activities, see Interest Rate Risk Management for Nontrading Activities on page 117. Equity investments include Global Principal Investments (GPI) which is comprised of a diversified portfolio of equity, real estate and other alternative investments. These investments are made either directly in a company or held through a fund with related income

recorded in equity investment income. Equity investments also include strategic investments, which include our investment in CCB in which we currently hold approximately one percent of the outstanding common shares, and certain other investments. Other includes certain residential mortgage and discontinued real estate loans that are managed by Legacy Assets & Servicing. In 2012, the Corporation entered into an agreement to sell the GWIM IWM businesses based outside of the U.S. and sold its Japanese brokerage joint venture. As a result of these actions, the IWM businesses and the Japanese brokerage joint venture results were moved from GWIM to All Other and the prior periods have been reclassified.



52 Bank of America 2012

The net loss for All Other of $3.6 billion in 2012 compared to net income of $4.7 billion in 2011 was primarily due to negative fair value adjustments on structured liabilities of $5.1 billion related to the improvement in our credit spreads during 2012 compared to $3.3 billion of positive fair value adjustments in 2011, a $6.0 billion decrease in equity investment income and $1.6 billion of lower gains on sales of debt securities. Partially offsetting these items were a $3.6 billion reduction in the provision for credit losses, $1.6 billion of net gains resulting from repurchases of certain debt and trust preferred securities in 2012 and a net income tax benefit of $1.7 billion related to the recognition of certain foreign tax credits. Equity investment income decreased as 2011 included a $6.5 billion gain on the sale of a portion of our investment in CCB, an $836 million CCB dividend and a $377 million gain on the sale of our investment in BlackRock. Partially offsetting these items were an impairment write-down of $1.1 billion on our merchant services joint venture in 2011 and a $370 million gain related to the sale of the Japanese brokerage joint venture in 2012.

The provision for credit losses decreased $3.6 billion to $2.6 billion in 2012 primarily driven by continued improvement in credit quality in the residential mortgage portfolio and reserve reductions in 2012 compared to reserve additions in 2011 in the Countrywide PCI discontinued real estate and residential mortgage portfolios driven by an improved home price outlook.

All other noninterest expense increased $1.1 billion to $6.1 billion due to higher litigation expense primarily related to the costs associated with the settlement of a class action lawsuit during 2012 brought on behalf of investors who purchased or held Bank of America equity securities at the time we announced plans to acquire Merrill Lynch and other litigation, partially offset by a decrease in personnel expense. Excluding litigation expense, all other noninterest expense decreased compared to 2011. There were no merger and restructuring expenses for 2012 compared to $638 million in 2011. A goodwill impairment charge of $581 million was recorded during 2011 as a result of a change in the estimated value of the European consumer card business.

The income tax benefit was $5.9 billion in 2012 compared to a benefit of $1.0 billion in 2011. Included in the income tax benefit for 2012 was a $1.7 billion tax benefit attributable to the excess of foreign tax credits recognized in the U.S. upon repatriation of the earnings of certain subsidiaries over the related U.S. tax liability, and 2011 included the release of a valuation allowance applicable to a Merrill Lynch capital loss carryforward deferred tax asset.

The tables below present the components of equity investments in All Other at December 31, 2012 and 2011, and also a reconciliation to the total consolidated equity investment income for 2012 and 2011.




Equity Investments

	December 31
(Dollars in millions)	2012		2011
Global Principal Investments	$	3,470	$	5,659
Strategic and other investments	2,038		1,439
Total equity investments included in All Other	$	5,508	$	7,098




Equity Investment Income

(Dollars in millions)	2012		2011
Global Principal Investments	$	589	$	399
Strategic and other investments	546		6,706
Total equity investment income included in All Other	1,135		7,105
Total equity investment income included in the business segments	935		255
Total consolidated equity investment income	$	2,070	$	7,360

Equity investments included in All Other decreased $1.6 billion to $5.5 billion during 2012, with the decrease due to sales in the GPI portfolio. In connection with the Corporation’s strategy to reduce risk-weighted assets, we sold certain investments, including related commitments. GPI had unfunded equity commitments of $224 million at December 31, 2012 compared to $710 million at December 31, 2011. The increase in equity investment income in the business segments for 2012 was primarily driven by gains on the sale of an equity investment in Global Markets.

At December 31, 2012 and 2011, we owned 2.0 billion shares representing approximately one percent of CCB. Sales restrictions on these shares continue until August 2013. Because the sales restrictions on these shares will expire within one year, these securities are accounted for as AFS marketable equity securities and are carried at fair value with the after-tax unrealized gain reflected in accumulated OCI. As a result, a pre-tax unrealized gain of $718 million, or $452 million after-tax, was reflected in accumulated OCI. At December 31, 2012, the cost basis was $716 million and the carrying value and the fair value were $1.4 billion. During 2011, we sold 23.6 billion common shares of our investment in CCB and recorded a pre-tax gain of $6.5 billion. For additional information, see Note 4 – Securities to the Consolidated Financial Statements.



		Bank of America 2012 53

Off-Balance Sheet Arrangements and Contractual Obligations

We have contractual obligations to make future payments on debt and lease agreements. Additionally, in the normal course of business, we enter into contractual arrangements whereby we commit to future purchases of products or services from unaffiliated parties. Obligations that are legally binding agreements whereby we agree to purchase products or services with a specific minimum quantity at a fixed, minimum or variable price over a specified period of time are defined as purchase obligations. Included in purchase obligations are commitments to purchase loans of $1.3 billion and vendor contracts of $23.2 billion. The most significant vendor contracts include communication services, processing services and software contracts. Other long-term liabilities include our contractual funding obligations related to the Qualified Pension Plans, Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans (collectively, the Plans). Obligations to the Plans are based on the current and projected

obligations of the Plans, performance of the Plans’ assets and any participant contributions, if applicable. During 2012 and 2011, we contributed $381 million and $287 million to the Plans, and we expect to make at least $319 million of contributions during 2013.

Debt, lease, equity and other obligations are more fully discussed in Note 12 – Long-term Debt and Note 13 – Commitments and Contingencies to the Consolidated Financial Statements. The Plans are more fully discussed in Note 18 – Employee Benefit Plans to the Consolidated Financial Statements.

We enter into commitments to extend credit such as loan commitments, standby letters of credit (SBLCs) and commercial letters of credit to meet the financing needs of our customers. For a summary of the total unfunded, or off-balance sheet, credit extension commitment amounts by expiration date, see the table in Note 13 – Commitments and Contingencies to the Consolidated Financial Statements.

Table 10 includes certain contractual obligations at December 31, 2012.




Table 10	Contractual Obligations

		December 31, 2012
(Dollars in millions)		Due in One Year or Less		Due After One Year Through Three Years		Due After Three Years Through Five Years		Due After Five Years		Total
Long-term debt and capital leases		$	55,197	$	73,009	$	63,909	$	83,470	$	275,585
Operating lease obligations		2,984		4,573		3,202		6,237		16,996
Purchase obligations		6,719		8,420		5,834		4,208		25,181
Time deposits		110,157		11,598		2,554		2,671		126,980
Other long-term liabilities		898		1,037		795		1,133		3,863
Estimated interest expense on long-term debt and time deposits⁽¹⁾		5,703		9,260		7,894		11,647		34,504
Total contractual obligations		$	181,658	$	107,897	$	84,188	$	109,366	$	483,109


⁽¹⁾	Represents estimated, forecasted net interest expense on long-term debt and time deposits. Forecasts are based on the contractual maturity dates of each liability, and are net of derivative hedges.

Representations and Warranties

We securitize first-lien residential mortgage loans generally in the form of MBS guaranteed by the GSEs or by GNMA in the case of the Federal Housing Administration (FHA)-insured, U.S. Department of Veterans Affairs (VA)-guaranteed and Rural Housing Service-guaranteed mortgage loans. In addition, in prior years, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations (in certain of these securitizations, monolines or financial guarantee providers insured all or some of the securities) or in the form of whole loans. In connection with these transactions, we or certain of our subsidiaries or legacy companies make or have made various representations and warranties. Breaches of these representations and warranties may result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies to the GSEs, U.S. Department of Housing and Urban Development (HUD) with respect to FHA-insured loans, VA, whole-loan investors, securitization trusts, monoline insurers or other financial guarantors (collectively, repurchases). In all such cases, we would be exposed to any credit loss on the repurchased mortgage loans after accounting for any mortgage insurance (MI) or mortgage guarantee payments that we may receive.

Subject to the requirements and limitations of the applicable sales and securitization agreements, these representations and warranties can be enforced by the GSEs, HUD, VA, the whole-loan investor, the securitization trustee or others as governed by the applicable agreement or, in certain first-lien and home equity securitizations where monoline insurers or other financial guarantee providers have insured all or some of the securities issued, by the monoline insurer or other financial guarantor, where the contract so provides. In the case of loans sold to parties other than the GSEs or GNMA, the contractual liability to repurchase typically arises only if there is a breach of the representations and warranties that materially and adversely affects the interest of the investor, or investors, or of the monoline insurer or other financial guarantor (as applicable) in the loan. Contracts with the GSEs do not contain equivalent language, while GNMA generally limits repurchases to loans that are not insured or guaranteed as required.

For additional information about accounting for representations and warranties and our representations and warranties repurchase claims and exposures, see Note 8 – Representations and Warranties Obligations and Corporate Guarantees and Note 13 – Commitments and Contingencies to the Consolidated Financial Statements and Item 1A. Risk Factors.



54 Bank of America 2012

Representations and Warranties Bulk Settlement Actions

We have settled, or entered into agreements to settle, certain bulk representations and warranties claims (1) with a trustee (the Trustee) for certain legacy Countrywide private-label securitization trusts (the BNY Mellon Settlement); (2) with two monoline insurers, Assured Guaranty Ltd. and subsidiaries (the Assured Guaranty Settlement), and Syncora Guarantee Inc. and Syncora Holdings, Ltd. (the Syncora Settlement), (3) with each of the GSEs in 2010 (2010 GSE Agreements), and (4) with FNMA pursuant to the FNMA Settlement in 2013.

We have vigorously contested any request for repurchase when we conclude that a valid basis for repurchase does not exist and will continue to do so in the future. However, in an effort to resolve these legacy mortgage-related issues, we have reached bulk settlements, or agreements for bulk settlements, including settlement amounts which have been material, with the above-referenced counterparties in lieu of a loan-by-loan review process. We may reach other settlements in the future if opportunities arise on terms we believe to be advantageous. However, there can be no assurance that we will reach future settlements or, if we do, that the terms of past settlements can be relied upon to predict the terms of future settlements. These bulk settlements generally did not cover all transactions with the relevant counterparties or all potential claims that may arise, including in some instances securities law, fraud and servicing claims, and our liability in connection with the transactions and claims not covered by these settlements could be material. For a summary of the larger bulk settlement actions taken in the past few years and the related impact on the representations and warranties provision and liability, see Note 8 – Representations and Warranties Obligations and Corporate Guarantees and Note 13 – Commitments and Contingencies to the Consolidated Financial Statements.

FNMA Settlement and 2010 GSE Agreements

On January 6, 2013, we entered into the FNMA Settlement to resolve substantially all outstanding and potential repurchase and certain other claims relating to the origination, sale and delivery of residential mortgage loans originated and sold directly to FNMA from January 1, 2000 through December 31, 2008 by entities related to legacy Countrywide and BANA.

The FNMA Settlement covers loans with an aggregate original principal balance of approximately $1.4 trillion and an aggregate outstanding principal balance of approximately $300 billion. Unresolved repurchase claims submitted by FNMA for alleged breaches of selling representations and warranties with respect to these loans totaled $12.2 billion of unpaid principal balance at December 31, 2012. The FNMA Settlement extinguished substantially all of those unresolved repurchase claims, as well as substantially all future representations and warranties repurchase claims associated with such loans, subject to certain exceptions which we do not expect to be material.

The FNMA Settlement also clarified the parties’ obligations with respect to MI including establishing timeframes for certain payments and other actions, setting parameters for potential bulk settlements and providing for cooperation in future dealings with mortgage insurers. For additional information, see Open Mortgage Insurance Rescission Notices on page 57.

In addition, we settled substantially all of FNMA’s outstanding and future claims for compensatory fees arising out of past foreclosure delays. For additional information, see Other Mortgage-related Matters – Impact of Foreclosure Delays on page 63.

On December 31, 2010, we entered into the 2010 GSE Agreements, which extinguished certain claims arising out of alleged breaches of selling representations and warranties related to loans sold directly by legacy Countrywide to the GSEs. The FHLMC agreement extinguished all such claims for loans sold to FHLMC through 2008, subject to certain exceptions, while the FNMA agreement substantially resolved the existing pipeline of such claims outstanding as of September 20, 2010.

Monoline Settlements

On July 17, 2012, we entered into a settlement with a monoline insurer, Syncora Guarantee Inc. and Syncora Holdings, Ltd. (Syncora), to resolve all of Syncora’s outstanding and potential claims related to alleged representations and warranties breaches involving eight first- and six second-lien private-label securitization trusts where it provided financial guarantee insurance. The settlement covers private-label securitization trusts that had an original principal balance of first-lien mortgages of approximately $9.6 billion and second-lien mortgages of approximately $7.7 billion. The settlement provided for a cash payment of $375 million to Syncora and other transactions to terminate certain other relationships among the parties.

On April 14, 2011, Bank of America, including our legacy Countrywide affiliates, entered into an agreement with Assured Guaranty Ltd. and subsidiaries (Assured Guaranty), to resolve all of the monoline insurer’s outstanding and potential repurchase claims related to alleged representations and warranties breaches involving 21 first- and eight second-lien RMBS trusts where Assured Guaranty provided financial guarantee insurance.

BNY Mellon Settlement

The BNY Mellon Settlement is subject to final court approval and certain other conditions. On August 10, 2012, the Court issued an order setting a schedule for discovery and other proceedings, and setting May 30, 2013 as the date for the final court hearing on the settlement to begin. We are not a party to the proceeding.

If final court approval is not obtained by December 31, 2015, we and legacy Countrywide may withdraw from the BNY Mellon Settlement, if the Trustee consents. The BNY Mellon Settlement also provides that if trusts among the 525 legacy Countrywide first-lien and five second-lien non-GSE securitization trusts (Covered Trusts) holding loans with an unpaid principal balance exceeding a specified amount are excluded from the final BNY Mellon Settlement, based on investor objections or otherwise, we and legacy Countrywide have the option to withdraw from the BNY Mellon Settlement pursuant to the terms of the BNY Mellon Settlement agreement.

It is not currently possible to predict how many parties will ultimately object to the BNY Mellon Settlement, whether the objections will prevent receipt of final court approval or the ultimate outcome of the court approval process, which can include appeals and could take a substantial period of time. In particular, any appeals could take a substantial period of time and these factors could materially delay the timing of final court approval. Accordingly, it is not possible to predict when the court approval process will be completed.



		Bank of America 2012 55

There can be no assurance that final court approval of the BNY Mellon Settlement will be obtained, that all conditions to the BNY Mellon Settlement will be satisfied or, if certain conditions to the BNY Mellon Settlement permitting withdrawal are met, that we and legacy Countrywide will not withdraw from the settlement. If final court approval is not obtained or if we and legacy Countrywide withdraw from the BNY Mellon Settlement in accordance with its terms, our future representations and warranties losses could be substantially different than existing accruals and the estimated range of possible loss over existing accruals. For more information about the risks associated with the BNY Mellon Settlement, see Item 1A. Risk Factors.

Unresolved Claims Status

Unresolved Repurchase Claims

Prior to the FNMA Settlement on January 6, 2013, the total notional amount of our unresolved representations and warranties repurchase claims was approximately $28.3 billion at December 31, 2012 compared to $12.6 billion at December 31, 2011. These repurchase claims do not include any repurchase claims related to the Covered Trusts. Unresolved repurchase claims represent the notional amount of repurchase claims made by counterparties, typically the outstanding principal balance or the unpaid principal balance at the time of default. In the case of first-lien mortgages, the claim amount is often significantly greater than the expected loss amount due to the benefit of collateral and, in some cases, MI or mortgage guarantee payments. Claims received from a counterparty remain outstanding until the underlying loan is repurchased, the claim is rescinded by the counterparty or the claim is otherwise resolved. When a claim is denied and we do not receive a response from the counterparty, the claim remains in the unresolved repurchase claims balance until resolution.

The notional amount of unresolved GSE repurchase claims totaled $13.5 billion at December 31, 2012 compared to $6.2 billion at December 31, 2011. As a result of the FNMA Settlement, $12.2 billion of GSE repurchase claims outstanding at December 31, 2012 were resolved in January 2013.

The notional amount of unresolved monoline repurchase claims totaled $2.4 billion at December 31, 2012 compared to $3.1 billion at December 31, 2011. The decrease in unresolved repurchase claims was driven by resolution of claims through the Syncora Settlement. We have had limited loan-level repurchase claims experience with monoline insurers due to ongoing litigation. We have reviewed and declined to repurchase substantially all of the unresolved repurchase claims at December 31, 2012 based on an assessment of whether a breach exists that materially and adversely affected the insurer’s interest in the mortgage loan. Further, in our experience, the monolines have been generally unwilling to withdraw repurchase claims, regardless of whether and what evidence was offered to refute a claim. Substantially all of the unresolved monoline claims pertain to second-lien loans and are currently the subject of litigation.

The notional amount of unresolved repurchase claims from private-label securitization trustees, third-party securitization

sponsors, whole-loan investors and others increased to $12.3 billion at December 31, 2012 compared to $3.3 billion at December 31, 2011. The increase in the notional amount of unresolved repurchase claims is primarily due to increases in the submission of claims by private-label securitization trustees and a third-party securitization sponsor; the level of detail, support and analysis which impacts overall claim quality and, therefore, claims resolution; and the lack of an established process to resolve disputes related to these claims. We anticipated an increase in aggregate non-GSE claims at the time of the BNY Mellon Settlement in June 2011, and such increase in aggregate non-GSE claims was taken into consideration in developing the increase in our representations and warranties liability at that time. We expect unresolved repurchase claims related to private-label securitizations to continue to increase as claims continue to be submitted by private-label securitization trustees and third-party securitization sponsors and there is not an established process for the ultimate resolution of claims on which there is a disagreement.

During 2012, we received $22.4 billion in new repurchase claims, including $10.3 billion submitted by FNMA and covered by the FNMA Settlement, $2.3 billion submitted by the GSEs for both legacy Countrywide and legacy Bank of America originations not covered by the 2010 GSE Agreements or the FNMA Settlement, $8.0 billion submitted by private-label securitization trustees, $1.5 billion from whole-loan investors, primarily third-party securitization sponsors, and $295 million submitted by monolines. During 2012, $6.6 billion in claims were resolved, primarily with the GSEs and through the Syncora Settlement. Of the resolved claims, $4.6 billion were resolved through rescissions and $2.0 billion were resolved through mortgage repurchases and make-whole payments. For more information on repurchase claims received from the GSEs, monoline insurers, private-label securitization trustees, whole-loan investors and others, the resolution of such claims and for a table of unresolved repurchase claims, see Note 8 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements.

In addition to the total unresolved repurchase claims, we have received repurchase demands from private-label securitization investors and a master servicer where we believe the claimants have not satisfied the contractual thresholds to direct the securitization trustee to take action and/or that these demands are otherwise procedurally or substantively invalid. The total amounts outstanding of such demands were $1.6 billion and $1.7 billion at December 31, 2012 and 2011. At December 31, 2011, the $1.7 billion of demands outstanding were related to Covered Trusts in the BNY Mellon Settlement of which $1.4 billion were subsequently resolved through the July 2012 dismissal of a lawsuit brought by Walnut Place (11 entities with the common name Walnut Place, including Walnut Place LLC, and Walnut Place II LLC through Walnut Place XI LLC). Additional demands totaling $1.3 billion were received during 2012. We do not believe that the $1.6 billion in demands outstanding at December 31, 2012 are valid repurchase claims, and therefore it is not possible to predict the resolution with respect to such demands.



56 Bank of America 2012

Open Mortgage Insurance Rescission Notices

In addition to repurchase claims, we receive notices from mortgage insurance companies of claim denials, cancellations or coverage rescission (collectively, MI rescission notices) and the number of such notices has remained elevated. By way of background, mortgage insurance compensates lenders or investors for certain losses resulting from borrower default on a mortgage loan. When there is disagreement with the mortgage insurer as to the resolution of a MI rescission notice, meaningful dialogue and negotiation between the mortgage insurance company and the Corporation are generally necessary to reach a resolution on an individual notice. The level of engagement of the mortgage insurance companies varies and ongoing litigation involving some of the mortgage insurance companies over individual and bulk rescissions or claims for rescission limits our ability to engage in constructive dialogue leading to resolution.

For loans sold to GSEs or private-label securitization trusts (including those wrapped by the monoline bond insurers), when we receive a MI rescission notice from a mortgage insurance company, it may give rise to a claim for breach of the applicable representations and warranties from the GSEs or private-label securitization trusts, depending on the governing sales contracts. In those cases where the governing contract contains MI-related representations and warranties, which upon rescission require us to repurchase the affected loan or indemnify the investor for the related loss, we realize the loss without the benefit of MI. See below for a discussion of the impact of the FNMA Settlement. In addition, mortgage insurance companies have in some cases asserted the ability to curtail MI payments as a result of alleged foreclosure delays, which if successful, would reduce the MI proceeds available to reduce the loss on the loan.

At December 31, 2012, we had approximately 110,000 open MI rescission notices compared to 90,000 at December 31, 2011, including 49,000 pertaining principally to first-lien mortgages serviced for others, 11,000 pertaining to loans held-for-investment (HFI), and 50,000 pertaining to ongoing litigation for second-lien mortgages. Approximately 27,000 of the open MI rescission notices pertaining to first-lien mortgages serviced for others are related to loans sold to FNMA. As of December 31, 2012, 32 percent of the MI rescission notices received have been resolved. Of those resolved, 20 percent were resolved through our acceptance of the MI rescission, 58 percent were resolved through reinstatement of coverage or payment of the claim by the mortgage insurance company, and 22 percent were resolved on an aggregate basis through settlement, policy commutation or similar arrangement. As of December 31, 2012, 68 percent of the MI rescission notices we have received have not yet been resolved. Of those not yet resolved, 46 percent are implicated by ongoing litigation where no loan-level review is currently contemplated nor required to preserve our legal rights. In this litigation, the litigating mortgage insurance companies are also seeking bulk rescission of certain policies, separate and apart from loan-by-loan denials or rescissions. We are in the process of reviewing 37 percent of the remaining open MI rescission notices, and we have reviewed and are contesting the MI rescission with respect to 63 percent of these remaining open MI rescission notices. Of the remaining open MI rescission notices, 40 percent are also the subject of ongoing litigation; although, at present, these MI rescissions are being processed in a manner generally consistent with those not affected by litigation.

In addition to the discussion above, the FNMA Settlement resolved significant representations and warranties exposures

including unresolved and potential repurchase claims from FNMA resulting solely from MI rescission notices relating to loans covered by the FNMA Settlement. Our pipeline of unresolved repurchase claims from the GSEs resulting solely from MI rescission notices increased to $2.3 billion at December 31, 2012 from $1.2 billion at December 31, 2011. The FNMA Settlement resolved approximately $1.9 billion of such unresolved repurchase claims. In 2011, FNMA issued an announcement requiring servicers to report all MI rescission notices with respect to loans sold to FNMA and confirmed FNMA’s view of its position that a mortgage insurance company’s issuance of a MI rescission notice in and of itself constitutes a breach of the lender’s representations and warranties and permits FNMA to require the lender to repurchase the mortgage loan or promptly remit a make-whole payment covering FNMA’s loss even if the lender is contesting the MI rescission notice. We had informed FNMA that we did not believe that the new policy was valid under our contracts with FNMA. The parties resolved this and other MI-related issues as part of the FNMA Settlement, which clarified the parties’ obligations with respect to MI including establishing timeframes for certain payments and other actions, setting parameters for potential bulk settlements and providing for cooperation in future dealings with mortgage insurers. As a result, we will be required to remit to FNMA the amount of certain MI coverage as a result of MI claims rescissions in advance of collection from the mortgage insurance companies and, in certain cases, we may not ultimately collect all such amounts from the mortgage insurance companies. For additional information, see Note 8 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements.

Representations and Warranties Liability

The liability for representations and warranties and corporate guarantees is included in accrued expenses and other liabilities on the Corporation’s Consolidated Balance Sheet and the related provision is included in mortgage banking income (loss). Our estimate of the liability for representations and warranties exposure and the corresponding range of possible loss is based on currently available information, significant judgment and a number of factors and assumptions that are subject to change. For additional information, see the Estimated Range of Possible Loss section below and Note 8 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements and, for information related to the sensitivity of the assumptions used to estimate our liability for obligations under representations and warranties, see Complex Accounting Estimates – Representations and Warranties on page 126.

The liability for obligations under representations and warranties and the corresponding estimated range of possible loss for these representations and warranties exposures do not consider any losses related to litigation matters, including litigation brought by monoline insurers, nor do they include any separate foreclosure costs and related costs, assessments and compensatory fees or any other possible losses related to potential claims for breaches of performance of servicing obligations, except as such losses are included as potential costs of the BNY Mellon Settlement, potential securities law or fraud claims or potential indemnity or other claims against us, including claims related to loans insured by the FHA. We are not able to reasonably estimate the amount of any possible loss with respect to any such servicing, securities law, fraud or other claims against us, except to the extent reflected in the aggregate range of possible



		Bank of America 2012 57

loss for litigation and regulatory matters disclosed in Note 13 – Commitments and Contingencies to the Consolidated Financial Statements; however, such loss could be material.

At December 31, 2012 and 2011, the liability for representations and warranties and corporate guarantees was $19.0 billion and $15.9 billion. For 2012, the provision for representations and warranties and corporate guarantees was $3.9 billion compared to $15.6 billion for 2011. The provision in 2012 included $2.5 billion in provision related to the FNMA Settlement and $500 million for obligations to FNMA related to MI rescissions. The provision in 2011 included $8.6 billion in provision and other expenses related to the BNY Mellon Settlement to resolve nearly all of the legacy Countrywide-issued first-lien non-GSE repurchase exposures, and $7.0 billion in provision related to other non-GSE, and to a lesser extent, GSE exposures.

Estimated Range of Possible Loss

Our estimated liability at December 31, 2012 for obligations under representations and warranties is necessarily dependent on, and limited by, a number of factors, including for private-label securitizations, the implied repurchase experience based on the BNY Mellon Settlement, as well as certain other assumptions and judgmental factors. Accordingly, future provisions associated with obligations under representations and warranties may be materially impacted if actual experiences are different from historical experience or our understandings, interpretations or assumptions.

In the case of non-GSE exposures, including private-label securitizations, our estimate of the representations and warranties liability and the corresponding range of possible loss considers, among other things, repurchase experience based on the BNY Mellon Settlement, adjusted to reflect differences between the Covered Trusts and the remainder of the population of private-label securitizations, and assumes that the conditions to the BNY Mellon Settlement will be met. Where relevant, we also take into account more recent experience, such as increased claims and other facts and circumstances, such as bulk settlements, as we believe appropriate.

The representations and warranties liability represents our best estimate of probable incurred losses as of December 31, 2012. However, it is reasonably possible that future representations and warranties losses may occur in excess of the amounts recorded for these exposures. In addition, we have not recorded any representations and warranties liability for certain potential private-label securitization and whole-loan exposures where we have little to no claim experience. We currently estimate that the range of possible loss for representations and warranties exposures could be up to $4 billion over accruals at December 31, 2012 compared to up to $5 billion over accruals at December 31, 2011 for only non-GSE representations and warranties exposures. The range of possible loss at December 31, 2012 reflects the impact of the FNMA Settlement and, as a result, addresses principally non-GSE exposures. The reduction in the range of possible loss from December 31, 2011 is the net impact of, among other changes, updated assumptions and other developments. The estimated range of possible loss related to these representations and warranties exposures does not represent a probable loss, and is based on currently available information, significant judgment and a number of assumptions that are subject to change. For additional information about the methodology used to estimate the representations and warranties liability and the corresponding range of possible loss, see Note 8 –

Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements.

Future provisions and/or ranges of possible loss for representations and warranties may be significantly impacted if actual experiences are different from our assumptions in our predictive models, including, without limitation, ultimate resolution of the BNY Mellon Settlement, estimated repurchase rates, economic conditions, estimated home prices, consumer and counterparty behavior, and a variety of other judgmental factors. Adverse developments with respect to one or more of the assumptions underlying the liability for representations and warranties and the corresponding estimated range of possible loss could result in significant increases to future provisions and/or the estimated range of possible loss. For example, if courts, in the context of claims brought by private-label securitization trustees, were to disagree with our interpretation that the underlying agreements require a claimant to prove that the representations and warranties breach was the cause of the loss, it could significantly impact the estimated range of possible loss. Additionally, if recent court rulings related to monoline litigation, including one related to us, that have allowed sampling of loan files instead of requiring a loan-by-loan review to determine if a representations and warranties breach has occurred, are followed generally by the courts in future monoline litigation, private-label securitization counterparties may view litigation as a more attractive alternative compared to a loan-by-loan review. For additional information regarding these issues, see MBIA litigation in Litigation and Regulatory Matters in Note 13 – Commitments and Contingencies to the Consolidated Financial Statements. Finally, although we believe that the representations and warranties typically given in non-GSE transactions are less rigorous and actionable than those given in GSE transactions, we do not have significant experience resolving loan-level claims in non-GSE transactions to measure the impact of these differences on the probability that a loan will be required to be repurchased.

Government-sponsored Enterprises Experience

Prior to the FNMA Settlement, our repurchase claims experience with the GSEs had been concentrated in the 2004 through 2008 vintages where we believed that our exposure to representations and warranties liability was most significant. Our repurchase claims experience related to loans originated prior to 2004 has not been significant and we believe that changes made to our operations and underwriting policies reduced our exposure related to loans originated after 2008.

Bank of America and legacy Countrywide sold approximately $1.1 trillion of loans originated from 2004 through 2008 to the GSEs. As of December 31, 2012, 12 percent of the original funded balance of loans in these vintages had defaulted or were 180 days or more past due (severely delinquent). As of December 31, 2012, we had received $43.5 billion in repurchase claims associated with these vintages, representing approximately four percent of the original funded balance of loans sold to the GSEs in these vintages. Prior to the FNMA Settlement, we had resolved $29.6 billion of these claims with a net loss experience of approximately 29 percent, after considering the effect of collateral. Our collateral loss severity rate on approved repurchases had averaged approximately 55 percent. The FNMA Settlement in January 2013 resolved an additional $12.2 billion in repurchase claims outstanding at December 31, 2012, primarily related to loans originated from 2004 through 2008.



58 Bank of America 2012

We and our subsidiaries have an established history of working with the GSEs on repurchase claims. In 2012, we continued to experience elevated levels of claims from FNMA, including claims on loans on which borrowers have made a significant number of payments (e.g., at least 25 payments) and, to a lesser extent, loans that defaulted more than 18 months prior to the repurchase request. The FNMA Settlement resolved substantially all of the

claims with respect to loans originated and sold to FNMA between January 1, 2000 and December 31, 2008, as well as substantially all future representations and warranties repurchase claims associated with these loans.

Table 11 highlights our experience with the GSEs related to loans originated from 2004 through 2008.




