10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 13, 2001
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2001
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 1-6523
Exact name of registrant as specified in its charter:
Bank of America Corporation
State of incorporation:
Delaware
IRS Employer Identification Number:
56-0906609
Address of principal executive offices:
Bank of America Corporate Center
Charlotte, North Carolina 28255
Registrant's telephone number, including area code:
(888) 279-3457
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 X No
On July 31, 2001, there were 1,603,444,123 shares of Bank of America Corporation
Common Stock outstanding.
================================================================================
1
Bank of America Corporation
June 30, 2001 Form 10-Q
- --------------------------------------------------------------------------------
INDEX
Page
----
Part I Item 1. Financial Statements:
Financial Consolidated Statement of Income for the Three 2
Information Months and Six Months Ended June 30, 2001 and
2000
Consolidated Balance Sheet at June 30, 2001 and 3
December 31, 2000
Consolidated Statement of Changes in Shareholders' 4
Equity for the Six Months Ended June 30, 2001 and
2000
Consolidated Statement of Cash Flows for the Six 5
Months Ended June 30, 2001 and 2000
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results 19
of Operations and Financial Condition
Item 3. Quantitative and Qualitative Disclosures about 56
Market Risk
- --------------------------------------------------------------------------------
Part II
Other
Information Item 1. Legal Proceedings 66
Item 2. Changes in Securities and Use of Proceeds 67
Item 4. Submission of Matters to a Vote of Security Holders 67
Item 6. Exhibits and Reports on Form 8-K 68
Signature 70
Index to Exhibits 71
2
Part I. Financial Information
Item 1. Financial Statements
(1) Trading account profits for the six months ended June 30, 2001 included the
$83 million transition adjustment loss resulting from the adoption of
Statement of Financial Accounting Standards No.133, "Accounting for
Derivative Instruments and Hedging Activities,"
(SFAS 133) on January 1, 2001.
See accompanying notes to consolidated financial statements.
2
- --------------------------------------------------------------------------------
Bank of America Corporation and Subsidiaries
Consolidated Balance Sheet
See accompanying notes to consolidated financial statements.
3
Bank of America Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
(1) Accumulated Other Comprehensive Income (Loss) consists of the after-tax
valuation allowance for available-for-sale and marketable equity securities
of $(359) and $(560) at June 30, 2001 and December 31, 2000, respectively;
foreign currency translation adjustments of $(186) at both June 30, 2001
and December 31, 2000; and net gains on derivatives of $283 at June 30,
2001.
(2) Net gains on derivatives for the six months ended June 30, 2001 included
the $9 million after-tax transition adjustment gain resulting from the
adoption of Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133)
on January 1, 2001.
See accompanying notes to consolidated financial statements.
4
Bank of America Corporation and Subsidiaries
Consolidated Statement of Cash Flows
Loans held for sale transferred to loans and leases amounted to $2,932 and $241
for the six months ended June 30, 2001 and 2000, respectively.
Loans transferred to foreclosed properties amounted to $250 and $188 for the six
months ended June 30, 2001 and 2000, respectively.
Loans securitized and retained in the available-for-sale securities portfolio
amounted to $734 and $224 for the six months ended June 30, 2001 and 2000,
respectively.
See accompanying notes to consolidated financial statements.
5
Bank of America Corporation and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Bank of America Corporation (the Corporation) is a Delaware corporation, a
bank holding company and a financial holding company. Through its banking and
nonbanking subsidiaries, the Corporation provides a diverse range of financial
services and products throughout the U.S. and in selected international markets.
At June 30, 2001, the Corporation operated its banking activities primarily
under two charters: Bank of America, N.A. and Bank of America, N.A. (USA).
Note One - Accounting Policies
The consolidated financial statements include the accounts of the Corporation
and its majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
The information contained in the consolidated financial statements is
unaudited. In the opinion of management, all normal recurring adjustments
necessary for a fair statement of the interim period results have been made.
Certain prior period amounts have been reclassified to conform to current period
classifications.
Accounting policies followed in the presentation of interim financial results
are presented on pages 66 to 72 of the Corporation's Annual Report on Form 10-K
for the year ended December 31, 2000.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," (SFAS 133) as amended by
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of Effective Date of Financial
Accounting Standards Board Statement No. 133," and Statement of Financial
Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities -- an amendment of FASB Statement No. 133," was
adopted by the Corporation on January 1, 2001. In accordance with the provisions
of SFAS 133, the Corporation recorded certain transition adjustments as required
by SFAS 133. The impact of such transition adjustments to net income was a loss
of $52 million (net of related income tax benefits of $31 million), and a net
transition gain of $9 million (net of related income taxes of $5 million)
included in other comprehensive income on January 1, 2001. Because the
transition adjustment was not material to the Corporation's overall results, the
before-tax charge to earnings was included in trading account profits in
noninterest income rather than shown separately as the cumulative effect of an
accounting change. Further, the initial adoption of SFAS 133 resulted in the
Corporation recognizing $577 million of derivative assets and $514 million of
derivative liabilities on the balance sheet. The Corporation expects that within
the first twelve months after adoption of SFAS 133, it will reclassify into
earnings substantially all of the transition adjustment originally recorded in
other comprehensive income.
In 2000, the FASB issued Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities - a replacement of FASB Statement No. 125" (SFAS 140). SFAS 140
was effective for transfers occurring after March 31, 2001 and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. The December 31, 2000 consolidated financial
statements included the disclosures required by SFAS 140. The implementation of
SFAS 140 did not have a material impact on the Corporation's results of
operations or financial condition.
On July 20, 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" (SFAS 141) and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142).
SFAS 141 is effective for business combinations initiated after June 30, 2001.
SFAS 141 requires that all business combinations completed after its adoption be
accounted for under the purchase method of accounting and establishes specific
criteria for the recognition of intangible assets separately from goodwill.
SFAS 142 will be effective for the Corporation on January 1, 2002 and primarily
addresses the accounting for goodwill and intangible assets subsequent to their
acquisition. Upon adoption of SFAS 142, goodwill will no longer be amortized
and will be tested for impairment at least annually at the reporting unit level.
Based on current levels of amortization expense, the Corporation estimates that
the elimination of goodwill amortization expense will positively impact net
income by approximately $600 million, or approximately $0.37 per common share
(diluted), on an annual basis.
6
Derivatives and Hedging Activities
All derivatives are recognized on the balance sheet at fair value. Fair value
is based on dealer quotes, pricing models or quoted prices for instruments with
similar characteristics. The Corporation designates a derivative as held for
trading or hedging purposes when it enters into a derivative contract.
Derivatives designated as held for trading activities are included in the
Corporation's trading portfolio with changes in fair value reflected in trading
account profits. The Corporation uses its derivatives designated for hedging
activities as either fair value or cash flow hedges. The Corporation primarily
manages interest rate and foreign currency exchange rate sensitivity through the
use of derivatives. Fair value hedges are used to limit the Corporation's
exposure to changes in the fair value of its interest-bearing assets or
liabilities that are due to interest rate volatility. Cash flow hedges are used
to minimize the variability in cash flows of interest-bearing assets or
liabilities caused by interest rate fluctuations. Changes in the fair value of
derivatives designated for hedging activities that are highly effective as
hedges are recorded in earnings or other comprehensive income, depending on
whether the hedging relationship satisfies the criteria for a fair value or cash
flow hedge, respectively. A highly effective hedging relationship is one in
which the Corporation achieves offsetting changes in fair value or cash flows
for the risk being hedged. Hedge ineffectiveness (which represents the amount
by which the changes in the fair value of the derivative exceed changes in the
fair value of the hedged item) and gains and losses on the excluded component of
a derivative in assessing hedge effectiveness are recorded in current period
earnings. SFAS 133 retains certain concepts under Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation," (SFAS 52) for
foreign exchange hedging. Consistent with SFAS 52, the Corporation records
changes in the fair value of derivatives used as a hedge of a net investment in
foreign operations as a component of other comprehensive income.
The Corporation occasionally purchases or issues financial instruments
containing embedded derivatives. The embedded derivative is separated from the
host contract and carried at fair value if the economic characteristics of the
derivative are not clearly and closely related to the economic characteristics
of the host contract. To the extent that the Corporation cannot reliably
identify and measure the embedded derivative, the entire contract is carried at
fair value on the balance sheet.
The Corporation formally documents all relationships between hedging
instruments and hedged items, as well as its risk management objectives and
strategies for undertaking various hedge transactions. Additionally, the
Corporation formally assesses, both at the hedge's inception and on an ongoing
basis, whether the derivatives used in its hedging transactions have been highly
effective in offsetting changes in the fair value or cash flows of the hedged
items. The Corporation discontinues hedge accounting when it is determined that
a derivative is not or has ceased to be highly effective as a hedge.
Mortgage Banking Assets
Mortgage banking assets include servicing assets and Excess Spread
Certificates ("Securities"). The servicing component represents the
contractually specified servicing fees, and the Securities represent a retained
financial interest in certain cash flows of the underlying mortgage loans. The
Securities are carried at estimated fair value with the corresponding mark-to-
market reported in trading account profits in the Consolidated Statement of
Income. The Corporation seeks to offset changes in value of the Securities due
to changes in prepayment rates by entering into derivative financial instruments
such as purchased options and swaps. The derivative instruments are accounted
for as trading instruments and are marked-to-market through trading account
profits in the Consolidated Statement of Income.
Mortgage banking income in the Consolidated Statement of Income includes
servicing fees, originated mortgage servicing rights gains, ancillary servicing
income and the income on the Securities.
Note Two - Productivity and Investment Initiatives
As part of its productivity and investment initiatives announced on July 28,
2000, the Corporation recorded a pre-tax restructuring charge of $550 million
($346 million after-tax) in the third quarter of 2000 which was included
7
in merger and restructuring charges in the Consolidated Statement of Income on
page 62 of the Corporation's 2000 Annual Report on Form 10-K. As part of these
initiatives and in order to reallocate resources, the Corporation announced that
it would eliminate 9,000 to 10,000 positions, or six to seven percent of its
workforce, over a twelve-month period. Of the $550 million restructuring charge,
approximately $475 million will be used to cover severance and related costs and
$75 million will be used for other costs related to process change and channel
consolidation. Over half of the severance and related costs are related to
management positions which were eliminated in a review of span of control and
management structure. The restructuring charge includes severance and related
payments for approximately 8,300 positions, which are company-wide and across
all levels. The difference between the 8,300 positions and the 10,000 positions
initially announced is due to normal attrition. Through June 30, 2001, there
were approximately 8,300 employees who had entered severance status as part of
these initiatives. Cash payments applied to the restructuring reserve through
June 30, 2001 were approximately $388 million (of which $209 million were
applied in 2000) primarily related to severance costs. Noncash reductions
through June 30, 2001 were $73 million (of which $48 million were applied in
2000), primarily related to restricted stock vesting accelerations. The
remaining restructuring reserve balance was $89 million at June 30, 2001 of
which approximately $40 million is related to future payments for employees who
have entered severance status and approximately $49 million is related to
process change costs and channel consolidation.
Note Three - Trading Activities
Trading-Related Revenue
Trading account profits represent the net amount earned from the
Corporation's trading positions, which include trading account assets and
liabilities as well as derivative positions. These transactions include
positions to meet customer demand as well as for the Corporation's own trading
account. Trading positions are taken in a diverse range of financial
instruments and markets. The profitability of these trading positions is
largely dependent on the volume and type of transactions, the level of risk
assumed, and the volatility of price and rate movements. Trading account
profits, as reported in the Consolidated Statement of Income, does not include
the net interest income recognized on interest-earning and interest-bearing
trading positions or the related funding charge or benefit. Trading account
profits and trading-related net interest income ("trading-related revenue") are
presented in the table below as they are both considered in evaluating the
overall profitability of the Corporation's trading positions. Trading-related
revenue is derived from foreign exchange spot, forward and cross-currency
contracts, fixed income and equity securities and derivative contracts in
interest rates, equities, credit and commodities. Trading account profits for
the six months ended June 30, 2001 included an $83 million transition adjustment
net loss recorded as a result of the implementation of SFAS 133.
8
Trading Account Assets and Liabilities
The fair values of the components of trading account assets and liabilities
at June 30, 2001 and December 31, 2000 were:
See Note Four below for additional information on derivative positions,
including credit risk.
Note Four - Derivatives
The Corporation designates a derivative as held for trading or hedging
purposes when it enters into a derivative contract. Derivatives utilized by the
Corporation include swaps, financial futures and forward settlement contracts,
and option contracts. A swap agreement is a contract between two parties to
exchange cash flows based on specified underlying notional amounts, assets
and/or indices. Financial futures and forward settlement contracts are
agreements to buy or sell a quantity of a financial instrument, index, currency
or commodity at a predetermined future date and rate or price. An option
contract is an agreement that conveys to the purchaser the right, but not the
obligation, to buy or sell a quantity of a financial instrument, index currency
or commodity at a predetermined rate or price at a time or during a period in
the future. Option agreements can be transacted on organized exchanges or
directly between parties.
Credit Risk Associated with Derivative Activities
Credit risk associated with derivatives is measured as the net replacement
cost should the counterparties with contracts in a gain position to the
Corporation completely fail to perform under the terms of those contracts and
any collateral underlying the contracts proves to be of no value. In managing
derivative credit risk, both the current exposure, which is the replacement cost
of contracts on the measurement date, as well as an estimate of the potential
change in value of contracts over their remaining lives are considered. In
managing credit risk associated with its derivative activities, the Corporation
deals primarily with U.S. and foreign commercial banks, broker-dealers and
corporates. To minimize credit risk, the Corporation enters into legally
enforceable master netting arrangements, which reduce risk by permitting the
closeout and netting of transactions with the same counterparty upon occurrence
of certain events.
9
A portion of the derivative activity involves exchange-traded instruments.
Because exchange-traded instruments conform to standard terms and are subject to
policies set by the exchange involved, including counterparty approval, margin
requirements and security deposit requirements, the credit risk is considered
minimal.
The following table presents the notional or contract and credit risk amounts
at June 30, 2001 and December 31, 2000 of the Corporation's derivative asset
positions held for trading and hedging purposes. These derivative positions are
primarily executed in the over-the-counter market. The credit risk amounts
presented in the following table do not consider the value of any collateral but
take into consideration the effects of legally enforceable master netting
agreements.
(1) The amounts at December 31, 2000 do not reflect derivative positions
that were off-balance sheet prior to the adoption of SFAS 133.
The table above includes both long and short derivative positions. The
average fair value of derivative assets for the six months ended June 30, 2001
and 2000 was $17.4 billion and $19.4 billion, respectively. The average fair
value of derivative liabilities for the six months ended June 30, 2001 and 2000
was $18.9 billion and $19.3 billion, respectively. The fair value of derivative
assets at June 30, 2001 and December 31, 2000 was $16.9 billion and $15.5
billion, respectively. The fair value of derivative liabilities at June 30, 2001
and December 31, 2000 was $13.1 billion and $22.4 billion, respectively.
During the six months ended June 30, 2001 and 2000, there were no material
credit losses associated with derivative contracts. At June 30, 2001 and
December 31, 2000, there were no nonperforming derivative positions that were
material to the Corporation.
In addition to credit risk management activities, the Corporation uses credit
derivatives to generate revenue by taking on exposure to underlying credits. The
Corporation also provides credit derivatives to sophisticated customers who wish
to hedge existing credit exposures or take on additional credit exposure to
generate revenue. The Corporation's credit derivative positions at June 30, 2001
and December 31, 2000 consisted of credit default swaps and total return swaps.
10
Asset and Liability Management (ALM) Activities
Risk management interest rate contracts and foreign exchange contracts are
utilized in the Corporation's ALM process. The Corporation maintains an overall
interest rate risk-management strategy that incorporates the use of interest
rate contracts to minimize significant unplanned fluctuations in earnings that
are caused by interest rate volatility. The Corporation's goal is to manage
interest rate sensitivity so that movements in interest rates do not adversely
affect net interest income. As a result of interest rate fluctuations, hedged
fixed-rate assets and liabilities appreciate or depreciate in market value.
Gains or losses on the derivative instruments that are linked to the hedged
fixed-rate assets and liabilities are expected to substantially offset this
unrealized appreciation or depreciation. Interest income and interest expense on
hedged variable-rate assets and liabilities, respectively, increases or
decreases as a result of interest rate fluctuations. Gains and losses on the
derivative instruments that are linked to these hedged assets and liabilities
are expected to substantially offset this variability in earnings.
Interest rate contracts, which are generally non-leveraged generic interest
rate and basis swaps, options and futures, allow the Corporation to effectively
manage its interest rate risk position. Generic interest rate swaps involve the
exchange of fixed-rate and variable-rate interest payments based on the
contractual underlying notional amount. Basis swaps involve the exchange of
interest payments based on the contractual underlying notional amounts, where
both the pay rate and the receive rate are floating rates based on different
indices. Option products primarily consist of caps and floors. Interest rate
caps and floors are agreements where, for a fee, the purchaser obtains the right
to receive interest payments when a variable interest rate moves above or below
a specified cap or floor rate, respectively. Futures contracts used for ALM
activities are primarily index futures providing for cash payments based upon
the movements of an underlying rate index.
The Corporation uses foreign currency contracts to manage the foreign
exchange risk associated with certain foreign-denominated assets and
liabilities, as well as the Corporation's equity investments in foreign
subsidiaries. Foreign exchange contracts, which include spot, futures and
forward contracts, represent agreements to exchange the currency of one country
for the currency of another country at an agreed-upon price on an agreed-upon
settlement date. Foreign exchange option contracts are similar to interest rate
option contracts except that they are based on currencies rather than interest
rates. Exposure to loss on these contracts will increase or decrease over their
respective lives as currency exchange and interest rates fluctuate.
Fair Value Hedges
The Corporation uses various types of interest rate and foreign currency
exchange rate derivative contracts to protect against changes in the fair value
of its fixed rate assets and liabilities due to fluctuations in interest rates.
For the six months ended June 30, 2001, there were no material gains or losses
recognized which represented the ineffective portion and excluded component in
assessing hedge effectiveness of fair value hedges.
Cash Flow Hedges
The Corporation also uses various types of interest rate and foreign currency
exchange rate derivative contracts to protect against changes in cash flows of
its variable rate assets and liabilities. For the six months ended June 30,
2001, the Corporation recognized in the Consolidated Statement of Income a net
gain of $4 million (included in other income) and a net loss of $7 million
(included in net interest income), which represented the ineffective portion and
excluded component in assessing hedge effectiveness of cash flow hedges. The
Corporation has determined that there are no hedging positions where it is
probable that certain forecasted transactions may not occur by the end of the
originally specified time period or within an additional two months.
For cash flow hedges, gains and losses on derivative contracts reclassified
from accumulated other comprehensive income to current period earnings are
included in the line item in the Consolidated Statement of Income in which the
hedged item is recorded in the same period the forecasted transaction affects
earnings. Deferred net gains on derivative instruments of approximately $102
million included in accumulated other comprehensive income at June 30, 2001 are
expected to be reclassified into earnings during the next twelve months. These
net gains reclassified into earnings are expected to increase income or reduce
expense on the hedged items.
11
Hedges of Net Investments in Foreign Operations
The Corporation uses forward exchange contracts, currency swaps, and
nonderivative hedging instruments to hedge its net investments in foreign
operations against adverse movements in exchange rates. For the six months ended
June 30, 2001, net gains of $96 million related to these derivatives and
nonderivative hedging instruments were recorded as a component of the foreign
currency translation adjustment in other comprehensive income. These net gains
were largely offset by losses in the Corporation's net investments in foreign
operations. For the same period, the Corporation had no excluded component of
net investment hedges.
Note Five - Loans and Leases
Loans and leases at June 30, 2001 and December 31, 2000 were:
The table below summarizes the changes in the allowance for credit losses
for the three months and six months ended June 30, 2001 and 2000:
The allowance on certain homogeneous loan portfolios, which generally
consist of consumer loans, is based on aggregated portfolio segment evaluations
generally by loan type. The remaining portfolios are reviewed on an individual
loan basis.
12
The following table presents the recorded investment in specific loans that
were considered individually impaired in accordance with Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan," (SFAS 114) at June 30, 2001 and December 31, 2000:
A loan is considered impaired when, based on current information and events,
it is probable that the Corporation will be unable to collect all amounts due,
including principal and interest, according to the contractual terms of the
agreement. Once a loan has been identified as impaired, management measures
impairment in accordance with SFAS 114. Impaired loans are measured based on the
present value of payments expected to be received, observable market prices or
for loans that are solely dependent on the collateral for repayment, the
estimated fair value of the collateral. If the recorded investment in impaired
loans exceeds the measure of estimated fair value, a valuation allowance is
established as a component of the allowance for credit losses.
At June 30, 2001 and December 31, 2000, nonperforming loans, including
certain loans which were considered impaired, totaled $5.8 billion and $5.2
billion, respectively. Included in other assets was $120 million and $124
million of loans which would have been classified as nonperforming had they been
included in loans at June 30, 2001 and December 31, 2000, respectively.
Foreclosed properties amounted to $346 million and $249 million at June 30, 2001
and December 31, 2000, respectively.
Note Six - Short-Term Borrowings and Long-Term Debt
Through June 30, 2001, Bank of America Corporation issued $6.3 billion in
senior and subordinated long-term debt, domestically and internationally, with
maturities ranging from 2004 to 2031. Of the $6.3 billion issued, $4.4 billion
was converted from fixed rates ranging from 5.65 percent to 7.54 percent to
floating rates through interest rate swaps at spreads ranging from 6 basis
points below to 139 basis points over three-month London InterBank Offered Rate
(LIBOR). The remaining $1.9 billion bears interest at floating rates ranging
primarily from 25 to 83 basis points over three-month LIBOR and 28 basis points
over one-month LIBOR.
At June 30, 2001, Bank of America Corporation had the authority to issue
approximately $11.9 billion of additional corporate debt and other securities
under its existing shelf registration statements. Subsequent to June 30, 2001,
Bank of America Corporation filed a $3.4 billion shelf registration statement to
be used exclusively for "retail targeted" offerings of InterNotes(SM) in the
United States.
Bank of America, N.A. maintains a domestic program to offer up to a maximum of
$50.0 billion, at any one time, of bank notes with fixed or floating rates and
maturities ranging from seven days or more from date of issue. Short-term bank
notes outstanding under this program totaled $9.9 billion at June 30, 2001
compared to $14.5 billion at December 31, 2000. These short-term bank notes,
along with Treasury tax and loan notes and term federal funds purchased, are
reflected in other short-term borrowings in the Consolidated Balance Sheet.
Long-term debt under current and former programs totaled $10.3 billion at June
30, 2001 compared to $17.6 billion at December 31, 2000.
During the first two quarters of 2001, Bank of America, N.A. issued $378
million in senior long-term bank notes maturing in 2002. The $378 million bears
interest at fixed rates ranging from 4.00 percent to 4.88 percent.
Bank of America Corporation and Bank of America, N.A. maintain a joint Euro
medium-term note program to offer up to $20.0 billion of senior, or in the case
of Bank of America Corporation, subordinated notes exclusively to
13
non-United States residents. The notes bear interest at fised or floating rates
and may be denominated in U.S. dollars or foreign currencies. Bank of America
Corporation uses foreign currency contracts to convert certain foreign-
denominated debt into U.S. dollars. Bank of America Corporation's notes
outstanding under this program totaled $6.1 billion at June 30, 2001 compared to
$5.2 billion at December 31, 2000. Bank of America, N.A.'s notes outstanding
under this program totaled $1.4 billion at June 30, 2001 and December 31, 2000.
Of the $20.0 billion authorized at June 30, 2001, Bank of America Corporation
and Bank of America, N.A. had remaining authority to issue approximately $3.9
billion and $8.6 billion, respectively. At June 30, 2001 and December 31, 2000,
$2.2 billion and $2.7 billion, respectively, was outstanding under the former
BankAmerica Corporation (BankAmerica) Euro medium-term note program. No
additional debt securities will be offered under that program. Subsequent to
June 30, 2001, Bank of America Corporation and Bank of America N.A. increased
the borrowing capacity of their joint Euro medium-term note program to $25.0
billion.
At June 30, 2001, Bank of America Corporation had the authority to issue 300
billion in yen-denominated notes (approximately U.S. $3 billion) under a shelf
registration statement in Japan to be used exclusively for primary offerings to
non-United States residents. In addition, Bank of America Corporation allocated
$2 billion of the joint Euro medium-term note program mentioned above to be used
exclusively for secondary offerings to non-United States residents for a shelf
registration statement filed in Japan. The Corporation had $420 million
outstanding under these programs at June 30, 2001. At December 31, 2000, the
Corporation had no notes outstanding under these programs.
At June 30, 2001, Bank of America Oregon, N.A. maintained approximately $6
billion in Federal Home Loan borrowings from the Home Loan Bank in Seattle,
Washington. During 2001, Bank of America Oregon, N.A. accepted $463 million in
Federal Home Loan Bank, Seattle advances with maturities ranging from 2004 to
2031. Of the $463 million accepted, $450 million was converted from fixed rates
ranging from 5.72 percent to 5.89 percent to floating rates through interest
rate swaps at a spread of 11 basis points below three-month LIBOR. The remaining
$13 million bears interest at fixed rates ranging from 5.44 percent to 6.44
percent.
Note Seven - Commitments and Contingencies
Credit Extension Commitments
The Corporation enters into commitments to extend credit, standby letters of
credit and commercial letters of credit to meet the financing needs of its
customers. The commitments shown below have been reduced by amounts
collateralized by cash and amounts participated to other financial institutions.
The following table summarizes outstanding commitments to extend credit at June
30, 2001 and December 31, 2000:
When-Issued Securities
At June 30, 2001, the Corporation had commitments to purchase and sell when-
issued securities of $42.2 billion and $37.1 billion, respectively. At December
31, 2000, the Corporation had commitments to purchase and sell when-issued
securities of $26.4 billion and $20.6 billion, respectively.
Litigation
In the ordinary course of business, the Corporation and its subsidiaries are
routinely defendants in or parties to a number of pending and threatened legal
actions and proceedings, including actions brought on behalf of various
14
classes of claimants. In certain of these actions and proceedings, substantial
money damages are asserted against theCorporation and its subsidiaries and
certain of these actions and proceedings are based on alleged violations of
consumer protection, securities, environmental, banking and other laws.
The Corporation and certain present and former officers and directors have
been named as defendants in a number of actions filed in several federal courts
that have been consolidated for pretrial purposes before a Missouri federal
court. The amended complaint in the consolidated actions alleges, among other
things, that the defendants failed to disclose material facts about
BankAmerica's losses relating to D.E. Shaw Securities Group, L.P. ("D.E. Shaw")
and related entities until mid-October 1998, in violation of various provisions
of federal and state laws. The amended complaint also alleges that the proxy
statement-prospectus of August 4, 1998, falsely stated that the merger between
NationsBank Corporation (NationsBank) and BankAmerica would be one of equals and
alleges a scheme to have NationsBank gain control over the newly merged entity.
The Missouri federal court has certified classes consisting generally of persons
who were stockholders of NationsBank or BankAmerica on September 30, 1998, or
were entitled to vote on the merger, or who purchased or acquired securities of
the Corporation or its predecessors between August 4, 1998 and October 13, 1998.
The amended complaint substantially survived a motion to dismiss, and discovery
is underway. Claims against certain director-defendants were dismissed with
leave to replead. The court has preliminarily ordered the parties to be ready
for trial in January 2002. A former NationsBank stockholder who opted out of the
federal class action has commenced an action asserting claims substantially
similar to the claims relating to D.E. Shaw set forth in the consolidated
action. That action is proceeding with the federal class action in the Missouri
federal court. Similar class actions (including one limited to California
residents raising the claim that the proxy statement-prospectus of August 4,
1998, falsely stated that the merger would be one of equals) were filed in
California state court, alleging violations of the California Corporations Code
and other state laws. The action on behalf of California residents was certified
as a class. A motion to decertify the class is pending. A lower court order
dismissing that action was reversed on appeal and discovery has commenced. The
remaining California actions have been consolidated, but have not been certified
as class actions. The Missouri federal court has enjoined prosecution of those
consolidated class actions as a class action. The plaintiffs who were enjoined
have appealed that injunction to the United States Court of Appeals for the
Eighth Circuit. The Corporation believes the actions lack merit and will defend
them vigorously. The amount of any ultimate exposure cannot be determined with
certainty at this time.
On July 30, 2001, the Securities and Exchange Commission issued a cease-and-
desist order finding violations of Section 13(a) of the Securities Exchange Act
of 1934 and Rules 13a-1, 13a-11, 13a-13 and 12b-20 promulgated thereunder, with
respect to BankAmerica's accounting for, and the disclosures relating to, the
D.E. Shaw relationship. The Corporation consented to the order without admitting
or denying the findings. In the Matter of BankAmerica Corp, Exch. Act Rel. No.
44613, Acctg & Audit. Enf. Rel. No. 1249, Admin. Proc. No. 3-10541.
Management believes that the actions and proceedings and the losses, if any,
resulting from the final outcome thereof, will not be material in the aggregate
to the Corporation's financial position or results of operations.
Note Eight - Shareholders' Equity and Earnings Per Common Share
During 2000, the Corporation completed its 1999 stock repurchase plan. On
July 26, 2000, the Corporation's Board of Directors (the Board) authorized a new
stock repurchase program of up to 100 million shares of the Corporation's common
stock at an aggregate cost of up to $7.5 billion. At June 30, 2001, the
remaining buyback authority for common stock under the 2000 program totaled $5.2
billion, or 55 million shares. During the six months ended June 30, 2001, the
Corporation repurchased approximately 29 million shares of its common stock in
open market repurchases at an average per-share price of $54.42, which reduced
shareholders' equity by $1.6 billion. During the six months ended June 30, 2000,
the Corporation repurchased approximately 34 million shares of its common stock
in open market repurchases at an average per-share price of $47.88, which
reduced shareholders' equity by $1.6 billion.
In September 1999, the Corporation began selling put options on it common
stock to independent third parties. The put option program was designed to
partially offset the cost of share repurchases. The put options give the holders
the right to sell shares of the Corporation's common stock to the Corporation on
certain dates at specified prices. The put option contracts allow the
Corporation to determine the method of settlement, and the premiums received are
reflected as a component of other shareholders' equity. At June 30, 2001, there
were two million put options outstanding with exercise prices ranging from
$51.38 per share to $56.36 per share which expire from
15
September 2001 to October 2001. At December 31, 2000, there were three million
put options outstanding with exercise prices ranging from $45.22 per share to
$50.37 per share which expired from January 2001 to April 2001.