Table 11	Overview of GSE Balances – 2004-2008 Originations

		Legacy Originator
(Dollars in billions)		Countrywide			Other			Total			Percent of Total
Original funded balance		$	846		$	272		$	1,118
Principal payments		(508		)	(177		)	(685		)
Defaults		(77		)	(14		)	(91		)
Total outstanding balance at December 31, 2012		$	261		$	81		$	342
Outstanding principal balance 180 days or more past due (severely delinquent)		$	34		$	8		$	42
Defaults plus severely delinquent		111			22			133
Payments made by borrower
Less than 13								$	15		11	%
13-24								31			23
25-36								34			26
More than 36								53			40
Total payments made by borrower								$	133		100	%
Unresolved GSE representations and warranties repurchase claims (all vintages)
As of December 31, 2011								$	6.2
As of December 31, 2012								13.5
As of December 31, 2012 (pro forma reflecting the FNMA Settlement)								1.3
Cumulative GSE representations and warranties losses (2004-2008 vintages)								9.8

Beginning in February 2012, we stopped delivering purchase money and non-Making Home Affordable (MHA) refinance first-lien residential mortgage products into FNMA MBS pools because of the expiration and mutual non-renewal of certain contractual delivery commitments and variances that permit efficient delivery of such loans to FNMA. While we continue to have a valid agreement with FNMA permitting the delivery of purchase money and non-MHA refinance first-lien residential mortgage products without such contractual variances, the delivery of such products without contractual delivery commitments and variances would involve time and expense to implement the necessary operational and systems changes and otherwise presents practical operational issues. We do not expect this change to have a material impact on our CRES business, as we expect to rely on other sources of liquidity to actively extend mortgage credit to our customers including continuing to deliver such products into FHLMC MBS pools. Additionally, we continue to deliver MHA refinancing products into FNMA MBS pools.

Experience with Investors Other than Government-sponsored Enterprises

In prior years, legacy companies and certain subsidiaries sold pools of first-lien mortgage loans and home equity loans as private-label securitizations or in the form of whole loans originated from 2004 through 2008 with an original principal balance of $963 billion to investors other than GSEs (although the GSEs are investors in certain private-label securitizations), of which approximately $530 billion in principal has been paid and $244 billion has defaulted or is severely delinquent at December 31, 2012.

As it relates to private-label securitizations, a contractual

liability to repurchase mortgage loans generally arises only if counterparties prove there is a breach of the representations and warranties that materially and adversely affects the interest of the investor or all investors in a securitization trust or of the monoline insurer or other financial guarantor (as applicable). We believe that the longer a loan performs, the less likely it is that an alleged representations and warranties breach had a material impact on the loan’s performance or that a breach even exists. Because the majority of the borrowers in this population would have made a significant number of payments if they are not yet 180 days or more past due, we believe that the principal balance at the greatest risk for repurchase claims in this population of private-label securitizations are loans that have already defaulted and those that are currently severely delinquent. Additionally, only counterparties with the contractual right to demand repurchase of a loan can present valid repurchase claims (in the case of private-label securitization trust investors, they generally have to meet certain contractual thresholds in order to require trustees to present repurchase claims). While we believe the agreements for private-label securitizations generally contain less rigorous representations and warranties and place higher burdens on investors seeking repurchases than the explicit provisions of the comparable agreements with the GSEs without regard to any variations that may have arisen as a result of dealings with the GSEs, the agreements generally include a representation that underwriting practices were prudent and customary.

Any amounts paid related to repurchase claims from a monoline insurer are paid to the securitization trust and are applied in accordance with the terms of the governing securitization documents, which may include use by the securitization trust to repay any outstanding monoline advances or reduce future advances from the monolines. To the extent that a monoline has



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not advanced funds or does not anticipate that it will be required to advance funds to the securitization trust, the likelihood of receiving a repurchase claim from a monoline may be reduced as the monoline would receive limited or no benefit from the payment of repurchase claims. Moreover, some monolines are not currently performing their obligations under the financial guaranty policies they issued which may, in certain circumstances, impact their ability to present repurchase claims; although in those circumstances, trustees can bring repurchase claims, including at the direction of investors if contractual thresholds are met.

Table 12 details the population of loans originated between 2004 and 2008 and the population of loans sold as whole loans or in non-agency securitizations by entity and product together with the defaulted and severely delinquent loans stratified by the

number of payments the borrower made prior to default or becoming severely delinquent as of December 31, 2012. We believe many of the defaults observed in these securitizations have been, and continue to be, driven by external factors like the substantial depreciation in home prices, persistently high unemployment and other negative economic trends, diminishing the likelihood that any loan defect (assuming one exists at all) was the cause of a loan’s default. As of December 31, 2012, approximately 25 percent of the loans sold to non-GSEs that were originated between 2004 and 2008 have defaulted or are severely delinquent. Of the original principal balance for Countrywide, $409 billion is included in the BNY Mellon Settlement and of this amount $112 billion was defaulted or severely delinquent at December 31, 2012.




Table 12	Overview of Non-Agency Securitization and Whole Loan Balances

		Principal Balance				Defaulted or Severely Delinquent
(Dollars in billions) By Entity		Original Principal Balance		Outstanding Principal Balance December 31, 2012		Outstanding Principal Balance 180 Days or More Past Due		Defaulted Principal Balance		Defaulted or Severely Delinquent		Borrower Made Less than 13 Payments		Borrower Made 13 to 24 Payments		Borrower Made 25 to 36 Payments		Borrower Made More than 36 Payments
Bank of America		$	100	$	22	$	4	$	6	$	10	$	1	$	2	$	2	$	5
Countrywide		716		204		58		131		189		25		46		46		72
Merrill Lynch		65		16		4		13		17		3		4		3		7
First Franklin		82		18		5		23		28		5		6		5		12
Total ^{(1, 2)}		$	963	$	260	$	71	$	173	$	244	$	34	$	58	$	56	$	96
By Product
Prime		$	302	$	83	$	11	$	23	$	34	$	2	$	6	$	7	$	19
Alt-A		172		58		15		35		50		8		12		12		18
Pay option		150		43		19		37		56		5		14		16		21
Subprime		245		63		24		58		82		17		20		17		28
Home Equity		88		12		—		18		18		2		5		4		7
Other		6		1		2		2		4		—		1		—		3
Total		$	963	$	260	$	71	$	173	$	244	$	34	$	58	$	56	$	96


⁽¹⁾	Excludes transactions sponsored by Bank of America and Merrill Lynch where no representations or warranties were made.


⁽²⁾	Includes exposures on third-party sponsored transactions related to legacy entity originations.

Monoline Insurers

Legacy companies sold $184.5 billion of loans originated between 2004 and 2008 into monoline-insured securitizations, which are included in Table 12, including $103.9 billion of first-lien mortgages and $80.6 billion of second-lien mortgages. Of these balances, $48.9 billion of the first-lien mortgages and $51.8 billion of the second-lien mortgages have been paid in full and $35.1 billion of the first-lien mortgages and $17.6 billion of the second-lien mortgages have defaulted or are severely delinquent at December 31, 2012. At least 25 payments have been made on approximately 56 percent of the defaulted and severely delinquent loans. Of the first-lien mortgages sold, $39.1 billion, or 38 percent, were sold as whole loans to other institutions which subsequently included these loans with those of other originators in private-label securitization transactions in which the monolines insured one or more securities.

As of December 31, 2012, we have received $6.0 billion of representations and warranties repurchase claims associated with these vintages from the monoline insurers related to the monoline-insured transactions, predominately second-lien transactions. Of these repurchase claims, $2.4 billion were resolved through the Assured Guaranty and Syncora Settlements, $816 million were resolved through repurchase or indemnification with losses of $649 million, and $302 million were rescinded by the monoline

insurers or paid in full. Our limited experience with most of the monoline insurers has varied in terms of process, and experience with these counterparties has not been predictable. Our limited claims experience with the monoline insurers in the repurchase process is a result of these monoline insurers having instituted litigation against legacy Countrywide and/or Bank of America, which impacts our ability to enter into constructive dialogue with these monolines to resolve the open claims.

At December 31, 2012, for loans originated between 2004 and 2008, the unpaid principal balance of loans related to unresolved monoline repurchase claims was $2.4 billion, substantially all of which we have reviewed and declined to repurchase based on an assessment of whether a material breach exists. At December 31, 2012, the unpaid principal balance of loans in these vintages for which the monolines had requested loan files for review but for which no repurchase claim had been received was $5.3 billion, excluding loans that had been paid in full or resolved through settlements. Of these file requests, $4.0 billion are aged and subject to ongoing litigation. There will likely be additional requests for loan files in the future leading to repurchase claims. In addition, we have received claims from private-label securitization trustees and a third-party securitization sponsor related to first-lien third-party sponsored securitizations that include monoline insurance.



60 Bank of America 2012

It is not possible at this time to reasonably estimate probable future repurchase obligations with respect to those monolines with whom we have limited repurchase experience and, therefore, no representations and warranties liability has been recorded in connection with these monolines, other than a liability for repurchase claims where we have determined that there are valid loan defects and determined that there is a breach of a representation and warranty and that any other requirements for repurchase have been met. Outside of the standard quality control process that is an integral part of our loan origination process, we do not generally review loan files until we receive a repurchase claim, including with respect to monoline exposures. Our estimated range of possible loss related to representations and warranties exposures as of December 31, 2012 does not include possible losses related to these monoline insurers. For additional information, see Note 13 – Commitments and Contingencies to the Consolidated Financial Statements.

Whole Loans and Private-label Securitizations

Legacy entities, and to a lesser extent Bank of America, sold loans to investors as whole loans or via private-label securitizations. The majority of the loans sold were included in private-label securitizations, including third-party sponsored transactions. We provided representations and warranties to the whole-loan investors and these investors may retain those rights even when the whole loans were aggregated with other collateral into private-label securitizations sponsored by the whole-loan investors. The loans sold with a total principal balance of $778.2 billion, included in Table 12, were originated between 2004 and 2008, of which $429.0 billion have been paid in full and $191.4 billion are defaulted or severely delinquent at December 31, 2012. At least 25 payments have been made on approximately 64 percent of the defaulted and severely delinquent loans. We have received approximately $19.4 billion of representations and warranties repurchase claims from whole-loan investors, including third-party sponsors, and private-label securitization investors and trustees related to these vintages, including $10.5 billion from private-label securitization trustees, $8.0 billion from whole-loan investors and $815 million from one private-label securitization counterparty. In private-label securitizations, certain presentation thresholds need to be met in order for investors to direct a trustee to assert repurchase claims. Recent increases in new private-label claims are primarily related to repurchase requests received from trustees and third-party sponsors for private-label securitization transactions not included in the BNY Mellon Settlement, including claims related to first-lien third-party sponsored securitizations that include monoline insurance. Over time, there has been an increase in requests for loan files from certain private-label securitization trustees, as well as requests for tolling agreements to toll the applicable statutes of limitation relating to representations and warranties repurchase claims, and we believe it is likely that these requests will lead to an increase in repurchase claims from private-label securitization trustees with standing to bring such claims.

We have resolved $7.3 billion of the claims received from whole-loan investors and private-label securitization investors and trustees with losses of $1.6 billion. The majority of these resolved claims were from third-party whole-loan investors. Approximately $2.9 billion of these claims were resolved through repurchase or indemnification and $4.4 billion were rescinded by the investor. At December 31, 2012, for loans originated between 2004 and 2008, the notional amount of unresolved repurchase claims

submitted by private-label securitization trustees and whole-loan investors was $12.2 billion. We have performed an initial review with respect to $10.9 billion of these claims and do not believe a valid basis for repurchase has been established by the claimant and are still in the process of reviewing the remaining $1.3 billion of these claims.

Certain whole-loan investors have engaged with us in a consistent repurchase process and we have used that and other experience to record a liability related to existing and future claims from such counterparties. The BNY Mellon Settlement and subsequent activity with certain counterparties led to the determination that we had sufficient experience to record a liability related to our exposure on certain private-label securitizations but did not provide sufficient experience related to certain private-label securitizations sponsored by third-party whole-loan investors. As it relates to the other private-label securitizations sponsored by third-party whole-loan investors and certain other whole loan sales, it is not possible to determine whether a loss has occurred or is probable; and therefore, no representations and warranties liability has been recorded in connection with these transactions. Until we receive a repurchase claim, we generally have not reviewed loan files related to private-label securitizations sponsored by third-party whole-loan investors (and are not required by the governing documents to do so). Our estimated range of possible loss related to representations and warranties exposures as of December 31, 2012 included possible losses related to these whole loan sales and private-label securitizations sponsored by third-party whole-loan investors.

Private-label securitization investors generally do not have the contractual right to demand repurchase of loans directly or the right to access loan files. We have received repurchase demands totaling $1.6 billion from private-label securitization investors and a master servicer where in each case we believe the claimant has not satisfied the contractual thresholds to direct the securitization trustee to take action and/or that the demands are otherwise procedurally or substantively invalid.

Other Mortgage-related Matters

Servicing Matters and Foreclosure Processes

We service a large portion of the loans we or our subsidiaries have securitized and also service loans on behalf of third-party securitization vehicles and other investors. Our servicing obligations are set forth in servicing agreements with the applicable counterparty. These obligations may include, but are not limited to, loan repurchase requirements in certain circumstances, indemnifications, payment of fees, advances for foreclosure costs that are not reimbursable, or responsibility for losses in excess of guarantees for VA loans.

Servicing agreements with the GSEs generally provide the GSEs with broader rights relative to the servicer than are found in servicing agreements with private investors. For example, each GSE typically claims the right to demand that the servicer repurchase loans that breach the seller’s representations and warranties made in connection with the initial sale of the loans even if the servicer was not the seller. The GSEs claim that they have the contractual right to demand indemnification or loan repurchase for certain servicing breaches. In addition, the GSEs’ first-lien mortgage seller/servicer guides provide for timelines to resolve delinquent loans through workout efforts or liquidation, if necessary, and purport to require the imposition of compensatory fees if those deadlines are not satisfied except for reasons beyond



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the control of the servicer; although, we believe that the governing contracts, our course of dealing, and collective past practices and understandings should inform resolution of these matters. In addition, many non-agency RMBS and whole-loan servicing agreements state that the servicer may be liable for failure to perform its servicing obligations in keeping with industry standards or for acts or omissions that involve willful malfeasance, bad faith or gross negligence in the performance of, or reckless disregard of, the servicer’s duties.

It is not possible to reasonably estimate our liability with respect to potential servicing-related claims. While we have recorded certain accruals for servicing-related claims, the amount of potential liability in excess of existing accruals could be material.

In October 2010, we voluntarily stopped taking residential mortgage foreclosure proceedings to judgment in states where foreclosure requires a court order following a legal proceeding (judicial states) and stopped foreclosure sales in all states in order to complete an assessment of related business processes. We have resumed foreclosure sales in all states, but our progress on foreclosure sales in judicial states has been much slower than in states where foreclosure does not require a court order (non-judicial states).

2011 OCC Consent Order and 2013 IFR Acceleration Agreement

We entered into the 2011 OCC Consent Order on April 13, 2011. This consent order required servicers to make several enhancements to their servicing operations, including implementation of a single point of contact model for borrowers throughout the loss mitigation and foreclosure processes, adoption of measures designed to ensure that foreclosure activity is halted once a borrower has been approved for a modification unless the borrower fails to make payments under the modified loan and implementation of enhanced controls over third-party vendors that provide default servicing support services. In addition, the 2011 OCC Consent Order required that we retain an independent consultant, approved by the OCC, to conduct a review of all foreclosure actions pending, or foreclosure sales that occurred, between January 1, 2009 and December 31, 2010 and submit a plan to the OCC to remediate all financial injury to borrowers caused by any deficiencies identified through the review. On January 7, 2013, we and other mortgage servicing institutions entered into the 2013 IFR Acceleration Agreement with the Federal Reserve and the OCC to cease the case-by-case IFR program created by the 2011 OCC Consent Order and replace it with an accelerated remediation process. The 2013 IFR Acceleration Agreement requires us to make a cash payment of $1.1 billion and provide $1.8 billion of borrower assistance in the form of loan modifications and other foreclosure prevention actions. The borrower assistance program is not expected to result in any incremental credit provision, as we believe that the existing allowance for credit losses is adequate to absorb any costs that have not already been recorded as charge-offs.

National Mortgage Settlement

In March 2012, we entered into settlement agreements (collectively, the National Mortgage Settlement) with (1) the U.S. Department of Justice, various federal regulatory agencies and 49 state Attorneys General to resolve federal and state investigations into certain residential mortgage origination, servicing and foreclosure practices, (2) HUD to resolve certain claims relating

to the origination of FHA-insured mortgage loans, primarily by Countrywide prior to and for a period following our acquisition of that lender, and (3) each of the Federal Reserve and the OCC regarding civil monetary penalties related to conduct that was the subject of consent orders entered into with the banking regulators in April 2011. The National Mortgage Settlement was entered by the court as a consent judgment on April 5, 2012. The National Mortgage Settlement provided for the establishment of certain uniform servicing standards, upfront cash payments of approximately $1.9 billion to the state and federal governments and for borrower restitution, approximately $7.6 billion in borrower assistance in the form of, among other things, credits earned for principal reduction, short sales, deeds-in-lieu of foreclosure and approximately $1.0 billion of credits earned for interest rate reduction modifications. In addition, the settlement with HUD provided for an upfront cash payment of $500 million to settle certain claims related to FHA-insured loans. We will also be obligated to provide additional cash payments of up to $850 million if we fail to earn an additional $850 million of credits stemming from incremental first-lien principal reductions over a three-year period.

The borrower assistance program did not result in any incremental credit provision during 2012, as we believe that the existing allowance for credit losses is adequate to absorb any costs that have not already been recorded as charge-offs. The interest rate modification program consisted of interest rate reductions on first-lien loans originated prior to January 1, 2009 that have a current loan-to-value (LTV) ratio greater than 100 percent and that meet certain eligibility criteria, including the requirement that all payments due for the last twelve months have been made in a timely manner. This program commits us to forego future interest payments that we may not otherwise have agreed to forego, and no loss has been recognized in the financial statements related to such forgone interest. Modifications of approximately 7,500 loans with an aggregate unpaid principal balance of $2.1 billion providing for an average interest rate reduction of approximately two percent were completed as of December 31, 2012, resulting in an estimated decrease in fair value of the modified loans of approximately $242 million. The interest rate modification program is expected to include approximately 20,000 to 25,000 loans with an aggregate unpaid principal balance of $5.4 billion to $6.8 billion. Assuming an average interest rate reduction of approximately two percent, the modifications are expected to result in a reduction of annual interest income of approximately $100 million to $130 million when the program is complete. Assuming a weighted-average loan life of approximately eight years, the fair value of loans in the program is expected to decrease by approximately $600 million to $800 million as a result of the interest rate reductions. The financial impact will vary depending on final terms of modifications offered and the rate of borrower acceptance. We do not expect loans modified under the program to be accounted for as troubled debt restructurings (TDRs). If the program is expanded to include loans that do not meet specified underwriting criteria, such as maximum debt-to-income ratios or minimum FICO scores, the modifications of such loans will be accounted for as TDRs.

We could be required to make additional payments if we fail to meet our borrower assistance and rate reduction modification commitments over a three-year period, in an amount equal to 125 percent to 140 percent of the shortfall, dependent on the two- and three-year commitment target. We also entered into agreements with several states under which we committed to perform certain



62 Bank of America 2012

minimum levels of principal reduction and related activities within those states in connection with the National Mortgage Settlement, and under which we could be required to make additional payments if we fail to meet such minimum levels.

We believe that it is likely that we will meet all borrower assistance, rate reduction modification and principal reduction commitments required under the National Mortgage Settlement and, therefore, do not expect to be required to make additional cash payments. Although it is possible that the cost of fulfilling the commitments could increase, leading to an incremental credit provision, the amount of any such incremental provision is not reasonably estimable. Although we may incur additional operating costs such as servicing costs to implement parts of the National Mortgage Settlement in future periods, we do not expect that those costs will be material.

Under the terms of the National Mortgage Settlement, the federal and participating state governments agreed to release us from further liability for certain alleged residential mortgage origination, servicing and foreclosure deficiencies. In settling origination issues related to FHA-guaranteed loans originated on or before April 30, 2009, we received a release from further liability for all origination claims with respect to such loans if an insurance claim had been submitted to the FHA prior to January 1, 2012 and a release of multiple damages and penalties, but not single damages, if no such claim had been submitted. In addition, provided we meet our assistance and remediation commitments, the OCC agreed not to assess, and we will not be obligated to pay to the Federal Reserve, any civil monetary penalties.

The National Mortgage Settlement does not cover certain claims arising out of origination, securitization (including representations made to investors with respect to MBS), criminal claims, private claims by borrowers, claims by certain states for injunctive relief or actual economic damages to borrowers related to the Mortgage Electronic Registration Systems, Inc. (MERS), and claims by the GSEs (including repurchase demands), among other items.

Additionally, we continue to be subject to additional borrower and non-borrower litigation and governmental and regulatory scrutiny related to our past and current origination, servicing and foreclosure activities, including those claims not covered by the National Mortgage Settlement. This scrutiny may extend beyond our pending foreclosure matters to issues arising out of alleged irregularities with respect to previously completed foreclosure activities. The current environment of heightened regulatory scrutiny may subject us to inquiries or investigations that could significantly adversely affect our reputation and result in material costs to us.

Mortgage Electronic Registration Systems, Inc.

Mortgage notes, assignments or other documents are often required to be maintained and are often necessary to enforce mortgage loans. There has been significant public commentary regarding the common industry practice of recording mortgages in the name of MERS, as nominee on behalf of the note holder, and whether securitization trusts own the loans purported to be conveyed to them and have valid liens securing those loans. We currently use the MERS system for a substantial portion of the residential mortgage loans that we originate, including loans that have been sold to investors or securitization trusts. A component of the OCC consent order requires significant changes in the

manner in which we service loans that identify MERS as the mortgagee. Additionally, certain local and state governments have commenced legal actions against us, MERS and other MERS members, questioning the validity of the MERS model. Other challenges have also been made to the process for transferring mortgage loans to securitization trusts, asserting that having a mortgagee of record that is different than the holder of the mortgage note could “break the chain of title” and cloud the ownership of the loan. In order to foreclose on a mortgage loan, in certain cases it may be necessary or prudent for an assignment of the mortgage to be made to the holder of the note, which in the case of a mortgage held in the name of MERS as nominee would need to be completed by a MERS signing officer. As such, our practice is to obtain assignments of mortgages from MERS prior to instituting foreclosure. If certain required documents are missing or defective, or if the use of MERS is found not to be valid, we could be obligated to cure certain defects or in some circumstances be subject to additional costs and expenses. Our use of MERS as nominee for the mortgage may also create reputational risks for us.

Impact of Foreclosure Delays

Foreclosure delays impact our default-related servicing costs. We believe default-related servicing costs peaked during the third quarter of 2012 and began to decline in the fourth quarter of 2012, and we anticipate that this decline will accelerate in 2013. However, unexpected foreclosure delays in 2013 could impact the rate of decline. Default-related servicing costs include costs related to resources needed for implementing new servicing standards mandated for the industry, including as part of the National Mortgage Settlement, other operational changes and operational costs due to delayed foreclosures and do not include mortgage-related assessments, waivers and similar costs related to foreclosure delays.

Other areas of our operations are also impacted by foreclosure delays. In 2012, we recorded $867 million of mortgage-related assessments, waivers and similar costs related to foreclosure delays, including $258 million related to compensatory fees as part of the FNMA Settlement. It is also possible that the delays in foreclosure sales may result in additional costs and expenses, including costs associated with the maintenance of properties or possible home price declines while foreclosures are delayed. Finally, the time to complete foreclosure sales may continue to be protracted, which may result in a greater number of nonperforming loans and increased servicing advances, and may impact the collectability of such advances and the value of our MSR asset, MBS and real estate owned properties. Accordingly, the ultimate resolution of disagreements with counterparties, delays in foreclosure sales beyond those currently anticipated, and any issues that may arise out of alleged irregularities in our foreclosure process could significantly increase the costs associated with our mortgage operations.

Mortgage-related Settlements – Servicing Matters

In connection with the BNY Mellon Settlement, BANA has agreed to implement certain servicing changes. The Trustee and BANA have agreed to clarify and conform certain servicing standards related to loss mitigation. In particular, the BNY Mellon Settlement clarifies that it is permissible to apply the same loss mitigation strategies to the Covered Trusts as are applied to BANA affiliates’



		Bank of America 2012 63

HFI portfolios. This portion of the agreement was effective in the second quarter of 2011 and is not conditioned on final court approval.

BANA also agreed to transfer the servicing rights related to certain high-risk loans to qualified subservicers on a schedule that began with the signing of the BNY Mellon Settlement. This servicing transfer protocol will reduce the servicing fees payable to BANA in the future. Upon final court approval of the BNY Mellon Settlement, failure to meet the established benchmarking standards for loans not in subservicing arrangements can trigger the payment of agreed-upon fees. Additionally, we and legacy Countrywide have agreed to work to resolve with the Trustee certain mortgage documentation issues related to the enforceability of mortgages in foreclosure and to reimburse the related Covered Trust for any loss if BANA is unable to foreclose on the mortgage and the Covered Trust is not made whole by a title policy because of these issues. These agreements will terminate if final court approval of the BNY Mellon Settlement is not obtained, although we could still have exposure under the pooling and servicing agreements related to the mortgages in the Covered Trusts for these issues.

In connection with the National Mortgage Settlement, BANA has agreed to implement certain additional servicing changes. The uniform servicing standards established under the National Mortgage Settlement are broadly consistent with the residential mortgage servicing practices imposed by the 2011 OCC Consent Order; however, they are more prescriptive and cover a broader range of our residential mortgage servicing activities. These standards are intended to strengthen procedural safeguards and documentation requirements associated with foreclosure, bankruptcy, and loss mitigation activities, as well as addressing the imposition of fees and the integrity of documentation, with a goal of ensuring greater transparency for borrowers. These uniform servicing standards also obligate us to implement compliance processes reasonably designed to provide assurance of the achievement of these objectives. Compliance with the uniform servicing standards will be assessed by a monitor based on the measurement of outcomes with respect to these objectives. Implementation of these uniform servicing standards is expected to contribute to elevated costs associated with the servicing process, but is not expected to result in material delays or dislocation in the performance of our mortgage servicing obligations, including the completion of foreclosures.

Regulatory Matters

See Item 1A. Risk Factors and Note 13 – Commitments and Contingencies to the Consolidated Financial Statements for additional information regarding regulatory matters and risks.

Financial Reform Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Financial Reform Act), which was signed into law on July 21, 2010, enacted sweeping financial regulatory reform and has altered and will continue to alter the way in which we conduct certain businesses, increase our costs and reduce our revenues. Many aspects of the Financial Reform Act remain subject to final rulemaking and will take effect over several years, making it difficult to anticipate the precise impact on the Corporation, our customers or the financial services industry.

Debit Interchange Fees

On June 29, 2011, the Federal Reserve adopted a final rule with respect to the Durbin Amendment effective on October 1, 2011 which, among other things, established a regulatory cap for many types of debit interchange transactions to equal no more than 21 cents plus five bps of the value of the transaction. The Federal Reserve also adopted a rule to allow a debit card issuer to recover one cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements, with which we are currently in compliance. The Federal Reserve also approved rules governing routing and exclusivity, requiring issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product, which became effective April 1, 2012. For additional information on the impact to revenue, see CBB on page 38.

Limitations on Proprietary Trading; Sponsorship and Investment in Hedge Funds and Private Equity Funds

On October 11, 2011, the Federal Reserve, OCC, FDIC and Securities and Exchange Commission (SEC), representing four of the five regulatory agencies charged with promulgating regulations implementing limitations on proprietary trading as well as the sponsorship of or investment in hedge funds and private equity funds (the Volcker Rule) established by the Financial Reform Act, released for comment proposed implementing regulations. On January 11, 2012, the Commodity Futures Trading Commission (CFTC), the fifth agency, released for comment its proposed regulations under the Volcker Rule. The proposed regulations include clarifications to the definition of proprietary trading and distinctions between permitted and prohibited activities. However, in light of the complexity of the proposed regulations and the large volume of comments received (the proposal requested comments on over 1,300 questions on 400 different topics), it is not possible to predict the content of the final regulations or when they will be issued.



64 Bank of America 2012

Derivatives

The Financial Reform Act includes measures to broaden the scope of derivative instruments subject to regulation by requiring clearing and exchange trading of certain derivatives; imposing new capital, margin, reporting, registration and business conduct requirements for certain market participants; and imposing position limits on certain over-the-counter (OTC) derivatives. The Financial Reform Act grants the CFTC and the SEC substantial new authority and requires numerous rulemakings by these agencies. Swap dealers conducting dealing activity with U.S. persons above a specified dollar threshold were required to register with the CFTC on or before December 31, 2012. We registered BANA, Merrill Lynch Commodities Inc., Merrill Lynch Capital Services Inc., Merrill Lynch Financial Markets Inc., Merrill Lynch International and Merrill Lynch International Bank Limited as swap dealers on December 31, 2012. Upon registration, swap dealers became subject to additional CFTC rules relating to business conduct and reporting, and will continue to become subject to additional CFTC rules as and when such rules take effect. Those rules include, but are not limited to, measures that require clearing and exchange trading of certain derivatives, new capital and margin requirements for certain market participants, and additional reporting requirements for derivatives under the jurisdiction of the CFTC. The CFTC also granted relief from some of the rules that would have become effective during the fourth quarter of 2012, either completely suspending or delaying the application of some requirements.

FDIC Deposit Insurance Assessments

The FDIC has broad discretionary authority to increase assessments on large and highly complex institutions on a case by case basis. Any future increases in required deposit insurance premiums or other bank industry fees could have an adverse impact on our financial condition and results of operations.

Resolution Planning

The Federal Reserve and the FDIC require that the Corporation and other bank holding companies (BHCs) with assets of $50 billion or more, as well as companies designated as systemically important by the Financial Stability Oversight Council, submit annually their plans for a rapid and orderly resolution in the event of material financial distress or failure.

A resolution plan is intended to be a detailed roadmap for the orderly resolution of the BHC and material entities pursuant to the U.S. Bankruptcy Code under one or more hypothetical scenarios assuming no extraordinary government assistance. If the FDIC and the Federal Reserve determine that our plan is not credible and we fail to cure the deficiencies in a timely manner, the FDIC and

the Federal Reserve may jointly impose more stringent capital, leverage or liquidity requirements or restrictions on growth, activities or operations of the Corporation. We submitted our initial plan in 2012, which is to be updated annually.

Similarly, in the U.K., the Financial Services Authority (FSA) has issued proposed rules requiring the submission of significant information about certain U.K. incorporated subsidiaries and other financial institutions, as well as branches of non-U.K. banks located in the U.K. (including information on intra-group dependencies, legal entity separation and barriers to resolution) to allow the FSA to develop resolution plans. As a result of the FSA review, we could be required to take certain actions over the next several years which could impose operational costs and potentially result in the restructuring of certain business and subsidiaries.

Orderly Liquidation Authority

Under the Financial Reform Act, when a systemically important financial institution such as the Corporation is in default or danger of default, the FDIC may be appointed receiver in order to conduct an orderly liquidation of such systemically important financial institution. In the event of such appointment, the FDIC could invoke a new form of resolution authority, the orderly liquidation authority, instead of the U.S. Bankruptcy Code, if the Secretary of the Treasury makes certain financial distress and systemic risk determinations. The orderly liquidation authority is modeled in part on the Federal Deposit Insurance Act, but also adopts certain concepts from the U.S. Bankruptcy Code.