Earnings per common share is computed by dividing net income available to
common shareholders by the weighted average common shares issued and
outstanding. For diluted earnings per common share, net income available to
common shareholders can be affected by the conversion of the registrant's
convertible preferred stock. Where the effect of this conversion would have been
dilutive, net income available to common shareholders is adjusted by the
associated preferred dividends. This adjusted net income is divided by the
weighted average number of common shares issued and outstanding for each period
plus amounts representing the dilutive effect of stock options outstanding and
the dilution resulting from the conversion of the registrant's convertible
preferred stock, if applicable. The effect of convertible preferred stock is
excluded from the computation of diluted earnings per common share in periods in
which the effect would be antidilutive.
The calculation of earnings per common share and diluted earnings per
common share for the three months and six months ended June 30, 2001 and 2000 is
presented below:
Note Nine - Business Segment Information
The Corporation reports the results of its operations through four business
segments: Consumer and Commercial Banking, Asset Management, Global Corporate
and Investment Banking and Equity Investments. Certain operating segments have
been aggregated into a single business segment. In the first quarter of 2001,
the thirty-year mortgage portfolio was moved from Consumer and Commercial
Banking to the Corporate Other segment.
Consumer and Commercial Banking provides a diversified range of products
and services to individuals and small businesses through multiple delivery
channels and commercial lending and treasury management services to middle
market companies with annual revenue between $10 million and $500 million. Asset
Management offers customized asset management and credit, financial advisory,
fiduciary, trust and banking services, as well as both full-service and discount
brokerage services. It provides management of equity, fixed income, cash and
alternative investments to individuals, corporations and a wide array of
institutional clients. Global Corporate and Investment Banking provides a
diversified range of financial products such as investment banking, trade
finance, treasury management, capital markets, leasing and financial advisory
services to domestic and international corporations, financial institutions and
government entities. Equity Investments includes Principal Investing which makes
both
16
direct and indirect equity investments in a wide variety of transactions.
Equity Investments also includes the Corporation's strategic technology and
alliances investment portfolio. The Corporate Other segment consists primarily
of the functions associated with managing the interest rate risk of the
Corporation.
Effective January 2, 2001, the Corporation acquired the remaining 50
percent of Marsico Capital Management LLC (Marsico), which is part of the Asset
Management segment, for a total investment of $1.1 billion. TheCorporation
acquired the first 50 percent in 1999. Marsico is a Denver-based investment
management firm specializing in large capitalization growth stocks.
The following tables include total revenue, net income and average total
assets for the three months and six months ended June 30, 2001 and 2000 for each
business segment. Certain prior period amounts have been reclassified between
segments to conform to the current period presentation.
(1) There were no material intersegment revenues among the segments.
(2) Net interest income is presented on a taxable-equivalent basis.
17
/(1)/ There were no material intersegment revenues among the segments.
/(2)/ Net interest income is presented on a taxable-equivalent basis.
/(3)/ Noninterest income includes the $83 million SFAS 133 transition
adjustment net loss which is included in trading account profits.
The components of the transition adjustment by segment are a gain of $4
million for Consumer and Commercial Banking, a gain of $19 million for
Global Corporate and Investment Banking and a loss of $106 million for
Corporate Other.
A reconciliation of the segments' net income (excluding Corporate
Other) to consolidated net income follows:
18
- --------------------------------------------------------------------------------
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
This report on Form 10-Q contains certain forward-looking statements that are
subject to risks and uncertainties and include information about possible or
assumed future results of operations. Many possible events or factors could
affect the future financial results and performance of Bank of America
Corporation (the Corporation). This could cause results or performance to differ
materially from those expressed in our forward-looking statements. Words such as
"expects", "anticipates", "believes", "estimates", variations of such words and
other similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions which are difficult to
predict. Therefore, actual outcomes and results may differ materially from what
is expressed or forecasted in, or implied by, such forward-looking statements.
Readers of the Corporation's Form 10-Q should not rely solely on the forward-
looking statements and should consider all uncertainties and risks discussed
throughout this report, as well as those discussed in the Corporation's 2000
Annual Report on Form 10-K. These statements are representative only on the date
hereof, and the Corporation undertakes no obligation to update any forward-
looking statements made.
The possible events or factors include the following: the Corporation's loan
growth is dependent on economic conditions, as well as various discretionary
factors, such as decisions to securitize, sell, or purchase certain loans or
loan portfolios; syndications or participations of loans; retention of
residential mortgage loans; and the management of borrower, industry, product
and geographic concentrations and the mix of the loan portfolio. The level of
nonperforming assets, charge-offs and provision expense can be affected by
local, regional and international economic and market conditions, including the
impact of the energy crisis, concentrations of borrowers, industries, products
and geographic locations, the mix of the loan portfolio and management's
judgments regarding the collectibility of loans. Liquidity requirements may
change as a result of fluctuations in assets and liabilities and off-balance
sheet exposures, which will impact the capital and debt financing needs of the
Corporation and the mix of funding sources. Decisions to purchase, hold or sell
securities are also dependent on liquidity requirements and market volatility,
as well as on- and off-balance sheet positions. Factors that may impact interest
rate risk include local, regional and international economic conditions, levels,
mix, maturities, yields or rates of assets and liabilities, utilization and
effectiveness of interest rate contracts and the wholesale and retail funding
sources of the Corporation. The Corporation is also exposed to the potential of
losses arising from adverse changes in market rates and prices which can
adversely impact the value of financial products, including securities, loans,
deposits, debt and derivative financial instruments, such as futures, forwards,
swaps, options and other financial instruments with similar characteristics.
In addition, the banking industry in general is subject to various monetary
and fiscal policies and regulations, which include those determined by the
Federal Reserve Board, the Office of the Comptroller of Currency, the Federal
Deposit Insurance Corporation, state regulators and the Office of Thrift
Supervision, whose policies and regulations could affect the Corporation's
results. Other factors that may cause actual results to differ from the forward-
looking statements include the following: projected business increases following
process changes and productivity and investment initiatives are lower than
expected or do not pay for severance or other related costs as quickly as
anticipated; competition with other local, regional and international banks,
thrifts, credit unions and other nonbank financial institutions, such as
investment banking firms, investment advisory firms, brokerage firms, investment
companies and insurance companies, as well as other entities which offer
financial services, located both within and outside the United States and
through alternative delivery channels such as the Internet; interest rate,
market and monetary fluctuations; inflation; market volatility; general economic
conditions and economic conditions in the geographic regions and industries in
which the Corporation operates, including the impact of the energy crisis;
introduction and acceptance of new banking-related products, services and
enhancements; fee pricing strategies, mergers and acquisitions and their
integration into the Corporation; and management's ability to manage these and
other risks.
19
Overview
The Corporation is a Delaware corporation, a bank holding company and a
financial holding company, and is headquartered in Charlotte, North Carolina.
The Corporation operates in 21 states and the District of Columbia and has
offices located in 38 countries. The Corporation provides a diversified range of
banking and certain nonbanking financial services both domestically and
internationally through four major business segments: Consumer and Commercial
Banking, Asset Management, Global Corporate and Investment Banking, and Equity
Investments. At June 30, 2001, the Corporation had $626 billion in assets and
approximately 144,000 full-time equivalent employees.
The remainder of management's discussion and analysis of the Corporation's
results of operations and financial position should be read in conjunction with
the consolidated financial statements and related notes presented on pages 2
through 18.
Refer to Table One for selected financial data for the three months and six
months ended June 30, 2001 and 2000 and Table Seventeen for the two most recent
quarters.
Key performance highlights for the six months ended June 30, 2001 compared to
the same period in 2000:
. Net income totaled $3.9 billion, or $2.39 per common share (diluted),
compared to $4.3 billion, or $2.56 per common share (diluted).
. Shareholder value added (SVA) declined $494 million to $1.5 billion primarily
related to lower market-related revenues, higher credit costs and increased
other noninterest expense, partially offset by increases in net interest
income and consumer-based fee income.
. The return on average common shareholders' equity was 16.27 percent.
. Total revenue includes net interest income on a taxable-equivalent basis and
noninterest income. Total revenue was $17.4 billion, an increase of $509
million.
. Net interest income increased $567 million to $9.8 billion. The increase
was primarily due to a favorable shift in loan mix, higher levels of core
funding, changes in interest rates, the effect of portfolio repositioning
and an increased trading-related contribution. These factors were
partially offset by deterioration in auto lease residual values, the
impact of the deposit pricing initiative and mortgage whole loan sales.
Average managed loans and leases were $406.5 billion, a $13.6 billion
increase, primarily due to an eight percent increase in consumer loans and
leases, partially offset by a one percent decrease in commercial loans and
leases. Average core deposits grew to $301.5 billion, a $10.7 billion
increase. The net interest yield was 3.50 percent, a 25 basis point
increase. The increase was primarily due to the effect of changes in
interest rates, portfolio repositioning and higher levels of core funding
sources.
. Noninterest income was $7.5 billion, a $58 million decrease. Increases in
service charges, card income, mortgage banking income, investment and
brokerage services and investment banking income were offset by declines
in equity investment gains, trading account profits and other income.
Trading account profits included the Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities, (SFAS 133) transition adjustment net loss of $83 million.
Consumer and Commercial Banking experienced a $180 million, or 11 percent,
increase in service charges driven by higher business volumes. A $134
million, or 13 percent, increase in card income to $1.2 billion was
primarily due to new account growth in both credit and debit card and
increased purchase volume on existing accounts. Revenue in the mortgage
banking business increased 54 percent with higher originations as
customers took advantage of falling interest rates. Income from investment
and brokerage services increased $11 million to $772 million in the Asset
Management segment largely due to new asset management business and the
completed acquisition of Marsico Capital Management LLC (Marsico),
partially offset by lower broker activity due to decreased trade volume as
a result of significant market decline. Although the noninterest income
component of trading-related revenue within Global Corporate and
Investment Banking remained flat at $1.2 billion, revenues from fixed
income and commodities increased as a result of more liquidity and market
volatility, offset by decreases in most of the other trading accounts.
Investment banking income increased $31 million to $801 million, led by
increased fixed income
20
originations. Equity Investments had equity investment gains of $275
million, reflecting a decrease of $387 million, and included a gain of
$140 million in the first quarter of 2001 related to the sale of an
interest in the Star Systems ATM network.
. The provision for credit losses was $1.6 billion, a $745 million increase.
Net charge-offs were $1.6 billion, or 0.82 percent of average loans and
leases, an increase of 35 basis points. Provision expense exceeded net
charge-offs by $75 million as the Corporation increased the reserve for
credit losses given the deterioration in credit quality and uncertainty
surrounding the current economic environment. The increase in net charge-offs
of $670 million was centered in the commercial - domestic portfolio and also
reflected increases in consumer finance and bankcard charge-offs.
Nonperforming assets were $6.2 billion, or 1.63 percent of loans, leases and
foreclosed properties at June 30, 2001, a $738 million, or 24 basis point
increase from December 31, 2000. The increase was primarily centered in the
commercial - domestic loan portfolio, resulting from credit deterioration as
companies were affected by the weakening economic environment. The allowance
for credit losses totaled $6.9 billion and $6.8 billion at June 30, 2001 and
December 31, 2000, respectively.
. Other noninterest expense was $9.5 billion, a $439 million increase,
primarily driven by higher revenue-related incentive compensation, marketing
and professional fees expense.
Employee-Related Matters
Productivity and Investment Initiatives
As part of its productivity and investment initiatives announced on July 28,
2000, the Corporation recorded a pre-tax restructuring charge of $550 million
($346 million after-tax) in the third quarter of 2000 which was included in
merger and restructuring charges in the Consolidated Statement of Income on page
62 of the Corporation's 2000 Annual Report on Form 10-K. As part of these
initiatives and in order to reallocate resources, the Corporation announced that
it would eliminate 9,000 to 10,000 positions, or six to seven percent of its
workforce, over a twelve-month period. Of the $550 million restructuring charge,
approximately $475 million will be used to cover severance and related costs and
$75 million will be used for other costs related to process change and channel
consolidation. Over half of the severance and related costs are related to
management positions which were eliminated in a review of span of control and
management structure. The restructuring charge includes severance and related
payments for approximately 8,300 positions, which are company-wide and across
all levels. The difference between the 8,300 positions and the 10,000 positions
initially announced is due to normal attrition. Through June 30, 2001, there
were approximately 8,300 employees who had entered severance status as part of
these initiatives. The remaining restructuring reserve balance was $89 million
at June 30, 2001, of which approximately $40 million is related to future
payments for employees who have entered severance status and approximately $49
million is related to process change costs and channel consolidation. See Note
Two of the consolidated financial statements for additional restructuring charge
information.
Processes continue to be reviewed across the Corporation to ensure that it is
organized around its customers and their needs. Significant process changes and
productivity improvements, primarily in the infrastructure of the operations,
are taking place in consumer real estate, payments processing, imaging,
commercial loan processing and branch support.
The savings that are identified are targeted for reinvestment in areas that
the Corporation believes provide the best growth opportunities. Among these
areas are e-commerce, Asset Management, card and payment businesses and the
investment banking platform.
21
(1) Cash basis calculations exclude goodwill and other intangible amortization
expense.
22
Business Segment Operations
The Corporation provides a diversified range of banking and nonbanking
financial services and products through its various subsidiaries. The
Corporation reports the results of its operations through four business
segments: Consumer and Commercial Banking, Asset Management, Global Corporate
and Investment Banking and Equity Investments. Certain operating segments have
been aggregated into a single business segment. In the first quarter of 2001,
the thirty-year mortgage portfolio was moved from Consumer and Commercial
Banking to the Corporate Other segment.
The business segments summarized in Table Two are primarily managed with a
focus on various performance measures including total revenue, net income,
shareholder value added (SVA), return on average equity and efficiency. These
performance measures are also presented on a cash basis which excludes the
impact of goodwill and other intangible amortization expense. Total revenue
includes net interest income on a taxable-equivalent basis and noninterest
income. The net interest yield of the business segments reflects the results of
a funds transfer pricing process which derives net interest income by matching
assets and liabilities with similar interest rate sensitivity and maturity
characteristics. Equity is allocated to each business segment based on an
assessment of its inherent risk. SVA is a performance measure that is aligned
with the Corporation's growth strategy orientation and strengthens the
Corporation's focus on generating shareholder value. SVA is defined as cash
basis operating earnings less a charge for the use of capital. The capital
charge is calculated by multiplying 12 percent (management's estimate of the
shareholder's minimum required rate of return on capital invested) by average
total common shareholders' equity (at the Corporation level) and by average
allocated equity (at the business segment level).
See Note Nine of the consolidated financial statements for additional
business segment information and a reconciliation to consolidated amounts.
Additional information on noninterest income can be found in the "Noninterest
Income" section beginning on page 39. Certain prior period amounts have been
reclassified between segments and their components (presented after Table Two)
to conform to the current period presentation.
23
n/m = not meaningful
(1) There were no material intersegment revenues among the segments.
(2) Net interest income is presented on a taxable-equivalent basis.
(3) Noninterest income includes the $83 million SFAS 133 transition adjustment
net loss which is included in trading account profits.
The components of the transition adjustment by business segment are a gain
of $4 million for Consumer and Commercial Banking, a gain of $19 million
for Global Corporate and Investment Banking and a loss of $106 million for
Corporate Other (not included in the table above).
Consumer and Commercial Banking
Consumer and Commercial Banking provides a wide array of products and
services to individuals, small businesses and middle market companies through
multiple delivery channels.
The Corporation's market share in the consumer and commercial businesses is
significant across some of the fastest growing regions of the United States.
The Corporation continues its strategy of focusing on the customer in terms of
sales and service. The results for the six months ended June 30, 2001 also
reflect the Corporation's continued focus on Card Services as a growth area as
end of period managed consumer card outstandings increased 22 percent, merchant
processing volume increased 16 percent and total card services purchase volume
increased 12 percent compared to the same period in 2000.