The orderly liquidation authority contains certain differences from the U.S. Bankruptcy Code. Macroprudential systemic protection is the primary objective of the orderly liquidation authority, subject to minimum threshold protections for creditors. Accordingly, in certain circumstances under the orderly liquidation authority, the FDIC could permit payment of obligations it determines to be systemically significant (e.g., short-term creditors or operating creditors) in lieu of paying other obligations (e.g., long-term creditors) without the need to obtain creditors’ consent or prior court review. The insolvency and resolution process could also lead to a large reduction or total elimination of the value of a BHC’s outstanding equity. For example, the FDIC could follow a “single point of entry” approach and replace a distressed BHC with a bridge holding company, which could continue operations and result in an orderly resolution of the underlying bank, but whose equity is held solely for the benefit of creditors of the original BHC. Additionally, under the orderly liquidation authority, amounts owed to the U.S. government generally receive a statutory payment priority.

Credit Risk Retention

On March 29, 2011, federal regulators jointly issued a proposed rule regarding credit risk retention that would, among other things, require sponsors to retain at least five percent of the credit risk of the assets underlying certain ABS and MBS securitizations and would limit the ability to transfer or hedge that credit risk. The proposed rule as currently written would likely have an adverse impact on our ability to engage in many types of the MBS and ABS securitizations conducted in CRES, Global Markets and other business segments, impose additional operational and compliance costs on us, and negatively influence the value, liquidity and transferability of ABS or MBS, loans and other assets. However, it remains unclear what requirements will be included in



		Bank of America 2012 65

the final rule and what the ultimate impact of the final rule will be on our CRES, Global Markets and other business segments or on our results of operations.

The Consumer Financial Protection Bureau

The Financial Reform Act established the Consumer Financial Protection Bureau (CFPB), which principally regulates the offering of consumer financial products or services under federal consumer financial laws, and which has commenced its supervisory oversight. Certain federal consumer financial laws to which the Corporation is subject including, but not limited to, the Equal Credit Opportunity Act, Home Mortgage Disclosure Act, Electronic Fund Transfers Act, Fair Credit Reporting Act, Truth in Lending and Truth in Savings Acts are enforced by the CFPB, subject to certain statutory limitations. Through its rulemaking authority, the CFPB has promulgated several proposed and final rules that will affect our consumer businesses. Among these initiatives is a recently-issued final rule implementing sections of the Financial Reform Act establishing “ability to repay” and “qualified mortgage” standards under the Truth in Lending Act. In addition, the CFPB issued a final rule establishing mortgage loan servicing standards through amendments to the Real Estate Settlement Procedures Act. The CFPB has also proposed rules addressing items such as remittance transfer services, appraisal requirements and loan originator compensation requirements. The Corporation is evaluating the various CFPB rules and proposals and devoting substantial compliance, legal and operational business resources to facilitate compliance with these rules by their respective effective dates. In addition, the Corporation has cooperated with the CFPB on several industry-related information collection requests involving consumer financial products and services, including overdraft fees and practices.

Certain Other Provisions

The Financial Reform Act also expands the role of state regulators in enforcing consumer protection requirements over banks and disqualifies trust preferred securities and other hybrid capital securities from Tier 1 capital. Many of the provisions under the Financial Reform Act have only begun to be implemented or remain to be implemented in the future and will be subject both to further rulemaking and the discretion of applicable regulatory bodies. For additional information regarding regulatory capital and other rules proposed by federal regulators, see Capital Management – Regulatory Capital Changes on page 72.

The Financial Reform Act will continue to have an adverse impact on our earnings through fee reductions, higher costs and imposition of new restrictions on us. The Financial Reform Act may also continue to have a material adverse impact on the value of certain assets and liabilities held on our balance sheet. The ultimate impact of the Financial Reform Act on our businesses will depend on regulatory interpretation and rulemaking, as well as the success of any of our actions to mitigate the negative impact of certain provisions.

Transactions with Affiliates

The terms of certain of our OTC derivative contracts and other trading agreements of the Corporation provide that upon the occurrence of certain specified events, such as a change in our credit ratings, Merrill Lynch and other non-bank affiliates may be required to provide additional collateral or to provide other remedies, or our counterparties may have the right to terminate

or otherwise diminish our rights under these contracts or agreements. In the event of further downgrades of the credit ratings of the Corporation and other non-bank affiliates, we may engage in discussions with certain derivative and other counterparties regarding their rights under these agreements, including potentially naming new counterparties. Our ability to substitute or make changes to these agreements to meet counterparties’ requests may be subject to certain limitations, including counterparty willingness, regulatory limitations on naming BANA as the new counterparty, and the type or amount of collateral required. It is possible that such limitations on our ability to substitute or make changes to these agreements, including naming BANA as the new counterparty, could adversely affect our results of operations.

Other Matters

The Corporation has established guidelines and policies for managing capital across its subsidiaries. The guidance for the Corporation’s subsidiaries with regulatory capital requirements, including branch operations of banking subsidiaries, requires each entity to maintain satisfactory capital levels. This includes setting internal capital targets for the U.S. bank subsidiaries to exceed “well-capitalized” levels. The U.K. has adopted increased capital and liquidity requirements for local financial institutions, including regulated U.K. subsidiaries of non-U.K. BHCs and other financial institutions as well as branches of non-U.K. banks located in the U.K. In addition, the U.K. has proposed the creation and production of recovery and resolution plans, commonly referred to as living wills, by significant regulated legal entities.

Managing Risk

Overview

Risk is inherent in every material business activity that we undertake. Our business exposes us to strategic, credit, market, liquidity, compliance, operational and reputational risks. We must manage these risks to maximize our long-term results by ensuring the integrity of our assets and the quality of our earnings.

Strategic risk is the risk that results from adverse business decisions, ineffective or inappropriate business plans, or failure to respond to changes in the competitive environment, business cycles, customer preferences, product obsolescence, regulatory environment, business strategy execution, and/or other inherent risks of the business including reputational risk. Credit risk is the risk of loss arising from a borrower’s or counterparty’s inability to meet its obligations. Market risk is the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions such as interest rate movements. Liquidity risk is the inability to meet contractual and contingent financial obligations, on- or off-balance sheet, as they come due. Compliance risk is the risk that arises from the failure to adhere to laws, rules, regulations, or internal policies and procedures. Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or external events. Reputational risk is the potential that negative publicity regarding an organization’s conduct or business practices will adversely affect its profitability, operations or customer base, or result in costly litigation or require other measures. Reputational risk is evaluated along with all of the risk categories and throughout the risk management process, and as such is not discussed separately herein. The following sections, Strategic Risk



66 Bank of America 2012

Management and Capital Management both on page 70, Liquidity Risk on page 75, Credit Risk Management on page 79, Market Risk Management on page 113, Compliance Risk Management and Operational Risk Management both on page 120, address in more detail the specific procedures, measures and analyses of the major categories of risk that we manage.

In choosing when and how to take risks, we evaluate our capacity for risk and seek to protect our brand and reputation, our financial flexibility, the value of our assets and the strategic potential of the Corporation. We intend to maintain a strong and flexible financial position. We also intend to focus on maintaining our relevance and value to customers, employees and shareholders. As part of our efforts to achieve these objectives, we continue to build a comprehensive risk management culture and to implement governance and control measures to strengthen that culture.

We take a comprehensive approach to risk management. We have a defined risk framework and clearly articulated risk appetite which is approved annually by the Corporation’s Board of Directors (the Board). Risk management planning is integrated with strategic, financial and customer/client planning so that goals and responsibilities are aligned across the organization. Risk is managed in a systematic manner by focusing on the Corporation as a whole as well as managing risk across the enterprise and within individual business units, products, services and transactions, and across all geographic locations. We maintain a governance structure that delineates the responsibilities for risk management activities, as well as governance and oversight of those activities.

Executive management assesses, with Board oversight, the risk-adjusted returns of each business segment. Management reviews and approves strategic and financial operating plans, and recommends to the Board for approval a financial plan annually. By allocating economic capital to and establishing a risk appetite for a business segment, we seek to effectively manage the ability to take on risk. Economic capital is assigned to each business segment using a risk-adjusted methodology incorporating each segment’s stand-alone credit, market, interest rate and operational risk components, and is used to measure risk-adjusted returns. We regularly evaluate these allocations as part of our overall governance processes as the businesses and the economic environment in which we operate continue to evolve.

In addition to reputational considerations, businesses operate within their credit, market, compliance and operational risk standards and limits in order to adhere to the risk appetite. These limits are based on analyses of risk and reward in each business. Executive management is responsible for tracking and reporting performance measurements as well as any exceptions to guidelines or limits. The Board, and its committees when appropriate, monitor financial performance, execution of the strategic and financial operating plans, compliance with the risk appetite and the adequacy of internal controls.

The Board has completed its review of the Risk Framework and the Risk Appetite Statement for the Corporation, and both the Risk Framework and Risk Appetite Statement were approved in January 2013. The Risk Framework defines the accountability of the Corporation and its employees and the Risk Appetite Statement defines the parameters under which we will take risk. Both documents are intended to enable us to maximize our long-term results and ensure the integrity of our assets and the quality of our earnings. The Risk Framework is designed to be used by our employees to understand risk management activities, including

their individual roles and accountabilities. It also defines how risk management is integrated into our core business processes, and it defines the risk management governance structure, including management’s involvement. The risk management responsibilities of the businesses, governance and control functions, and Corporate Audit are also clearly defined. The risk management process includes four critical elements: identify and measure risk, mitigate and control risk, monitor and test risk, and report and review risk, and is applied across all business activities to enable an integrated and comprehensive review of risk consistent with the Risk Appetite Statement.

Risk Management Processes and Methods

To support our corporate goals and objectives, risk appetite, and business and risk strategies, we maintain a governance structure that delineates the responsibilities for risk management activities, as well as governance and oversight of those activities, by management and the Board. All employees have accountability for risk management. Each employee’s risk management responsibilities falls into one of three major categories: businesses, governance and control, and Corporate Audit.

Business managers and employees are accountable for identifying, managing and escalating attention to all risks in their business units, including existing and emerging risks. Business managers must ensure that their business activities are conducted within the risk appetite defined by management and approved by the Board. The limits and controls for each business must be consistent with the Risk Appetite Statement. Employees in client and customer facing businesses are responsible for day-to-day business activities, including developing and delivering profitable products and services, fulfilling customer requests and maintaining desirable customer relationships. These employees are accountable for conducting their daily work in accordance with policies and procedures. It is the responsibility of each employee to protect the Corporation and defend the interests of the shareholders.

Governance and control functions are comprised of Global Risk Management, Global Compliance, Legal and the enterprise control functions and are tasked with independently overseeing and managing risk activities. Global Compliance (which includes Regulatory Relations) and Legal report to the Chief Legal, Compliance and Regulatory Relations Executive. Enterprise control functions consist of the Chief Financial Officer (CFO) Group, Global Technology and Operations, Global Human Resources, and Global Marketing and Corporate Affairs.

Global Risk Management is led by the Chief Risk Officer (CRO). The CRO leads senior management in managing risk, is independent from the Corporation’s businesses and enterprise control functions, and maintains sufficient autonomy to develop and implement meaningful risk management measures. This position serves to protect the Corporation and its shareholders. The CRO reports to the Chief Executive Officer (CEO) and is the management team lead or a participant in Board-level risk governance committees. The CRO has the mandate to ensure that appropriate risk management practices are in place, and are effective and consistent with our overall business strategy and risk appetite. Global Risk Management is comprised of two types of risk teams, Enterprise risk teams and independent business risk teams, which report to the CRO and are independent from the business and enterprise control functions.



		Bank of America 2012 67

Enterprise risk teams are responsible for setting and establishing enterprise policies, programs and standards, assessing program adherence, providing enterprise-level risk oversight, and reporting and monitoring systemic and emerging risk issues. In addition, the enterprise risk teams are responsible for monitoring and ensuring that risk limits are reasonable and consistent with the risk appetite. These risk teams also carry out risk-based oversight of the enterprise control functions.

Independent business risk teams are responsible for establishing policies, limits, standards, controls, metrics and thresholds within the defined corporate standards for the businesses to which they are aligned. The independent business risk teams are also responsible for ensuring that risk limits and standards are reasonable and consistent with the risk appetite.

Enterprise control functions are independent of the businesses and have risk governance and control responsibilities for enterprise programs. In this role, they are responsible for setting policies, standards and limits; providing risk reporting; monitoring systemic risk issues including existing and emerging; and implementing procedures and controls at the enterprise and business levels for their respective control functions.

The Corporate Audit function maintains independence from the businesses and governance and control functions by reporting directly to the Audit Committee of the Board. Corporate Audit provides independent assessment and validation through testing of key processes and controls across the Corporation. Corporate Audit also provides an independent assessment of the Corporation’s management and internal control systems. Corporate Audit activities are designed to provide reasonable assurance that resources are adequately protected; significant financial, managerial and operating information is materially complete, accurate and reliable; and employees’ actions are in compliance with the Corporation’s policies, standards, procedures, and applicable laws and regulations.

To assist the Corporation in achieving its goals and objectives, risk appetite, and business and risk strategies, we utilize a risk management process that is applied across the execution of all business activities. This risk management process, which is an integral part of our Risk Framework, enables the Corporation to review risk in an integrated and comprehensive manner across all risk categories and make strategic and business decisions based on that comprehensive view. Corporate goals and objectives are established by management, and management reflects these goals and objectives in our risk appetite which is approved by the Board and serves as a key driver for setting business and risk strategy.

One of the key tools of the risk management process is the use of Risk and Control Self Assessments (RCSAs). RCSAs are the primary method for facilitating the management of business environment and internal control factor data. The end-to-end RCSA process incorporates risk identification and assessment of the control environment; monitoring, reporting and escalating risk; quality assurance and data validation; and integration with the risk appetite. The RCSA process also incorporates documentation by either the business or governance and control functions of the business environment, risks, controls, and monitoring and reporting. This results in a comprehensive risk management view that enables understanding of and action on operational risks and controls for all of our processes, products, activities and systems.

The formal processes used to manage risk represent a part of our overall risk management process. Corporate culture and the actions of our employees are also critical to effective risk management. Through our Code of Ethics, we set a high standard for our employees. The Code of Ethics provides a framework for all of our employees to conduct themselves with the highest integrity. We instill a strong and comprehensive risk management culture through communications, training, policies, procedures, and organizational roles and responsibilities. Additionally, we continue to strengthen the link between the employee performance management process and individual compensation to encourage employees to work toward enterprise-wide risk goals.

Enterprise-wide Stress Testing

As a part of our core risk management practices, we conduct enterprise-wide stress tests on a periodic basis to better understand balance sheet, earnings, capital and liquidity sensitivities to certain economic and business scenarios, including economic and market conditions that are more severe than anticipated. These enterprise-wide stress tests provide illustrative hypothetical potential impacts from our risk profile on our balance sheet, earnings, capital and liquidity and serve as a key component of our capital, liquidity and risk management practices. Scenarios are selected by the Asset Liability and Market Risk Committee (ALMRC) and approved by the CFO and the CRO. Impacts to each business from each scenario are then determined and analyzed, primarily by leveraging the models and processes utilized in everyday management routines. Impacts are assessed along with potential mitigating actions that may be taken. Analysis from such stress scenarios is compiled for and reviewed through our Chief Financial Officer Risk Committee (CFORC), ALMRC and the Board’s Enterprise Risk Committee.

Contingency Planning Routines

We have developed and maintain contingency plans that prepare us in advance to respond in the event of potential adverse outcomes and scenarios. These contingency planning routines include capital contingency planning, liquidity contingency funding plans, recovery planning and enterprise resiliency, and provide for monitoring, escalation routines, and response plans. Contingency response plans are designed to enable us to increase capital, access funding sources, and reduce risk through consideration of potential actions that includes asset sales, business sales, capital or debt issuances, and other de-risking strategies.

Board Oversight of Risk

The Board, comprised of a substantial majority of independent directors, including an independent Chairman of the Board, oversees the management of the Corporation through a governance structure that includes Board committees and management committees. The Board’s standing committees that oversee the management of the majority of the risks faced by the Corporation include the Audit and Enterprise Risk Committees, comprised of independent directors, and the Credit Committee, comprised of non-management directors. This governance structure is designed to align the interests of the Board and management with those of our stockholders and to foster integrity throughout the Corporation.



68 Bank of America 2012

The chart below illustrates the inter-relationship among the Board, Board committees and management committees with the majority of risk oversight responsibilities for the Corporation.


⁽¹⁾	Chart is not comprehensive; there may be additional subcommittees not represented in this chart. This presentation does not include committees for other legal entities.


⁽²⁾	Reports through the Audit Committee for compliance and through the Enterprise Risk Committee for operational and reputational risk.


⁽³⁾	Reports to the CEO and CFO with oversight by the Audit Committee.

Our Board’s Audit, Credit and Enterprise Risk Committees have the principal responsibility for assisting the Board with enterprise-wide oversight of the Corporation’s management and handling of risk.

Our Audit Committee assists the Board in the oversight of, among other things, the integrity of our consolidated financial statements, our compliance with legal and regulatory requirements, and the overall effectiveness of our system of internal controls. Our Audit Committee also, taking into consideration the Board’s allocation of the review of risk among various committees of the Board, discusses with management guidelines and policies to govern the process by which risk assessment and risk management are undertaken, including the assessment of our major financial risk exposures and the steps management has taken to monitor and control such exposures.

Our Credit Committee oversees, among other things, the identification and management of our credit exposures on an enterprise-wide basis, our responses to trends affecting those exposures, the adequacy of the allowance for credit losses and our credit related policies.

Our Enterprise Risk Committee oversees, among other things, our identification of, management of and planning for material risks on an enterprise-wide basis, including market risk, interest rate risk, liquidity risk, operational risk and reputational risk. Our Enterprise Risk Committee also oversees our capital management and liquidity planning.

Each of these committees regularly reports to our Board on risk-related matters within the committee’s responsibilities, which collectively provides our Board with integrated, thorough insight about our management of our enterprise-wide risks. At meetings of our Audit, Credit and Enterprise Risk Committees and our Board, directors receive updates from management regarding enterprise risk management, including our performance against our risk appetite.

Executive management develops for Board approval the Corporation’s Risk Framework, Risk Appetite Statement and financial operating plans. Management monitors, and the Board oversees, through the Credit, Enterprise Risk and Audit Committees, financial performance, execution of the strategic and financial operating plans, compliance with the risk appetite and the adequacy of internal controls.



		Bank of America 2012 69

Strategic Risk Management

Strategic risk is embedded in every business and is one of the major risk categories along with credit, market, liquidity, compliance, operational and reputational risks. It is the risk that results from adverse business decisions, ineffective or inappropriate business plans, or failure to respond to changes in the competitive environment, business cycles, customer preferences, product obsolescence, regulatory environment, business strategy execution and/or other inherent risks of the business. Other inherent risks of the business include reputational and operational risk. In the financial services industry, strategic risk is elevated due to changing customer, competitive and regulatory environments. Our appetite for strategic risk is assessed within the context of the strategic plan, with strategic risks selectively and carefully considered in the context of the evolving marketplace. Strategic risk is managed in the context of our overall financial condition and assessed, managed and acted on by the CEO and executive management team. Significant strategic actions, such as material acquisitions or capital actions, require review and approval by the Board.

Executive management approves a strategic plan each year. Annually, executive management develops a financial operating plan that implements the strategic goals for that year, which is reviewed and approved by the Board. With oversight by the Board, executive management ensures consistency is applied while executing the Corporation’s strategic plan, core operating tenets and risk appetite. The following are assessed in their reviews: forecasted earnings and returns on capital, the current risk profile, current capital and liquidity requirements, staffing levels and changes required to support the plan, stress testing results, and other qualitative factors such as market growth rates and peer analysis. At the business level, as we introduce new products, we monitor their performance to evaluate expectations (e.g., for earnings and returns on capital). With oversight by the Board, executive management performs similar analyses throughout the year, and evaluates changes to the financial forecast or the risk, capital or liquidity positions as deemed appropriate to balance and optimize between achieving the targeted risk appetite, shareholder returns and maintaining the targeted financial strength.

We use proprietary models to measure the capital requirements for credit, country, market, operational and strategic risks. The economic capital assigned to each business is based on its unique risk exposures. With oversight by the Board, executive management assesses the risk-adjusted returns of each business in approving strategic and financial operating plans. The businesses use economic capital to define business strategies, price products and transactions, and evaluate client profitability. For additional information on how this measure is calculated, see Supplemental Financial Data on page 35.

Capital Management

The Corporation manages its capital position to maintain sufficient capital to support our business activities and maintain capital, risk and risk appetite commensurate with one another. Additionally, we seek to maintain safety and soundness at all times including under adverse conditions, take advantage of organic growth opportunities, maintain ready access to financial markets, continue to serve as a credit intermediary, remain a source of strength for our subsidiaries, and satisfy current and future regulatory capital requirements.

To determine the appropriate level of capital, we assess the results of our Internal Capital Adequacy Assessment Process (ICAAP), the current economic and market environment, and feedback from key stakeholders including investors, rating agencies and regulators. Based upon this analysis, we set guidelines for capital ratios to maintain an adequate capital position, including in severe adverse economic scenarios. Management and the Board annually approve a comprehensive capital plan which documents the ICAAP and related results, analysis and support for the capital guidelines, and planned capital actions.

The ICAAP incorporates capital forecasts, stress test results, economic capital, qualitative risk assessments and assessment of regulatory changes. Throughout the year, we generate regulatory capital and economic capital forecasts that are aligned to the most recent earnings, balance sheet and risk forecasts. We utilize quarterly stress tests to assess the potential impacts to our balance sheet, earnings, capital and liquidity of a variety of stress scenarios. We perform qualitative risk assessments to identify and assess material risks not fully captured in the forecasts, stress tests or economic capital. We regularly assess the capital impacts of proposed changes to regulatory capital requirements. Management regularly assesses ICAAP results and provides documented quarterly assessments of the adequacy of the capital guidelines and capital position to the Board or its committees.

Capital management is integrated into our risk and governance processes, as capital is a key consideration in the development of the strategic plan, risk appetite and risk limits. Economic capital is allocated to each business unit and used to perform risk-adjusted return analyses at the business unit, client relationship and transaction levels.

Regulatory Capital

As a financial services holding company, we are subject to the risk-based capital guidelines (Basel 1) issued by federal banking regulators. At December 31, 2012, we operated banking activities primarily under two charters: BANA and FIA Card Services, N.A. (FIA). Under these guidelines, the Corporation and its affiliated banking entities measure capital adequacy based on Tier 1 common capital, Tier 1 capital and Total capital (Tier 1 plus Tier 2 capital). Capital ratios are calculated by dividing each capital amount by risk-weighted assets. Additionally, Tier 1 capital is divided by adjusted quarterly average total assets to derive the Tier 1 leverage ratio.

Tier 1 capital is calculated as the sum of “core capital elements,” the principal components of which are qualifying common shareholders’ equity and qualifying non-cumulative perpetual preferred stock. Also included in Tier 1 capital are qualifying trust preferred securities (Trust Securities), hybrid securities and qualifying noncontrolling interest in subsidiaries which are subject to the rules governing “restricted core capital elements.” Goodwill, other disallowed intangible assets, disallowed deferred tax assets and the cumulative changes in fair value of all financial liabilities accounted for under the fair value option that are included in retained earnings and are attributable to changes in the company’s own creditworthiness are deducted from the sum of the core capital elements. Total capital is the sum of Tier 1 plus supplementary Tier 2 capital elements such as qualifying subordinated debt, a limited portion of the allowance for loan and lease losses, and a portion of net unrealized gains on AFS marketable equity securities. Tier 1 common capital is not



70 Bank of America 2012

an official regulatory ratio, but was introduced by the Federal Reserve during the Supervisory Capital Assessment Program in 2009. Tier 1 common capital is Tier 1 capital less preferred stock, Trust Securities, hybrid securities and qualifying noncontrolling interest in subsidiaries.

Risk-weighted assets are calculated for credit risk for all on- and off-balance sheet credit exposures and for market risk on trading assets and liabilities, including derivative exposures. Credit risk-weighted assets are calculated by assigning a prescribed risk-weight to all on-balance sheet assets and to the credit equivalent amount of certain off-balance sheet exposures. The risk-weight is defined in the regulatory rules based upon the obligor or guarantor type and collateral if applicable. Off-balance sheet exposures include financial guarantees, unfunded lending commitments, letters of credit and derivatives. Market risk-weighted assets are calculated using risk models for the trading account positions, including all foreign exchange and commodity positions regardless of the applicable accounting guidance. Under Basel 1 there are no risk-weighted assets calculated for operational risk. Any assets that are a direct deduction from the computation of capital are excluded from risk-weighted assets and adjusted average total assets consistent with regulatory guidance.

Certain corporate-sponsored trust companies which issue Trust Securities are not consolidated. In accordance with Federal Reserve guidance effective March 31, 2011, Trust Securities continue to qualify as Tier 1 capital with revised quantitative limits. As a result, the Corporation includes Trust Securities in Basel 1 Tier 1 capital. The Financial Reform Act includes a provision under which Trust Securities will no longer qualify as Tier 1 capital. Under one of three notices of proposed rulemaking on Basel 3 issued by U.S. banking regulatory agencies, the Corporation’s previously issued and outstanding Trust Securities in the aggregate qualifying amount of $6.2 billion (approximately 51 bps of Tier 1 capital) at December 31, 2012, will not qualify as Tier 1 capital. While not yet final, the proposed rules provide a three-year transition period in which the exclusion of Trust Securities from Tier 1 capital will be phased in incrementally each year.

The Federal Reserve requires BHCs to submit a capital plan and requests for capital actions on an annual basis, consistent with the rules governing the Comprehensive Capital Analysis and Review (CCAR). The CCAR is the central element to the Federal Reserve’s approach to ensuring large BHCs have adequate capital and robust processes for managing their capital. In January 2012, we submitted our 2012 capital plan, and received results on March 13, 2012. The Federal Reserve’s stress scenario projections for the Corporation, based on the 2012 capital plan, estimated a minimum Basel 1 Tier 1 common capital ratio of 5.9 percent under severe adverse economic conditions with all proposed capital actions through the end of 2013, exceeding the five percent reference rate for all institutions involved in the CCAR. The capital

plan submitted by the Corporation to the Federal Reserve did not include a request to return capital to stockholders in 2012 above the current dividend rate. The Federal Reserve did not object to our 2012 capital plan. On January 7, 2013, we submitted our 2013 capital plan and related supervisory stress tests. The Federal Reserve has announced its intention to notify the 2013 CCAR participants of the supervisory stress test results on March 7, 2013 and the capital plan on March 14, 2013.

For additional information on these and other regulatory requirements, see Note 17 – Regulatory Requirements and Restrictions to the Consolidated Financial Statements.

Capital Composition and Ratios

Under Basel 1, Tier 1 common capital increased $6.7 billion in 2012 to $133.4 billion at December 31, 2012. The increase was primarily driven by earnings eligible to be included in capital, which positively impacted the Tier 1 common capital ratio by approximately 59 bps, including the impact of repurchases of certain of our debt and Trust Securities. The Tier 1 common capital ratio also benefited seven bps from the issuance of common stock in lieu of cash for a portion of employee incentive compensation. Total capital decreased $18.4 billion in 2012 to $196.7 billion at December 31, 2012 primarily due to a reduction in subordinated debt as a result of redemptions and a reduction in Trust Securities from redemptions and exchanges.

Risk-weighted assets decreased $78.5 billion in 2012 to $1,206 billion at December 31, 2012. The decrease was primarily driven by decreases in derivatives, letters of credit and other assets. These decreases positively impacted Tier 1 common, Tier 1 and Total capital ratios by 64 bps, 78 bps and 102 bps, respectively. The Tier 1 leverage ratio decreased 16 bps in 2012 primarily driven by the decrease in Tier 1 capital.

Table 13 presents Bank of America Corporation’s capital ratios and related information in accordance with Basel 1 at December 31, 2012 and 2011.




Table 13	Bank of America Corporation Regulatory Capital

		December 31
(Dollars in billions)		2012			2011
Tier 1 common capital ratio		11.06		%	9.86		%
Tier 1 capital ratio		12.89			12.40
Total capital ratio		16.31			16.75
Tier 1 leverage ratio		7.37			7.53
Risk-weighted assets		$	1,206		$	1,284
Adjusted quarterly average total assets ⁽¹⁾		2,111			2,114


⁽¹⁾	Reflects adjusted average total assets for the three months ended December 31, 2012 and

2011.



		Bank of America 2012 71

Table 14 presents the capital composition at December 31, 2012 and 2011.




Table 14	Capital Composition

		December 31
(Dollars in millions)		2012			2011
Total common shareholders’ equity		$	218,188		$	211,704
Goodwill		(69,976		)	(69,967		)
Nonqualifying intangible assets (includes core deposit intangibles, affinity relationships, customer relationships and other intangibles)		(4,994		)	(5,848		)
Net unrealized gains on AFS debt and marketable equity securities and net losses on derivatives recorded in accumulated OCI, net-of-tax		(2,036		)	682
Unamortized net periodic benefit costs recorded in accumulated OCI, net-of-tax		4,456			4,391
Fair value adjustment related to structured liabilities ⁽¹⁾		4,084			944
Disallowed deferred tax asset		(17,940		)	(16,799		)
Other		1,621			1,583
Total Tier 1 common capital		133,403			126,690
Qualifying preferred stock		15,851			15,479
Trust preferred securities		6,207			16,737
Noncontrolling interests		—			326
Total Tier 1 capital		155,461			159,232
Long-term debt qualifying as Tier 2 capital		24,287			38,165
Allowance for loan and lease losses		24,179			33,783
Reserve for unfunded lending commitments		513			714
Allowance for loan and lease losses exceeding 1.25 percent of risk-weighted assets		(9,459		)	(18,159		)
45 percent of the pre-tax net unrealized gains on AFS marketable equity securities		329			1
Other		1,370			1,365
Total capital		$	196,680		$	215,101


⁽¹⁾	Represents loss on structured liabilities, net-of-tax, that is excluded from Tier 1 common capital, Tier 1 capital and Total capital for regulatory capital purposes.

Regulatory Capital Changes

At December 31, 2012, we measured and reported our capital ratios and related information in accordance with Basel 1. We manage regulatory capital to adhere to internal capital guidelines and regulatory standards of capital adequacy based on our current understanding of the rules and the application of such rules to our business as currently conducted. See Capital Management on page 70 for additional information.

In June 2012, U.S. banking regulators issued the Market Risk Final Rule that amends the Basel 1 Market Risk rules (Market Risk Final Rule) effective January 1, 2013. The Market Risk Final Rule introduces new measures of market risk, a charge related to a stressed Value-at-Risk (VaR), an incremental risk charge and a comprehensive risk measure, as well as other technical modifications. As of December 31, 2012, the estimated impact of the Market Risk Final Rule would have been a 68 bps decrease in the Tier 1 common capital ratio to 10.38 percent as a result of a $78.8 billion increase in risk-weighted assets for market risk exposures.

The regulatory capital rules continue to expand and evolve. In December 2007, U.S. banking regulators published final Basel 2 rules (Basel 2). We measure and report our capital ratios and related information under Basel 2 on a confidential basis to U.S. banking regulators during the required parallel period, during which we provide the U.S. banking regulators both Basel 1 and Basel 2 related information in parallel. The parallel period will continue until we receive regulatory approval to exit parallel reporting and subsequently begin publicly reporting our Basel 2 regulatory capital results and related disclosures.