24
The Corporation's mortgage banking results, which include mortgage banking
income and the mark-to-market adjustments on mortgage banking assets and the
related instruments used to economically hedge the mortgage banking assets, is
included within the discussion of the results of operations in the Consumer and
Commercial Banking segment. The mark-to-market adjustments are included in
trading account profits in the Consumer and Commercial Banking segment.
In the second quarter of 2001, the Corporation's commercial real estate
banking business was moved from Global Corporate and Investment Banking to
Consumer and Commercial Banking. The credit and client management process and
customer base of the business are better aligned with those of Consumer and
Commercial Banking.
. Total revenue increased six percent for the six months ended June 30, 2001
compared to the same period in 2000. Total revenue included charges related
to the deterioration of auto lease residual values of $227 million and $85
million for the six months ended June 30, 2001 and 2000, respectively.
. Net interest income increased three percent as a favorable shift in
loan mix and overall loan and deposit growth were partially offset by
the impact of the money market savings pricing initiative and higher
auto lease residual charges.
. Noninterest income increased 13 percent. Strong card income growth of
13 percent, an 11 percent increase in service charges and improved
mortgage banking results for the six months ended June 30, 2001 were
partially offset by $35 million in auto lease residual charges related
to the closing of the Corporation's Price Auto Outlet business.
. Cash basis earnings for the six months ended June 30, 2001 rose seven
percent due to the increases in net interest income and noninterest income
discussed above, partially offset by an increase in the provision for
credit losses.
. The provision for credit losses increased 36 percent reflecting higher
charge-offs in the commercial - domestic, bankcard and consumer finance
loan portfolios.
. Shareholder value added increased $231 million over the prior year as a
result of the increase in cash basis earnings, driven by higher fee
revenue.
The major components of Consumer and Commercial Banking are Banking
Regions, Consumer Products and Commercial Banking.
25
Banking Regions
Banking Regions serves consumer households in 21 states and the District of
Columbia and overseas through its extensive network of approximately 4,300
banking centers, 13,000 ATMs, telephone and Internet channels on
www.bankofamerica.com. Banking Regions provides a wide array of products and
services, including deposit products such as checking, money market savings
accounts, time deposits and IRAs, and credit products such as home equity,
mortgage, personal auto loans and auto leasing. Banking Regions also includes
small business banking providing treasury management, credit services, community
investment, debit card, e-commerce and brokerage services to over two million
small business relationships across the franchise.
. Total revenue for the six months ended June 30, 2001 increased three
percent as a rise in noninterest income was partially offset by a slight
decrease in net interest income.
. Loan growth, primarily in residential mortgages and home equity
lending, and deposit growth had a positive effect on net interest
income but were offset by the impact of the money market savings
pricing initiative.
. Noninterest income increased 12 percent primarily due to a 23 percent
increase in debit card income, driven by a higher number of active
debit cards and a higher number of debit card transactions per
account, and an increase in consumer service charges of 10 percent
throughout all Banking Regions.
. Cash basis earnings increased five percent for the six months ended June
30, 2001, primarily attributable to the increase in revenue discussed above
offset by a slight increase in noninterest expense.
. Shareholder value added rose $91 million as a result of the increase in
cash basis earnings.
Consumer Products
Consumer Products provides specialized services such as the origination and
servicing of residential mortgage loans, issuance and servicing of credit cards,
direct banking via telephone and Internet, lending and investing to develop low-
and moderate-income communities, student lending and certain insurance services.
Consumer Products also provides auto loans, retail finance programs to
dealerships and lease financing of new and used cars.
26
. Total revenue increased 18 percent due to increases in both net interest
income and noninterest income.
. Net interest income increased 18 percent due primarily to an increase
in bankcard receivables.
. Noninterest income increased 19 percent primarily due to increased
credit card income and improved mortgage banking results. Credit card
income grew 10 percent due to new consumer card account growth and an
increase in purchase volume. Mortgage banking results have increased
due to higher origination activity and servicing levels and the net
mark-to-market adjustments related to the mortgage banking assets and
related hedging instruments. These increases were partially offset by
$35 million in auto lease residual charges related to the closing of
the Corporation's Price Auto Outlet business in the first quarter of
2001.
. The 27 percent increase in cash basis earnings for the six months ended
June 30, 2001 was due to the increases in net interest income and
noninterest income discussed above. These increases were partially offset
by a rise in the provision for credit losses.
. The provision for credit losses increased 23 percent to $587 million
primarily due to higher net charge-offs in the bankcard and consumer
finance loan portfolios. The increase in bankcard charge-offs was
driven by portfolio growth and an increase in personal bankruptcy
filings. The increase in consumer finance charge-offs was driven by
growth in the portfolio and a weakened economic environment.
. Shareholder value added increased $215 million due to the increase in cash
basis earnings.
Commercial Banking
Commercial Banking provides commercial lending and treasury management
services to middle market companies with annual revenue between $10 million and
$500 million. These services are available through relationship manager teams
as well as through alternative channels such as the telephone via the commercial
service center and the Internet by accessing Bank of America Direct.
27
. Noninterest income increased four percent and was offset by a three percent
decrease in net interest income. Total revenue for the six months ended
June 30, 2001 decreased one percent.
. The increase in noninterest income was attributable to higher
corporate service charges driven by increases in deposit account
service charges, non-deposit service charges and fees, and bankers'
acceptances and letters of credit fees.
. Net interest income decreased primarily due to lower commercial loan
volumes and liquidation of the commercial finance businesses.
. Lower noninterest expense was more than offset by lower revenue and an
increase in the provision for credit losses resulting in a 21 percent
decline in cash basis earnings for the six months ended June 30, 2001.
. Noninterest expense decreased three percent to $716 million, primarily
due to lower personnel expense resulting from the productivity and
growth initiatives begun in the second half of 2000 and liquidation of
the commercial finance businesses.
. The provision for credit losses increased $151 million to $267 million
as a result of credit deterioration in the commercial loan portfolio.
. Shareholder value added decreased $75 million as cash basis earnings
experienced a decline.
Asset Management
Asset Management includes the Private Bank, Banc of America Capital
Management and Banc of America Investment Services, Inc. The Private Bank
offers financial solutions to high-net-worth clients and foundations in the U.S.
and internationally by providing customized asset management and credit,
financial advisory, fiduciary, trust and banking services. Banc of America
Capital Management offers management of equity, fixed income, cash, and
alternative investments; manages the assets of individuals, corporations,
municipalities, foundations and universities, and public and private
institutions; and provides advisory services to the Corporation's affiliated
family of mutual funds. Banc of America Investment Services, Inc. provides both
full-service and discount brokerage services through investment professionals
located throughout the franchise and a brokerage web site that provides
customers a wide array of market analyses, investment research and self-help
tools, account information and transaction capabilities.
The Corporation's strategy is to focus on and grow the asset management
business. Recent initiatives include the addition of two new investment
platforms which broaden the Corporation's capabilities to maximize market
opportunity for its clients. The Corporation continues to enhance the financial
planning tools used to assist clients with their financial goals. The five
percent growth in assets under management since December 31, 2000 and increases
in commercial and residential mortgage loans contributed to the five percent
growth in revenue for the six months ended June 30, 2001. Assets under
management rose $28 billion to $290 billion at June 30, 2001 compared to June
30, 2000. Assets of the Nations Funds family of mutual funds reached $119
billion at June 30, 2001 compared to $91 billion one year ago.
Effective January 2, 2001, the Corporation acquired the remaining 50
percent of Marsico for a total investment of $1.1 billion. The Corporation
acquired the first 50 percent in 1999. Marsico, a Denver-based investment
management firm specializing in large capitalization growth stocks, manages $13
billion in assets.
28
Asset Management
------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------
(Dollars in millions) 2001 2000 2001 2000
--------------------------------------------------------------------------
Net interest income $ 171 $ 151 $ 331 $ 296
Noninterest income 428 421 844 824
-------------------------------------------------------------------------
Total revenue 599 572 1,175 1,120
Cash basis earnings 128 165 271 317
Shareholder value added 68 122 151 231
Cash basis efficiency ratio 57.5 % 53.9 % 58.7 % 54.1 %
-------------------------------------------------------------------------
. Total revenue increased five percent for the six months ended June 30, 2001.
The increase was attributable to increases in both net interest income and
noninterest income.
. Net interest income increased 12 percent due to strong growth in the
commercial and residential mortgage loan portfolios.
. Noninterest income increased two percent reflecting new asset management
business and the completed acquisition of Marsico, partially offset by
lower broker activity due to decreased trade volume as the result of
significant market decline.
. Cash basis earnings decreased 14 percent for the six months ended June 30,
2001, as revenue growth was offset by higher provision expense related to
one loan that was charged off in the second quarter of 2001 and increased
noninterest expense.
. Noninterest expense increased 16 percent reflecting investments in new
private banking offices, the acquisition of Marsico and in personnel
supporting the revenue growth initiatives, partially offset by one-time
business divestiture expenditures in 2000.
. Shareholder value added declined $80 million due to the decline in cash
basis earnings and the increased capital associated with building the
business.
Global Corporate and Investment Banking
Global Corporate and Investment Banking provides a broad array of financial
services such as investment banking, trade finance, treasury management,
lending, capital markets, leasing and financial advisory services to domestic
and international corporations, financial institutions and government entities.
Clients are supported through offices in 38 countries in four distinct
geographic regions: U.S. and Canada; Asia; Europe, Middle East and Africa; and
Latin America. Products and services provided include loan origination, merger
and acquisition advisory, debt and equity underwriting and trading, cash
management, derivatives, foreign exchange, leasing, leveraged finance, project
finance, senior bank debt, structured finance and trade services.
29
. For the six months ended June 30, 2001, total revenue increased eight percent
primarily due to 15 percent growth in trading-related revenue.
. Net interest income increased 17 percent as a result of higher trading-
related activities and lower funding costs.
. Noninterest income increased one percent as increases in investment and
brokerage services, investment banking income and corporate service
charges were partially offset by a decrease in other income.
. Cash basis earnings decreased 14 percent for the six months ended June 30,
2001 as revenue growth was more than offset by higher credit-related costs
and noninterest expense.
. The provision for credit losses increased $344 million due to credit
quality deterioration in the commercial - domestic loan portfolio of
Global Credit Products.
. A nine percent increase in noninterest expense was primarily due to higher
revenue-related incentive compensation and the build-out of the investment
banking platform.
. Shareholder value added declined $104 million as a result of higher credit
costs, partially offset by a lower charge for the use of capital.
Global Corporate and Investment Banking offers clients a comprehensive range
of global capabilities through three components: Global Investment Banking,
Global Credit Products and Global Treasury Services.
Global Investment Banking
Global Investment Banking includes the Corporation's investment banking
activities and risk management products. Through a separate subsidiary, Banc of
America Securities LLC, Global Investment Banking underwrites and makes markets
in equity securities, high-grade and high-yield corporate debt securities,
commercial paper, and mortgage-backed and asset-backed securities. Banc of
America Securities LLC also provides correspondent clearing services for other
securities broker/dealers, traditional brokerage services to high-net-worth
individuals and prime-brokerage services. Debt and equity securities research,
loan syndications, mergers and acquisitions advisory services, private
placements and equity derivatives are also provided through Banc of America
Securities LLC.
In addition, Global Investment Banking provides risk management solutions for
our global customer base using interest rate, credit and commodity derivatives,
foreign exchange, fixed income and mortgage-related products. In support of
these activities, the businesses will take positions in these products and
capitalize on market-making activities. The Global Investment Banking business
also takes an active role in the trading of fixed income securities in all of
the regions in which Global Corporate and Investment Banking transacts business
and is a primary dealer in the U.S., as well as in several international
locations.
30
. Total revenue grew 13 percent for the six months ended June 30, 2001
primarily due to higher trading-related revenue.
. Net interest income grew 47 percent as a result of higher trading-related
activities.
. Higher investment and brokerage services income, investment banking
income and trading account profits drove noninterest income growth of
four percent. Trading account profits by product category were mixed with
increases in fixed income and commodities and other contracts, offset by
declines in interest rate, equities and equity derivatives and foreign
exchange contracts. Investment banking income increased as a result of
strong fixed income originations, offset by weaker demand in
syndications, equity underwriting and advisory services.
. Cash basis earnings increased four percent for the six months ended June 30,
2001, as revenue growth was partially offset by a $249 million, or 15
percent, increase in noninterest expense.
. The increase in noninterest expense was primarily due to higher revenue-
related incentive compensation and the build-out of the investment
banking platform.
. Shareholder value added increased six percent, or $19 million, due to higher
cash basis earnings.
Global Credit Products
Global Credit Products provides credit and lending services and includes the
corporate industry-focused portfolio, leasing and project finance.
31
. Total revenue declined two percent for the six months ended June 30, 2001.
. Net interest income increased three percent compared to the prior year as
result of lower funding costs.
. Noninterest income declined 15 percent primarily due to lower gains in the
leasing portfolio.
. Cash basis earnings declined 36 percent primarily due to a $340 million
increase in the provision for credit losses driven by credit quality
deterioration in the commercial - domestic loan portfolio.
. Shareholder value added decreased $134 million as a result of the increase in
the provision for credit losses, partially offset by a lower charge for the
use of capital, reflecting the continued efforts to reduce corporate loan
levels and exit less profitable relationships.
Global Treasury Services
Global Treasury Services provides the technology, strategies and integrated
solutions to help financial institutions, government agencies and public and
private companies of all sizes manage their operations and cash flows on a
local, regional, national and global level.
. Revenue increased eight percent led by increases in both net interest income
and noninterest income for the six months ended June 30, 2001.
. Net interest income increased 12 percent primarily due to lower funding
costs.
. Noninterest income increased four percent due to an increase in corporate
service charges driven by an increase in non-deposit and deposit account
service charges.
. Cash basis earnings increased 11 percent for the six months ended June 30,
2001, driven primarily by the growth in revenue.
. Shareholder value added increased $11 million due to the increase in cash
basis earnings.
Equity Investments
Equity Investments includes Principal Investing, which is comprised of a
diversified portfolio of investments in companies at all stages of the business
cycle, from start up to buyout. Investments are made on both a direct and
indirect basis in the U.S. and overseas. Direct investing activity focuses on
playing an active role in the strategic and financial direction of the portfolio
company as well as providing broad business experience and access to the
Corporation's global resources. Indirect investments represent passive limited
partnership stakes in funds managed
32
by experienced third party private equity investors who act as general partners.
Equity Investments also includes the Corporation's strategic technology and
alliances investment portfolio.
Equity Investments
-----------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
-----------------------------------------
(Dollars in millions) 2001 2000 2001 2000
--------------------------------------------------------------------------
Net interest income $ (33) $ (33) $ (75) $ (61)
Noninterest income 110 119 257 670
------------------------------------------------------------------------
Total revenue 77 86 182 609
Cash basis earnings 20 39 60 342
Shareholder value added (52) (16) (79) 236
Cash basis efficiency ratio 60.4 % 30.9 % 50.1 % 8.5 %
========================================================================
. For the six months ended June 30, 2001, both revenue and cash basis earnings
decreased substantially due primarily to lower equity investment gains.
. Net interest income consists primarily of the funding cost associated with
the carrying value of investments.
. Equity investment gains decreased $387 million to $275 million, with $100
million in Principal Investing and $175 million in the strategic
investments portfolio. Equity investment gains in the strategic
investments portfolio included $140 million in the first quarter of 2001
related to the sale of an interest in the Star Systems ATM network.