In June 2012, U.S. banking regulators issued three notices of proposed rulemaking (collectively, the Basel 3 NPRs) which, if adopted as proposed, would materially change Tier 1 common, Tier 1 and Total capital calculations. The Basel 3 NPRs also introduce new minimum capital ratios and buffer requirements,

expand and modify the calculation of risk-weighted assets for credit and market risk (the Advanced Approach) and introduce a Standardized Approach for the calculation of risk-weighted assets, which would replace Basel 1 and provide a floor for minimum, adequately capitalized regulatory capital requirements under the Prompt Corrective Action framework. The Prompt Corrective Action framework establishes categories of capitalization, including “well-capitalized,” based on regulatory ratio requirements. U.S. banking regulators are required to take certain mandatory actions depending on the category of capitalization. No mandatory actions are required under the Prompt Corrective Action framework for “well-capitalized” banking entities.

Under the Basel 3 NPRs, Trust Securities will be phased out of Tier 1 capital in equal annual installments over a three-year transition period. Many of the changes to the composition of regulatory capital are subject to a transition period where the impact is recognized in 20 percent increments, phased in incrementally each year over a five-year period. The phase-in period for the new minimum capital requirements and related buffers is proposed to occur from the effective date of the Basel 3 NPRs through 2019. On November 9, 2012, U.S. banking regulators announced that they did not expect any of the Basel 3 NPRs to become effective January 1, 2013. Final rules for Basel 3 have not yet been issued by U.S. banking regulators.

Under the Basel 3 NPRs we will be subject to the Advanced Approach for measuring risk-weighted assets (Basel 3 Advanced Approach) when finalized and implemented. The Basel 3 Advanced Approach also requires approval by the U.S. regulatory agencies of analytical models used as part of capital measurement. If these models are not approved, it would likely lead to an increase in our risk-weighted assets, which in some cases could be significant. The Basel 3 Advanced Approach, if adopted as proposed, is expected to substantially increase our capital requirements as discussed below.



72 Bank of America 2012

In 2011, the Basel Committee on Banking Supervision (the Basel Committee) issued proposed guidance on capital requirements for global, systemically important financial institutions, of which we are one, including the methodology for measuring systemic importance, the additional capital required (the SIFI buffer), and the arrangements by which the guidance will be phased in. As proposed, the SIFI buffer would increase minimum capital requirements for Tier 1 common capital from one percent to 2.5 percent, and in certain circumstances, 3.5 percent. As of December 31, 2012, we estimate our SIFI buffer would have been 1.5 percent, in line with the Financial Stability Board’s report, “Update of Group of Global Systemically Important Banks,” issued on November 1, 2012. U.S. banking regulators have not yet issued proposed or final rules related to the SIFI buffer.

On December 20, 2011, the Federal Reserve issued proposed rules to implement enhanced supervisory and prudential requirements, and the early remediation requirements established under the Financial Reform Act. The enhanced standards include liquidity standards, requirements for overall risk management, single-counterparty credit limits, stress test requirements and a debt-to-equity limit for certain companies determined to pose a threat to financial stability. The final rules, when adopted and fully implemented, are likely to influence our regulatory capital and liquidity planning process, and may impose additional operational and compliance costs on us.

Preparing for the implementation of the new capital rules is a top strategic priority, and we expect to comply with the final rules when issued and effective. Based on Basel 2, the Market Risk Final Rule and our current understanding of the Basel 3 Advanced Approach issued by U.S. banking regulators, we estimated our Basel 3 Advanced Approach Tier 1 common capital ratio, on a fully phased-in basis, to be 9.25 percent at December 31, 2012. As of December 31, 2012, we estimated that our Tier 1 common

capital would be $128.6 billion and total risk-weighted assets would be $1,391 billion, also on a fully phased-in basis. This assumes approval by U.S. banking regulators of our internal analytical models, but does not include the benefit of the removal of the surcharge applicable to the Comprehensive Risk Measure (CRM). The CRM is used to determine the risk-weighted assets for correlation trading positions. Under the Basel 3 NPRs, Tier 1 common capital includes components that exhibit heightened sensitivity to changes in interest rates, such as the cumulative change in the fair value of AFS debt securities and at least 10 percent of the fair value of MSRs recognized on the Corporation’s Consolidated Balance Sheet.

Important differences between Basel 1 and Basel 3 include capital deductions related to our MSRs, deferred tax assets and defined benefit pension assets, and the inclusion of unrealized gains and losses on debt and equity securities recognized in accumulated OCI, each of which will be impacted by future changes in interest rates, overall earnings performance or other Corporate actions. Our estimates under the Basel 3 Advanced Approach will be refined over time as a result of further rulemaking or clarification by U.S. banking regulators and as our understanding and interpretation of the rules evolve.

Basel 3 regulatory capital metrics are non-GAAP measures until they are fully adopted and required by U.S. banking regulators. Table 15 presents a reconciliation of our Basel 1 Tier 1 common capital and risk-weighted assets to our Basel 3 estimates at December 31, 2012, assuming fully phased-in measures according to the Basel 3 Advanced Approach.

For additional information regarding Basel 2, the Market Risk Final Rule, Basel 3 and other proposed regulatory capital changes, see Note 17 – Regulatory Requirements and Restrictions to the Consolidated Financial Statements.




Table 15	Basel 1 to Basel 3 (fully phased-in) Reconciliation

		December 31
(Dollars in millions)		2012
Regulatory capital – Basel 1 to Basel 3 (fully phased-in)
Basel 1 Tier 1 capital		$	155,461
Deduction of qualifying preferred stock and trust preferred securities		(22,058		)
Basel 1 Tier 1 common capital		133,403
Deduction of defined benefit pension assets		(737		)
Change in deferred tax assets and threshold deductions (deferred tax asset temporary differences, MSRs and significant investments)		(3,020		)
Change in all other deductions, net		(1,020		)
Basel 3 (fully phased-in) Tier 1 common capital		$	128,626

Risk-weighted assets – Basel 1 to Basel 3 (fully phased-in)
Basel 1 risk-weighted assets		$	1,205,976
Net change in credit and other risk-weighted assets		103,085
Increase due to Market Risk Final Rule		81,811
Basel 3 (fully phased-in) risk-weighted assets		$	1,390,872

Tier 1 common capital ratios
Basel 1		11.06		%
Basel 3 (fully phased-in)		9.25



		Bank of America 2012 73

Bank of America, N.A. and FIA Card Services, N.A. Regulatory Capital

Table 16 presents regulatory capital information for BANA and FIA at December 31, 2012 and 2011.




Table 16	Bank of America, N.A. and FIA Card Services, N.A. Regulatory Capital

		December 31
		2012				2011
(Dollars in millions)		Ratio		Amount		Ratio		Amount
Tier 1
Bank of America, N.A.		12.44	%	$	118,431	11.74	%	$	119,881
FIA Card Services, N.A.		17.34		22,061		17.63		24,660
Total
Bank of America, N.A.		14.76		140,434		15.17		154,885
FIA Card Services, N.A.		18.64		23,707		19.01		26,594
Tier 1 leverage
Bank of America, N.A.		8.59		118,431		8.65		119,881
FIA Card Services, N.A.		13.67		22,061		14.22		24,660

BANA’s Tier 1 capital ratio increased 70 bps to 12.44 percent and the Total capital ratio decreased 41 bps to 14.76 percent at December 31, 2012 compared to December 31, 2011. The Tier 1 leverage ratio decreased six bps to 8.59 percent at December 31, 2012 compared to December 31, 2011. The increase in the Tier 1 capital ratio was driven by earnings eligible to be included in capital of $12.3 billion and a decrease in risk-weighted assets of $69.1 billion compared to the prior year, largely offset by dividends paid to the Corporation of $14.1 billion during 2012. The decrease in the Total capital ratio was driven by a $12.0 billion decrease in qualifying subordinated debt, partially offset by the net impact of earnings eligible to be included in capital and a decrease in risk-weighted assets. The decrease in the Tier 1 leverage ratio was driven by a decrease in Tier 1 capital, partially offset by a decrease in adjusted quarterly average total assets.

FIA’s Tier 1 capital ratio decreased 29 bps to 17.34 percent and the Total capital ratio decreased 37 bps to 18.64 percent at December 31, 2012 compared to December 31, 2011. The Tier 1 leverage ratio decreased 55 bps to 13.67 percent at December 31, 2012 compared to December 31, 2011. The decrease in the Tier 1 capital and Total capital ratios was driven by returns of capital of $6.6 billion to the Corporation during 2012, partially offset by earnings eligible to be included in capital of $4.2 billion and a decrease in risk-weighted assets primarily due to a decrease in loans. The decrease in the Tier 1 leverage ratio was driven by the decrease in Tier 1 capital, partially offset by a decrease in adjusted quarterly average total assets of $12.0 billion.

Broker/Dealer Regulatory Capital

The Corporation’s principal U.S. broker/dealer subsidiaries are Merrill Lynch, Pierce, Fenner & Smith (MLPF&S) and Merrill Lynch Professional Clearing Corp (MLPCC). MLPCC is a fully-guaranteed subsidiary of MLPF&S and provides clearing and settlement services. Both entities are subject to the net capital requirements of SEC Rule 15c3-1. Both entities are also registered as futures commission merchants and are subject to the CFTC Regulation 1.17.

MLPF&S has elected to compute the minimum capital requirement in accordance with the Alternative Net Capital Requirement as permitted by SEC Rule 15c3-1. At December 31,

2012, MLPF&S’s regulatory net capital as defined by Rule 15c3-1 was $10.3 billion and exceeded the minimum requirement of $683 million by $9.7 billion. MLPCC’s net capital of $2.1 billion exceeded the minimum requirement of $236 million by $1.8 billion.

In accordance with the Alternative Net Capital Requirements, MLPF&S is required to maintain tentative net capital in excess of $1.0 billion, net capital in excess of $500 million and notify the SEC in the event its tentative net capital is less than $5.0 billion. At December 31, 2012, MLPF&S had tentative net capital and net capital in excess of the minimum and notification requirements.

Economic Capital

Our economic capital measurement process provides a risk-based measurement of the capital required for unexpected credit, market and operational losses over a one-year time horizon at a 99.97 percent confidence level. Economic capital is allocated to each business unit and is used for capital adequacy, performance measurement and risk management purposes. The strategic planning process utilizes economic capital with the goal of allocating risk appropriately and measuring returns consistently across all businesses and activities. Economic capital allocation plans are incorporated into the Corporation’s financial plan which is approved by the Board on an annual basis.

Credit Risk Capital

Economic capital for credit risk captures two types of risks: default risk, which represents the loss of principal due to outright default or the borrower’s inability to repay an obligation in full, and migration risk, which represents potential loss in market value due to credit deterioration over a one-year capital time horizon. Credit risk is assessed and modeled for all on- and off-balance sheet credit exposures within sub-categories for commercial, retail, counterparty and investment securities. The economic capital methodology captures dimensions such as concentration and country risk and originated securitizations. The economic capital methodology is based on the probability of default, loss given default (LGD), exposure at default (EAD) and maturity for each credit exposure, and the portfolio correlations across exposures. See page 79 for more information on Credit Risk Management.



74 Bank of America 2012

Market Risk Capital

Market risk reflects the potential loss in the value of financial instruments or portfolios due to movements in interest and currency exchange rates, equity and futures prices, the implied volatility of interest rates, credit spreads, and other economic and business factors. The Corporation’s primary market risk exposures are in its trading portfolio, equity investments, MSRs and the interest rate exposure of our core balance sheet. Economic capital is determined by utilizing the same models we use to manage these risks including, for example, VaR, simulation, stress testing and scenario analysis. See page 113 for additional information on Market Risk Management.

Operational Risk Capital

We calculate operational risk capital at the business unit level using actuarial-based models and historical loss data. We supplement the calculations with scenario analysis and risk control assessments. See Operational Risk Management on page 120 for more information.

Common Stock Dividends

For a summary of our declared quarterly cash dividends on common stock during 2012 and through February 28, 2013, see Note 14 – Shareholders’ Equity to the Consolidated Financial Statements.

Liquidity Risk

Funding and Liquidity Risk Management

We define liquidity risk as the potential inability to meet our contractual and contingent financial obligations, on- or off-balance sheet, as they come due. Our primary liquidity objective is to provide adequate funding for our businesses throughout market cycles, including periods of financial stress. To achieve that objective, we analyze and monitor our liquidity risk, maintain excess liquidity and access diverse funding sources including our stable deposit base. We define excess liquidity as readily available assets, limited to cash and high-quality, liquid, unencumbered securities that we can use to meet our funding requirements as those obligations arise.

Global funding and liquidity risk management activities are centralized within Corporate Treasury. We believe that a centralized approach to funding and liquidity risk management enhances our ability to monitor liquidity requirements, maximizes access to funding sources, minimizes borrowing costs and facilitates timely responses to liquidity events.

The Enterprise Risk Committee approves the Corporation’s liquidity policy and contingency funding plan, including establishing liquidity risk tolerance levels. The ALMRC monitors our liquidity position and reviews the impact of strategic decisions on our liquidity. ALMRC is responsible for managing liquidity risks and maintaining exposures within the established tolerance levels. ALMRC delegates additional oversight responsibilities to the CFORC, which reports to the ALMRC. The CFORC reviews and monitors our liquidity position, cash flow forecasts, stress testing scenarios and results, and implements our liquidity limits and guidelines. For more information, see Board Oversight of Risk on page 68. Under this governance framework, we have developed certain funding and liquidity risk management practices which include: maintaining excess liquidity at the parent company and selected subsidiaries, including our bank and broker/dealer

subsidiaries; determining what amounts of excess liquidity are appropriate for these entities based on analysis of debt maturities and other potential cash outflows, including those that we may experience during stressed market conditions; diversifying funding sources, considering our asset profile and legal entity structure; and performing contingency planning.

Global Excess Liquidity Sources and Other Unencumbered Assets

We maintain excess liquidity available to Bank of America Corporation, or the parent company, and selected subsidiaries in the form of cash and high-quality, liquid, unencumbered securities. These assets, which we call our Global Excess Liquidity Sources, serve as our primary means of liquidity risk mitigation. Our cash is primarily on deposit with the Federal Reserve and central banks outside of the U.S. We limit the composition of high-quality, liquid, unencumbered securities to U.S. government securities, U.S. agency securities, U.S. agency MBS and a select group of non-U.S. government and supranational securities. We believe we can quickly obtain cash for these securities, even in stressed market conditions, through repurchase agreements or outright sales. We hold our Global Excess Liquidity Sources in entities that allow us to meet the liquidity requirements of our global businesses, and we consider the impact of potential regulatory, tax, legal and other restrictions that could limit the transferability of funds among entities.

Our Global Excess Liquidity Sources were $372 billion and $378 billion at December 31, 2012 and 2011 and were maintained as presented in Table 17.




Table 17	Global Excess Liquidity Sources

		December 31				Average for Three Months Ended December 31 2012
(Dollars in billions)		2012		2011
Parent company		$	103	$	125	$	99
Bank subsidiaries		247		222		264
Broker/dealers		22		31		25
Total global excess liquidity sources		$	372	$	378	$	388

As shown in Table 17, parent company Global Excess Liquidity Sources totaled $103 billion and $125 billion at December 31, 2012 and 2011. The decrease in parent company liquidity was primarily due to reductions in long-term debt, partially offset by dividends and capital repayments from subsidiaries. Typically, parent company cash is deposited overnight with BANA.

Global Excess Liquidity Sources available to our bank subsidiaries totaled $247 billion and $222 billion at December 31, 2012 and 2011. These amounts are distinct from the cash deposited by the parent company. The increase in liquidity available to our bank subsidiaries was primarily due to an increase in deposits, partially offset by capital returns to the parent company and reductions in debt. In addition to their Global Excess Liquidity Sources, our bank subsidiaries hold other unencumbered investment-grade securities that we believe could also be used to generate liquidity. Our bank subsidiaries can also generate incremental liquidity by pledging a range of other unencumbered loans and securities to certain Federal Home Loan Banks (FHLBs) and the Federal Reserve Discount Window. The cash we could have obtained by borrowing against this pool of specifically-identified



		Bank of America 2012 75

eligible assets was approximately $194 billion and $189 billion at December 31, 2012 and 2011. We have established operational procedures to enable us to borrow against these assets, including regularly monitoring our total pool of eligible loans and securities collateral. Eligibility is defined by guidelines outlined by the FHLBs and the Federal Reserve and is subject to change at their discretion. Due to regulatory restrictions, liquidity generated by the bank subsidiaries can only be used to fund obligations within the bank subsidiaries and can only be transferred to the parent company or nonbank subsidiaries with prior regulatory approval.

Global Excess Liquidity Sources available to our broker/dealer subsidiaries totaled $22 billion and $31 billion at December 31, 2012 and 2011. Our broker/dealers also held other unencumbered investment-grade securities and equities that we believe could also be used to generate additional liquidity. Liquidity held in a broker/dealer subsidiary is available to meet the obligations of that entity and can only be transferred to the parent company or to any other subsidiary with prior regulatory approval due to regulatory restrictions and minimum requirements.

Table 18 presents the composition of Global Excess Liquidity Sources at December 31, 2012 and 2011.




Table 18	Global Excess Liquidity Sources Composition

		December 31
(Dollars in billions)		2012		2011
Cash on deposit		$	65	$	79
U.S. treasuries		21		48
U.S. agency securities and mortgage-backed securities		271		228
Non-U.S. government and supranational securities		15		23
Total global excess liquidity sources		$	372	$	378

Time to Required Funding and Stress Modeling

We use a variety of metrics to determine the appropriate amounts of excess liquidity to maintain at the parent company and our bank and broker/dealer subsidiaries. One metric we use to evaluate the appropriate level of excess liquidity at the parent company is “Time to Required Funding.” This debt coverage measure indicates the number of months that the parent company can continue to meet its unsecured contractual obligations as they come due using only its Global Excess Liquidity Sources without issuing any new debt or accessing any additional liquidity sources. We define unsecured contractual obligations for purposes of this metric as maturities of senior or subordinated debt issued or guaranteed by Bank of America Corporation or Merrill Lynch. These include certain unsecured debt instruments, primarily structured liabilities, which we may be required to settle for cash prior to maturity. The Corporation has established a target for Time to Required Funding of 21 months. Our Time to Required Funding was 33 months at December 31, 2012. For purposes of calculating Time to Required Funding at December 31, 2012, we have also included in the amount of unsecured contractual obligations the $8.6 billion liability related to the BNY Mellon Settlement. The BNY Mellon Settlement is subject to final court approval and certain other conditions, and the timing of payment is not certain.

We utilize liquidity stress models to assist us in determining the appropriate amounts of excess liquidity to maintain at the parent company and our bank and broker/dealer subsidiaries. These models are risk sensitive and have become increasingly important in analyzing our potential contractual and contingent cash outflows beyond those outflows considered in the Time to Required Funding analysis. We evaluate the liquidity requirements under a range of scenarios with varying levels of severity and time horizons. The scenarios we consider and utilize incorporate market-wide and Corporation-specific events, including potential credit rating downgrades for the parent company and our subsidiaries, and are based on historical experience, regulatory guidance, and both expected and unexpected future events.

The types of potential contractual and contingent cash outflows we consider in our scenarios may include, but are not limited to, upcoming contractual maturities of unsecured debt and reductions in new debt issuance; diminished access to secured financing markets; potential deposit withdrawals and reduced rollover of maturing term deposits by customers; increased draws on loan commitments, liquidity facilities and letters of credit, including Variable Rate Demand Notes; additional collateral that counterparties could call if our credit ratings were downgraded further; collateral, margin and subsidiary capital requirements arising from losses; and potential liquidity required to maintain businesses and finance customer activities. Changes in certain market factors, including, but not limited to, credit rating downgrades, could negatively impact potential contractual and contingent outflows and the related financial instruments, and in some cases these impacts could be material to our financial results.

We consider all sources of funds that we could access during each stress scenario and focus particularly on matching available sources with corresponding liquidity requirements by legal entity. We also use the stress modeling results to manage our asset-liability profile and establish limits and guidelines on certain funding sources and businesses.

Basel 3 Liquidity Standards

In December 2010, the Basel Committee proposed two measures of liquidity risk which are considered part of Basel 3. The first proposed liquidity measure is the Liquidity Coverage Ratio (LCR), which is calculated as the amount of a financial institution’s unencumbered, high-quality, liquid assets relative to the net cash outflows the institution could encounter under a significant 30-day stress scenario. The Basel Committee announced in January 2013 that an initial minimum LCR requirement of 60 percent will be implemented in January 2015, and will thereafter increase in 10 percent annual increments through January 2019. The second proposed liquidity measure is the Net Stable Funding Ratio (NSFR), which measures the amount of longer-term, stable sources of funding employed by a financial institution relative to the liquidity profiles of the assets funded and the potential for contingent calls on funding liquidity arising from off-balance sheet commitments and obligations over a one-year period. The Basel Committee is currently reviewing the NSFR requirement and intends for the requirement to be implemented by January 2018, following an observation period that is currently underway. We continue to monitor the development and the potential impact of these proposals and assuming adoption by U.S. banking regulators, we expect to meet the final standards within the regulatory timelines.



76 Bank of America 2012

Diversified Funding Sources

We fund our assets primarily with a mix of deposits and secured and unsecured liabilities through a globally coordinated funding strategy. We diversify our funding globally across products, programs, markets, currencies and investor groups.

We fund a substantial portion of our lending activities through our deposits, which were $1.11 trillion and $1.03 trillion at December 31, 2012 and 2011. Deposits are primarily generated by our CBB, GWIM and Global Banking segments. These deposits are diversified by clients, product type and geography, and the majority of our U.S. deposits are insured by the FDIC. We consider a substantial portion of our deposits to be a stable, low-cost and consistent source of funding. We believe this deposit funding is generally less sensitive to interest rate changes, market volatility or changes in our credit ratings than wholesale funding sources. Our lending activities may also be financed through secured borrowings, including securitizations with GSEs, the FHA and private-label investors, as well as FHLB loans.

Our trading activities in broker/dealer subsidiaries are primarily funded on a secured basis through securities lending and repurchase agreements and these amounts will vary based on customer activity and market conditions. We believe funding these activities in the secured financing markets is more cost-efficient and less sensitive to changes in our credit ratings than unsecured financing. Repurchase agreements are generally short-term and often overnight. Disruptions in secured financing markets for financial institutions have occurred in prior market cycles which resulted in adverse changes in terms or significant reductions in the availability of such financing. We manage the liquidity risks arising from secured funding by sourcing funding globally from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate.

We issue the majority of our long-term unsecured debt at the parent company. During 2012, the parent company issued $17.6 billion of long-term unsecured debt, including structured liabilities of $9.2 billion. We may also issue long-term unsecured debt through BANA in a variety of maturities and currencies to achieve cost-efficient funding and to maintain an appropriate maturity profile, although there were no new issuances through BANA during 2012. While the cost and availability of unsecured funding may be negatively impacted by general market conditions or by matters specific to the financial services industry or the Corporation, we seek to mitigate refinancing risk by actively managing the amount of our borrowings that we anticipate will mature within any month or quarter.

The primary benefits expected from our centralized funding strategy include greater control, reduced funding costs, wider name recognition by investors and greater flexibility to meet the variable funding requirements of subsidiaries. Where regulations, time zone differences or other business considerations make parent company funding impractical, certain other subsidiaries may issue their own debt.

Table 19 presents our long-term debt by major currency at December 31, 2012 and 2011.




Table 19	Long-term Debt by Major Currency

		December 31
(Dollars in millions)		2012		2011
U.S. Dollar		$	180,329	$	255,262
Euro		58,985		68,799
Japanese Yen		12,749		19,568
British Pound		11,126		12,554
Canadian Dollar		3,560		4,621
Australian Dollar		2,760		4,900
Swiss Franc		1,917		2,268
Other		4,159		4,293
Total long-term debt		$	275,585	$	372,265

Total long-term debt decreased $96.7 billion, or 26 percent, in 2012, primarily driven by maturities and liability management actions. This reflects our ongoing initiative to reduce our debt balances over time and we anticipate that debt levels will continue to decline from maturities through 2013. We may, from time to time, purchase outstanding debt securities in various transactions, depending on prevailing market conditions, liquidity and other factors. In addition, our broker/dealer subsidiaries may make markets in our debt instruments to provide liquidity for investors. For additional information on long-term debt funding, see Note 12 – Long-term Debt to the Consolidated Financial Statements.

We use derivative transactions to manage the duration, interest rate and currency risks of our borrowings, considering the characteristics of the assets they are funding. For further details on our ALM activities, see Interest Rate Risk Management for Nontrading Activities on page 117.

We also diversify our unsecured funding sources by issuing various types of debt instruments including structured liabilities, which are debt obligations that pay investors returns linked to other debt or equity securities, indices, currencies or commodities. We typically hedge the returns we are obligated to pay on these liabilities with derivative positions and/or investments in the underlying instruments, so that from a funding perspective, the cost is similar to our other unsecured long-term debt. We could be required to settle certain structured liability obligations for cash or other securities prior to maturity under certain circumstances, which we consider for liquidity planning purposes. We believe, however, that a portion of such borrowings will remain outstanding beyond the earliest put or redemption date. We had outstanding structured liabilities with a carrying value of $51.7 billion and $50.9 billion at December 31, 2012 and 2011.

Substantially all of our senior and subordinated debt obligations contain no provisions that could trigger a requirement for an early repayment, require additional collateral support, result in changes to terms, accelerate maturity or create additional financial obligations upon an adverse change in our credit ratings, financial ratios, earnings, cash flows or stock price.



		Bank of America 2012 77

Prior to 2010, we participated in the FDIC’s Temporary Liquidity Guarantee Program (TLGP), which allowed us to issue senior unsecured debt guaranteed by the FDIC in return for a fee based on the amount and maturity of the debt. At December 31, 2012, there were no outstanding borrowings under the TLGP and we no longer issue debt under this program. At December 31, 2011, we had $23.9 billion outstanding and all of the debt issued under the TLGP matured by June 30, 2012.

Contingency Planning

We maintain contingency funding plans that outline our potential responses to liquidity stress events at various levels of severity. These policies and plans are based on stress scenarios and include potential funding strategies and communication and notification procedures that we would implement in the event we experienced stressed liquidity conditions. We periodically review and test the contingency funding plans to validate efficacy and assess readiness.

Our U.S. bank subsidiaries can access contingency funding through the Federal Reserve Discount Window. Certain non-U.S. subsidiaries have access to central bank facilities in the jurisdictions in which they operate. While we do not rely on these sources in our liquidity modeling, we maintain the policies, procedures and governance processes that would enable us to access these sources if necessary.

Credit Ratings

Our borrowing costs and ability to raise funds are impacted by our credit ratings. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including OTC derivatives. Thus, it is our objective to maintain high-quality credit ratings.

Credit ratings and outlooks are opinions expressed by rating agencies on our creditworthiness and that of our obligations or securities, including long-term debt, short-term borrowings, preferred stock and other securities, including asset securitizations. Our credit ratings are subject to ongoing review by the rating agencies which consider a number of factors, including our own financial strength, performance, prospects and operations as well as factors not under our control. The rating agencies could make adjustments to our ratings at any time and they provide no assurances that they will maintain our ratings at current levels.

Other factors that influence our credit ratings include changes to the rating agencies’ methodologies for our industry or certain security types, the rating agencies’ assessment of the general operating environment for financial services companies, our mortgage exposures, our relative positions in the markets in which we compete, reputation, liquidity position, diversity of funding sources, funding costs, the level and volatility of earnings, corporate governance and risk management policies, capital position, capital management practices, and current or future regulatory and legislative initiatives.

On December 20, 2012, Standard & Poor’s Ratings Services (S&P) published a full credit analysis report on the Corporation, leaving the credit ratings for the company and its subsidiaries unchanged as of that date. On October 10, 2012, Fitch Ratings (Fitch) announced the results of its periodic review of its ratings for 12 large, complex securities trading and universal banks, including the Corporation. As part of this action, Fitch affirmed the

Corporation’s credit ratings. On June 21, 2012, Moody’s Investors Service Inc. (Moody’s) completed its previously-announced review for possible downgrade of financial institutions with global capital markets operations, downgrading the ratings of 15 banks and securities firms, including our ratings. The Corporation’s long-term debt rating and BANA’s long-term and short-term debt ratings were downgraded one notch as part of this action. The Moody’s downgrade has not had a material impact on our financial condition, results of operations or liquidity. Each of the three major rating agencies, Moody’s, S&P and Fitch, downgraded the ratings for the Corporation and its rated subsidiaries in late 2011.

Currently, the Corporation’s long-term/short-term senior debt ratings and outlooks expressed by the rating agencies are as follows: Baa2/P-2 (negative) by Moody’s, A-/A-2 (negative) by S&P, and A/F1 (stable) by Fitch. BANA’s long-term/short-term senior debt ratings and outlooks are as follows: A3/P-2 (stable) by Moody’s, A/A-1 (negative) by S&P, and A/F1 (stable) by Fitch. The credit ratings of Merrill Lynch from the three major credit rating agencies are the same as those of the Corporation. The major credit rating agencies have indicated that the primary drivers of Merrill Lynch’s credit ratings are the Corporation’s credit ratings. MLPF&S’s long-term/short-term senior debt ratings and outlooks are A/A-1 (negative) by S&P and A/F1 (stable) by Fitch. Merrill Lynch International’s long-term/short-term senior debt rating is A/A-1 (negative) by S&P.

The major rating agencies have each indicated that, as a systemically important financial institution, our credit ratings currently reflect their expectation that, if necessary, we would receive significant support from the U.S. government, and that they will continue to assess such support in the context of sovereign financial strength and regulatory and legislative developments.

A further reduction in certain of our credit ratings or the ratings of certain asset-backed securitizations may have a material adverse effect on our liquidity, potential loss of access to credit markets, the related cost of funds, our businesses and on certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical. In addition, under the terms of certain OTC derivative contracts and other trading agreements, in the event of further downgrades of our or our rated subsidiaries’ credit ratings, the counterparties to those agreements may require us to provide additional collateral, or to terminate these contracts or agreements, which could cause us to sustain losses and/or adversely impact our liquidity. If the short-term credit ratings of our parent company, bank or broker/dealer subsidiaries were downgraded by one or more levels, the potential loss of access to short-term funding sources such as repo financing and the effect on our incremental cost of funds could be material.

At December 31, 2012, if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch, the amount of additional collateral contractually required by derivative contracts and other trading agreements would have been approximately $3.3 billion comprised of $2.9 billion for BANA and $418 million for Merrill Lynch and certain of its subsidiaries. If the agencies had downgraded their long-term senior debt ratings for these entities by a second incremental notch, approximately $4.4 billion in additional incremental collateral comprised of $455 million for BANA and $4.0 billion for Merrill Lynch and certain of its subsidiaries would have been required.



78 Bank of America 2012

Also, if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch, the derivative liability that would be subject to unilateral termination by counterparties as of December 31, 2012 was $3.8 billion, against which $3.0 billion of collateral has been posted. If the rating agencies had downgraded their long-term senior debt ratings for the Corporation and certain subsidiaries by a second incremental notch, the derivative liability that would be subject to unilateral termination by counterparties as of December 31, 2012 was an incremental $1.7 billion, against which $1.1 billion of collateral has been posted.