. Shareholder value added declined $315 million reflecting the decline in
cash basis earnings.
Corporate Other
The Corporate Other segment consists primarily of certain residential
mortgages originated by the mortgage group (not from retail branch originations)
as these instruments are used for balance sheet and interest rate risk
management. This unit also includes the earnings associated with unassigned
capital, certain expenses that have not been allocated to any particular
business segment and other corporate transactions. Corporate Other results for
the six months ended June 30, 2001 included a pre-tax $106 million transition
adjustment loss related to the implementation of SFAS 133. See Note Nine of the
consolidated financial statements for additional information on the Corporate
Other segment.
Results of Operations
Net Interest Income
An analysis of the Corporation's net interest income on a taxable-equivalent
basis and average balance sheet for the most recent five quarters and for the
six months ended June 30, 2001 and 2000 are presented in Tables Four and Five,
respectively.
As reported, net interest income on a taxable-equivalent basis increased $422
million to $5.1 billion for the three months ended June 30, 2001 compared to the
same period in 2000. For the six months ended June 30, 2001 and 2000, net
interest income on a taxable-equivalent basis was $9.8 billion and $9.3 billion,
respectively. Management also reviews "core net interest income," which adjusts
reported net interest income for the impact of trading-related activities,
securitizations, asset sales and divestitures. For purposes of internal
analysis, management combines trading-related net interest income with trading
account profits, as discussed in the "Noninterest Income"
33
section on page 39, as trading strategies are typically evaluated based on total
revenue. The determination of core net interest income also requires adjustment
for the impact of securitizations (primarily home equity and credit card), asset
sales (primarily residential mortgage loans) and divestitures. Noninterest
income, rather than net interest income, is recorded for assets that have been
securitized as the Corporation takes on the role of servicer and records
servicing income and gains on securitizations, where appropriate.
Table Three below provides a reconciliation of net interest income on a
taxable-equivalent basis presented in Tables Four and Five to core net interest
income for the three months and six months ended June 30, 2001 and 2000,
respectively:
/(1)/ Net interest income is presented on a taxable-equivalent basis.
/(2)/ bp denotes basis points; 100 bp equals 1%.
Core net interest income on a taxable-equivalent basis was $4.8 billion and
$9.2 billion for the three months and six months ended June 30, 2001,
respectively, an increase of $348 million and $402 million over the
corresponding periods in 2000. The increase in net interest income was driven
by a favorable change in loan mix, higher levels of core funding, changes in
interest rates and the effect of portfolio repositioning, partially offset by
the impact of deposit pricing initiatives and deterioration in auto lease
residual values. The higher levels of core funding reflected a $10.7 billion
increase in average core deposits and a $1.7 billion increase in average
shareholders' equity.
Core average earning assets were $457.3 billion and $456.6 billion for the
three months and six months ended June 30, 2001, respectively, a decrease of
$10.2 billion and $4.3 billion over the same periods in 2000, primarily
reflecting reduced securities levels, partially offset by growth in managed
loans. Falling interest rates in 2001 allowed the Corporation to shed lower
yielding assets and reposition its balance sheet to take advantage of a
steepened yield curve. Managed consumer loans increased nine percent and eight
percent for the three months and six months ended June 30, 2001, led by growth
in residential mortgages, bankcard receivables and home equity lines. Managed
commercial loans decreased four percent and one percent for the three months and
six months ended June 30, 2001, reflecting continuing efforts to reduce
corporate loan levels and exit less profitable relationships. Loan growth is
dependent on economic conditions, as well as various discretionary factors, and
the management of borrower, industry, product and geographic concentrations.
34
The core net interest yield increased 38 basis points to 4.18 percent and 21
basis points to 4.04 percent for the three months and six months ended June 30,
2001, respectively, mainly due to the effects of changes in interest rates,
portfolio repositioning and higher levels of core funding sources.
35
Table Four
Quarterly Average Balances and Interest Rates - Taxable-Equivalent Basis
(1) The average balance and yield on securities are based on the
average of historical amortized cost balances.
(2) Nonperforming loans are included in the respective average loan
balances. Income on such nonperforming loans is recognized on a
cash basis.
(3) Interest income includes taxable-equivalent basis adjustments of
$87 and $82 in the second and first quarters of 2001 and $94, $79
and $78 in the fourth, third, and second quarters of 2000,
respectively. Interest income also includes the impact of risk
management interest rate contracts, which increased (decreased)
interest income on the underlying assets $194 and $27 in the second
and first quarters of 2001 and $(31), $(13) and$(11) in the fourth,
third and second quarters of 2000, respectively.
(4) Primarily consists of time deposits in denominations of $100,000 or
more.
(5) Long-term debt includes trust preferred securities.
(6) Interest expense includes the impact of risk management interest
rate contracts, which (increased ) decreased interest expense on
the underlying liabilities $49 and $23 in the second and first
quarters of 2001 and $(7), $(16) and $(5) in the fourth, third and
second quarters of 2000, respectively.
36
37
38
Table Five
Average Balances and Interest Rates - Taxable-Equivalent Basis
(1) The average balance and yield on securities are based on the average of
historical amortized cost balances.
(2) Nonperforming loans are included in the respective average loan
balances. Income on such nonperforming loans is recognized on a cash
basis.
(3) Interest income includes taxable-equivalent basis adjustments of $169
and $149 for the six months ended June 30, 2001 and 2000, respectively.
Interest income also includes the impact of risk management interest
rate contracts, which increased (decreased) interest income on the
underlying assets $221 and $(4) for the six months ended June 30, 2001
and 2000, respectively.
(4) Primarily consists of time deposits in denominations of $100,000 or more.
(5) Long-term debt includes trust preferred securities.
(6) Interest expense includes the impact of risk management interest rate
contracts, which (increased) decreased interest expense on the underlying
liabilities $72 and $(13) in the six months ended June 30, 2001 and 2000,
respectively.
38
Noninterest Income
As presented in Table Six, noninterest income increased $227 million to $3.7
billion and decreased $58 million to $7.5 billion for the three months and six
months ended June 30, 2001, respectively, from the comparable 2000 periods. The
increase in noninterest income for the three months ended June 30, 2001 reflects
increases in service charges, investment banking income, mortgage banking
income, card income, investment and brokerage services, and equity investment
gains. These increases were partially offset by declines in trading account
profits and other income. The decrease in noninterest income for the six months
ended June 30, 2001 reflects declines in equity investment gains, trading
account profits and other income. These decreases were partially offset by
increases in service charges, card income, mortgage banking income, investment
and brokerage services and investment banking income.
Table Six
Noninterest Income
(1) Trading account profits for the six months ended June 30, 2001 include
the $83 million SFAS 133 transition adjustment net loss. The components
of the transition adjustment by segment are a gain of $4 million for
Consumer and Commercial Banking, a gain of $19 million for Global
Corporate and Investment Banking and a loss of $106 million for Corporate
Other.
The following section discusses the noninterest income results of the
Corporation's four business segments. For additional business segment
information, see "Business Segment Operations" beginning on page 23.
Consumer and Commercial Banking
. Noninterest income for Consumer and Commercial Banking increased $474 million
to $4.0 billion for the six months ended June 30, 2001 from the comparable
2000 period. Higher service charges, strong card income and improved mortgage
banking results were partially offset by $35 million in losses related to the
closing of the Corporation's Price Auto Outlet business in the first quarter
of 2001.
. Service charges include deposit account service charges, non-deposit
service charges and fees and bankers' acceptances and letters of credit
fees. Service charges increased $180 million to $1.8 billion for the six
months ended June 30, 2001 due to an increase in both consumer and
corporate service charges. Consumer service charges increased $141 million
primarily due to higher business volumes. Corporate service charges
increased $39 million primarily attributable to increased deposit account
service charges.
. Card income includes interchange income, credit and debit card fees and
merchant discount fees. Card income increased $134 million to $1.2 billion
primarily due to new account growth in both credit and debit card and
increased purchase volume on existing accounts. Growth in income for the
core portfolio is being generated through traditional marketing channels,
expanding relationships with existing customers and leveraging the
franchise network. Card income includes activity from the securitized
portfolio of $101 million and $88 million for the six months ended June
30, 2001 and 2000, respectively. This amount
39
represents excess servicing income which consists of revenues from the
securitized credit card portfolio offset by charge-offs and interest
expense paid to the bondholders.
. Mortgage banking results improved for the six months ended June 30, 2001,
primarily reflecting higher origination activity and servicing levels and
the net mark-to-market adjustments on mortgage banking assets and the
related instruments used to economically hedge mortgage banking assets.
These mark-to-market adjustments are included in trading account profits.
The average managed portfolio of mortgage loans serviced increased $13.5
billion to $337.1 billion for the six months ended June 30, 2001 compared
to the same period in 2000. Total production of first mortgage loans
originated through the Corporation increased $15.5 billion to $43.3
billion for the six months ended June 30, 2001, reflecting a significant
increase in refinancings as a result of declining interest rates. First
mortgage loan origination volume was composed of approximately $19.6
billion of retail loans and $23.7 billion of correspondent and wholesale
loans for the six months ended June 30, 2001. The Corporation made a
strategic decision to exit the correspondent loan origination channel
during the second quarter of 2001. The Corporation's decision to exit the
correspondent business is based upon its overall strategy to focus on
businesses with higher returns and potential to deepen and expand customer
relationships.
Asset Management
. Noninterest income for Asset Management increased $20 million to $844 million
for the six months ended June 30, 2001 compared to the same period in 2000.
The increase was primarily attributable to increased income from investment
and brokerage services.
. Income from investment and brokerage services includes personal and
institutional asset management fees and consumer brokerage income. Income
from investment and brokerage services increased $11 million to $772
million for the six months ended June 30, 2001 compared to the same period
in 2000. This increase was largely due to new asset management business
and the completed acquisition of Marsico, partially offset by lower broker
activity due to decreased trade volume as a result of significant market
decline. Assets under management were $290 billion at June 30, 2001
compared to $261 billion one year ago.
Global Corporate and Investment Banking
. Noninterest income for Global Corporate and Investment Banking increased $34
million to $2.6 billion for the six months ended June 30, 2001 compared to
the same period in 2000. The increase was primarily due to increases in
corporate service charges and investment banking income, partially offset by
a decline in other income.
. Trading account profits represent the net amount earned from the
Corporation's trading positions, which include trading account assets and
liabilities as well as derivative positions. These transactions include
positions to meet customer demand as well as for the Corporation's own
trading account. Trading positions are taken in a diverse range of
financial instruments and markets. The profitability of these trading
positions is largely dependent on the volume and type of transactions, the
level of risk assumed, and the volatility of price and rate movements.
Trading account profits, as reported in the Consolidated Statement of
Income, does not include the net interest income recognized on
interest-earning and interest-bearing trading positions or the related
funding charge or benefit. Trading account profits as well as
trading-related net interest income ("trading-related revenue") are
presented in the following table as they are both considered in evaluating
the overall profitability of the Corporation's trading positions.
Trading-related revenue increased $250 million to $1.9 billion for the six
months ended June 30, 2001, due to a $256 million increase in the net
interest margin, partially offset by a $6 million decline in trading
account profits. Increases in the fixed income, commodities and other
contracts, and interest rate contract categories were offset by decreases
in equities and equity derivative contracts and foreign exchange
contracts. Fixed income increased $165 million to $412 million primarily
attributable to an increase in market liquidity from new issue activity as
a result of lower interest rates. Commodities and other contracts
increased $103 million to $133 million, attributable to market volatility.
Revenue from interest rate contracts increased $15 million to $497
million. Income from equities and equity derivative contracts
40
decreased $21 million to $593 million, due to a slowdown in customer
activity in the market. Foreign exchange revenue decreased $12 million to
$280 million, due primarily to the prior year's Y2K activity, which was
partially offset by strong sales activity in 2001. Trading account profits
for the six months ended June 30, 2001 included a $19 million transition
adjustment gain resulting from the adoption of SFAS 133.
. Investment banking income increased $31 million to $801 million for the six
months ended June 30, 2001. The increase was primarily attributable to an
increase in fixed income origination which was partially offset by lower
syndications, equity origination and advisory services. Securities
underwriting fees increased $78 million to $407 million from growth in high
grade and high yield origination, offset by lower equity underwriting fees.
Syndication fees decreased $57 million to $197 million for the six months
ended June 30, 2001. A sluggish market for advisory services drove a decline
in fees of $26 million to $132 million for the six months ended June 30,
2001. Investment banking income by major activity follows:
------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
---------------------------------------
(Dollars in millions) 2001 2000 2001 2000
------------------------------------------------------------------
Investment banking income
Securities underwriting $216 $150 $407 $329
Syndications 142 123 197 254
Advisory services 67 86 132 158
Other 30 14 65 29
------------------------------------------------------------------
Total $455 $373 $801 $770
==================================================================
. Corporate service charges increased $33 million to $541 million for the six
months ended June 30, 2001, primarily driven by an increase in non-deposit
account service charges.
Equity Investments
. Noninterest income for Equity Investments decreased $413 million to $257
million for the six months ended June 30, 2001 compared to the same period in
2000. This decrease was driven by a sharp decline in equity investment gains
driven by weaker equity markets.
. Equity investment gains decreased $387 million to $275 million, with $100
million in Principal Investing and $175 million in the strategic
investments portfolio. Equity investment gains in the strategic
41
investments portfolio included a gain of $140 million in the first quarter
of 2001 related to the sale of an interest in the Star Systems ATM network.
Provision for Credit Losses
The provision for credit losses totaled $800 million and $1.6 billion for the
three months and six months ended June 30, 2001, respectively, compared to $470
million and $890 million for the same periods in 2000. The increase in the
provision for credit losses from last year was due to an increase in net charge-
offs as well as additional provision expense recorded to increase the allowance
for credit losses given the deterioration in credit quality and uncertainty
surrounding the current economic environment. Total net charge-offs were $787
million and $1.6 billion for the three months and six months ended June 30,
2001, respectively, compared to $470 million and $890 million for the same
periods in 2000. The increase in net charge-offs from last year was primarily
centered in the commercial-domestic portfolio and resulted from deterioration in
credit quality stemming from the weak economic environment. Bankcard and
consumer finance charge-offs also increased due to growth in the portfolios, an
increase in personal bankruptcy filings and a weakened economic environment. For
additional information on the allowance for credit losses, certain credit
quality ratios and credit quality information on specific loan categories, see
the "Credit Risk Management and Credit Portfolio Review" section beginning on
page 46.
Other Noninterest Expense
As presented in Table Seven, the Corporation's other noninterest expense
increased $408 million to $4.8 billion and increased $439 million to $9.5
billion for the three months and six months ended June 30, 2001, respectively,
compared to the same periods in 2000. Other noninterest expense increased for
both periods due to the impact of productivity initiatives being offset by
investments in growth businesses such as e-commerce, Asset Management, card and
payment businesses and the investment banking platform.
Table Seven
Other Noninterest Expense
. Personnel expense increased $223 million to $2.5 billion and $90 million to
$4.9 billion for the three months and six months ended June 30, 2001,
respectively, led by increased revenue-related incentive compensation in
Global Corporate and Investment Banking and increased staffing in Asset
Management, partially offset by the impact of the productivity initiatives.
At June 30, 2001, the Corporation had approximately 144,000 full-time
equivalent employees compared to approximately 151,000 at June 30, 2000.
. Marketing expense increased $100 million to $351 million for the six months
ended June 30, 2001, due to higher card marketing in Consumer and Commercial
Banking and the Corporation's national brand-building campaign.