While certain potential impacts are contractual and quantifiable, the full scope of consequences of a credit ratings downgrade to a financial institution is inherently uncertain, as it depends upon numerous dynamic, complex and inter-related factors and assumptions, including whether any downgrade of a firm’s long-term credit ratings precipitates downgrades to its short-term credit ratings, and assumptions about the potential behaviors of various customers, investors and counterparties. For additional information on potential impacts of credit rating downgrades, see Time to Required Funding and Stress Modeling on page 76.

For information regarding the additional collateral and termination payments that could be required in connection with certain OTC derivative contracts and other trading agreements as a result of such a credit rating downgrade, see Item 1A. Risk Factors.

Credit Risk Management

Credit quality improved during 2012 due in part to improving economic conditions. Our proactive credit risk management initiatives positively impacted the credit portfolio as charge-offs and delinquencies continued to improve across most portfolios and risk ratings improved in the commercial portfolios. For more information, see Executive Summary – 2012 Economic and Business Environment on page 26.

Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its obligations. Credit risk can also arise from operational failures that result in an erroneous advance, commitment or investment of funds. We define the credit exposure to a borrower or counterparty as the loss potential arising from all product classifications including loans and leases, deposit overdrafts, derivatives, assets held-for-sale and unfunded lending commitments which include loan commitments, letters of credit and financial guarantees. Derivative positions are recorded at fair value and assets held-for-sale are recorded at either fair value or the lower of cost or fair value. Certain loans and unfunded commitments are accounted for under the fair value option. Credit risk for these categories of assets is not accounted for as part of the allowance for credit losses but as part of the fair value adjustments recorded in earnings. For derivative positions, our credit risk is measured as the net cost in the event the

counterparties with contracts in which we are in a gain position fail to perform under the terms of those contracts. We use the current mark-to-market value to represent credit exposure without giving consideration to future mark-to-market changes. The credit risk amounts take into consideration the effects of legally enforceable master netting agreements and cash collateral. Our consumer and commercial credit extension and review procedures take into account funded and unfunded credit exposures. For additional information on derivative and credit extension commitments, see Note 3 – Derivatives and Note 13 – Commitments and Contingencies to the Consolidated Financial Statements.

We manage credit risk based on the risk profile of the borrower or counterparty, repayment sources, the nature of underlying collateral, and other support given current events, conditions and expectations. We classify our portfolios as either consumer or commercial and monitor credit risk in each as discussed below.

We proactively refine our underwriting and credit management practices as well as credit standards to meet the changing economic environment. To actively mitigate losses and enhance customer support in our consumer businesses, we have in place collection programs and loan modification and customer assistance infrastructures. We utilize a number of actions to mitigate losses in the commercial businesses including increasing the frequency and intensity of portfolio monitoring, hedging activity and our practice of transferring management of deteriorating commercial exposures to independent special asset officers as credits enter criticized categories.

In January 2013, in connection with the FNMA Settlement, we repurchased for $6.6 billion certain residential mortgage loans that had previously been sold to FNMA, which we have valued at less than the purchase price. The majority of these repurchased loans will be included in our PCI portfolio. For additional information on the FNMA Settlement, see Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 54 and Note 8 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements.

During 2012, new regulatory guidance issued regarding the treatment of loans discharged in Chapter 7 bankruptcy and regulatory interagency guidance issued on junior-lien consumer real estate loans adversely impacted the consumer portfolio’s nonperforming loan and net charge-off statistics. In addition, the National Mortgage Settlement adversely impacted net charge-offs but resulted in a corresponding reduction in nonperforming loans. For more information, see Consumer Portfolio Credit Risk Management on page 80 and Table 21.

Certain European countries, including Greece, Ireland, Italy, Portugal and Spain, have experienced varying degrees of financial stress in recent years. For additional information on our exposures and related risks in non-U.S. countries, see Non-U.S. Portfolio on page 105 and Item 1A. Risk Factors.

For information on our Credit Risk Management activities, see Consumer Portfolio Credit Risk Management on page 80, Commercial Portfolio Credit Risk Management on page 95, Non-U.S. Portfolio on page 105, Provision for Credit Losses and Allowance for Credit Losses both on page 109, Note 1 – Summary of Significant Accounting Principles and Note 5 – Outstanding Loans and Leases to the Consolidated Financial Statements.



		Bank of America 2012 79

Consumer Portfolio Credit Risk Management

Credit risk management for the consumer portfolio begins with initial underwriting and continues throughout a borrower’s credit cycle. Statistical techniques in conjunction with experiential judgment are used in all aspects of portfolio management including underwriting, product pricing, risk appetite, setting credit limits, and establishing operating processes and metrics to quantify and balance risks and returns. Statistical models are built using detailed behavioral information from external sources such as credit bureaus and/or internal historical experience. These models are a component of our consumer credit risk management process and are used in part to help make both new and existing credit decisions, as well as portfolio management strategies, including authorizations and line management, collection practices and strategies, determination of the allowance for loan and lease losses, and economic capital allocations for credit risk.

Since January 2008, and through 2012, Bank of America and Countrywide have completed approximately 1.2 million loan modifications with customers. During 2012, we completed more than 156,000 customer loan modifications with a total unpaid principal balance of approximately $34 billion, including approximately 41,400 permanent modifications under the government’s Making Home Affordable Program. Of the loan modifications completed in 2012, in terms of both the volume of modifications and the unpaid principal balance associated with the underlying loans, most were in the portfolio serviced for investors and were not on our balance sheet. The most common types of modifications include a combination of rate reduction and/or capitalization of past due amounts which represented 54 percent of the volume of modifications completed in 2012, while principal forbearance represented 18 percent, principal reductions and forgiveness represented 17 percent and capitalization of past due amounts represented seven percent. For modified loans on our balance sheet, these modification types are generally considered TDRs. For more information on TDRs and portfolio impacts, see Nonperforming Consumer Loans and Foreclosed Properties Activity on page 93 and Note 5 – Outstanding Loans and Leases to the Consolidated Financial Statements.

Consumer Credit Portfolio

Improvement in the U.S. economy, labor markets and home prices during 2012 resulted in lower credit losses across all major consumer portfolios. Although home prices have shown signs of improvement, the declines over the past several years continued to adversely impact the home loans portfolio.

Improved credit quality across the consumer portfolio and the impact of the National Mortgage Settlement, as discussed in the following section, drove an $8.6 billion decrease in the consumer allowance for loan and lease losses to $21.1 billion at December 31, 2012. For more information, see Allowance for Credit Losses on page 109.

As a result of the National Mortgage Settlement in 2012, which among other things provided for borrower assistance, we recorded charge-offs of $435 million related to fully forgiven non-PCI loans in the home equity portfolio, which resulted in reductions of the same amount in nonperforming loans. Associated with the National Mortgage Settlement in 2012, we also fully forgave home

equity loans in the Countrywide PCI portfolio with a carrying value before reserves of $2.5 billion and an unpaid principal balance of $2.9 billion which resulted in a decrease in the corresponding allowance for loan and lease losses. These items had no impact on the provision for credit losses as these loans were fully reserved. For more information on the National Mortgage Settlement, see Off-Balance Sheet Arrangements and Contractual Obligations – Other Mortgage-related Matters on page 61.

In 2012, new regulatory guidance was issued addressing consumer real estate loans that have been discharged in Chapter 7 bankruptcy. In accordance with this new guidance, we now classify consumer real estate and other secured consumer loans that have been discharged in Chapter 7 bankruptcy and not reaffirmed by the borrower, as TDRs, irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified. We continue to have a lien on the underlying collateral. Previously, such loans were classified as TDRs only if there had been a change in contractual payment terms that represented a concession to the borrower. The net impact upon implementation to the consumer real estate and other secured consumer portfolios of adopting this new regulatory guidance was a $551 million increase in net charge-offs as these loans were written-down to collateral value, and the full-year impact was a $596 million increase in net charge-offs in 2012. This also resulted in an increase of $3.6 billion in TDRs and $1.2 billion in net new nonperforming loans upon implementation, of which $1.1 billion of such loans were included in nonperforming loans at December 31, 2012. Of the $1.1 billion, $1.0 billion, or 92 percent, were current on their contractual payments. Of these contractually current nonperforming loans, more than 70 percent were discharged in Chapter 7 bankruptcy more than 12 months ago, and more than 40 percent were discharged 24 months or more ago. As subsequent cash payments are received, the interest component of the payments is generally recorded as interest income on a cash basis and the principal component is generally recorded as a reduction in the carrying value of the loan. For more information on the impacts to consumer loans as a result of this new regulatory guidance, see Note 5 – Outstanding Loans and Leases to the Consolidated Financial Statements.

In 2012, the bank regulatory agencies jointly issued interagency supervisory guidance on nonaccrual status for junior-lien consumer real estate loans. In accordance with this regulatory interagency guidance, we now classify junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing, and as a result, we reclassified $1.9 billion of performing home equity loans to nonperforming upon implementation, and $1.5 billion of such loans were included in nonperforming loans at December 31, 2012. The regulatory interagency guidance had no impact on our allowance for loan and lease losses or provision for credit losses as the delinquency status of the underlying first-lien was already considered in our reserving process. For more information, see Consumer Portfolio Credit Risk Management – Home Equity on page 87 and Table 21.

For further information on our accounting policies regarding delinquencies, nonperforming status, charge-offs and TDRs for the consumer portfolio, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.



80 Bank of America 2012

Table 20 presents our outstanding consumer loans and the Countrywide PCI loan portfolio. Loans that were acquired from Countrywide and considered credit-impaired were recorded at fair value upon acquisition. In addition to being included in the “Outstandings” columns in Table 20, these loans are also shown separately, net of purchase accounting adjustments, in the “Countrywide Purchased Credit-impaired Loan Portfolio” column. For additional information, see Note 5 – Outstanding Loans and Leases to the Consolidated Financial Statements. The impact of

the Countrywide PCI loan portfolio on certain credit statistics is reported where appropriate. See Countrywide Purchased Credit-impaired Loan Portfolio on page 90 for more information. Under certain circumstances, loans that were originally classified as discontinued real estate loans upon acquisition have been subsequently modified from pay option or subprime loans into loans with more conventional terms and are now included in the residential mortgage portfolio, but continue to be classified as PCI loans as shown in Table 20.




Table 20	Consumer Loans

		December 31
		Outstandings				Countrywide Purchased Credit-impaired Loan Portfolio
(Dollars in millions)		2012		2011		2012		2011
Residential mortgage ⁽¹⁾		$	243,181	$	262,290	$	8,737	$	9,966
Home equity		107,996		124,699		8,547		11,978
Discontinued real estate ⁽²⁾		9,892		11,095		8,834		9,857
U.S. credit card		94,835		102,291		n/a		n/a
Non-U.S. credit card		11,697		14,418		n/a		n/a
Direct/Indirect consumer ⁽³⁾		83,205		89,713		n/a		n/a
Other consumer ⁽⁴⁾		1,628		2,688		n/a		n/a
Consumer loans excluding loans accounted for under the fair value option		552,434		607,194		26,118		31,801
Loans accounted for under the fair value option ⁽⁵⁾		1,005		2,190		n/a		n/a
Total consumer loans		$	553,439	$	609,384	$	26,118	$	31,801


⁽¹⁾	Outstandings include non-U.S. residential mortgage loans of $93 million and $85 million at December 31, 2012 and 2011.


⁽²⁾	Outstandings include $8.8 billion and $9.9 billion of pay option loans and $1.1 billion and $1.2 billion of subprime loans at December 31, 2012 and 2011. We no longer originate these products.

⁽³⁾

Outstandings include dealer financial services loans of $35.9 billion and $43.0 billion, consumer lending loans of $4.7 billion and $8.0 billion, U.S. securities-based lending margin loans of $28.3 billion and $23.6 billion, student loans of $4.8 billion and $6.0 billion, non-U.S. consumer loans of $8.3 billion and $7.6 billion and other consumer loans of $1.2 billion and $1.5 billion at December 31, 2012 and 2011.


⁽⁴⁾	Outstandings include consumer finance loans of $1.4 billion and $1.7 billion, other non-U.S. consumer loans of $5 million and $929 million and consumer overdrafts of $177 million and $103 million at December 31, 2012 and 2011.

⁽⁵⁾

Consumer loans accounted for under the fair value option include residential mortgage loans of $147 million and $906 million and discontinued real estate loans of $858 million and $1.3 billion at December 31, 2012 and 2011. See Consumer Portfolio Credit Risk Management – Consumer Loans Accounted for Under the Fair Value Option on page 93 and Note 22 – Fair Value Option to the Consolidated Financial Statements for additional information on the fair value option.

n/a = not applicable



		Bank of America 2012 81

Table 21 presents the impact of the National Mortgage Settlement, the impact of the new regulatory guidance on loans discharged in Chapter 7 bankruptcy and the impact of regulatory interagency guidance on nonaccrual status for junior-lien

consumer real estate loans for the Core and Legacy Assets & Servicing portfolios within the home loans portfolio and other secured consumer portfolio within direct/indirect consumer. These impacts are included in the following consumer credit discussions.




Table 21	Impact of the National Mortgage Settlement and Regulatory Agency Guidance

		National Mortgage Settlement					New Regulatory Guidance on Treatment of Bankruptcies				Regulatory Interagency Guidance ⁽¹⁾
		Nonperforming			Net Charge-offs ⁽²⁾		Nonperforming		Net Charge-offs ⁽³⁾		Nonperforming
(Dollars in millions)		December 31 2012			2012		December 31 2012		2012		December 31 2012
Core portfolio
Residential mortgage		$	—		$	—	$	190	$	11	$	—
Home equity		(91		)	91		170		66		457
Total Core portfolio		(91		)	91		360		77		457
Legacy Assets & Servicing portfolio
Residential mortgage		—			—		382		64		—
Home equity		(344		)	344		308		408		1,000
Discontinued real estate		—			—		14		—		—
Total Legacy Assets & Servicing portfolio		(344		)	344		704		472		1,000
Home loans portfolio
Residential mortgage		—			—		572		75		—
Home equity		(435		)	435		478		474		1,457
Discontinued real estate		—			—		14		—		—
Total home loans portfolio		(435		)	435		1,064		549		1,457
Direct/Indirect consumer portfolio		n/a			n/a		58		47		n/a
Total consumer portfolio		$	(435	)	$	435	$	1,122	$	596	$	1,457


⁽¹⁾	In 2012, the bank regulatory agencies jointly issued interagency supervisory guidance on nonaccrual status for junior-lien consumer real estate loans.


⁽²⁾	Net charge-offs exclude $2.5 billion of write-offs in the Countrywide home equity PCI loan portfolio in connection with the National Mortgage Settlement in 2012. These write-offs decreased the PCI valuation allowance included as part of the allowance for loan and lease losses. For information on PCI write-offs, see Countrywide Purchased Credit-impaired Loan Portfolio on page 90.


⁽³⁾	Net charge-offs include $551 million of current or less than 60 days past due loans charged off as a result of the completion of implementation of new regulatory guidance on loans discharged in Chapter 7 bankruptcy and $45 million of loans charged off subsequent to the implementation.

n/a = not applicable



82 Bank of America 2012

Table 22 presents accruing consumer loans past due 90 days or more and consumer nonperforming loans. Nonperforming loans do not include past due consumer credit card loans, other unsecured loans and in general, consumer non-real estate-secured loans (excluding those loans discharged in Chapter 7 bankruptcy) as these loans are typically charged off no later than the end of the month in which the loan becomes 180 days past due. Real estate-secured past due consumer loans that are insured by the FHA or individually insured under long-term stand-by agreements with FNMA and FHLMC (collectively, the fully-insured loan portfolio) are reported as accruing as opposed to nonperforming since the

principal repayment is insured. Fully-insured loans included in accruing past due 90 days or more are primarily related to our purchases of delinquent FHA loans pursuant to our servicing agreements. Additionally, nonperforming loans and accruing balances past due 90 days or more do not include the Countrywide PCI loan portfolio or loans accounted for under the fair value option even though the customer may be contractually past due. For additional information on FHA loans, see Off-Balance Sheet Arrangements and Contractual Obligations – Other Mortgage-related Matters on page 61.




Table 22	Consumer Credit Quality

		December 31
		Accruing Past Due 90 Days or More						Nonperforming
(Dollars in millions)		2012			2011			2012 ⁽¹⁾			2011
Residential mortgage ⁽²⁾		$	22,157		$	21,164		$	14,808		$	15,970
Home equity		—			—			4,281			2,453
Discontinued real estate		—			—			248			290
U.S. credit card		1,437			2,070			n/a			n/a
Non-U.S. credit card		212			342			n/a			n/a
Direct/Indirect consumer		545			746			92			40
Other consumer		2			2			2			15
Total ⁽³⁾		$	24,353		$	24,324		$	19,431		$	18,768
Consumer loans as a percentage of outstanding consumer loans ⁽³⁾		4.41		%	4.01		%	3.52		%	3.09		%
Consumer loans as a percentage of outstanding loans excluding Countrywide PCI and fully-insured loan portfolios ⁽³⁾		0.50			0.66			4.46			3.90


⁽¹⁾	Nonperforming loans include the impacts of the National Mortgage Settlement and guidance issued by regulatory agencies. For more information, see Consumer Portfolio Credit Risk Management on page 80 and Table 21.


⁽²⁾	Balances accruing past due 90 days or more are fully-insured loans. These balances include $17.8 billion and $17.0 billion of loans on which interest has been curtailed by the FHA, and therefore are no longer accruing interest, although principal is still insured and $4.4 billion and $4.2 billion of loans on which interest was still accruing at December 31, 2012 and 2011.


⁽³⁾	Balances exclude consumer loans accounted for under the fair value option. At December 31, 2012 and 2011, $391 million and $713 million of loans accounted for under the fair value option were past due 90 days or more and not accruing interest.

n/a = not applicable

Table 23 presents net charge-offs and related ratios for consumer loans and leases.




Table 23	Consumer Net Charge-offs and Related Ratios ⁽¹⁾

		Net Charge-offs ⁽²⁾				Net Charge-off Ratios ^{(2, 3)}
(Dollars in millions)		2012		2011		2012		2011
Residential mortgage		$	3,053	$	3,832	1.21	%	1.45	%
Home equity		4,237		4,473		3.62		3.42
Discontinued real estate		63		92		0.61		0.75
U.S. credit card		4,632		7,276		4.88		6.90
Non-U.S. credit card		581		1,169		4.29		4.86
Direct/Indirect consumer		763		1,476		0.90		1.64
Other consumer		232		202		9.85		7.32
Total		$	13,561	$	18,520	2.36		2.94


⁽¹⁾	Net charge-offs and related ratios for 2012 include the impacts of the National Mortgage Settlement and new regulatory guidance on loans discharged in Chapter 7 bankruptcy. For more information, see Consumer Portfolio Credit Risk Management on page 80 and Table 21.


⁽²⁾	Net charge-offs exclude $2.8 billion of write-offs in the Countrywide home equity PCI loan portfolio for 2012. These write-offs decreased the PCI valuation allowance included as part of the allowance for loan and lease losses. For information on PCI write-offs, see Countrywide Purchased Credit-impaired Loan Portfolio on page 90.


⁽³⁾	Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans excluding loans accounted for under the fair value option.

Net charge-off ratios, excluding the Countrywide PCI and fully-insured loan portfolios, were 2.02 percent and 2.27 percent for residential mortgage, 3.98 percent and 3.77 percent for home equity, 6.10 percent and 7.14 percent for discontinued real estate and 2.99 percent and 3.62 percent for the total consumer portfolio for 2012 and 2011. These are the only product classifications impacted by the Countrywide PCI and fully-insured loan portfolios for 2012 and 2011.

Net charge-offs exclude $2.8 billion of write-offs in the Countrywide home equity PCI loan portfolio for 2012. These write-offs decreased the PCI valuation allowance included as part of the allowance for loan and lease losses. The net charge-off ratio including the PCI write-offs for home equity was 6.02 percent in 2012. For information on PCI write-offs, see Countrywide Purchased Credit-impaired Loan Portfolio on page 90.



		Bank of America 2012 83

Table 24 presents outstandings, nonperforming balances, net charge-offs, allowance for loan and lease losses and provision for loan and lease losses for the Core portfolio and the Legacy Assets & Servicing portfolio within the home loans portfolio. For more information on Legacy Assets & Servicing, see page 41.




Table 24	Home Loans Portfolio

		December 31
		Outstandings				Nonperforming				Net Charge-offs ⁽¹⁾
(Dollars in millions)		2012		2011		2012 ⁽²⁾		2011		2012 ⁽²⁾			2011
Core portfolio
Residential mortgage		$	170,116	$	178,337	$	3,190	$	2,414	$	544		$	348
Home equity		60,851		67,055		1,265		439		811			501
Total Core portfolio		230,967		245,392		4,455		2,853		1,355			849
Legacy Assets & Servicing portfolio
Residential mortgage ⁽³⁾		73,065		83,953		11,618		13,556		2,509			3,484
Home equity		47,145		57,644		3,016		2,014		3,426			3,972
Discontinued real estate ⁽³⁾		9,892		11,095		248		290		63			92
Total Legacy Assets & Servicing portfolio		130,102		152,692		14,882		15,860		5,998			7,548
Home loans portfolio
Residential mortgage		243,181		262,290		14,808		15,970		3,053			3,832
Home equity		107,996		124,699		4,281		2,453		4,237			4,473
Discontinued real estate		9,892		11,095		248		290		63			92
Total home loans portfolio		$	361,069	$	398,084	$	19,337	$	18,713	$	7,353		$	8,397

						December 31
						Allowance for loan and lease losses ⁽⁴⁾				Provision for loan and lease losses
						2012		2011		2012			2011
Core portfolio
Residential mortgage						$	829	$	850	$	523		$	450
Home equity						1,269		2,054		256			386
Total Core portfolio						2,098		2,904		779			836
Legacy Assets & Servicing portfolio
Residential mortgage						4,175		4,865		1,842			4,003
Home equity						6,576		11,040		1,492			4,296
Discontinued real estate						2,084		2,270		(40		)	1,165
Total Legacy Assets & Servicing portfolio						12,835		18,175		3,294			9,464
Home loans portfolio
Residential mortgage						5,004		5,715		2,365			4,453
Home equity						7,845		13,094		1,748			4,682
Discontinued real estate						2,084		2,270		(40		)	1,165
Total home loans portfolio						$	14,933	$	21,079	$	4,073		$	10,300


⁽¹⁾	Net charge-offs exclude $2.8 billion of write-offs in the Countrywide home equity PCI loan portfolio for 2012 which is included in the Legacy Assets & Servicing portfolio.


⁽²⁾	Nonperforming loans and net charge-offs include the impacts of the National Mortgage Settlement and guidance issued by regulatory agencies. For more information, see Consumer Portfolio Credit Risk Management on page 80 and Table 21.

⁽³⁾

Balances exclude consumer loans accounted for under the fair value option of $147 million and $906 million of residential mortgage loans and $858 million and $1.3 billion of discontinued real estate loans at December 31, 2012 and 2011. See Consumer Portfolio Credit Risk Management – Consumer Loans Accounted for Under the Fair Value Option on page 93 and Note 22 – Fair Value Option to the Consolidated Financial Statements for additional information on the fair value option.


⁽⁴⁾	The $2.8 billion of write-offs in the Countrywide home equity PCI loan portfolio for 2012 decreased the PCI valuation allowance included as part of the allowance for loan and lease losses. For information on PCI write-offs, see Countrywide Purchased Credit-impaired Loan Portfolio on page 90.

We believe that the presentation of information adjusted to exclude the impact of the Countrywide PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the fair value option is more representative of the ongoing operations and credit quality of the business. As a result, in the following discussions of the residential mortgage, home equity and discontinued real estate portfolios, we provide information that excludes the impact of the Countrywide PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the fair value option in certain credit quality statistics. We separately disclose information on the Countrywide PCI loan portfolios on page 90.

Residential Mortgage

The residential mortgage portfolio, which for purposes of the consumer credit portfolio discussion and related tables excludes

the discontinued real estate portfolio acquired from Countrywide, makes up the largest percentage of our consumer loan portfolio at 44 percent of consumer loans at December 31, 2012. Approximately 17 percent of the residential mortgage portfolio is in GWIM and represents residential mortgages that are originated for the home purchase and refinancing needs of our wealth management clients. The remaining portion of the portfolio is primarily in All Other and is comprised of originated loans, purchased loans used in our overall ALM activities, delinquent FHA loans repurchased pursuant to our servicing agreements with GNMA as well as loans repurchased related to our representations and warranties.

Outstanding balances in the residential mortgage portfolio, excluding $147 million of loans accounted for under the fair value option, decreased $19.1 billion in 2012 as paydowns, charge-offs



84 Bank of America 2012

and transfers to foreclosed properties more than offset new origination volume retained on our balance sheet.

At December 31, 2012 and 2011, the residential mortgage portfolio included $90.9 billion and $93.9 billion of outstanding fully-insured loans. On this portion of the residential mortgage portfolio, we are protected against principal loss as a result of either FHA insurance or long-term stand-by agreements with FNMA and FHLMC. At December 31, 2012 and 2011, $66.6 billion and $69.5 billion had FHA insurance and $24.3 billion and $24.4 billion were protected by long-term stand-by agreements. All of these loans are individually insured and therefore the Corporation does not record an allowance for credit losses with respect to these loans.

At December 31, 2012 and 2011, $25.5 billion and $24.0 billion of the FHA-insured loan population were delinquent FHA loans repurchased pursuant to our servicing agreements with GNMA.

In addition to the long-term stand-by agreements with FNMA and FHLMC, we have mitigated a portion of our credit risk on the residential mortgage portfolio through the use of synthetic securitization vehicles as described in Note 5 – Outstanding Loans and Leases to the Consolidated Financial Statements. At December 31, 2012 and 2011, the synthetic securitization vehicles referenced principal balances of $17.6 billion and $23.9 billion of residential mortgage loans and provided loss protection up to $500 million and $783 million. At December 31, 2012 and 2011, the Corporation had a receivable of $305 million and $359 million from these vehicles for reimbursement of losses. The

Corporation records an allowance for credit losses on loans referenced by the synthetic securitization vehicles. The reported net charge-offs for the residential mortgage portfolio do not include the benefit of amounts reimbursable from these vehicles. Adjusting for the benefit of the credit protection from the synthetic securitizations, the residential mortgage net charge-off ratio, excluding the Countrywide PCI and fully-insured loan portfolios, for 2012 would have been reduced by nine bps, and 13 bps for 2011.

Synthetic securitizations and the long-term stand-by agreements with FNMA and FHLMC together reduce our regulatory risk-weighted assets due to the transfer of a portion of our credit risk to unaffiliated parties. At December 31, 2012 and 2011, these programs had the cumulative effect of reducing our risk-weighted assets by $7.2 billion and $7.9 billion, increasing our Tier 1 capital ratio by eight bps for both periods, and our Tier 1 common capital ratio by seven bps and six bps.

Table 25 presents certain residential mortgage key credit statistics on both a reported basis excluding loans accounted for under the fair value option, and excluding the Countrywide PCI loan portfolio, fully-insured loan portfolio and loans accounted for under the fair value option. We believe the presentation of information adjusted to exclude these loan portfolios is more representative of the credit risk in the residential mortgage loan portfolio. As such, the following discussion presents the residential mortgage portfolio excluding the Countrywide PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the fair value option. For more information on the Countrywide PCI loan portfolio, see page 90.




Table 25	Residential Mortgage – Key Credit Statistics

		December 31
		Reported Basis ⁽¹⁾						Excluding Countrywide Purchased Credit-impaired and Fully-insured Loans
(Dollars in millions)		2012			2011			2012			2011
Outstandings		$	243,181		$	262,290		$	143,590		$	158,470
Accruing past due 30 days or more		28,780			28,688			3,082			3,950
Accruing past due 90 days or more		22,157			21,164			n/a			n/a
Nonperforming loans ⁽²⁾		14,808			15,970			14,808			15,970
Percent of portfolio
Refreshed LTV greater than 90 but less than 100		16		%	15		%	10		%	11		%
Refreshed LTV greater than 100		28			33			20			26
Refreshed FICO below 620		22			21			14			15
2006 and 2007 vintages ⁽³⁾		24			27			34			37
Net charge-off ratio ^{(2, 4)}		1.21			1.45			2.02			2.27

⁽¹⁾

Outstandings, accruing past due, nonperforming loans and percentages of portfolio exclude loans accounted for under the fair value option. There were $147 million and $906 million of residential mortgage loans accounted for under the fair value option at December 31, 2012 and 2011. See Consumer Portfolio Credit Risk Management – Consumer Loans Accounted for Under the Fair Value Option on page 93 and Note 22 – Fair Value Option to the Consolidated Financial Statements for additional information on the fair value option.


⁽²⁾	Nonperforming loans at December 31, 2012 and net charge-off ratios for 2012 include the impact of new regulatory guidance on loans discharged in Chapter 7 bankruptcy. For more information, see Consumer Portfolio Credit Risk Management on page 80 and Table 21.


⁽³⁾	These vintages of loans account for 60 percent and 63 percent of nonperforming residential mortgage loans at December 31, 2012 and 2011, and 72 percent and 73 percent of residential mortgage net charge-offs in 2012 and 2011.


⁽⁴⁾	Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans excluding loans accounted for under the fair value option.

n/a = not applicable

Nonperforming residential mortgage loans decreased $1.2 billion in 2012 as paydowns, charge-offs and returns to performing status, outpaced new inflows. In addition, nonperforming residential mortgage loan balances at December 31, 2012 included $572 million due to new regulatory guidance related to loans less than 60 days past due that were discharged in Chapter 7 bankruptcy. At December 31, 2012, borrowers were current on contractual payments with respect to $3.5 billion, or 24 percent of nonperforming residential mortgage loans, and $8.7 billion, or

59 percent of nonperforming residential mortgage loans were 180 days or more past due and had been written down to the estimated fair value of the collateral less estimated costs to sell. Accruing loans past due 30 days or more decreased $868 million in 2012.

Net charge-offs decreased $779 million to $3.1 billion in 2012, or 2.02 percent of total average residential mortgage loans, compared to $3.8 billion, or 2.27 percent, for 2011. This decrease in net charge-offs for 2012 was primarily driven by decreased write-



		Bank of America 2012 85

downs on loans greater than 180 days past due which were written down to the estimated fair value of the collateral less estimated costs to sell, and favorable delinquency trends. In addition, 2012 included $75 million in net charge-offs related to loans discharged in Chapter 7 bankruptcy that were written down to the underlying collateral value as a result of new regulatory guidance. For more information on the new regulatory guidance on loans discharged in Chapter 7 bankruptcy, see Consumer Portfolio Credit Risk Management on page 80 and Table 21. Net charge-off ratios were further impacted by lower loan balances primarily due to paydowns and charge-offs outpacing new originations.

Loans in the residential mortgage portfolio with certain characteristics have greater risk of loss than others. These characteristics include loans with a high refreshed LTV, loans originated at the peak of home prices in 2006 and 2007, interest-only loans and loans to borrowers located in California and Florida where we have concentrations and where significant declines in home prices have been experienced. Although the disclosures in this section address each of these risk characteristics separately, there is significant overlap in loans with these characteristics, which contributed to a disproportionate share of the losses in the portfolio. The residential mortgage loans with all of these higher risk characteristics comprised four percent and six percent of the residential mortgage portfolio at December 31, 2012 and 2011, and accounted for 20 percent of the residential mortgage net charge-offs in 2012, and 23 percent in 2011.

Residential mortgage loans with a greater than 90 percent but less than 100 percent refreshed LTV represented 10 percent and 11 percent of the residential mortgage portfolio at December 31, 2012 and 2011. Loans with a refreshed LTV greater than 100 percent represented 20 percent and 26 percent of the residential mortgage loan portfolio at December 31, 2012 and 2011. Of the loans with a refreshed LTV greater than 100 percent, 92 percent were performing at both December 31, 2012 and 2011. Loans with a refreshed LTV greater than 100 percent reflect loans where the outstanding carrying value of the loan is greater than

the most recent valuation of the property securing the loan. The majority of these loans have a refreshed LTV greater than 100 percent primarily due to home price deterioration over the past several years. Loans to borrowers with refreshed FICO scores below 620 represented 14 percent and 15 percent of the residential mortgage portfolio at December 31, 2012 and 2011.

Of the $143.6 billion and $158.5 billion in total residential mortgage loans outstanding at December 31, 2012 and 2011, as shown in Table 26, 41 percent and 40 percent were originated as interest-only loans. The outstanding balance of interest-only residential mortgage loans that have entered the amortization period was $13.7 billion, or 23 percent, at December 31, 2012. Residential mortgage loans that have entered the amortization period have experienced a higher rate of early stage delinquencies and nonperforming status compared to the residential mortgage portfolio as a whole. As of December 31, 2012, $368 million, or three percent of outstanding interest-only residential mortgages that had entered the amortization period were accruing past due 30 days or more compared to $3.1 billion, or two percent of accruing past due 30 days or more for the entire residential mortgage portfolio. In addition, at December 31, 2012, $2.1 billion, or 16 percent of outstanding interest-only residential mortgages that had entered the amortization period were nonperforming compared to $14.8 billion, or 10 percent of nonperforming loans for the entire residential mortgage portfolio. Loans in our interest-only residential mortgage portfolio have an interest-only period of three to 10 years and more than 85 percent of these loans will not be required to make a fully-amortizing payment until 2015 or later.

Table 26 presents outstandings, nonperforming loans and net charge-offs by certain state concentrations for the residential mortgage portfolio. The Los Angeles-Long Beach-Santa Ana Metropolitan Statistical Area (MSA) within California represented 12 percent of outstandings at both December 31, 2012 and 2011. Loans within this MSA comprised only eight percent and seven percent of net charge-offs for 2012 and 2011.




Table 26	Residential Mortgage State Concentrations

		December 31
		Outstandings ⁽¹⁾				Nonperforming ⁽¹⁾				Net Charge-offs
(Dollars in millions)		2012		2011		2012 ⁽²⁾		2011		2012 ⁽²⁾		2011
California		$	48,281	$	54,203	$	4,510	$	5,606	$	1,117	$	1,326
New York ⁽³⁾		11,240		11,539		956		838		79		106
Florida ⁽³⁾		10,994		12,338		1,729		1,900		372		595
Texas		6,885		7,525		488		425		51		55
Virginia		5,067		5,709		404		399		50		64
Other U.S./Non-U.S.		61,123		67,156		6,721		6,802		1,384		1,686
Residential mortgage loans ⁽⁴⁾		$	143,590	$	158,470	$	14,808	$	15,970	$	3,053	$	3,832
Fully-insured loan portfolio		90,854		93,854
Countrywide purchased credit-impaired residential mortgage loan portfolio		8,737		9,966
Total residential mortgage loan portfolio		$	243,181	$	262,290

⁽¹⁾

Outstandings and nonperforming amounts exclude loans accounted for under the fair value option. There were $147 million and $906 million of residential mortgage loans accounted for under the fair value option at December 31, 2012 and 2011. See Consumer Portfolio Credit Risk Management – Consumer Loans Accounted for Under the Fair Value Option on page 93 and Note 22 – Fair Value Option to the Consolidated Financial Statements for additional information on the fair value option.


⁽²⁾	Nonperforming loans and net charge-offs include the impact of new regulatory guidance on loans discharged in Chapter 7 bankruptcy. For more information, see Consumer Portfolio Credit Risk Management on page 80 and Table 21.


⁽³⁾	In these states, foreclosure requires a court order following a legal proceeding (judicial states).


⁽⁴⁾	Amount excludes the Countrywide PCI residential mortgage and fully-insured loan portfolios.

The Community Reinvestment Act (CRA) encourages banks to meet the credit needs of their communities for housing and other purposes, particularly in neighborhoods with low or moderate incomes. At December 31, 2012 and 2011, our CRA portfolio was

$11.3 billion and $12.5 billion, or eight percent of the residential mortgage loan balances for both periods. The CRA portfolio included $2.5 billion of nonperforming loans at both December 31, 2012 and 2011 representing 17 percent and 15 percent of



86 Bank of America 2012

total nonperforming residential mortgage loans. Net charge-offs related to the CRA portfolio were $643 million and $732 million for 2012 and 2011, or 21 percent and 19 percent of total net charge-offs for the residential mortgage portfolio.

For information on representations and warranties related to our residential mortgage portfolio, see Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 54 and Note 8 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements.

Home Equity

The home equity portfolio makes up 20 percent of the consumer portfolio and is comprised of HELOCs, home equity loans and reverse mortgages. As of December 31, 2012, our HELOC portfolio had an outstanding balance of $91.3 billion, or 85 percent of the total home equity portfolio. HELOCs generally have an initial draw period of 10 years with approximately nine percent of the portfolio having a draw period of five years with a five-year renewal option. During the initial draw period, the borrowers are only required to pay the interest due on the loans on a monthly basis. After the initial draw period ends, the loans generally convert to 15-year amortizing loans.

As of December 31, 2012, our home equity loan portfolio had an outstanding balance of $15.3 billion, or 14 percent of the total home equity portfolio. Home equity loans are almost all fixed-rate loans with amortizing payment terms of 10 to 30 years and 51 percent of these loans have 25 to 30-year terms.

As of December 31, 2012, our reverse mortgage portfolio had an outstanding balance of $1.4 billion, or one percent of the total home equity portfolio. In 2011, we exited the reverse mortgage origination business.

At December 31, 2012, 88 percent of the home equity portfolio was included in CRES while the remainder of the portfolio was primarily in GWIM. Outstanding balances in the home equity portfolio decreased $16.7 billion in 2012 primarily due to paydowns and charge-offs outpacing new originations and draws on existing lines. In addition, in 2012, $2.9 billion of loans, including $2.5 billion of Countrywide PCI loans in the home equity portfolio, were forgiven in connection with the National Mortgage Settlement. Of the total home equity portfolio at December 31, 2012 and 2011, $21.1 billion, or 20 percent, and $24.5 billion, or 20 percent, were in first-lien positions (21 percent and 22 percent excluding the Countrywide PCI home equity portfolio at December 31, 2012 and 2011). As of December 31, 2012, outstanding balances in the home equity portfolio that were in a second-lien or more junior-lien position and where we also held the first-lien loan totaled $29.8 billion, or 30 percent of our total home equity portfolio excluding the Countrywide PCI loan portfolio.

Unused HELOCs totaled $60.9 billion at December 31, 2012 compared to $67.5 billion at December 31, 2011. This decrease was primarily due to customers choosing to close accounts as well as line management initiatives on deteriorating accounts, which more than offset new production. The HELOC utilization rate was 60 percent at December 31, 2012 compared to 61 percent at December 31, 2011.

Table 27 presents certain home equity portfolio key credit statistics on both a reported basis as well as excluding the Countrywide PCI loan portfolio. We believe the presentation of information adjusted to exclude the impact of the Countrywide PCI loan portfolio is more representative of the credit risk in this portfolio.




Table 27	Home Equity – Key Credit Statistics

		December 31
		Reported Basis						Excluding Countrywide Purchased Credit-impaired Loans
(Dollars in millions)		2012			2011			2012			2011
Outstandings		$	107,996		$	124,699		$	99,449		$	112,721
Accruing past due 30 days or more ⁽¹⁾		1,098			1,658			1,098			1,658
Nonperforming loans ^{(1, 2)}		4,281			2,453			4,281			2,453
Percent of portfolio
Refreshed combined LTV greater than 90 but less than 100		10		%	10		%	10		%	11		%
Refreshed combined LTV greater than 100		31			36			29			32
Refreshed FICO below 620 ⁽³⁾		9			11			8			9
2006 and 2007 vintages ⁽⁴⁾		48			50			46			46
Net charge-off ratio ^{(2, 5)}		3.62			3.42			3.98			3.77


⁽¹⁾	Accruing past due 30 days or more includes $321 million and $609 million and nonperforming loans includes $824 million and $703 million of loans where we serviced the underlying first-lien at December 31, 2012 and 2011.


⁽²⁾	Nonperforming loans at December 31, 2012 and net charge-off ratios for 2012 include the impacts of the National Mortgage Settlement and guidance issued by regulatory agencies. For more information, see Consumer Portfolio Credit Risk Management on page 80 and Table 21.


⁽³⁾	Beginning in 2012, home equity FICO metrics reflected an updated scoring model that is more representative of the credit risk of our borrowers. Prior period amounts were adjusted to reflect these updates.


⁽⁴⁾	These vintages of loans have higher refreshed combined LTV ratios and accounted for 51 percent and 54 percent of nonperforming home equity loans at December 31, 2012 and 2011, and accounted for 60 percent and 65 percent of net charge-offs in 2012 and 2011.


⁽⁵⁾	Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans.

The following discussion presents the home equity portfolio excluding the Countrywide PCI loan portfolio.

Nonperforming outstanding balances in the home equity portfolio increased $1.8 billion in 2012 due to the reclassification to nonperforming of junior-lien loans less than 90 days past due that have a senior-lien loan that is 90 days or more past due which

resulted in a $1.5 billion increase as of December 31, 2012, and the reclassification to nonperforming of loans less than 60 days past due that were discharged in Chapter 7 bankruptcy which resulted in an increase of $478 million at December 31, 2012, in both cases pursuant to new regulatory guidance.



		Bank of America 2012 87

These additions to nonperforming loans were partially offset by the $435 million of loans forgiven related to the National Mortgage Settlement. Excluding the impact of these items, nonperforming loans increased compared to December 31, 2011 as inflows outpaced outflows in 2012. At December 31, 2012, on $2.0 billion, or 46 percent of nonperforming home equity loans, the borrowers were current on contractual payments and $1.2 billion, or 28 percent of nonperforming home equity loans, were 180 days or more past due and had been written down to the estimated fair value of the collateral less estimated costs to sell. Outstanding balances accruing past due 30 days or more decreased $560 million during 2012 driven in part by the reclassification of junior-lien home equity loans to nonperforming in accordance with regulatory interagency guidance. For more information on the changes as a result of regulatory guidance and the National Mortgage Settlement, see Consumer Portfolio Credit Risk Management on page 80.

In some cases, the junior-lien home equity outstanding balance that we hold is performing, but the underlying first-lien is not. For outstanding balances in the home equity portfolio in which we service the first-lien loan, we are able to track whether the first-lien loan is in default. For loans where the first-lien is serviced by a third party, we utilize credit bureau data to estimate the delinquency status of the first-lien. Given that the credit bureau database we use does not include a property address for the mortgages, we are unable to identify with certainty whether a reported delinquent first-lien mortgage pertains to the same property for which we hold a junior-lien loan. At December 31, 2012, we estimate that $2.6 billion of current and $559 million of 30 to 89 days past due junior-lien loans were behind a delinquent first-lien loan. We service the first-lien loans on $958 million of these combined amounts, with the remaining $2.2 billion serviced by third parties. Of the $3.2 billion current to 89 days past due junior-lien loans, based on available credit bureau data and our own internal servicing data, we estimate that approximately $1.5 billion had first-lien loans that were 90 days or more past due.

Net charge-offs decreased $236 million to $4.2 billion, or 3.98 percent of the total average home equity portfolio, for 2012 compared to $4.5 billion, or 3.77 percent, for 2011 primarily driven by favorable portfolio trends due in part to improvement in the U.S. economy partially offset by $435 million in net charge-offs associated with the National Mortgage Settlement and $474 million in net charge-offs related to loans discharged in Chapter 7 bankruptcy that were written down to the underlying collateral value due to new regulatory guidance. Net charge-off ratios were further impacted by lower outstanding balances primarily as a result of paydowns and charge-offs outpacing new originations and draws on existing lines.

There are certain characteristics of the home equity portfolio that have contributed to higher losses including those loans with a high refreshed combined loan-to-value (CLTV), loans that were originated at the peak of home prices in 2006 and 2007, and loans in geographic areas that have experienced the most significant declines in home prices. Home price declines coupled with the fact that most home equity outstandings are secured by second-lien positions have significantly reduced and, in some cases, eliminated all collateral value after consideration of the first-lien position. Although the disclosures in this section address each of these risk characteristics separately, there is significant overlap in outstanding balances with these characteristics, which has contributed to a disproportionate share of losses in the portfolio. Outstanding balances in the home equity portfolio with

all of these higher risk characteristics comprised eight percent and 10 percent of the total home equity portfolio at December 31, 2012 and 2011, and accounted for 24 percent of the home equity net charge-offs in 2012 compared to 28 percent in 2011.

Outstanding balances in the home equity portfolio with greater than 90 percent but less than 100 percent refreshed CLTVs comprised 10 percent and 11 percent of the home equity portfolio at December 31, 2012 and 2011. Outstanding balances with refreshed CLTVs greater than 100 percent comprised 29 percent and 32 percent of the home equity portfolio at December 31, 2012 and 2011. Outstanding balances in the home equity portfolio with a refreshed CLTV greater than 100 percent reflect loans where the carrying value and available line of credit of the combined loans are equal to or greater than the most recent valuation of the property securing the loan. Depending on the value of the property, there may be collateral in excess of the first-lien that is available to reduce the severity of loss on the second-lien. Home price deterioration over the past several years has contributed to an increase in CLTV ratios. Of those outstanding balances with a refreshed CLTV greater than 100 percent, 95 percent of the customers were current at December 31, 2012 and 92 percent of second-lien loans with a refreshed CLTV greater than 100 percent were current on both their second-lien and underlying first-lien loans at December 31, 2012. Outstanding balances in the home equity portfolio to borrowers with a refreshed FICO score below 620 represented eight percent and nine percent of the home equity portfolio at December 31, 2012 and 2011.

Of the $99.4 billion and $112.7 billion in total home equity portfolio outstandings at December 31, 2012 and 2011, 79 percent and 78 percent were interest-only loans, almost all of which were HELOCs. The outstanding balance of HELOCs that have entered the amortization period was $2.1 billion, or two percent of total HELOCs, at December 31, 2012. The HELOCs that have entered the amortization period have experienced a higher percentage of early stage delinquencies and nonperforming status when compared to the HELOC portfolio as a whole. As of December 31, 2012, $72 million, or three percent of outstanding HELOCs that had entered the amortization period were accruing past due 30 days or more compared to $972 million, or one percent of outstanding accruing past due 30 days or more for the entire HELOC portfolio. In addition, at December 31, 2012, $131 million, or six percent of outstanding HELOCs that had entered the amortization period were nonperforming compared to $3.7 billion, or four percent of outstandings that were nonperforming for the entire HELOC portfolio. Loans in our HELOC portfolio generally have an initial draw period of 10 years and more than 85 percent of these loans will not be required to make a fully-amortizing payment until 2015 or later.

Although we do not actively track how many of our home equity customers pay only the minimum amount due on their home equity loans and lines, we can infer some of this information through a review of our HELOC portfolio that we service and that is still in its revolving period (i.e., customers may draw on and repay their line of credit, but are generally only required to pay interest on a monthly basis). During 2012, approximately 50 percent of these customers did not pay any principal on their HELOCs.

Table 28 presents outstandings, nonperforming balances and net charge-offs by certain state concentrations for the home equity portfolio. In the New York area, the New York-Northern New Jersey-Long Island MSA made up 11 percent of the outstanding home equity portfolio at both December 31, 2012 and 2011. This MSA comprised eight percent and seven percent of net charge-offs in



88 Bank of America 2012

2012 and 2011. The Los Angeles-Long Beach-Santa Ana MSA within California made up 12 percent of the outstanding home equity portfolio at both December 31, 2012 and 2011. This MSA comprised 11 percent and 12 percent of net charge-offs in 2012 and 2011.

For information on representations and warranties related to our home equity portfolio, see Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 54 and Note 8 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements.




Table 28	Home Equity State Concentrations

		December 31
		Outstandings				Nonperforming				Net Charge-offs
(Dollars in millions)		2012		2011		2012 ⁽¹⁾		2011		2012 ^{(1, 2)}		2011
California		$	28,728	$	32,398	$	1,127	$	627	$	1,333	$	1,481
Florida ⁽³⁾		11,898		13,450		706		411		602		853
New Jersey ⁽³⁾		6,788		7,483		312		175		210		164
New York ⁽³⁾		6,734		7,423		419		242		222		196
Massachusetts		4,381		4,919		140		67		91		71
Other U.S./Non-U.S.		40,920		47,048		1,577		931		1,779		1,708
Home equity loans ⁽⁴⁾		$	99,449	$	112,721	$	4,281	$	2,453	$	4,237	$	4,473
Countrywide purchased credit-impaired home equity portfolio		8,547		11,978
Total home equity loan portfolio		$	107,996	$	124,699


⁽¹⁾	Nonperforming loans and net charge-offs include the impacts of the National Mortgage Settlement and guidance issued by regulatory agencies. For more information, see Consumer Portfolio Credit Risk Management on page 80 and Table 21.


⁽²⁾	Net charge-offs exclude $2.8 billion of write-offs in the Countrywide home equity PCI loan portfolio for 2012. These write-offs decreased the PCI valuation allowance included as part of the allowance for loan and lease losses. For information on PCI write-offs, see Countrywide Purchased Credit-impaired Loan Portfolio on page 90.


⁽³⁾	In these states, foreclosure requires a court order following a legal proceeding (judicial states).


⁽⁴⁾	Amount excludes the Countrywide PCI home equity loan portfolio.

Discontinued Real Estate

The discontinued real estate portfolio, excluding $858 million of loans accounted for under the fair value option, totaled $9.9 billion at December 31, 2012 and consists of pay option and subprime loans acquired in the Countrywide acquisition. Upon acquisition, the majority of the discontinued real estate portfolio was considered credit-impaired and written down to fair value. At December 31, 2012, the Countrywide PCI loan portfolio was $8.8 billion, or 89 percent of the total discontinued real estate portfolio. This portfolio is included in All Other and is managed as part of our overall ALM activities. See Countrywide Purchased Credit-impaired Loan Portfolio on page 90 for more information on the discontinued real estate portfolio. At December 31, 2012, the purchased discontinued real estate portfolio that was not credit-impaired was $1.1 billion. Loans with greater than 90 percent refreshed LTVs and CLTVs comprised 32 percent of the portfolio and those with refreshed FICO scores below 620 represented 41 percent of the portfolio. The Los Angeles-Long Beach-Santa Ana MSA within California made up 16 percent of outstanding discontinued real estate loans at December 31, 2012.

Pay option adjustable-rate mortgages (ARMs), which are included in the discontinued real estate portfolio, have interest rates that adjust monthly and minimum required payments that adjust annually, subject to resetting if minimum payments are made and deferred interest limits are reached. Annual payment adjustments are subject to a 7.5 percent maximum change. To ensure that contractual loan payments are adequate to repay a loan, the fully-amortizing loan payment amount is re-established after the initial five- or 10-year period and again every five years thereafter. These payment adjustments are not subject to the 7.5 percent limit and may be substantial due to changes in interest rates and the addition of unpaid interest to the loan balance. Payment advantage ARMs have interest rates that are fixed for an initial period of five years. Payments are subject to reset if the minimum payments are made and deferred interest limits are reached. If interest deferrals cause a loan’s principal balance to

reach a certain level within the first 10 years of the life of the loan, the payment is reset to the interest-only payment; then at the 10-year point, the fully-amortizing payment is required.

The difference between the frequency of changes in a loan’s interest rates and payments along with a limitation on changes in the minimum monthly payments of 7.5 percent per year can result in payments that are not sufficient to pay all of the monthly interest charges (i.e., negative amortization). Unpaid interest is added to the loan balance until the loan balance increases to a specified limit, which can be no more than 115 percent of the original loan amount, at which time a new monthly payment amount adequate to repay the loan over its remaining contractual life is established.

At December 31, 2012, the unpaid principal balance of pay option loans was $9.4 billion, with a carrying amount of $8.8 billion, including $8.1 billion of loans that were credit-impaired upon acquisition, and accordingly, the reserve is based on a life-of-loan loss estimate. The total unpaid principal balance of pay option loans with accumulated negative amortization was $6.4 billion including $464 million of negative amortization. For those borrowers who are making payments in accordance with their contractual terms, 17 percent and 22 percent at December 31, 2012 and 2011 elected to make only the minimum payment on option ARMs. We believe the majority of borrowers are now making scheduled payments primarily because the low rate environment has caused the fully indexed rates to be affordable to more borrowers. We continue to evaluate our exposure to payment resets on the acquired negative-amortizing loans including the Countrywide PCI pay option loan portfolio and have taken into consideration several assumptions regarding this evaluation including prepayment and default rates. Of the loans in the pay option portfolio at December 31, 2012 that have not already experienced a payment reset, one percent are expected to reset in 2013 and approximately 23 percent thereafter. In addition, seven percent are expected to prepay and 69 percent are expected to default prior to being reset, most of which were severely delinquent as of December 31, 2012.



		Bank of America 2012 89

Countrywide Purchased Credit-impaired Loan Portfolio

Loans acquired with evidence of credit quality deterioration since origination and for which it is probable at purchase that we will be unable to collect all contractually required payments are accounted for under the accounting guidance for PCI loans, which addresses accounting for differences between contractual and expected cash flows to be collected from the purchaser’s initial investment in loans if those differences are attributable, at least in part, to credit quality. Evidence of credit quality deterioration as of the acquisition date may include statistics such as past due status, refreshed FICO scores and refreshed LTVs. PCI loans are recorded at fair value upon acquisition and the applicable accounting guidance prohibits carrying over or recording a valuation allowance in the initial accounting.

PCI loans that have similar risk characteristics, primarily credit risk, collateral type and interest rate risk, are pooled and accounted for as a single asset with a single composite interest rate and an

aggregate expectation of cash flows. Once a pool is assembled, it is considered as if it were one loan for purposes of applying the accounting guidance for PCI loans. An individual loan is removed from a PCI loan pool if it is sold, foreclosed, forgiven or the expectation of any future proceeds is remote. When a loan is removed from a PCI loan pool and the foreclosure or recovery value of the loan is less than the loan’s carrying value, the difference is first applied against the PCI pool’s nonaccretable difference. If the nonaccretable difference has been fully utilized, only then is the PCI pool’s basis applicable to that loan written-off against its valuation reserve; however, the integrity of the pool is maintained and it continues to be accounted for as if it were one loan.

Table 29 presents the unpaid principal balance, carrying value, related valuation allowance and the net carrying value as a percentage of the unpaid principal balance for the Countrywide PCI loan portfolio.




Table 29	Countrywide Purchased Credit-impaired Loan Portfolio

		December 31, 2012
(Dollars in millions)		Unpaid Principal Balance		Carrying Value		Related Valuation Allowance		Carrying Value Net of Valuation Allowance		Percent of Unpaid Principal Balance
Residential mortgage		$	8,898	$	8,737	$	1,061	$	7,676	86.27	%
Home equity		8,324		8,547		2,428		6,119		73.51
Discontinued real estate		9,281		8,834		2,047		6,787		73.13
Total Countrywide purchased credit-impaired loan portfolio		$	26,503	$	26,118	$	5,536	$	20,582	77.66

		December 31, 2011
Residential mortgage		$	10,426	$	9,966	$	1,111	$	8,855	84.93	%
Home equity		12,516		11,978		5,129		6,849		54.72
Discontinued real estate		11,891		9,857		2,219		7,638		64.23
Total Countrywide purchased credit-impaired loan portfolio		$	34,833	$	31,801	$	8,459	$	23,342	67.01

The total Countrywide PCI unpaid principal balance decreased $8.3 billion, or 24 percent, in 2012 to $26.5 billion at December 31, 2012 primarily driven by liquidations, paydowns and payoffs. In addition, the decline includes loans with an unpaid principal balance of $2.9 billion within the home equity portfolio that were forgiven in connection with the National Mortgage Settlement of which 92 percent were 180 days or more past due. For more information on the National Mortgage Settlement, see Consumer Portfolio Credit Risk Management on page 80.

Of the unpaid principal balance of $26.5 billion at December 31, 2012, $7.3 billion was 180 days or more past due, including $6.5 billion of first-lien and $795 million of home equity loans. Of the $19.2 billion that was less than 180 days past due, $17.1 billion, or 89 percent of the total unpaid principal balance, was current based on the contractual terms while $1.3 billion, or seven percent, was in early stage delinquency. The home equity 180 days or more past due balances declined $2.9 billion, or 79 percent, during 2012, due primarily to the loans forgiven as discussed above.

During 2012, we recorded a provision benefit of $103 million for the Countrywide PCI loan portfolio including a benefit of $88 million for discontinued real estate, a benefit of $27 million for residential mortgage loans and a provision expense of $12 million for home equity. This compared to a total provision of $2.1 billion in 2011. The decline in provision in 2012 was primarily driven by an improvement in our home price outlook.

The Countrywide PCI allowance declined $2.9 billion during 2012 driven by a $2.7 billion reduction in the Countrywide PCI home equity allowance primarily as a result of liquidations including the forgiveness of $2.5 billion of fully reserved home equity loans in connection with the National Mortgage Settlement. For further information on the Countrywide PCI loan portfolio, see Note 5 – Outstanding Loans and Leases to the Consolidated Financial Statements.

In January 2013, in connection with the FNMA Settlement, we repurchased for $6.6 billion certain residential mortgage loans that had previously been sold to FNMA, which we have valued at less than the purchase price. The majority of these loans were classified as PCI loans when they were recorded in January 2013. For additional information, see Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 54.

Additional information on the Countrywide PCI residential mortgage, home equity and discontinued real estate loan portfolios is provided in the following sections.

Purchased Credit-impaired Residential Mortgage Loan Portfolio

The Countrywide PCI residential mortgage loan portfolio comprised 33 percent of the total Countrywide PCI loan portfolio at December 31, 2012. Those loans to borrowers with a refreshed FICO score below 620 represented 37 percent of the Countrywide



90 Bank of America 2012

PCI residential mortgage loan portfolio at December 31, 2012. Loans with a refreshed LTV greater than 90 percent, after consideration of purchase accounting adjustments and the related valuation allowance, represented 60 percent of the Countrywide PCI residential mortgage loan portfolio and 80 percent based on the unpaid principal balance at December 31, 2012. Those loans that were originally classified as Countrywide PCI discontinued real estate loans upon acquisition and have been subsequently modified are now included in the Countrywide PCI residential mortgage outstandings. Table 30 presents outstandings net of purchase accounting adjustments and before the related valuation allowance, by certain state concentrations.




Table 30	Outstanding Countrywide Purchased Credit-impaired Loan Portfolio – Residential Mortgage State Concentrations

		December 31
(Dollars in millions)		2012		2011
California		$	4,762	$	5,509
Florida ⁽¹⁾		693		779
Virginia		479		535
Maryland		239		262
Texas		107		130
Other U.S./Non-U.S.		2,457		2,751
Total		$	8,737	$	9,966


⁽¹⁾	In this state, foreclosure requires a court order following a legal proceeding (judicial state).

Purchased Credit-impaired Home Equity Loan Portfolio

The Countrywide PCI home equity portfolio comprised 33 percent of the total Countrywide PCI loan portfolio at December 31, 2012. Those loans with a refreshed FICO score below 620 represented 23 percent of the Countrywide PCI home equity portfolio at December 31, 2012. Loans with a refreshed CLTV greater than 90 percent, after consideration of purchase accounting adjustments and the related valuation allowance, represented 76 percent of the Countrywide PCI home equity portfolio and 77 percent based on the unpaid principal balance at December 31, 2012. Table 31 presents outstandings net of purchase accounting adjustments and before the related valuation allowance, by certain state concentrations.




Table 31	Outstanding Countrywide Purchased Credit-impaired Loan Portfolio – Home Equity State Concentrations

		December 31
(Dollars in millions)		2012		2011
California		$	2,614	$	4,051
Florida ⁽¹⁾		509		840
Virginia		380		467
Arizona		294		422
Colorado		260		335
Other U.S./Non-U.S.		4,490		5,863
Total		$	8,547	$	11,978


⁽¹⁾	In this state, foreclosure requires a court order following a legal proceeding (judicial state).

Purchased Credit-impaired Discontinued Real Estate Loan Portfolio

The Countrywide PCI discontinued real estate loan portfolio comprised 34 percent of the total Countrywide PCI loan portfolio at December 31, 2012. Those loans to borrowers with a refreshed

FICO score below 620 represented 62 percent of the Countrywide PCI discontinued real estate loan portfolio at December 31, 2012. Loans with a refreshed LTV, or CLTV in the case of second-liens, greater than 90 percent, after consideration of purchase accounting adjustments and the related valuation allowance, represented 42 percent of the Countrywide PCI discontinued real estate loan portfolio and 81 percent based on the unpaid principal balance at December 31, 2012. Those loans that were originally classified as discontinued real estate loans upon acquisition and have been subsequently modified are now excluded from this portfolio and included in the Countrywide PCI residential mortgage loan portfolio, but remain in the PCI loan pool. Table 32 presents outstandings net of purchase accounting adjustments and before the related valuation adjustment, by certain state concentrations.




Table 32	Outstanding Countrywide Purchased Credit-impaired Loan Portfolio – Discontinued Real Estate State Concentrations

		December 31
(Dollars in millions)		2012		2011
California		$	4,492	$	5,285
Florida ⁽¹⁾		1,119		1,041
Washington		282		311
Virginia		240		273
Arizona		202		241
Other U.S./Non-U.S.		2,499		2,706
Total		$	8,834	$	9,857


⁽¹⁾	In this state, foreclosure requires a court order following a legal proceeding (judicial state).

U.S. Credit Card

The U.S. credit card portfolio is managed in CBB. Outstandings in the U.S. credit card portfolio decreased $7.5 billion in 2012 due to higher payments, charge-offs and portfolio sales. Net charge-offs decreased $2.6 billion to $4.6 billion in 2012 due to improvements in delinquencies and bankruptcies as a result of an improved economic environment, account management on higher risk accounts and the impact of higher credit quality originations. U.S. credit card loans 30 days or more past due and still accruing interest decreased $1.1 billion while loans 90 days or more past due and still accruing interest decreased $633 million

in 2012 due to improvement in the U.S. economy. Table 33 presents certain key credit statistics for the consumer U.S. credit card portfolio.




Table 33	U.S. Credit Card – Key Credit Statistics

		December 31
(Dollars in millions)		2012			2011
Outstandings		$	94,835		$	102,291
Accruing past due 30 days or more		2,748			3,823
Accruing past due 90 days or more		1,437			2,070

		2012			2011
Net charge-offs		$	4,632		$	7,276
Net charge-off ratios ⁽¹⁾		4.88		%	6.90		%


⁽¹⁾	Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans.

Unused lines of credit for U.S. credit card totaled $335.5 billion and $368.1 billion at December 31, 2012 and 2011. The $32.6 billion decrease was driven by closure of inactive accounts and account management initiatives on higher risk accounts.



		Bank of America 2012 91

Table 34 presents certain state concentrations for the U.S. credit card portfolio.