42
. Professional fees increased $69 million to $267 million for the six months
ended June 30, 2001, primarily reflecting higher consulting and other
professional fees. These increases were driven by the build-out of
bankofamerica.com in Equity Investments and other initiatives of the
Corporation.
. Data processing expense increased $49 million to $377 million for the six
months ended June 30, 2001, primarily due to higher outsourced processing
expense as a result of the outsourcing of personnel services to Exult, Inc.,
higher item processing and check clearing expenses, and higher expense in the
Technology and Operations Group.
. Other general operating expense increased $99 million to $1.1 billion for the
six months ended June 30, 2001, reflecting higher employee placement expenses
and other miscellaneous expenses.
. General administrative and other expense increased $41 million to $310
million for the six months ended June 30, 2001, primarily due to increased
subscription services and travel expense in Global Corporate and Investment
Banking.
Income Taxes
The Corporation's income tax expense for the three months and six months
ended June 30, 2001 was $1.1 billion and $2.2 billion, respectively, for an
effective tax rate of 35.6 percent and 35.8 percent, respectively. Income tax
expense for the three and six months ended June 30, 2000 was $1.2 billion and
$2.5 billion, respectively, for an effective tax rate of 36.6 percent.
Balance Sheet Review and Liquidity Risk Management
The Corporation utilizes an integrated approach in managing its balance sheet
that includes management of interest rate sensitivity, credit risk, liquidity
risk and its capital position. The Corporation restructured its balance sheet
over the last year, keeping risk-weighted assets relatively flat while
reductions in categories with lower returns were offset by underlying core
growth. The discussion of average balances below compares the six months ended
June 30, 2001 to the same period in 2000. With the exception of average managed
loans, the average balances discussed below can be derived from Table Five.
Average loans and leases, the Corporation's primary use of funds, increased
$1.7 billion to $385.7 billion for the six months ended June 30, 2001. Adjusting
for securitizations, sales and divestitures, average managed loans and leases
increased $13.6 billion to $406.5 billion for the six months ended June 30,
2001. This increase was primarily due to growth in average managed consumer
loans, partially offset by a decline in average managed commercial loans.
Average managed consumer loans increased eight percent in the six months
ended June 30, 2001, reflecting increases in each of the consumer loan
portfolios. Average managed residential mortgages increased $6.0 billion to
$86.4 billion due to strong growth in branch-originated products as well as
increases in mortgage company originations. Average managed bankcard loans
increased $4.2 billion to $23.6 billion, resulting from increases in new
business volume as well as deepening relationships with existing customers.
Average managed home equity lines increased $3.5 billion to $21.9 billion,
reflecting growth in all Banking Regions due to the impact of new marketing
programs implemented in mid 2000. Average managed consumer finance loans
increased $1.2 billion to $33.1 billion, and average managed direct/indirect
consumer loans increased $1.1 billion to $40.9 billion.
Average managed commercial loans decreased $2.5 billion to $198.4 billion for
the six months ended June 30, 2001. The commercial - domestic portfolio
decreased $3.6 billion to $143.9 billion primarily in the Global Corporate and
Investment Banking business segment, reflecting continuing efforts to reduce
corporate loan levels and exit less profitable relationships. Average managed
commercial real estate - domestic loans increased $924 million to $25.6 billion.
The average securities portfolio for the six months ended June 30, 2001
decreased $31.4 billion to $55.5 billion. As a percentage of total uses of
funds, the average securities portfolio decreased by four percent to nine
43
percent for the six months ended June 30, 2001. See the following "Securities"
section for additional information on the securities portfolio.
Average other assets and cash and cash equivalents remained relatively stable
as it decreased $1.4 billion to $87.6 billion for the six months ended June 30,
2001.
At June 30, 2001, cash and cash equivalents were $25.4 billion, a decrease of
$2.1 billion from December 31, 2000. During the six months ended June 30, 2001,
net cash used in operating activities was $14.3 billion, net cash provided by
investing activities was $24.0 billion and net cash used in financing activities
was $11.8 billion. For further information on cash flows, see the Consolidated
Statement of Cash Flows of the consolidated financial statements.
Average levels of customer-based deposits increased $10.7 billion to $301.5
billion for the six months ended June 30, 2001, primarily due to increases in
consumer money market savings accounts. These increases are due to new customer
accounts as well as existing customers shifting from other deposit sources,
reflecting the success of the new deposit pricing strategy implemented last
year. As a percentage of total sources of funds, average levels of customer-
based deposits increased by two percent to 46 percent for the six months ended
June 30, 2001.
Average levels of market-based funds decreased $29.6 billion for the six
months ended June 30, 2001 to $184.4 billion, primarily driven by the decline in
securities sold under agreements to repurchase. In addition, average levels of
long-term debt increased $4.6 billion to $71.6 billion for the six months ended
June 30, 2001, mainly as a result of borrowings to fund business development
opportunities, build liquidity, repay maturing debt and fund share repurchases.
In conjunction with its funding activities, the Corporation carefully
monitors its liquidity position - the ability to fulfill its cash requirements.
The Corporation assesses its liquidity requirements and modifies its assets and
liabilities accordingly. This process, coupled with the Corporation's ability to
raise capital and debt financing, is designed to cover the liquidity needs of
the Corporation. The Corporation also takes into consideration the ability of
its subsidiary banks to pay dividends to the Corporation. For additional
information on the dividend capabilities of subsidiary banks, see Note Fourteen
of the Corporation's 2000 Annual Report on Form 10-K. Management believes that
the Corporation's sources of liquidity are more than adequate to meet its cash
requirements.
Securities
The securities portfolio at June 30, 2001 consisted of available-for-sale
securities totaling $53.4 billion compared to $64.7 billion at December 31,
2000. Held-to-maturity securities totaled $1.2 billion at both June 30, 2001
and December 31, 2000.
The valuation allowance for available-for-sale and marketable equity
securities is included in shareholders' equity. At June 30, 2001, the valuation
allowance consisted of unrealized losses of $359 million, net of related income
taxes of $223 million, primarily reflecting $620 million of pre-tax net
unrealized losses on available-for-sale securities and $38 million pre-tax net
unrealized gains on marketable equity securities. At December 31, 2000, the
valuation allowance consisted of unrealized losses of $560 million, net of
related income taxes of $330 million, primarily reflecting $991 million of pre-
tax net unrealized losses on available-for-sale securities and $101 million of
pre-tax net unrealized gains on marketable equity securities.
At June 30, 2001 and December 31, 2000, the market value of the Corporation's
held-to-maturity securities reflected pre-tax net unrealized losses of $59
million and $54 million, respectively.
The estimated average duration of the available-for-sale securities portfolio
was 4.70 years at June 30, 2001 compared to 4.13 years at December 31, 2000.
Losses on sales of securities were $7 million and $15 million for the three
months and six months ended June 30, 2001, respectively, compared to gains of $6
million and $12 million in the respective periods of 2000.
44
Capital Resources and Capital Management
Shareholders' equity at June 30, 2001 was $49.3 billion compared to $47.6
billion at December 31, 2000, an increase of $1.7 billion. The increase was
primarily due to net earnings (net income less dividends) of $2.1 billion,
recognition of $201 million of after-tax net unrealized gains on available-for-
sale and marketable equity securities, net gains on derivatives of $283 million,
and $635 million in common stock issued under employee plans, partially offset
by the repurchase of approximately 29 million shares of common stock for
approximately $1.6 billion.
During 2000, the Corporation completed its 1999 stock repurchase plan, and on
July 26, 2000, the Corporation's Board of Directors (the Board) authorized a new
stock repurchase program of up to 100 million shares of the Corporation's common
stock at an aggregate cost of up to $7.5 billion. At June 30, 2001, the
remaining buyback authority for common stock under the 2000 program totaled $5.2
billion, or 55 million shares. During the six months ended June 30, 2001, the
Corporation repurchased approximately 29 million shares of its common stock in
open market repurchases at an average per-share price of $54.42, which reduced
shareholders' equity by $1.6 billion and increased earnings per share by
approximately $0.02 for the six months ended June 30, 2001. During the six
months ended June 30, 2000, the Corporation repurchased approximately 34 million
shares of its common stock in open market repurchases at an average per-share
price of $47.88, which reduced shareholders' equity by $1.6 billion.
Presented below are the regulatory risk-based capital ratios and capital
amounts for the Corporation and Bank of America, N.A. at June 30, 2001 and
December 31, 2000. The Corporation and Bank of America, N.A. were considered
"well-capitalized" at June 30, 2001:
The regulatory capital guidelines measure capital in relation to the credit
and market risks of both on- and off-balance sheet items using various risk
weights. Under the regulatory capital guidelines, Total Capital consists of
three tiers of capital. Tier 1 Capital includes common shareholders' equity and
qualifying preferred stock, less goodwill and other adjustments. Tier 2 Capital
consists of preferred stock not qualifying as Tier 1 Capital, mandatory
convertible debt, limited amounts of subordinated debt, other qualifying term
debt and the allowance for credit losses up to 1.25 percent of risk-weighted
assets. Tier 3 Capital includes subordinated debt that is unsecured, fully paid,
has an original maturity of at least two years, is not redeemable before
maturity without prior approval by the Federal Reserve Board and includes a
lock-in clause precluding payment of either interest or principal if the payment
would cause the issuing bank's risk-based capital ratio to fall or remain below
the required minimum. At June 30, 2001, the Corporation had no subordinated debt
that qualified as Tier 3 Capital.
At June 30, 2001, the regulatory risk-based capital ratios of the Corporation
and Bank of America, N.A. exceeded the regulatory minimums of four percent for
Tier 1 risk-based capital ratio, eight percent for total risk-based capital
ratio and the leverage guidelines of 100 to 200 basis points above the minimum
ratio of three percent.
45
Credit Risk Management and Credit Portfolio Review
The following section discusses credit risk in the loan portfolio. The
Corporation's primary credit exposure is focused in its loans and leases
portfolio, which totaled $380.4 billion and $392.2 billion at June 30, 2001 and
December 31, 2000, respectively. In an effort to minimize the adverse impact of
any single event or set of events, the Corporation strives to maintain a diverse
credit portfolio. Table Eight presents loans and leases, nonperforming assets
and net charge-offs by category. Additional information on the Corporation's
real estate, industry and foreign exposure can be found in the Concentrations of
Credit Risk section beginning on page 53.
46
n/m = not meaningful
(1) Balances do not include $120 million and $124 million of loans held for
sale, included in other assets at June 30, 2001 and December 31, 2000,
respectively, which would have been classified as nonperforming had they
been included in loans. The Corporation had approximately $219 million and
$390 million of troubled debt restructured loans at June 30, 2001 and
December 31, 2000, respectively, which were accruing interest and were not
included in nonperforming assets.
(2) Percentage amounts are calculated as annualized net charge-offs divided by
average oustanding loans and leases during the period for each loan
category.
(3) Includes both on-balance sheet and securitized loans.
47
Commercial Portfolio
At June 30, 2001 and December 31, 2000, total commercial loans outstanding
totaled $185.4 billion and $203.5 billion, respectively, or 49 percent and 52
percent of total loans and leases, respectively. Domestic commercial loans
accounted for 86 percent and 85 percent of total commercial loans at June 30,
2001 and December 31, 2000, respectively.
Commercial - domestic loans outstanding totaled $133.9 billion and $146.0
billion at June 30, 2001 and December 31, 2000, respectively, or 35 percent and
37 percent, respectively, of total loans and leases. The Corporation had
commercial - domestic loan net charge-offs of $823 million, or 1.17 percent of
average commercial - domestic loans, for the six months ended June 30, 2001,
compared to $398 million, or 0.55 percent, for the six months ended June 30,
2000. Net charge-offs increased primarily due to a deterioration in credit
quality stemming from the weak economic environment. Nonperforming commercial -
domestic loans were $3.2 billion, or 2.40 percent of commercial - domestic
loans, at June 30, 2001, compared to $2.8 billion, or 1.90 percent, at December
31, 2000. The increase in nonperformers was driven by the addition of four large
credits as well as smaller credits across various industries and business
segments. Two of the four large credits occurred in the first quarter when a
client in the utilities industry and a client in the chemical and plastics
industry filed for bankruptcy. The other two credits occurred in the second
quarter in the apparel industry and the computer services industry. Commercial-
domestic loans past due 90 days or more and still accruing interest were $154
million at June 30, 2001, compared to $141 million at December 31, 2000, or 0.12
percent and 0.10 percent of commercial - domestic loans, respectively.
Commercial - foreign loans outstanding totaled $25.7 billion and $31.1
billion at June 30, 2001 and December 31, 2000, respectively, or seven percent
and eight percent, respectively, of total loans and leases. The Corporation had
commercial - foreign loan net charge-offs for the six months ended June 30, 2001
of $91 million, or 0.64 percent of average commercial - foreign loans, compared
to $29 million, or 0.21 percent of average commercial - foreign loans, for the
six months ended June 30, 2000. Nonperforming commercial - foreign loans were
$562 million, or 2.19 percent of commercial - foreign loans, at June 30, 2001,
compared to $486 million, or 1.56 percent, at December 31, 2000. Commercial -
foreign loans past due 90 days or more and still accruing interest were $95
million at June 30, 2001, compared to $37 million at December 31, 2000, or 0.37
percent and 0.12 percent of commercial - foreign loans, respectively. For
additional information, see the International Exposure discussion beginning on
page 55.
Commercial real estate - domestic loans totaled $25.4 billion and $26.2
billion at June 30, 2001 and December 31, 2000, respectively, and remained
stable at seven percent of total loans and leases. Net charge-offs remained
negligible at $18 million, or 0.14 percent of average commercial real estate -
domestic loans, for the six months ended June 30, 2001. Nonperforming commercial
real estate - domestic loans were $201 million, or 0.79 percent of commercial
real estate - domestic loans, at June 30, 2001, compared to $236 million, or
0.90 percent, at December 31, 2000. At June 30, 2001, commercial real estate -
domestic loans past due 90 days or more and still accruing interest were $8
million, or 0.03 percent of total commercial real estate -domestic loans,
compared to $16 million, or 0.06 percent, at December 31, 2000. Table Eleven
displays commercial real estate loans by geographic region and property type,
including the portion of such loans which are nonperforming, and other real
estate credit exposures.
Table Twelve presents aggregate commercial loan and lease exposures by
certain significant industries.
Consumer Portfolio
At June 30, 2001 and December 31, 2000, total consumer loans outstanding
totaled $195.0 billion and $188.7 billion, respectively, or 51 percent and 48
percent of total loans and leases, respectively. Approximately 70 percent of
these loans were secured by first and second mortgages on residential real
estate at both June 30, 2001 and December 31, 2000. Additional information on
components of and changes in the Corporation's consumer loan portfolio can be
found in the average earning asset discussion within the "Net Interest Income"
section on page 33 and the "Balance Sheet Review and Liquidity Risk Management"
section on page 43.
In 1999, the Federal Financial Institutions Examination Council (FFIEC)
issued the Uniform Classification and Account Management Policy (the Policy)
which provides guidance for and promotes consistency among banks on the charge-
off treatment of delinquent and bankruptcy-related consumer loans. The
Corporation implemented the
48
Policy in the fourth quarter of 2000, which resulted in accelerated charge-offs
in that quarter of $104 million across several product types in the consumer
loan portfolio.
Residential mortgage loans increased to $85.9 billion at June 30, 2001,
compared to $84.4 billion at December 31, 2000 or 23 percent and 22 percent of
total loans and leases, respectively. Net charge-offs on residential mortgage
loans remained negligible at $13 million, or 0.03 percent of average residential
mortgage loans, for the six months ended June 30, 2001. Nonperforming
residential mortgage loans increased $22 million to $573 million at June 30,
2001 compared to $551 million at December 31, 2000.