Table 34	U.S. Credit Card State Concentrations

		December 31
		Outstandings				Accruing Past Due 90 Days or More				Net Charge-offs
(Dollars in millions)		2012		2011		2012		2011		2012		2011
California		$	14,101	$	15,246	$	235	$	352	$	840	$	1,402
Florida		7,469		7,999		149		221		512		838
Texas		6,448		6,885		92		131		290		429
New York		5,746		6,156		91		126		263		403
New Jersey		3,959		4,183		60		86		178		275
Other U.S.		57,112		61,822		810		1,154		2,549		3,929
Total U.S. credit card portfolio		$	94,835	$	102,291	$	1,437	$	2,070	$	4,632	$	7,276

Non-U.S. Credit Card

Outstandings in the non-U.S. credit card portfolio, which are recorded in All Other, decreased $2.7 billion in 2012 due to transfers to LHFS, lower origination volume and charge-offs. Net charge-offs decreased $588 million to $581 million in 2012 due to the sale of the Canadian consumer credit card portfolio in 2011 and improvement in delinquencies.

Unused lines of credit for non-U.S. credit card decreased $1.1 billion to $35.7 billion in 2012 driven by a decline in the number of outstanding accounts primarily offset by strengthening of the British Pound against the U.S. Dollar.

Table 35 presents certain key credit statistics for the non-U.S. credit card portfolio.




Table 35	Non-U.S. Credit Card – Key Credit Statistics

		December 31
(Dollars in millions)		2012			2011
Outstandings		$	11,697		$	14,418
Accruing past due 30 days or more		403			610
Accruing past due 90 days or more		212			342

		2012			2011
Net charge-offs		$	581		$	1,169
Net charge-off ratios ⁽¹⁾		4.29		%	4.86		%


⁽¹⁾	Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans and leases.

Direct/Indirect Consumer

At December 31, 2012, approximately 43 percent of the direct/indirect portfolio was included in Global Banking (dealer financial

services - automotive, marine, aircraft and recreational vehicle loans), 39 percent was included in GWIM (principally securities-based lending margin loans and unsecured personal loans), 12 percent was included in All Other (the IWM business based outside of the U.S. that was moved from GWIM and student loans) and the remaining portion was in CBB (consumer personal loans).

Outstanding loans and leases decreased $6.5 billion in 2012 due to run-off of an auto loan portfolio, an auto loan sale and securitization within the dealer financial services portfolio and lower outstandings in the unsecured consumer lending portfolio partially offset by growth in securities-based lending. For 2012, net charge-offs decreased $713 million to $763 million, or 0.90 percent of total average direct/indirect loans compared to 1.64 percent for 2011. This decrease was primarily driven by improvements in delinquencies, collections and bankruptcies in the unsecured consumer lending portfolio as a result of an improved economic environment as well as reduced outstandings. Partially offsetting this decline was $47 million of net charge-offs related to other secured consumer loans discharged in Chapter 7 bankruptcy as a result of new regulatory guidance. For more information, see Consumer Portfolio Credit Risk Management on page 80 and Table 21.

Net charge-offs in the unsecured consumer lending portfolio decreased $610 million to $485 million in 2012, or 7.68 percent of total average unsecured consumer lending loans compared to 10.93 percent for 2011. Direct/indirect loans that were past due 30 days or more and still accruing interest declined $537 million to $1.4 billion in 2012 due to improvements in both the unsecured consumer lending and dealer financial services portfolios.

Table 36 presents certain state concentrations for the direct/indirect consumer loan portfolio.




Table 36	Direct/Indirect State Concentrations

		December 31
		Outstandings				Accruing Past Due 90 Days or More				Net Charge-offs
(Dollars in millions)		2012		2011		2012		2011		2012		2011
California		$	10,793	$	11,152	$	53	$	81	$	102	$	222
Florida		7,363		7,456		37		55		88		148
Texas		7,239		7,882		41		54		64		117
New York		4,794		5,160		28		40		43		79
Georgia		2,491		2,828		31		38		30		61
Other U.S./Non-U.S.		50,525		55,235		355		478		436		849
Total direct/indirect loan portfolio		$	83,205	$	89,713	$	545	$	746	$	763	$	1,476



92 Bank of America 2012

Other Consumer

At December 31, 2012, approximately 87 percent of the $1.6 billion other consumer portfolio was associated with certain consumer finance businesses that we previously exited and non-U.S. consumer loan portfolios that are included in All Other. The remainder is primarily deposit overdrafts included in CBB.

Consumer Loans Accounted for Under the Fair Value Option

Outstanding consumer loans accounted for under the fair value option were $1.0 billion at December 31, 2012 and included $858 million of discontinued real estate loans and $147 million of residential mortgage loans in consolidated variable interest entities (VIEs). During 2012, we recorded gains of $57 million resulting from changes in the fair value of the loan portfolio. These were offset by losses recorded on the related long-term debt.

Nonperforming Consumer Loans and Foreclosed Properties Activity

Table 37 presents nonperforming consumer loans and foreclosed properties activity during 2012 and 2011. Nonperforming LHFS are excluded from nonperforming loans as they are recorded at either fair value or the lower of cost or fair value. Nonperforming loans do not include past due consumer credit card loans, other unsecured loans and in general, consumer non-real estate-secured loans (excluding those loans discharged in Chapter 7 bankruptcy), as these loans are typically charged off no later than the end of the month in which the loan becomes 180 days past due. The fully-insured loan portfolio is not reported as nonperforming as principal repayment is insured. Additionally, nonperforming loans do not include the Countrywide PCI loan portfolio or loans accounted for under the fair value option. For further information on nonperforming loans, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.

Nonperforming loans increased $663 million in 2012 to $19.4 billion. During 2012, we reclassified to nonperforming $1.9 billion of junior-lien loans less than 90 days past due that have a senior-lien loan that is 90 days or more past due and $1.2 billion of loans less than 60 days past due that were discharged in Chapter 7

bankruptcy upon implementation of new regulatory guidance. These additions to nonperforming loans were partially offset by $435 million of nonperforming loans forgiven in connection with the National Mortgage Settlement. Excluding the impact of these items, nonperforming loans declined in 2012 as outflows outpaced new inflows which continued to improve due to favorable delinquency trends. For more information on the impacts related to the National Mortgage Settlement and guidance issued by regulatory agencies, see Consumer Portfolio Credit Risk Management on page 80 and Table 21.

The outstanding balance of a real estate-secured loan that is in excess of the estimated property value, after reducing the estimated property value for estimated costs to sell, is charged off no later than the end of the month in which the loan becomes 180 days past due unless repayment of the loan is fully insured. At December 31, 2012, $10.7 billion, or 54 percent, of nonperforming consumer real estate loans and foreclosed properties had been written down to their estimated property value less estimated costs to sell, including $10.1 billion of nonperforming loans 180 days or more past due and $650 million of foreclosed properties.

Foreclosed properties decreased $1.3 billion in 2012 as liquidations outpaced additions. PCI loans are excluded from nonperforming loans as these loans were written down to fair value at the acquisition date; however, once the underlying real estate is acquired by the Corporation upon foreclosure of the delinquent PCI loan, it is included in foreclosed properties. Countrywide PCI related foreclosed properties decreased $322 million in 2012. Not included in foreclosed properties at December 31, 2012 was $2.5 billion of real estate that was acquired upon foreclosure of delinquent FHA-insured loans. We hold this real estate on our balance sheet until we convey these properties to the FHA. We exclude these amounts from our nonperforming loans and foreclosed properties activity as we will be reimbursed once the property is conveyed to the FHA for principal and, up to certain limits, costs incurred during the foreclosure process and interest incurred during the holding period. For additional information on the review of our foreclosure processes, see Off-Balance Sheet Arrangements and Contractual Obligations – Other Mortgage-related Matters on page 61.



		Bank of America 2012 93

Restructured Loans

Nonperforming loans also include certain loans that have been modified in TDRs where economic concessions have been granted to borrowers experiencing financial difficulties. These concessions typically result from the Corporation’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain

TDRs are classified as nonperforming at the time of restructuring and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. Nonperforming TDRs, excluding those modified loans in the Countrywide PCI loan portfolio, are included in Table 37.




Table 37	Nonperforming Consumer Loans and Foreclosed Properties Activity⁽¹⁾

(Dollars in millions)		2012			2011
Nonperforming loans, January 1		$	18,768		$	20,854
Additions to nonperforming loans:
New nonperforming loans		13,084			15,723
Implementation of change in treatment of loans discharged in bankruptcies ⁽²⁾		1,162			n/a
Implementation of regulatory interagency guidance ⁽³⁾		1,853			n/a
Reductions to nonperforming loans:
Paydowns and payoffs		(3,801		)	(3,318		)
Sales		(47		)	—
Returns to performing status ⁽⁴⁾		(4,203		)	(4,741		)
Charge-offs ⁽⁵⁾		(6,544		)	(8,095		)
Transfers to foreclosed properties ⁽⁶⁾		(841		)	(1,655		)
Total net additions (reductions) to nonperforming loans		663			(2,086		)
Total nonperforming loans, December 31 ⁽⁷⁾		19,431			18,768
Foreclosed properties, January 1 ⁽⁸⁾		1,991			1,249
Additions to foreclosed properties:
New foreclosed properties ⁽⁶⁾		1,129			2,996
Reductions to foreclosed properties:
Sales		(2,283		)	(1,993		)
Write-downs		(187		)	(261		)
Total net additions (reductions) to foreclosed properties		(1,341		)	742
Total foreclosed properties, December 31		650			1,991
Nonperforming consumer loans and foreclosed properties, December 31		$	20,081		$	20,759
Nonperforming consumer loans as a percentage of outstanding consumer loans ⁽⁹⁾		3.52		%	3.09		%
Nonperforming consumer loans and foreclosed properties as a percentage of outstanding consumer loans and foreclosed properties ⁽⁹⁾		3.63			3.41


⁽¹⁾	Balances do not include nonperforming LHFS of $676 million and $659 million and nonaccruing TDRs removed from the Countrywide PCI portfolio prior to January 1, 2010 of $521 million and $477 million at December 31, 2012 and 2011 as well as loans accruing past due 90 days or more as presented in Table 22 and Note 5 – Outstanding Loans and Leases to the Consolidated Financial Statements.


⁽²⁾	In 2012, we added $1.2 billion to nonperforming loans as a result of new regulatory guidance on loans discharged in Chapter 7 bankruptcy. For more information, see Consumer Portfolio Credit Risk Management on page 80 and Table 21.


⁽³⁾	As a result of the regulatory interagency guidance, we reclassified $1.9 billion of performing home equity loans to nonperforming during 2012. For more information, see Consumer Portfolio Credit Risk Management on page 80.


⁽⁴⁾	Consumer loans may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection.


⁽⁵⁾	Our policy is to not classify consumer credit card and non-bankruptcy related consumer loans not secured by real estate as nonperforming; therefore, the charge-offs on these loans have no impact on nonperforming activity and accordingly are excluded from this table.

⁽⁶⁾

New foreclosed properties represents transfers of nonperforming loans to foreclosed properties net of charge-offs taken during the first 90 days after transfer of a loan to foreclosed properties. New foreclosed properties also includes properties obtained upon foreclosure of delinquent PCI loans, properties repurchased due to representations and warranties exposure and properties acquired with newly consolidated subsidiaries.


⁽⁷⁾	At December 31, 2012, 52 percent of nonperforming loans were 180 days or more past due and were written down through charge-offs to 62 percent of the unpaid principal balance.


⁽⁸⁾	Foreclosed property balances do not include loans that are insured by the FHA and have entered foreclosure of $2.5 billion and $1.4 billion at December 31, 2012 and 2011.


⁽⁹⁾	Outstanding consumer loans exclude loans accounted for under the fair value option.

n/a = not applicable

Our policy is to record any losses in the value of foreclosed properties as a reduction in the allowance for loan and lease losses during the first 90 days after transfer of a loan to foreclosed properties. Thereafter, further losses in value are recorded in noninterest expense. New foreclosed properties included in Table 37 are net of $261 million and $352 million of charge-offs for 2012 and 2011, recorded during the first 90 days after transfer.

In 2012, new regulatory guidance was issued addressing secured consumer loans that have been discharged in Chapter 7

bankruptcy, and as a result, $3.6 billion of loans were included in TDRs at December 31, 2012, of which $1.2 billion were current or less than 60 days past due upon implementation. Of the $3.6 billion of TDRs, approximately 27 percent, 41 percent and 32 percent had been discharged in Chapter 7 bankruptcy in 2012, 2011 and prior years, respectively. For more information, see Consumer Portfolio Credit Risk Management on page 80 and Table 21.



94 Bank of America 2012

Table 38 presents TDRs for the home loans portfolio. Performing TDR balances are excluded from nonperforming loans in Table 37.




Table 38	Home Loans Troubled Debt Restructurings

		December 31
		2012						2011
(Dollars in millions)		Total		Nonperforming		Performing		Total		Nonperforming		Performing
Residential mortgage ^{(1, 2)}		$	27,758	$	8,806	$	18,952	$	19,287	$	5,034	$	14,253
Home equity ⁽³⁾		2,125		1,242		883		1,776		543		1,233
Discontinued real estate ⁽⁴⁾		367		234		133		399		214		185
Total home loans troubled debt restructurings		$	30,250	$	10,282	$	19,968	$	21,462	$	5,791	$	15,671


⁽¹⁾	Residential mortgage TDRs deemed collateral dependent totaled $9.1 billion and $5.3 billion, and included $6.2 billion and $2.2 billion of loans classified as nonperforming and $2.9 billion and $3.1 billion of loans classified as performing at December 31, 2012 and 2011.


⁽²⁾	Residential mortgage performing TDRs included $11.9 billion and $7.0 billion of loans that were fully-insured at December 31, 2012 and 2011.


⁽³⁾	Home equity TDRs deemed collateral dependent totaled $1.4 billion and $824 million, and included $1.0 billion and $282 million of loans classified as nonperforming and $348 million and $542 million of loans classified as performing at December 31, 2012 and 2011.


⁽⁴⁾	Discontinued real estate TDRs deemed collateral dependent totaled $253 million and $230 million, and included $170 million and $118 million of loans classified as nonperforming and $83 million and $112 million as performing at December 31, 2012 and 2011.

We work with customers that are experiencing financial difficulty by modifying credit card and other consumer loans, while complying with Federal Financial Institutions Examination Council (FFIEC) guidelines. Substantially all of our credit card and other consumer loan modifications involve a reduction in the customer’s interest rate on the account and placing the customer on a fixed payment plan not exceeding 60 months, both of which are considered to be TDRs (the renegotiated TDR portfolio). We make modifications primarily through internal renegotiation programs utilizing direct customer contact, but may also utilize external renegotiation programs. The renegotiated TDR portfolio is generally excluded from Table 37 as substantially all of the loans remain on accrual status until either charged off or paid in full. The renegotiated TDR portfolio included $58 million of non-real estate-secured loans at December 31, 2012 that were discharged in Chapter 7 bankruptcy as a result of new regulatory guidance and classified as nonperforming loans. At December 31, 2012 and 2011, our renegotiated TDR portfolio was $3.9 billion and $7.1 billion, of which $3.1 billion and $5.5 billion were current or less than 30 days past due under the modified terms. The decline in the renegotiated TDR portfolio was primarily driven by paydowns and charge-offs as well as lower new program enrollments. For more information on the renegotiated TDR portfolio, see Note 5 – Outstanding Loans and Leases to the Consolidated Financial Statements.

Commercial Portfolio Credit Risk Management

Credit risk management for the commercial portfolio begins with an assessment of the credit risk profile of the borrower or counterparty based on an analysis of its financial position. As part of the overall credit risk assessment, our commercial credit exposures are assigned a risk rating and are subject to approval based on defined credit approval standards. Subsequent to loan origination, risk ratings are monitored on an ongoing basis, and if necessary, adjusted to reflect changes in the financial condition,

cash flow, risk profile or outlook of a borrower or counterparty. In making credit decisions, we consider risk rating, collateral, country, industry and single name concentration limits while also balancing the total borrower or counterparty relationship. Our business and risk management personnel use a variety of tools to continuously monitor the ability of a borrower or counterparty to perform under its obligations. We use risk rating aggregations to measure and evaluate concentrations within portfolios. In addition, risk ratings are a factor in determining the level of assigned economic capital and the allowance for credit losses.

For information on our accounting policies regarding delinquencies, nonperforming status and net charge-offs for the commercial portfolio, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.

Management of Commercial Credit Risk

Concentrations

Commercial credit risk is evaluated and managed with the goal that concentrations of credit exposure do not result in undesirable levels of risk. We review, measure and manage concentrations of credit exposure by industry, product, geography, customer relationship and loan size. We also review, measure and manage commercial real estate loans by geographic location and property type. In addition, within our international portfolio, we evaluate exposures by region and by country. Tables 43, 48, 56 and 57 summarize our concentrations. We also utilize syndications of exposure to third parties, loan sales, hedging and other risk mitigation techniques to manage the size and risk profile of the commercial credit portfolio.

As part of our ongoing risk mitigation initiatives, we attempt to work with clients experiencing financial difficulty to modify their loans to terms that better align with their current ability to pay. In situations where an economic concession has been granted to a borrower experiencing financial difficulty, we identify these loans as TDRs.



		Bank of America 2012 95

We account for certain large corporate loans and loan commitments, including issued but unfunded letters of credit which are considered utilized for credit risk management purposes, that exceed our single name credit risk concentration guidelines under the fair value option. Lending commitments, both funded and unfunded, are actively managed and monitored, and as appropriate, credit risk for these lending relationships may be mitigated through the use of credit derivatives, with the Corporation’s credit view and market perspectives determining the size and timing of the hedging activity. In addition, we purchase credit protection to cover the funded portion as well as the unfunded portion of certain other credit exposures. To lessen the

cost of obtaining our desired credit protection levels, credit exposure may be added within an industry, borrower or counterparty group by selling protection. These credit derivatives do not meet the requirements for treatment as accounting hedges. They are carried at fair value with changes in fair value recorded in other income (loss).

Commercial Credit Portfolio

Table 39 presents our commercial loans and leases, and related credit quality information at December 31, 2012 and 2011.




Table 39	Commercial Loans and Leases

		December 31
		Outstandings				Nonperforming				Accruing Past Due 90 Days or More
(Dollars in millions)		2012		2011		2012		2011		2012		2011
U.S. commercial		$	197,126	$	179,948	$	1,484	$	2,174	$	65	$	75
Commercial real estate ⁽¹⁾		38,637		39,596		1,513		3,880		29		7
Commercial lease financing		23,843		21,989		44		26		15		14
Non-U.S. commercial		74,184		55,418		68		143		—		—
		333,790		296,951		3,109		6,223		109		96
U.S. small business commercial ⁽²⁾		12,593		13,251		115		114		120		216
Commercial loans excluding loans accounted for under the fair value option		346,383		310,202		3,224		6,337		229		312
Loans accounted for under the fair value option ⁽³⁾		7,997		6,614		11		73		—		—
Total commercial loans and leases		$	354,380	$	316,816	$	3,235	$	6,410	$	229	$	312


⁽¹⁾	Includes U.S. commercial real estate loans of $37.2 billion and $37.8 billion and non-U.S. commercial real estate loans of $1.5 billion and $1.8 billion at December 31, 2012 and 2011.


⁽²⁾	Includes card-related products.


⁽³⁾	Commercial loans accounted for under the fair value option include U.S. commercial loans of $2.3 billion and $2.2 billion, and non-U.S. commercial loans of $5.7 billion and $4.4 billion at December 31, 2012 and 2011. See Note 22 – Fair Value Option to the Consolidated Financial Statements for additional information on the fair value option.

Outstanding commercial loans and leases increased $37.6 billion in 2012, primarily in non-U.S. commercial and U.S. commercial. During 2012, credit quality in the commercial loan portfolio continued to show improvement relative to the prior year. Reservable criticized balances and nonperforming loans, leases and foreclosed property balances in the commercial credit portfolio declined during 2012 and the declines were primarily in the commercial real estate and U.S. commercial portfolios. Commercial real estate continued to show improvement in both the residential and non-residential portfolios. The reduction in reservable criticized U.S. commercial loans was driven by broad-based improvements in terms of clients, industries and businesses. Most other credit indicators across the remaining commercial portfolios also improved in 2012. The allowance for loan and lease losses declined $1.0 billion from December 31, 2011 to $3.1 billion at December 31, 2012 due to improvements

in the core commercial portfolio (total commercial products excluding U.S. small business). For more information, see Allowance for Credit Losses on page 109.

Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases was 0.91 percent and 2.02 percent (0.93 percent and 2.04 percent excluding loans accounted for under the fair value option) at December 31, 2012 and 2011. Accruing commercial loans and leases past due 90 days or more as a percentage of outstanding commercial loans and leases was 0.06 percent and 0.10 percent at December 31, 2012 and 2011.

Table 40 presents net charge-offs and related ratios for our commercial loans and leases for 2012 and 2011. Improving portfolio trends drove lower charge-offs across most of the portfolio.




Table 40	Commercial Net Charge-offs and Related Ratios

		Net Charge-offs					Net Charge-off Ratios ⁽¹⁾
(Dollars in millions)		2012			2011		2012		2011
U.S. commercial		$	242		$	195	0.13	%	0.11	%
Commercial real estate		384			947		1.01		2.13
Commercial lease financing		(6		)	24		(0.03	)	0.11
Non-U.S. commercial		28			152		0.05		0.36
		648			1,318		0.21		0.46
U.S. small business commercial		699			995		5.46		7.12
Total commercial		$	1,347		$	2,313	0.43		0.77


⁽¹⁾	Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans and leases excluding loans accounted for under the fair value option.



96 Bank of America 2012

Table 41 presents commercial credit exposure by type for utilized, unfunded and total binding committed credit exposure. Commercial utilized credit exposure includes SBLCs and financial guarantees, bankers’ acceptances and commercial letters of credit for which we are legally bound to advance funds under prescribed conditions, during a specified period. Although funds have not yet been advanced, these exposure types are considered utilized for credit risk management purposes. Total commercial committed credit exposure increased $16.5 billion in 2012 primarily driven by increases in loans and LHFS, partially offset by decreases in derivative assets, and SBLCs and financial guarantees.

Total commercial utilized credit exposure increased $5.2 billion in 2012 primarily driven by the same factors as total commercial committed exposure as described in the previous paragraph. The decrease in derivatives relates primarily to a lower valuation of existing trades due to interest rate decreases along with reduced trading volume. The utilization rate for loans and leases, SBLCs and financial guarantees, commercial letters of credit and bankers’ acceptances was 58 percent and 57 percent at December 31, 2012 and 2011.




Table 41	Commercial Credit Exposure by Type

		December 31
		Commercial Utilized ⁽¹⁾				Commercial Unfunded ^{(2, 3)}				Total Commercial Committed
(Dollars in millions)		2012		2011		2012		2011		2012		2011
Loans and leases		$	354,380	$	316,816	$	281,915	$	276,195	$	636,295	$	593,011
Derivative assets ⁽⁴⁾		53,497		73,023		—		—		53,497		73,023
Standby letters of credit and financial guarantees		41,036		55,384		2,119		1,592		43,155		56,976
Debt securities and other investments		10,937		11,108		6,914		5,147		17,851		16,255
Loans held-for-sale		7,928		5,006		3,763		229		11,691		5,235
Commercial letters of credit		2,065		2,411		564		832		2,629		3,243
Bankers’ acceptances		185		797		3		28		188		825
Foreclosed properties and other ⁽⁵⁾		1,699		1,964		—		—		1,699		1,964
Total		$	471,727	$	466,509	$	295,278	$	284,023	$	767,005	$	750,532


⁽¹⁾	Total commercial utilized exposure at December 31, 2012 and 2011 includes loans and issued letters of credit and is comprised of loans outstanding of $8.0 billion and $6.6 billion and commercial letters of credit with a notional value of $672 million and $1.3 billion accounted for under the fair value option.


⁽²⁾	Total commercial unfunded exposure at December 31, 2012 and 2011 includes loan commitments with a notional value of $17.6 billion and $24.4 billion accounted for under the fair value option.


⁽³⁾	Excludes unused business card lines which are not legally binding.

⁽⁴⁾

Derivative assets are carried at fair value, reflect the effects of legally enforceable master netting agreements and have been reduced by cash collateral of $58.1 billion and $58.9 billion at December 31, 2012 and 2011. Not reflected in utilized and committed exposure is additional derivative collateral held of $18.7 billion and $16.1 billion which consists primarily of other marketable securities.


⁽⁵⁾	Includes $1.3 billion of monoline exposure at both December 31, 2012 and 2011, as discussed in Monoline Exposure on page 103.

Table 42 presents commercial utilized reservable criticized exposure by product type. Criticized exposure corresponds to the Special Mention, Substandard and Doubtful asset categories as defined by regulatory authorities. Total commercial utilized reservable criticized exposure decreased $11.3 billion, or 42 percent, in 2012 primarily in commercial real estate and U.S.

commercial property types driven largely by continued paydowns, rating upgrades, charge-offs and sales outpacing downgrades. At December 31, 2012, approximately 82 percent of commercial utilized reservable criticized exposure was secured compared to 85 percent at December 31, 2011.




Table 42	Commercial Utilized Reservable Criticized Exposure

		December 31
		2012				2011
(Dollars in millions)		Amount ⁽¹⁾		Percent ⁽²⁾		Amount ⁽¹⁾		Percent ⁽²⁾
U.S. commercial		$	8,631	3.72	%	$	11,731	5.16	%
Commercial real estate		3,782		9.24		11,525		27.13
Commercial lease financing		969		4.06		1,140		5.18
Non-U.S. commercial		1,614		2.02		1,524		2.44
		14,996		3.98		25,920		7.32
U.S. small business commercial		940		7.45		1,327		10.01
Total commercial utilized reservable criticized exposure		$	15,936	4.10		$	27,247	7.41


⁽¹⁾	Total commercial utilized reservable criticized exposure at December 31, 2012 and 2011 includes loans and leases of $14.6 billion and $25.3 billion and commercial letters of credit of $1.3 billion and $1.9 billion.


⁽²⁾	Percentages are calculated as commercial utilized reservable criticized exposure divided by total commercial utilized reservable exposure for each exposure category.



		Bank of America 2012 97

U.S. Commercial

At December 31, 2012, 68 percent of the U.S. commercial loan portfolio, excluding small business, was managed in Global Banking, 10 percent in Global Markets, 10 percent in CBB and the remainder primarily in GWIM (business-purpose loans for wealthy clients). U.S. commercial loans, excluding loans accounted for under the fair value option, increased $17.2 billion, or 10 percent, in 2012 primarily due to greater client demand in middle-market segments, dealer financing and specialized industries, and growth in certain asset-backed lending products. Reservable criticized balances and nonperforming loans and leases declined $3.1 billion and $690 million in 2012. The declines were broad-based in terms of clients and industries and were driven by improved client credit profiles and liquidity. Net charge-offs increased $47 million in 2012 due primarily to lower recoveries compared to 2011.

Commercial Real Estate

The commercial real estate portfolio is predominantly managed in Global Banking and consists of loans made primarily to public and

private developers, and commercial real estate firms. Outstanding loans decreased $959 million, or two percent, in 2012 due to paydowns outpacing new originations and renewals.

The portfolio remains diversified across property types and geographic regions. California represented the largest state concentration at 23 percent and 20 percent of commercial real estate loans and leases at December 31, 2012 and 2011.

Commercial real estate credit quality improved significantly during 2012. Nonperforming commercial real estate loans and foreclosed properties decreased $2.7 billion, or 61 percent, in 2012 primarily in the non-residential portfolio. Reservable criticized balances decreased $7.7 billion, or 67 percent, primarily due to declines in the non-residential portfolio. Net charge-offs declined $563 million in 2012 compared to 2011 due to improvement in both the residential and non-residential portfolios.

Table 43 presents outstanding commercial real estate loans by geographic region, based on the geographic location of the collateral, and by property type. Commercial real estate primarily includes commercial loans and leases secured by non-owner-occupied real estate which is dependent on the sale or lease of the real estate as the primary source of repayment.




Table 43	Outstanding Commercial Real Estate Loans

		December 31
(Dollars in millions)		2012		2011
By Geographic Region
California		$	8,792	$	7,957
Northeast		7,315		6,554
Southwest		4,612		5,243
Southeast		4,440		4,844
Midwest		3,421		4,051
Florida		2,148		2,502
Midsouth		1,980		1,751
Illinois		1,700		1,871
Northwest		1,553		1,574
Non-U.S.		1,483		1,824
Other ⁽¹⁾		1,193		1,425
Total outstanding commercial real estate loans		$	38,637	$	39,596
By Property Type
Non-residential
Office		$	9,324	$	7,571
Multi-family rental		5,893		6,105
Shopping centers/retail		5,780		5,985
Industrial/warehouse		3,839		3,988
Hotels/motels		3,095		2,653
Multi-use		2,186		3,218
Land and land development		1,157		1,599
Other		5,722		6,050
Total non-residential		36,996		37,169
Residential		1,641		2,427
Total outstanding commercial real estate loans		$	38,637	$	39,596


⁽¹⁾	Includes unsecured outstandings to real estate investment trusts and national home builders whose portfolios of properties span multiple geographic regions and properties in the states of Colorado, Utah, Hawaii, Wyoming and Montana.

During 2012, we continued to see improvements in both the residential and non-residential portfolios; however, portions of the non-residential portfolio in certain markets may be subject to additional risk. We use a number of proactive risk mitigation initiatives to reduce utilized and potential exposure in the

commercial real estate portfolios including ongoing refinement of our credit standards, additional transfers of deteriorating exposures to management by independent special asset officers and the pursuit of loan restructurings or asset sales to achieve the best results for our customers and the Corporation.



98 Bank of America 2012

Tables 44 and 45 present commercial real estate credit quality data by non-residential and residential property types. The residential portfolio presented in Tables 43, 44 and 45 includes condominiums and other residential real estate. Other property

types in Tables 43, 44 and 45 primarily include special purpose, nursing/retirement homes, medical facilities and restaurants, as well as unsecured loans to borrowers whose primary business is commercial real estate.




Table 44	Commercial Real Estate Credit Quality Data

		December 31
		Nonperforming Loans and Foreclosed Properties ⁽¹⁾				Utilized Reservable Criticized Exposure⁽²⁾
(Dollars in millions)		2012		2011		2012		2011
Non-residential
Office		$	295	$	807	$	914	$	2,375
Multi-family rental		109		339		375		1,604
Shopping centers/retail		230		561		464		1,378
Industrial/warehouse		160		521		324		1,317
Hotels/motels		45		173		202		716
Multi-use		123		345		309		971
Land and land development		321		530		359		749
Other		87		223		301		997
Total non-residential		1,370		3,499		3,248		10,107
Residential		393		993		534		1,418
Total commercial real estate		$	1,763	$	4,492	$	3,782	$	11,525


⁽¹⁾	Includes commercial foreclosed properties of $250 million and $612 million at December 31, 2012 and 2011.


⁽²⁾	Includes loans, SBLCs and bankers’ acceptances and excludes loans accounted for under the fair value option.




Table 45	Commercial Real Estate Net Charge-offs and Related Ratios

		Net Charge-offs					Net Charge-off Ratios ⁽¹⁾
(Dollars in millions)		2012			2011		2012		2011
Non-residential
Office		$	106		$	126	1.36	%	1.51	%
Multi-family rental		13			36		0.23		0.52
Shopping centers/retail		57			184		1.00		2.69
Industrial/warehouse		49			88		1.31		1.94
Hotels/motels		11			23		0.39		0.86
Multi-use		66			61		2.46		1.63
Land and land development		(23		)	152		(1.73	)	7.58
Other		31			19		0.51		0.33
Total non-residential		310			689		0.86		1.67
Residential		74			258		3.74		8.00
Total commercial real estate		$	384		$	947	1.01		2.13


⁽¹⁾	Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans excluding loans accounted for under the fair value option.

At December 31, 2012, total committed non-residential exposure was $54.5 billion compared to $53.1 billion at December 31, 2011, of which $37.0 billion and $37.2 billion were funded secured loans. Non-residential nonperforming loans and foreclosed properties were $1.4 billion and $3.5 billion at December 31, 2012 and 2011, which represented 3.68 percent and 9.29 percent of total non-residential loans and foreclosed properties. The decline in nonperforming loans and foreclosed properties in the non-residential portfolio was driven by decreases in the office, industrial/warehouse, shopping centers/retail and multi-family rental property types. Non-residential utilized reservable criticized exposure decreased to $3.2 billion, or 8.27 percent of non-residential utilized reservable exposure, at December 31, 2012 compared to $10.1 billion, or 25.34 percent, at December 31, 2011 primarily driven by repayments and an overall improvement in credit quality. The decrease in reservable criticized exposure was primarily driven by office, multi-family rental, industrial/warehouse and shopping centers/retail property types in the non-residential portfolio. For the non-residential portfolio, net charge-offs decreased $379 million in 2012

compared to 2011 primarily due to improving appraisal values, improved borrower credit profiles and higher recoveries.

At December 31, 2012, total committed residential exposure was $3.2 billion compared to $3.9 billion at December 31, 2011, of which $1.6 billion and $2.4 billion were funded secured loans. The decline in residential committed exposure was due to repayments, net charge-offs, and continued risk reduction and mitigation initiatives in line with our portfolio strategy. Residential nonperforming loans and foreclosed properties decreased $600 million in 2012 due to repayments, a decline in the volume of loans being downgraded to nonaccrual status and net charge-offs. Residential utilized reservable criticized exposure decreased $884 million to $534 million due to repayments and net charge-offs. The nonperforming loans, leases and foreclosed properties and the utilized reservable criticized ratios for the residential portfolio were 23.33 percent and 31.56 percent at December 31, 2012 compared to 38.89 percent and 54.65 percent at December 31, 2011. Net charge-offs for the residential portfolio decreased $184 million in 2012 compared to 2011.



		Bank of America 2012 99

At December 31, 2012 and 2011, the commercial real estate loan portfolio included $6.7 billion and $10.9 billion of funded construction and land development loans that were originated to fund the construction and/or rehabilitation of commercial properties. The decline in construction and land development loans was driven by repayments, net charge-offs, continued risk mitigation initiatives and a reduced emphasis on new originations. This portfolio is mostly secured and diversified across property types and geographic regions but faces continuing challenges in the housing markets. Reservable criticized construction and land development loans totaled $1.5 billion and $4.9 billion, and nonperforming construction and land development loans and foreclosed properties totaled $730 million and $2.1 billion at December 31, 2012 and 2011. During a property’s construction phase, interest income is typically paid from interest reserves that are established at the inception of the loan. As construction is completed and the property is put into service, these interest reserves are depleted and interest payments from operating cash flows begin. Loans generally continue to be classified as construction loans until operating cash flows reach appropriate levels or the loans are refinanced. We do not recognize interest income on nonperforming loans regardless of the existence of an interest reserve.

Non-U.S. Commercial

At December 31, 2012, 72 percent of the non-U.S. commercial loan portfolio was managed in Global Banking and 28 percent in Global Markets. Outstanding loans, excluding loans accounted for under the fair value option, increased $18.8 billion in 2012 primarily due to increased client financing activity, structured lending and trade finance exposures. Net charge-offs decreased $124 million in 2012 compared to 2011. For additional information on the non-U.S. commercial portfolio, see Non-U.S. Portfolio on page 105.

U.S. Small Business Commercial

The U.S. small business commercial loan portfolio is comprised of small business card and small business loans managed in CBB. Card-related products were 45 percent and 46 percent of the U.S.

small business commercial portfolio at December 31, 2012 and 2011. U.S. small business commercial net charge-offs decreased $296 million in 2012 compared to 2011 driven by improvements in delinquencies, collections and bankruptcies resulting from an improved economic environment as well as the reduction of higher risk vintages and the impact of higher credit quality originations. Of the U.S. small business commercial net charge-offs, 58 percent were credit card-related products in 2012 compared to 74 percent in 2011.

Commercial Loans Accounted for Under the Fair Value Option

The portfolio of commercial loans accounted for under the fair value option is managed primarily in Global Banking. Outstanding commercial loans accounted for under the fair value option increased $1.4 billion to an aggregate fair value of $8.0 billion at December 31, 2012 primarily due to increased corporate borrowings under bank credit facilities. We recorded net gains of $213 million in 2012 compared to net losses of $174 million in 2011 resulting from changes in the fair value of the loan portfolio. These amounts were primarily attributable to changes in instrument-specific credit risk, were recorded in other income (loss) and do not reflect the results of hedging activities.

In addition, unfunded lending commitments and letters of credit accounted for under the fair value option had an aggregate fair value of $528 million and $1.2 billion at December 31, 2012 and 2011 which was recorded in accrued expenses and other liabilities. The associated aggregate notional amount of unfunded lending commitments and letters of credit accounted for under the fair value option was $18.3 billion and $25.7 billion at December 31, 2012 and 2011. We recorded net gains of $704 million from changes in the fair value of commitments and letters of credit during 2012 compared to net losses of $429 million in 2011 resulting from maturities and terminations at par value and changes in the fair value of the loan portfolio. These amounts were primarily attributable to changes in instrument-specific credit risk, were recorded in other income (loss) and do not reflect the results of hedging activities.



100 Bank of America 2012

Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity

Table 46 presents the nonperforming commercial loans, leases and foreclosed properties activity during 2012 and 2011. Nonperforming commercial loans and leases decreased $3.1 billion to $3.2 billion at December 31, 2012 driven by paydowns, charge-offs and sales outpacing new nonperforming loans. Approximately 94 percent of commercial nonperforming loans,

leases and foreclosed properties are secured and approximately 45 percent are contractually current. Commercial nonperforming loans are carried at approximately 76 percent of their unpaid principal balance before consideration of the allowance for loan and lease losses as the carrying value of these loans has been reduced to the estimated property value less estimated costs to sell.




Table 46	Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity ^{(1, 2)}

(Dollars in millions)		2012			2011
Nonperforming loans and leases, January 1		$	6,337		$	9,836
Additions to nonperforming loans and leases:
New nonperforming loans and leases		2,334			4,656
Advances		85			157
Reductions to nonperforming loans and leases:
Paydowns		(2,372		)	(3,457		)
Sales		(840		)	(1,153		)
Returns to performing status ⁽³⁾		(808		)	(1,183		)
Charge-offs ⁽⁴⁾		(1,164		)	(1,576		)
Transfers to foreclosed properties ⁽⁵⁾		(302		)	(774		)
Transfers to loans held-for-sale		(46		)	(169		)
Total net reductions to nonperforming loans and leases		(3,113		)	(3,499		)
Total nonperforming loans and leases, December 31		3,224			6,337
Foreclosed properties, January 1		612			725
Additions to foreclosed properties:
New foreclosed properties ⁽⁵⁾		222			507
Reductions to foreclosed properties:
Sales		(516		)	(539		)
Write-downs		(68		)	(81		)
Total net reductions to foreclosed properties		(362		)	(113		)
Total foreclosed properties, December 31		250			612
Nonperforming commercial loans, leases and foreclosed properties, December 31		$	3,474		$	6,949
Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases ⁽⁶⁾		0.93		%	2.04		%
Nonperforming commercial loans, leases and foreclosed properties as a percentage of outstanding commercial loans, leases and foreclosed properties ⁽⁶⁾		1.00			2.24


⁽¹⁾	Balances do not include nonperforming LHFS of $437 million and $1.1 billion at December 31, 2012 and 2011.


⁽²⁾	Includes U.S. small business commercial activity.


⁽³⁾	Commercial loans and leases may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected or when the loan otherwise becomes well-secured and is in the process of collection. TDRs are generally classified as performing after a sustained period of demonstrated payment performance.


⁽⁴⁾	Small business card loans are not classified as nonperforming; therefore, the charge-offs on these loans have no impact on nonperforming activity and accordingly are excluded from this table.


⁽⁵⁾	New foreclosed properties represents transfers of nonperforming loans to foreclosed properties net of charge-offs recorded during the first 90 days after transfer of a loan to foreclosed properties.


⁽⁶⁾	Excludes loans accounted for under the fair value option.

Table 47 presents our commercial TDRs by product type and performing status. U.S. small business commercial TDRs are comprised of renegotiated small business card loans and are not classified as nonperforming as they are charged off no later than

the end of the month in which the loan becomes 180 days past due. For additional information on TDRs, see Note 5 – Outstanding Loans and Leases to the Consolidated Financial Statements.




Table 47	Commercial Troubled Debt Restructurings

		December 31
		2012						2011
(Dollars in millions)		Total		Nonperforming		Performing		Total		Nonperforming		Performing
U.S. commercial		$	1,328	$	565	$	763	$	1,329	$	531	$	798
Commercial real estate		1,391		740		651		1,675		1,076		599
Non-U.S. commercial		100		15		85		54		38		16
U.S. small business commercial		202		—		202		389		—		389
Total commercial troubled debt restructurings		$	3,021	$	1,320	$	1,701	$	3,447	$	1,645	$	1,802



		Bank of America 2012 101

Industry Concentrations

Table 48 presents commercial committed and utilized credit exposure by industry and the total net credit default protection purchased to cover the funded and unfunded portions of certain credit exposures. Our commercial credit exposure is diversified across a broad range of industries. Total committed commercial credit exposure increased $16.5 billion, or two percent, to $767.0 billion at December 31, 2012. The increase in commercial committed exposure was concentrated in food, beverage and tobacco, banking, energy, diversified financials, and real estate, partially offset by lower exposure to government and public education.

Industry limits are used internally to manage industry concentrations and are based on committed exposures and capital usage that are allocated on an industry-by-industry basis. A risk management framework is in place to set and approve industry limits as well as to provide ongoing monitoring. Management’s Credit Risk Committee (CRC) oversees industry limit governance.

Diversified financials, our largest industry concentration, experienced an increase in committed exposure of $4.7 billion, or five percent, in 2012 primarily driven by increases in margin loans and certain asset-backed lending products, partially offset by a decrease in derivative exposure.

Real estate, our second largest industry concentration, experienced an increase in committed exposure of $3.1 billion, or five percent, in 2012 primarily due to new originations and renewals outpacing paydowns and sales. Real estate construction and land development exposure represented 14 percent of the total real estate industry committed exposure at December 31, 2012, down from 20 percent at December 31, 2011. For more information on

commercial real estate and related portfolios, see Commercial Real Estate on page 98.

Committed exposure in the food, beverage and tobacco industry increased $6.8 billion, or 22 percent, in 2012 primarily related to short-term acquisition financing. Government and public education committed exposure decreased $6.7 billion, or 12 percent, in 2012 primarily driven by decreases in loans and SBLCs. Banking committed exposure increased $6.5 billion, or 17 percent, in 2012 primarily driven by loans to mortgage finance companies and trade finance activity with non-U.S. banks. Energy committed exposure increased $6.4 billion, or 20 percent, in 2012 reflecting loan growth in the exploration and production, and integrated oil sectors.

Our committed state and municipal exposure of $38.0 billion at December 31, 2012 consisted of $30.9 billion of commercial utilized exposure (including $17.6 billion of funded loans, $8.9 billion of SBLCs and $3.6 billion of derivative assets) and unfunded commercial exposure of $7.2 billion (primarily unfunded loan commitments and letters of credit) and is reported in the government and public education industry in Table 48. While the slow economic recovery continues to pressure budgets, most U.S. state and local governments have implemented offsetting fiscal adjustments and continue to honor debt obligations as agreed. While historical default rates have been low, as part of our overall and ongoing risk management processes, we continually monitor these exposures through a rigorous review process. Additionally, internal communications are regularly circulated to maintain exposure levels and are in compliance with established concentration guidelines.



102 Bank of America 2012




Table 48	Commercial Credit Exposure by Industry ⁽¹⁾

		December 31
		Commercial Utilized				Total Commercial Committed
(Dollars in millions)		2012		2011		2012			2011
Diversified financials		$	66,201	$	64,957	$	99,673		$	94,969
Real estate ⁽²⁾		47,479		48,138		65,639			62,566
Government and public education		41,449		43,090		50,285			57,021
Capital goods		25,071		24,025		49,196			48,013
Retailing		28,065		25,478		47,719			46,290
Healthcare equipment and services		29,396		31,298		45,488			48,141
Banking		40,245		35,231		45,238			38,735
Materials		21,809		19,384		40,493			38,070
Energy		17,684		15,151		38,464			32,074
Food, beverage and tobacco		14,738		15,904		37,344			30,501
Consumer services		23,093		24,445		36,367			38,498
Commercial services and supplies		19,020		20,089		30,257			30,831
Utilities		8,410		8,102		23,432			24,552
Media		13,091		11,447		21,705			21,158
Transportation		13,791		12,683		20,255			19,036
Individuals and trusts		13,916		14,993		17,801			19,001
Insurance, including monolines		8,519		10,090		14,145			16,157
Software and services		5,549		4,304		12,125			9,579
Pharmaceuticals and biotechnology		3,854		4,141		11,409			11,328
Technology hardware and equipment		5,118		5,247		11,108			12,173
Telecommunication services		4,029		4,297		10,297			10,424
Religious and social organizations		6,850		8,536		9,107			11,160
Consumer durables and apparel		4,246		4,505		8,438			8,965
Automobiles and components		3,312		2,813		7,675			7,178
Food and staples retailing		3,528		3,273		6,838			6,476
Other		3,264		4,888		6,507			7,636
Total commercial credit exposure by industry		$	471,727	$	466,509	$	767,005		$	750,532
Net credit default protection purchased on total commitments ⁽³⁾						$	(14,657	)	$	(19,356	)


⁽¹⁾	Includes U.S. small business commercial exposure.


⁽²⁾	Industries are viewed from a variety of perspectives to best isolate the perceived risks. For purposes of this table, the real estate industry is defined based on the borrowers’ or counterparties’ primary business activity using operating cash flows and primary source of repayment as key factors.


⁽³⁾	Represents net notional credit protection purchased. See Risk Mitigation on page 104 for additional information.

Monoline Exposure

Monoline exposure is reported in the insurance industry and managed under insurance portfolio industry limits. We have indirect exposure to monolines primarily in the form of guarantees supporting our loans, investment portfolios, securitizations and credit-enhanced securities as part of our public finance business and other selected products. Such indirect exposure exists when we purchase credit protection from monolines to hedge all or a portion of the credit risk on certain credit exposures including loans and CDOs. We underwrite our public finance exposure by evaluating the underlying securities.

We also have indirect exposure to monolines in the form of guarantees supporting our mortgage and other loan sales. Indirect exposure may exist when credit protection was purchased from monolines to hedge all or a portion of the credit risk on certain mortgage and other loan exposures. A loss may occur when we are required to repurchase a loan and the market value of the loan has declined, or we are required to indemnify or provide recourse for a guarantor’s loss. For additional information regarding our exposure to representations and warranties, see Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 54 and Note 8 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements.

Table 49 presents the notional amount of our monoline derivative credit exposure, mark-to-market adjustment and the counterparty credit valuation adjustment.




Table 49	Derivative Credit Exposures

		December 31
(Dollars in millions)		2012			2011
Notional amount of monoline exposure		$	13,547		$	21,070

Mark-to-market		$	898		$	1,766
Counterparty credit valuation adjustment		(118		)	(417		)
Net mark-to-market		$	780		$	1,349

		2012			2011
Gains (losses) from credit valuation changes		$	213		$	(1,000	)

The notional amount of monoline exposure at December 31, 2012 decreased $7.5 billion from December 31, 2011 due to terminations, paydowns and maturities of monoline contracts. In addition, $1.3 billion of monoline exposure with a single counterparty ($4.9 billion gross receivable less impairment) was included in other assets at December 31, 2012 and 2011. The contracts are no longer considered to be derivative trading instruments because of the inherent default risk and they no longer



		Bank of America 2012 103

provide a hedge benefit. We also have potential representations and warranties exposure with the same counterparty.

Risk Mitigation

We purchase credit protection to cover the funded portion as well as the unfunded portion of certain credit exposures. To lower the cost of obtaining our desired credit protection levels, credit exposure may be added within an industry, borrower or counterparty group by selling protection.

At December 31, 2012 and 2011, net notional credit default protection purchased in our credit derivatives portfolio to hedge our funded and unfunded exposures for which we elected the fair value option, as well as certain other credit exposures, was $14.7 billion and $19.4 billion. The mark-to-market effects resulted in net losses of $1.0 billion in 2012 compared to net gains of $121 million in 2011. The gains and losses related to these instruments are offset by gains and losses on the exposures. Table 50 presents the average VaR for these derivatives. See Trading Risk Management on page 114 for a description of our VaR calculation for the market-based trading portfolio.




Table 50	Credit Derivative Value-at-Risk

(Dollars in millions)		2012		2011
Average		$	52	$	60
Credit exposure average		79		74
Combined average ⁽¹⁾		24		38


⁽¹⁾	Reflects the diversification effect between net credit default protection hedging our credit exposure and the related credit exposure.

Tables 51 and 52 present the maturity profiles and the credit exposure debt ratings of the net credit default protection portfolio at December 31, 2012 and 2011.




Table 51	Net Credit Default Protection by Maturity

		December 31
		2012		2011
Less than or equal to one year		21	%	16	%
Greater than one year and less than or equal to five years		75		77
Greater than five years		4		7
Total net credit default protection		100	%	100	%




Table 52	Net Credit Default Protection by Credit Exposure Debt Rating

		December 31
		2012					2011
(Dollars in millions)		Net Notional ⁽¹⁾			Percent of Total		Net Notional ⁽¹⁾			Percent of Total
Ratings ^{(2, 3)}
AAA		$	(120	)	0.8	%	$	(32	)	0.2	%
AA		(474		)	3.2		(779		)	4.0
A		(5,861		)	40.0		(7,184		)	37.1
BBB		(6,067		)	41.4		(7,436		)	38.4
BB		(1,101		)	7.5		(1,527		)	7.9
B		(937		)	6.4		(1,534		)	7.9
CCC and below		(247		)	1.7		(661		)	3.4
NR ⁽⁴⁾		150			(1.0	)	(203		)	1.1
Total net credit default protection		$	(14,657	)	100.0	%	$	(19,356	)	100.0	%


⁽¹⁾	Represents net credit default protection (purchased) sold.


⁽²⁾	Ratings are refreshed on a quarterly basis.


⁽³⁾	Ratings of BBB- or higher are considered to meet the definition of investment grade.


⁽⁴⁾	“NR” is comprised of names that have not been rated.

In addition to our net notional credit default protection purchased to cover the funded and unfunded portion of certain credit exposures, credit derivatives are used for market-making activities for clients and establishing positions intended to profit from directional or relative value changes. We execute the majority of our credit derivative trades in the OTC market with large, multinational financial institutions, including broker/dealers and, to a lesser degree, with a variety of other investors. Because these transactions are executed in the OTC market, we are subject to

settlement risk. We are also subject to credit risk in the event that these counterparties fail to perform under the terms of these contracts. In most cases, credit derivative transactions are executed on a daily margin basis. Therefore, events such as a credit downgrade, depending on the ultimate rating level, or a breach of credit covenants would typically require an increase in the amount of collateral required of the counterparty, where applicable, and/or allow us to take additional protective measures such as early termination of all trades.



104 Bank of America 2012

Table 53 presents the total contract/notional amount of credit derivatives outstanding and includes both purchased and written credit derivatives. The credit risk amounts are measured as net asset exposure by counterparty, taking into consideration all contracts and collateral with that counterparty. The contract/notional amounts of credit derivatives decreased primarily due to portfolio optimization and increased utilization of clearinghouses in relation to certain regulatory initiatives and refinement of risk mitigation activities. For information on written credit derivatives,

see Note 3 – Derivatives to the Consolidated Financial Statements.

The credit risk amounts discussed above and presented in Table 53 take into consideration the effects of legally enforceable master netting agreements, while amounts disclosed in Note 3 – Derivatives to the Consolidated Financial Statements are shown on a gross basis. Credit risk reflects the potential benefit from offsetting exposure to non-credit derivative products with the same counterparties that may be netted upon the occurrence of certain events, thereby reducing our overall exposure.




Table 53	Credit Derivatives

		December 31
		2012				2011
(Dollars in millions)		Contract/ Notional		Credit Risk		Contract/ Notional		Credit Risk
Purchased credit derivatives:
Credit default swaps		$	1,559,472	$	8,987	$	1,944,764	$	14,163
Total return swaps/other		43,489		402		17,519		776
Total purchased credit derivatives		$	1,602,961	$	9,389	$	1,962,283	$	14,939
Written credit derivatives:
Credit default swaps		$	1,531,504	n/a		$	1,885,944	n/a
Total return swaps/other		68,811		n/a		17,838		n/a
Total written credit derivatives		$	1,600,315	n/a		$	1,903,782	n/a

n/a = not applicable

Counterparty Credit Risk Valuation Adjustments

We record counterparty credit risk valuation adjustments (CVA) on certain derivative assets, including our credit default protection purchased, in order to properly reflect the credit risk of the counterparty. We calculate CVA based on a modeled expected exposure that incorporates current market risk factors including changes in market spreads and non-credit related market factors that affect the value of a derivative. The exposure also takes into consideration credit mitigants such as legally enforceable master netting agreements and collateral. Table 54 presents credit valuation gains (losses), net of hedges, for 2012 and 2011. In 2012, we refined our methodology for CVA on derivatives on a prospective basis. We no longer consider the probability of default for both the counterparty and the Corporation when calculating the counterparty CVA and now only consider the probability of the counterparty defaulting for CVA. For more information, see Note 3 – Derivatives to the Consolidated Financial Statements. The effect of this change in estimate on CVA is reflected in the table below. Credit valuation gains for 2012 were due to improved counterparty creditworthiness, partially offset by hedge results. For information on our monoline counterparty credit risk, see Monoline Exposure on page 103.




Table 54	Credit Valuation Gains and Losses

		2012							2011
(Dollars in millions)		Gross		Hedge			Net		Gross			Hedge		Net
Credit valuation gains (losses)		$	1,022	$	(731	)	$	291	$	(1,863	)	$	1,257	$	(606	)

Non-U.S. Portfolio

Our non-U.S. credit and trading portfolios are subject to country risk. We define country risk as the risk of loss from unfavorable economic and political conditions, currency fluctuations, social instability and changes in government policies. A risk management

framework is in place to measure, monitor and manage non-U.S. risk and exposures. Management oversight of country risk, including cross-border risk, is provided by the Country Credit Risk Committee, a subcommittee of the CRC. In addition to the direct risk of doing business in a country, we also are exposed to indirect country risks (for example, related to the collateral received on secured financing transactions or related to client clearing activities). These indirect exposures are managed in the normal course of business through credit, market and operational risk governance, rather than through the country risk governance.

Table 55 presents our total non-U.S. exposure broken out by region at December 31, 2012 and 2011. Non-U.S. exposure is presented on an internal risk management basis and includes sovereign and non-sovereign credit exposure, securities and other investments issued by or domiciled in countries other than the U.S. Risk assignments by country can be adjusted for externally guaranteed loans outstanding and certain collateral types. Exposures which are subject to external guarantees are reported under the country of the guarantor. Exposures with tangible collateral are reflected in the country where the collateral is held. For securities received, other than cross-border resale agreements, outstandings are assigned to the domicile of the issuer of the securities.




Table 55	Total Non-U.S. Exposure by Region

		December 31
(Dollars in millions)		2012		2011
Europe		$	137,778	$	121,778
Asia Pacific		92,412		75,828
Latin America		21,246		15,133
Middle East and Africa		8,200		5,533
Other ⁽¹⁾		22,014		18,795
Total		$	281,650	$	237,067


⁽¹⁾	Other includes Canada exposure of $20.3 billion and $16.9 billion at December 31, 2012 and 2011.



		Bank of America 2012 105

Our total non-U.S. exposure was $281.7 billion at December 31, 2012, an increase of $44.6 billion from December 31, 2011. The increase in non-U.S. exposure was driven by our strategy to grow non-U.S. business in select countries and diversify risk globally. Our non-U.S. exposure remained concentrated in Europe which accounted for $137.8 billion, or 49 percent of total non-U.S. exposure. The European exposure was mostly in Western Europe and was distributed across a variety of industries. Select European countries are further detailed in Table 57. Asia Pacific was our second largest non-U.S. exposure at $92.4 billion, or 33 percent of total non-U.S. exposure. Latin America accounted for $21.2 billion, or eight percent of total non-U.S. exposure. Middle East and Africa accounted for $8.2 billion, or three percent of total non-U.S. exposure. Other non-U.S. exposure accounted for $22.0 billion or approximately seven percent of total non-U.S. exposure. For information on country specific exposures, see Tables 56 and 57.

Funded loans and loan equivalents include loans, leases and other extensions of credit or funds including letters of credit and due from placements, which have not been reduced by collateral or credit default protection. Funded loans are reported net of charge-offs but prior to any allowance for loan and lease losses. Unfunded commitments are the undrawn portion of legally binding commitments related to loans and loan equivalents.

Net counterparty exposure includes the fair value of derivatives, including the counterparty risk associated with credit default swaps (CDS) and secured financing transactions. Derivative

exposures are reported net of collateral, which is predominantly cash, pledged under legally enforceable netting agreements. Secured financing transaction exposures have been reduced by eligible cash or securities pledged as collateral. Counterparty exposure has not been reduced by hedges or credit default protection.

Securities and other investments are marked-to-market and long positions are netted against short positions with the same underlying issuer to, but not below, zero (i.e., negative issuer exposures are reported as zero). Other investments includes our GPI portfolio and strategic investments.

Net country exposure represents country exposure less hedges and credit default protection purchased, net of credit default protection sold. We hedge certain of our country exposures with credit default protection primarily in the form of single-name, as well as index and tranche CDS. The exposures associated with these hedges represent the amount that would be realized upon the isolated default of an individual issuer in the relevant country assuming a zero recovery rate for that individual issuer, and are calculated based on the CDS notional amount less any fair value receivable or payable. Changes in the assumption of an isolated default can produce different results in a particular tranche.

Table 56 presents our 20 largest, non-U.S. country exposures. These exposures accounted for 89 percent of our total non-U.S. exposure at December 31, 2012 compared to 88 percent at December 31, 2011.




Table 56	Top 20 Non-U.S. Countries Exposure

(Dollars in millions)		Funded Loans and Loan Equivalents		Unfunded Loan Commitments		Net Counterparty Exposure		Securities/ Other Investments		Country Exposure at December 31 2012		Hedges and Credit Default Protection			Net Country Exposure at December 31 2012		Increase (Decrease) from December 31 2011
United Kingdom		$	28,820	$	10,593	$	4,823	$	6,082	$	50,318	$	(3,126	)	$	47,192	$	(613	)
Japan		16,939		488		2,156		6,150		25,733		(1,894		)	23,839		6,760
Canada		6,197		7,298		1,772		5,074		20,341		(1,365		)	18,976		3,082
France		6,723		6,295		1,332		4,616		18,966		(2,675		)	16,291		4,504
India		8,696		604		342		4,330		13,972		(254		)	13,718		2,444
Brazil		8,251		494		517		3,617		12,879		(376		)	12,503		4,548
Germany		4,407		5,392		3,008		3,334		16,141		(5,121		)	11,020		6,020
Netherlands		6,177		2,257		614		2,850		11,898		(1,216		)	10,682		6,054
Singapore		3,003		5,112		434		1,725		10,274		(100		)	10,174		4,379
Australia		4,816		2,905		646		2,109		10,476		(747		)	9,729		578
China		6,864		329		707		2,382		10,282		(1,095		)	9,187		634
South Korea		4,766		691		319		2,618		8,394		(1,245		)	7,149		(735		)
Switzerland		2,476		3,199		509		605		6,789		(969		)	5,820		1,450
Hong Kong		3,770		550		147		1,084		5,551		(108		)	5,443		735
Russian Federation		3,187		1,398		87		678		5,350		(438		)	4,912		3,297
Italy		2,858		2,825		2,295		521		8,499		(3,661		)	4,838		(17		)
Mexico		2,335		596		181		1,080		4,192		(533		)	3,659		567
Taiwan		2,012		64		159		999		3,234		(12		)	3,222		445
United Arab Emirates		2,134		412		186		116		2,848		(96		)	2,752		1,217
Spain		1,899		1,018		192		604		3,713		(1,059		)	2,654		117
Total top 20 non-U.S. countries exposure		$	126,330	$	52,520	$	20,426	$	50,574	$	249,850	$	(26,090	)	$	223,760	$	45,466



106 Bank of America 2012

Certain European countries, including Greece, Ireland, Italy, Portugal and Spain, have experienced varying degrees of financial stress in recent years. Risks from the ongoing debt crisis in these countries could continue to disrupt the financial markets which could have a detrimental impact on global economic conditions and sovereign and non-sovereign debt in these countries. In the fourth quarter of 2012, European policymakers continued to make incremental progress toward greater fiscal and monetary unity; however, fundamental issues of competitiveness, growth and fiscal solvency remain as challenges. As a result, volatility is expected to continue. We expect to continue to support client activities in the region and our exposures may vary over time as we monitor the situation and manage our risk profile.

Table 57 presents our direct sovereign and non-sovereign exposures in these countries at December 31, 2012. Our total sovereign and non-sovereign exposure to these countries was $14.5 billion at December 31, 2012 compared to $15.2 billion at December 31, 2011. The total exposure to these countries, net of all hedges, was $9.5 billion at December 31, 2012 compared to $10.3 billion at December 31, 2011, of which $280 million and $362 million was sovereign exposure. At December 31, 2012 and 2011, the value of hedges and credit default protection purchased, net of credit default protection sold, was $5.1 billion and $4.9 billion.




Table 57	Select European Countries

(Dollars in millions)		Funded Loans and Loan Equivalents		Unfunded Loan Commitments		Net Counterparty Exposure ⁽¹⁾		Securities/Other Investments ⁽²⁾		Country Exposure at December 31 2012		Hedges and Credit Default Protection ⁽³⁾			Net Country Exposure at December 31 2012			Increase (Decrease) from December 31 2011
Greece
Sovereign		$	—	$	—	$	—	$	2	$	2	$	—		$	2		$	(27	)
Financial institutions		—		—		—		6		6		(11		)	(5		)	(2		)
Corporates		173		139		19		2		333		(24		)	309			(125		)
Total Greece		$	173	$	139	$	19	$	10	$	341	$	(35	)	$	306		$	(154	)
Ireland
Sovereign		$	19	$	—	$	27	$	22	$	68	$	(10	)	$	58		$	(63	)
Financial institutions		437		31		106		40		614		(22		)	592			(206		)
Corporates		587		300		32		33		952		(23		)	929			(566		)
Total Ireland		$	1,043	$	331	$	165	$	95	$	1,634	$	(55	)	$	1,579		$	(835	)
Italy