Home equity loans increased to $22.0 billion at June 30, 2001 compared to
$21.6 billion at December 31, 2000 or six percent of total loans and leases at
both points in time. Net charge-offs on home equity loans remained negligible at
$10 million, or 0.09 percent of average home equity loans, for the six months
ended June 30, 2001. Nonperforming home equity loans increased by $10 million to
$42 million at June 30, 2001 compared to $32 million at December 31, 2000.
Consumer finance loans outstanding totaled $27.5 billion and $25.8 billion at
June 30, 2001 and December 31, 2000, respectively, and remained stable at seven
percent of total loans and leases. Approximately 83 percent and 80 percent,
respectively, of these loans were secured by residential real estate, virtually
all first lien, at June 30, 2001 and December 31, 2000. The Corporation had
consumer finance net charge-offs of $160 million, or 1.22 percent of average
consumer finance loans, for the six months ended June 30, 2001, compared to $116
million, or 0.99 percent, for the six months ended June 30, 2000. These
increases reflect the growth of the portfolio and a weakened economic
environment as well as the effect of the FFIEC charge-off policy adopted in the
fourth quarter of 2000. Consumer finance nonperforming loans increased $139
million to $1.2 billion at June 30, 2001 from $1.1 billion at December 31, 2000.
Bankcard receivables increased to $16.8 billion at June 30, 2001, compared to
$14.1 billion at December 31, 2000. Net charge-offs on bankcard receivables for
the six months ended June 30, 2001 were $283 million, or 3.77 percent of average
bankcard receivables, compared to $158 million, or 3.56 percent, for the six
months ended June 30, 2000. The increase in charge-offs was primarily a result
of growth in the portfolio outstandings and an increase in personal bankruptcy
filings. Bankcard loans past due 90 days or more and still accruing interest
were $246 million, or 1.46 percent of bankcard receivables, at June 30, 2001,
compared to $191 million, or 1.36 percent, at December 31, 2000.
Other consumer loans, which include direct and indirect consumer and foreign
consumer loans, were $42.8 billion at both June 30, 2001 and December 31, 2000.
Direct and indirect consumer loan net charge-offs were $140 million, or 0.70
percent of average direct and indirect consumer loans outstanding, for the six
months ended June 30, 2001, compared to $152 million, or 0.73 percent of the
average balance outstanding, for the comparable period in 2000. Foreign consumer
loan net charge-offs were $2 million and $1 million, or 0.22 percent and 0.11
percent of average foreign consumer loans, for the six months ended June 30,
2001 and 2000, respectively.
Excluding bankcard, total consumer loans past due 90 days or more and still
accruing interest were $105 million, or 0.05 percent of total consumer loans, at
June 30, 2001, compared to $110 million, or 0.06 percent, at December 31, 2000.
Nonperforming Assets
As presented in Table Eight, nonperforming assets increased to $6.2 billion,
or 1.63 percent of loans, leases and foreclosed properties, at June 30, 2001
from $5.5 billion, or 1.39 percent, at December 31, 2000. Nonperforming loans
increased to $5.8 billion at June 30, 2001 from $5.2 billion at December 31,
2000, primarily due to increases in nonperforming loans in the commercial -
domestic portfolio as discussed above. Credit deterioration in loans continued
as companies were affected by the weakening economic environment. Foreclosed
properties increased to $346 million at June 30, 2001, compared to $249 million
at December 31, 2000.
Table Nine presents the additions to and reductions in nonperforming assets
in the consumer and commercial portfolios during the most recent five quarters.
49
/(1)/ Certain loan products, including commercial bankcard, consumer bankcard
and other unsecured loans, are not classified as nonperforming; therefore,
the charge-offs on these loans are not included above.
In order to respond when deterioration of a credit occurs, internal loan
workout units are devoted to providing specialized expertise and full-time
management and/or collection of certain nonperforming assets as well as certain
performing loans. Management believes focused collection strategies and a
proactive approach to managing overall problem assets expedites the disposition,
collection and renegotiation of nonperforming and other lower-quality assets. As
part of this process, management routinely evaluates all reasonable
alternatives, including the sale of assets individually or in groups, and
selects what it believes to be the optimal strategy.
During the first half of 2001, the Corporation sold approximately $800
million of nonperforming and poorly performing loans. The Corporation expects to
continue to aggressively manage credit risk and exit problem credits where
practical.
Note Five of the consolidated financial statements provides the reported
investment in specific loans considered to be impaired at June 30, 2001 and
December 31, 2000. The Corporation's investment in specific loans that were
considered to be impaired at June 30, 2001 was $4.1 billion, compared to $3.8
billion at December 31, 2000. Commercial - domestic impaired loans increased
$318 million to $3.2 billion at June 30, 2001 compared to December 31, 2000.
Commercial - foreign impaired loans increased $15 million to $536 million at
June 30, 2001 compared to December 31, 2000. Commercial real estate - domestic
impaired loans decreased $39 million to $373 million at June 30, 2001 compared
to December 31, 2000.
50
Allowance for Credit Losses
The Corporation performs periodic and systematic detailed reviews of its loan
and lease portfolios to identify inherent risks and to assess the overall
collectibility of those portfolios. The allowance on certain homogeneous loan
portfolios, which generally consist of consumer loans, is based on aggregated
portfolio segment evaluations generally by loan type. Loss forecast models are
utilized for these segments which consider a variety of factors including, but
not limited to, anticipated defaults or foreclosures based on portfolio trends,
delinquencies and credit scores, and expected loss factors by loan type. The
remaining portfolios are reviewed on an individual loan basis. Loans subject to
individual reviews are analyzed and segregated by risk according to the
Corporation's internal risk rating scale. These risk classifications, in
conjunction with an analysis of historical loss experience, current economic
conditions and performance trends within specific portfolio segments, and any
other pertinent information (including individual valuations on nonperforming
loans in accordance with Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan") result in the estimation of
specific allowances for credit losses. The Corporation has procedures in place
to monitor differences between estimated and actual incurred credit losses.
These procedures include detailed periodic assessments by senior management of
both individual loans and credit portfolios and the models used to estimate
incurred credit losses in those portfolios.
Portions of the allowance for credit losses are assigned to cover the
estimated probable incurred credit losses in each loan and lease category based
on the results of the Corporation's detail review process described above. The
assigned portion continues to be weighted toward the commercial loan portfolio,
which reflects a higher level of nonperforming loans and the potential for
higher individual losses. The remaining or unassigned portion of the allowance
for credit losses, determined separately from the procedures outlined above,
addresses certain industry and geographic concentrations, including global
economic conditions. This procedure helps to minimize the risk related to the
margin of imprecision inherent in the estimation of the assigned allowances for
credit losses. Due to the subjectivity involved in the determination of the
unassigned portion of the allowance for credit losses, the relationship of the
unassigned component to the total allowance for credit losses may fluctuate from
period to period. Management evaluates the adequacy of the allowance for credit
losses based on the combined total of the assigned and unassigned components and
believes that the allowance for credit losses reflects management's best
estimate of incurred credit losses as of the balance sheet date.
The provision for credit losses increased $745 million to $1.6 billion for
the six months ended June 30, 2001, compared to the same period in 2000. The
increase in the provision was primarily driven by increased credit
deterioration as the overall economic environment continued to weaken. The
provision for credit losses for the six months ended June 30, 2001 was $75
million in excess of net charge-offs of $1.6 billion as the Corporation
increased its allowance for credit losses in response to continued economic
uncertainty.
The nature of the process by which the Corporation determines the appropriate
allowance for credit losses requires the exercise of considerable judgment.
After review of all relevant matters affecting loan collectibility, management
believes that the allowance for credit losses is appropriate given its analysis
of estimated incurred credit losses at June 30, 2001. Table Ten provides the
changes in the allowance for credit losses for the three months and six months
ended June 30, 2001 and 2000.
51
52
Concentrations of Credit Risk
In an effort to minimize the adverse impact of any single event or set of
events, the Corporation strives to maintain a diverse credit portfolio as
outlined in Tables Eleven, Twelve and Thirteen.
The Corporation maintains a diverse commercial loan portfolio, representing
49 percent of total loans and leases at June 30, 2001. The largest concentration
is in commercial real estate, which represents seven percent of total loans and
leases at June 30, 2001. The exposures presented in Table Eleven represent
credit extensions for real estate-related purposes to borrowers or
counterparties who are primarily in the real estate development or investment
business and for which the ultimate repayment of the credit is dependent on the
sale, lease, rental or refinancing of the real estate. The exposures included in
the table do not include credit extensions which were made on the general
creditworthiness of the borrower, for which real estate was obtained as security
and for which the ultimate repayment of the credit is not dependent on the sale,
lease, rental or refinancing of the real estate. Accordingly, the exposures
presented do not include commercial loans secured by owner-occupied real estate,
except where the borrower is a real estate developer.
53
(1) Foreclosed properties include commercial real estate loans only.
(2) Other credit exposures include letters of credit and loans held for sale.
(3) Distribution based on geographic location of collateral.
Table Twelve presents the ten largest industries included in the commercial
loan and lease portfolio at June 30, 2001 and the respective balances at
December 31, 2000. Total commercial loans outstanding, excluding commercial real
estate loans, comprised 42 percent and 45 percent of total loans and leases at
June 30, 2001 and December 31, 2000, respectively. No commercial industry
concentration is greater than three percent of total loans and leases.
54
(1) Includes only non-real estate commercial loans and leases.
International Exposure
Through its credit and market risk management activities, the Corporation has
been devoting particular attention to those countries that have been negatively
impacted by global economic pressure. These include certain Asian countries as
well as countries within Latin America and Europe that have experienced currency
and other economic problems.
In connection with its efforts to maintain a diversified portfolio, the
Corporation limits its exposure to any one geographic region or country and
monitors this exposure on a continuous basis. Table Thirteen sets forth
selected regional foreign exposure at June 30, 2001. The countries selected
represent those that are sometimes considered as having higher credit and
foreign exchange risk. At June 30, 2001, the Corporation's total exposure to
these select countries was $25.7 billion, a decrease of $4.7 billion from
December 31, 2000, primarily due to reductions in exposure to Japan and certain
other countries in Asia and Latin America. Table Thirteen is based on the
FFIEC's instructions for periodic reporting of foreign exposure.
55
(1) Includes acceptances, standby letters of credit, commercial letters of
credit, and formal guarantees.
(2) Cross-border exposure includes amounts payable to the Corporation by
residents of countries other than the one in which the credit is booked,
regardless of the currency in which the claim is denominated, consistent
with FFIEC reporting rules.
(3) Gross local country exposure includes amounts payable to the Corporation by
residents of countries in which the credit is booked, regardless of the
currency in which the claim is denominated. Management does not net local
funding or liabilities against local exposures as allowed by the FFIEC.
Market Risk Management
Overview
The Corporation is exposed to market risk as a consequence of the normal
course of conducting its business activities. Examples of these business
activities include market making, underwriting, proprietary trading, and
asset/liability management in interest rate, foreign exchange, equity, commodity
and credit markets, along with any associated derivative products. Market risk
is the potential of loss arising from adverse changes in market rates, prices
and liquidity. Financial products that expose the Corporation to market risk
include securities, loans, deposits, debt and derivative financial instruments
such as futures, forwards, swaps, options and other financial instruments with
similar characteristics. Liquidity risk arises from the possibility that the
Corporation may not be able to satisfy current or future financial commitments
or that the Corporation may be more reliant on alternative
56
funding sources such as long-term debt.
Trading Portfolio
The Corporation's Board of Directors (the Board) delegates responsibility of
the day-to-day management of market risk to the Finance Committee. The Finance
Committee has structured a system of independent checks, balances and reporting
in order to ensure that the Board's disposition toward market risk is not
compromised.
The objective of the Corporation's Risk Management group (Risk Management) is
to provide senior management with independent, timely assessments of the bottom
line impacts of all market risks facing the Corporation and to monitor those
impacts against trading limits. Risk Management monitors the changing aggregate
position of the Corporation and projects the profit and loss levels that would
result from both normal and extreme market moves. In addition, Risk Management
is responsible for ensuring that reasonable policies and procedures that are in
line with the Board's risk preferences are in place and enforced. These
policies and procedures encompass the limit process, risk reporting, new product
review and model review.
57
[GRAPHIC]
Histogram of Daily Market Risk-Related Revenue
Twelve Months Ended June 30, 2001
Daily Market Risk-Related Revenue Number
(Dollars in millions) of Days
=======================================================
Less than $(10) 3
$(5) to $(10) 2
&(5) to $0 15
$0 to $5 33
$5 to $10 54
$10 to $15 54
$15 to $20 36
$20 to $25 23
$25 to $30 21
$30 to $35 3
$35 to $40 4
$40 to $45 1
Greater than $45 2
Market risk-related revenue includes trading revenue and trading-related net
interest income, which encompass both proprietary trading and customer-related
activities. During 2001, the Corporation has continued its efforts to build on
its client franchise and reduce the proportion of proprietary trading revenue to
total revenue. The success of these efforts can be seen in the histogram above.
During the twelve months ended June 30, 2001, the Corporation recorded positive
daily market risk-related revenue for 231 of 251 trading days. Furthermore, of
the 20 days that showed negative revenue, only three days were greater than $10
million.
Value at Risk
Value at Risk (VAR) is the key measure of market risk for the Corporation.
VAR represents the maximum amount that the Corporation has placed at risk of
loss, with a 99 percent degree of confidence, in the course of its risk taking
activities. Its purpose is to describe the amount of capital required to absorb
potential losses from adverse market movements.
As the following graph shows, during the twelve months ended June 30, 2001,
actual market risk-related revenue exceeded VAR measures three days out of 251
total trading days. Given the 99 percent confidence interval captured by VAR,
this would be expected to occur approximately once every 100 trading days, or
two to three times each year.
58
Trading Risk and Return
Daily VAR and Market Risk-Related Revenue
[GRAPHIC]
Line graph representation of Daily Market Risk-Related Revenue and VAR for the
twelve months ended June 30, 2001. During the period, the daily market
risk-related revenue ranged from $(33) million to $51 million. Over the same
period, VAR ranged from $25 million to $70 million.
In the fourth quarter of 2000, a change in methodology was used to calculate
VAR for the equities portfolio. The net effect of the change was an approximate
$20 million reduction in reported VAR for equities. VAR was not restated for
previous quarters for this change. VAR for the first quarter of 2001 has been
restated to reflect the addition of mortgage banking assets to the VAR
calculation. This resulted in an approximate $20 million increase in VAR for the
real estate/mortgage portfolio in the first quarter of 2001.
59
The following table summarizes the VAR in the Corporation's trading
portfolios for the twelve months ended June 30, 2001 and 2000:
/(1)/ The average VAR for the total portfolio is less than the sum of the
VARs of the individual portfolios due to risk offsets arising from the
diversification of the portfolio.
/(2)/ The high and low for the total portfolio may not equal the sum of the
individual components as the highs or lows of the individual portfolios may
have occurred on different trading days.
Total trading portfolio VAR increased during the twelve months ended June
30, 2001 relative to the twelve months ended June 30, 2000. This increase was
largely driven by increased activity in the real estate/mortgage and interest
rate businesses.
The following table summarizes the quarterly VAR in the Corporation's
trading portfolios for the most recent four quarters:
/(1)/ The average VAR for the total portfolio is less than the sum of the
VARs of the individual portfolios due to risk offsets arising from the
diversification of the portfolio.
/(2)/ The high and low for the total portfolio may not equal the sum
of the individual components as the highs or lows of the individual
portfolios may have occurred on different trading days.
VAR modeling on trading is subject to numerous limitations. In addition,
the Corporation recognizes that there are numerous assumptions and estimates
associated with modeling and actual results could differ from these assumptions
and estimates. The Corporation mitigates these uncertainties through close
monitoring and by examining and updating assumptions on an ongoing basis. The
continual trading risk management process considers the impact of unanticipated
risk exposure and updates assumptions to reduce loss exposure.
60
Stress Testing
In order to determine the sensitivity of the Corporation's capital to the
impact of historically large market moves with low probability, stress scenarios
are run against the trading portfolios. This stress testing should verify that,
even under extreme market moves, the Corporation will preserve its capital. The
scenarios for each product are large standard deviation moves in the relevant
markets that are based on significant historical events. These results are
calculated daily and reported as part of the regular reporting process.
In addition, specific stress scenarios are run regularly which represent
extreme, but plausible, events that would be of concern given the Corporation's
current portfolio. The results of these specific scenarios are presented to the
Corporation's Trading Risk Committee as part of its regular meetings. Examples
of these specific stress scenarios include calculating the effects on the
overall portfolio of an extreme Federal Reserve Board tightening or easing of
interest rates, a severe credit deterioration in the U.S., and a recession in
Japan and the corresponding ripple effects throughout Asia.
Asset and Liability Management Activities
Non-Trading Portfolio
The Corporation's Asset and Liability Management (ALM) process, managed
through the Asset and Liability Committee of the Finance Committee, is used to
manage interest rate risk through the structuring of balance sheet portfolios
and identifying and linking derivative positions to specific hedged assets and
liabilities. Interest rate risk represents the only material market risk
exposure to the Corporation's non-trading financial instruments.
To effectively measure and manage interest rate risk, the Corporation uses
sophisticated computer simulations that determine the impact on net interest
income of numerous interest rate scenarios, balance sheet trends and strategies.
These simulations cover the following financial instruments: short-term
financial instruments, securities, loans, deposits, borrowings and derivative
instruments. These simulations incorporate assumptions about balance sheet
dynamics, such as loan and deposit growth and pricing, changes in funding mix
and asset and liability repricing and maturity characteristics. Simulations are
run under various interest rate scenarios to determine the impact on net income
and capital. From these scenarios, interest rate risk is quantified and
appropriate strategies are developed and implemented. The overall interest rate
risk position and strategies are reviewed on an ongoing basis by senior
management. Additionally, duration and market value sensitivity measures are
selectively utilized where they provide added value to the overall interest rate
risk management process.
At June 30, 2001, the interest rate risk position of the Corporation was
relatively neutral as the impact of a gradual parallel 100 basis point rise or
fall in interest rates over the next twelve months was estimated to be less than
one percent of net interest income.
Available-for-sale securities had a net unrealized loss of $620 million at
June 30, 2001, compared to a net unrealized loss of $991 million at December 31,
2000. The expected maturities, unrealized gains and losses and weighted average
effective yield and rate associated with the Corporation's other significant
non-trading on-balance sheet financial instruments at June 30, 2001 were not
significantly different from those at December 31, 2000. For a discussion of
other non-trading on-balance sheet financial instruments, see page 50 and Table
Twenty-One on page 51 of the "Market Risk Management" section of the
Corporation's 2000 Annual Report on Form 10-K.
Interest Rate and Foreign Exchange Contracts
Risk management interest rate contracts and foreign exchange contracts are
utilized in the Corporation's ALM process. The Corporation maintains an overall
interest rate risk management strategy that incorporates the use of interest
rate contracts to minimize significant unplanned fluctuations in earnings that
are caused by interest rate volatility. The Corporation's goal is to manage
interest rate sensitivity so that movements in interest rates do not adversely
affect net interest income. As a result of interest rate fluctuations, hedged
fixed-rate assets and liabilities appreciate or depreciate in market value.
Gains or losses on the derivative instruments that are linked to the hedged
fixed-rate assets and liabilities are expected to substantially offset this
unrealized appreciation or depreciation. Interest income and interest expense on
hedged variable-rate assets and liabilities, respectively, increases or
decreases as a result of interest rate fluctuations. Gains and losses on the
derivative instruments that are linked to
61
these hedged assets and liabilities are expected to substantially offset this
variability in earnings. See Note Four of the consolidated financial statements
for additional information on the Corporation's hedging activities.
Interest rate contracts, which are generally non-leveraged generic interest
rate and basis swaps, options, futures and forwards, allow the Corporation to
effectively manage its interest rate risk position. In addition, the Corporation
uses foreign currency contracts to manage the foreign exchange risk associated
with foreign-denominated assets and liabilities, as well as the Corporation's
equity investments in foreign subsidiaries. As reflected in Table Sixteen, the
notional amount of the Corporation's receive fixed and pay fixed interest rate
swaps at June 30, 2001 was $81.1 billion and $31.2 billion, respectively. The
receive fixed interest rate swaps are primarily converting variable rate
commercial loans to fixed rate. The net receive fixed position at June 30, 2001
was $49.9 billion notional compared to $48.8 billion notional at December 31,
2000. The Corporation had $15.7 billion notional and $14.7 billion notional of
basis swaps at June 30, 2001 and December 31, 2000, respectively, linked
primarily to loans and long-term debt. At June 30, 2001, the notional amount of
option products being used in the Corporation's ALM process netted to zero,
consisting of $2.0 billion long option positions and $2.0 billion short option
positions, compared to $22.5 billion notional of option products at December 31,
2000. The Corporation had $2.7 billion notional and $24.8 billion notional of
futures and forward rate contracts at June 30, 2001 and December 31, 2000,
respectively. In addition, open foreign exchange contracts at June 30, 2001 had
a notional amount of $26.7 billion compared to $19.0 billion at December 31,
2000.
Table Sixteen also summarizes the expected maturity and the average estimated
duration, weighted average receive and pay rates and the net unrealized gains
and losses at June 30, 2001 and December 31, 2000 of the Corporation's open ALM
interest rate swaps, as well as the expected maturity and net unrealized gains
and losses at June 30, 2001 and December 31, 2000 of the Corporation's open ALM
basis swaps, options, futures and forward rate and foreign exchange contracts.
Unrealized gains and losses are based on the last repricing and will change in
the future primarily based on movements in one-, three- and six-month LIBOR
rates. The ALM swap portfolio had a net unrealized gain of $382 million and $364
million at June 30, 2001 and December 31, 2000, respectively. The ALM option
products had a net unrealized loss of $7 million and $157 million at June 30,
2001 and December 31, 2000, respectively. At June 30, 2001 and December 31,
2000, open foreign exchange contracts had a net unrealized loss of $508 million
and $387 million, respectively.
The amount of unamortized net realized deferred gains associated with closed
ALM swaps was $282 million and $25 million at June 30, 2001 and December 31,
2000, respectively. The amount of unamortized net realized deferred gains
associated with closed ALM options was $30 million and $95 million at June 30,
2001 and December 31, 2000, respectively. The amount of unamortized net realized
deferred losses associated with closed ALM futures and forward contracts was $52
million and $15 million at June 30, 2001 and December 31, 2000, respectively.
There were no unamortized net realized deferred gains or losses associated with
closed foreign exchange contracts at June 30, 2001 and December 31, 2000. Of
these unamortized net realized deferred gains, $240 million was included in
accumulated other comprehensive income at June 30, 2001.
Management believes the fair value of the ALM interest rate and foreign
exchange portfolios should be viewed in the context of the overall balance
sheet, and the value of any single component of the balance sheet positions
should not be viewed in isolation.
62
(1) Represents the unamortized net realized deferred gains associated with
closed contracts. As a result, no notional amount is reflected for expected
maturity.
63
In conducting its mortgage production activities, the Corporation is exposed
to interest rate risk for the periods between the loan commitment date and the
loan funding date. To manage this risk, the Corporation enters into various
financial instruments including forward delivery contracts, Euro dollar futures
and option contracts. The notional amount of such contracts was $24.8 billion
at June 30, 2001 with associated net unrealized gains of $30 million. At
December 31, 2000, the notional amount of such contracts was $9.7 billion with
associated net unrealized losses of $53 million. These contracts have an
average expected maturity of less than 90 days.
64
(1) Cash basis calculations exclude goodwill and other intangible amortization
expense.
65
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition - Market Risk Management" on page 56 and the sections
referenced therein for Quantitative and Qualitative Disclosures about Market
Risk.
- --------------------------------------------------------------------------------
Part II. Other Information
- --------------------------------------------------------------------------------
Item 1. Legal Litigation
Proceedings In the ordinary course of business, the Corporation and
its subsidiaries are routinely defendants in or parties
to a number of pending and threatened legal actions and
proceedings, including actions brought on behalf of
various classes of claimants. In certain of these
actions and proceedings, substantial money damages are
asserted against the Corporation and its subsidiaries
and certain of these actions and proceedings are based
on alleged violations of consumer protection,
securities, environmental, banking and other laws.
The Corporation and certain present and former officers
and directors have been named as defendants in a number
of actions filed in several federal courts that have
been consolidated for pretrial purposes before a
Missouri federal court. The amended complaint in the
consolidated actions alleges, among other things, that
the defendants failed to disclose material facts about
BankAmerica's losses relating to D.E. Shaw Securities
Group, L.P. ("D.E. Shaw") and related entities until
mid-October 1998, in violation of various provisions of
federal and state laws. The amended complaint also
alleges that the proxy statement-prospectus of August
4, 1998, falsely stated that the merger between
NationsBank Corporation (NationsBank) and BankAmerica
would be one of equals and alleges a scheme to have
NationsBank gain control over the newly merged entity.
The Missouri federal court has certified classes
consisting generally of persons who were stockholders
of NationsBank or BankAmerica on September 30, 1998, or
were entitled to vote on the merger, or who purchased
or acquired securities of the Corporation or its
predecessors between August 4, 1998 and October 13,
1998. The amended complaint substantially survived a
motion to dismiss, and discovery is underway. Claims
against certain director-defendants were dismissed with
leave to replead. The court has preliminarily ordered
the parties to be ready for trial in January 2002. A
former NationsBank stockholder who opted out of the
federal class action has commenced an action asserting
claims substantially similar to the claims relating to
D.E. Shaw set forth in the consolidated action. That
action is proceeding with the federal class action in
the Missouri federal court. Similar class actions
(including one limited to California residents raising
the claim that the proxy statement-prospectus of August
4, 1998, falsely stated that the merger would be one of
equals) were filed in California state court, alleging
violations of the California Corporations Code and
other state laws. The action on behalf of California
residents was certified as a class. A motion to
decertify the class is pending. A lower court order
dismissing that action was reversed on appeal and
discovery has commenced. The remaining California
actions have been consolidated, but have not been
certified as class actions. The Missouri federal court
has enjoined prosecution of those consolidated class
actions as a class action. The plaintiffs who were
enjoined have appealed that injunction to the United
States Court of Appeals for the Eighth Circuit. The
Corporation believes the actions lack merit and will
defend them vigorously. The amount of any ultimate
exposure cannot be determined with certainty at this
time.
On July 30, 2001, the Securities and Exchange
Commission issued a cease-and-desist order finding
violations of Section 13(a) of the Securities Exchange
Act of 1934 and Rules 13a-1, 13a-11, 13a-13 and 12b-20
promulgated thereunder, with respect to
66
BankAmerica's accounting for, and the disclosures
relating to, the D.E. Shaw relationship. The
Corporation consented to the order without admitting or
denying the findings. In the Matter of BankAmerica
Corp., Exch. Act Rel. No. 44613, Acctg & Audit. Enf.
Rel. No. 1249, Admin. Proc. No. 3-10541.
Management believes that the actions and proceedings
and the losses, if any, resulting from the final
outcome thereof, will not be material in the aggregate
to the Corporation's financial position or results of
operations.
Item 2. Changes in As part of its share repurchase program, during the
Securities and Use second quarter of 2001, the Corporation sold put
of Proceeds options to purchase an aggregate of one million shares
of Common Stock. These put options were sold to an
independent third party for an aggregate purchase price
of $6 million. The put options have an exercise price
of $56.36 per share and expiration dates in October
2001. The put option contracts allow the Corporation to
determine the method of settlement (cash or stock).
Each of these transactions was exempt from registration
under Section 4(2) of the Securities Act of 1933, as
amended.
At June 30, 2001, the Corporation had two million put
options outstanding with exercise prices ranging from
$51.38 per share to $56.36 per share and expiration
dates ranging from September 2001 to October 2001.
Item 4. Submission a. The Annual Meeting of Stockholders was held on
of Matters to a Vote April 25, 2001.
of Security Holders
b. The following are the voting results on each matter
submitted to the stockholders:
1. To elect 17 directors
67
2. To ratify the action of the Board of Directors in selecting
PricewaterhouseCoopers LLP as independent public
accountants to audit the books of the Corporation and its
subsidiaries for the current year
Against or
For Withheld Abstentions
------------- ----------- -----------
1,328,454,453 10,588,881 8,665,834
3. To consider a stockholder proposal regarding contributions
to political movements and entities
Against or Broker
For Withheld Abstentions Nonvotes
------------- ----------- ----------- -----------
112,916,938 961,886,983 45,507,394 227,397,853
4. To consider a stockholder proposal regarding the rotation
of the annual meeting location
Against or Broker
For Withheld Abstentions Nonvotes
------------- ------------- ----------- -----------
54,857,212 1,043,310,996 22,143,107 227,397,853
5. To consider a stockholder proposal regarding performance-
based options
Against or Broker
For Withheld Abstentions Nonvotes
------------- ----------- ----------- -----------
380,809,133 719,366,344 20,135,838 227,397,853
6. To consider a stockholder proposal regarding future
severance agreements
Against or Broker
For Withheld Abstentions Nonvotes
------------- ----------- ----------- -----------
440,773,887 642,556,123 36,981,305 227,397,853
Item 6. Exhibits a) Exhibits
--------
and Reports on
Form 8-K Exhibit 11 - Earnings Per Share Computation - included in
Note Eight of the consolidated financial
statements
Exhibit 12(a) - Ratio of Earnings to Fixed Charges
Exhibit 12(b) - Ratio of Earnings to Fixed Charges and
Preferred Dividends
b) Reports on Form 8-K
-------------------
The following reports on Form 8-K were filed by the
Corporation during the quarter ended June 30, 2001:
Current Report on Form 8-K dated and filed April 16, 2001,
Items 5, 7 and 9.
68
Current Report on Form 8-K dated June 5, 2001 and filed June
14, 2001, Items 5 and 7.
Current Report on Form 8-K dated and filed June 22, 2001, Item
5.
Current Report on Form 8-K dated June 27, 2001 and filed June
28, 2001, Items 5 and 7.
69
- --------------------------------------------------------------------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Bank of America Corporation
---------------------------
Registrant
Date: August 13, 2001 /s/ Marc D. Oken
--------------- ----------------
MARC D. OKEN
Executive Vice President and
Principal Financial Executive
(Duly Authorized Officer and
Chief Accounting Officer)
70
Bank of America Corporation
Form 10-Q
Index to Exhibits
- --------------------------------------------------------------------------------
Exhibit Description
- ------- -----------
11 Earnings Per Share Computation - included in Note Eight of the
consolidated financial statements
12(a) Ratio of Earnings to Fixed Charges
12(b) Ratio of Earnings to Fixed Charges and Preferred Dividends
71