2003 Annual Report: Financial Review: Management's Discussion and Analysis: Credit Risk Management

Credit risk is the risk of loss arising from a customer or counterparty's inability to meet its obligation and exists in our outstanding loans and leases, trading account assets, derivative assets and unfunded lending commitments that include loan commitments, letters of credit and financial guarantees. We define the credit exposure to a client as the amount representing the maximum loss potential arising from all these product classifications, except for derivative positions where we use the current mark-to-market values of the counterparty component to represent credit exposure without giving consideration to future mark-to-market changes. Our commercial and consumer credit extension and review procedures take into account credit exposures that are both funded and unfunded. For additional information on derivatives and credit extension commitments, see Note 6 and Note 13 of the consolidated financial statements.

We manage credit risk based on the risk profile of the borrower, repayment source and the nature of underlying collateral given current events and conditions. At a macro level, we segregate our loans in two major groups: commercial and consumer.

Commercial Portfolio Credit Risk Management

Both our lines of business and Risk Management personnel use a variety of tools to continuously monitor a borrower/counterparty's ability to perform under its obligations. Adjustments in credit exposures are made as a result of this ongoing analysis and review. Additionally, we utilize syndication of exposure to other entities, loan sales, credit derivatives and collateralized loan obligations (CLOs) to manage the size of the loan portfolio. These activities play an important role in reducing credit exposures for risk mitigation purposes or where it has been determined that credit risk concentrations are undesirable.

Banc of America Strategic Solutions, Inc. (SSI) is a majority-owned consolidated subsidiary of Bank of America, N.A., a wholly-owned subsidiary of the Corporation, that manages problem asset resolution and the coordination of exit strategies, if applicable, including bulk sales, collateralized debt obligations and other resolutions of domestic commercial distressed assets. For additional discussion, see "Problem Loan Management" below.

Consumer Portfolio Credit Risk Management

Table 10 Outstanding Loans and Leases
		December 31
		2003								2002
(Dollars in millions)		Amount					Percent			Amount					Percent
Commercial - domestic		$	96,644				26.0	%		$	105,053				30.6	%
Commercial - foreign			15,293				4.1				19,912				5.8
Commercial real estate
- domestic			19,043				5.1				19,910				5.8
Commercial real estate
- foreign			324				0.1				295				0.1
Total commercial			131,304				35.3				145,170				42.3
Residential mortgage			140,513				37.8				108,197				31.6
Home equity lines			23,859				6.4				23,236				6.8
Direct/Indirect consumer			33,415				9.0				31,068				9.1
Consumer finance			5,589				1.5				8,384				2.4
Credit card			34,814				9.4				24,729				7.2
Foreign consumer			1,969				0.6				1,971				0.6
Total consumer			240,159				64.7				197,585				57.7
Total(1)		$	371,463				100.0	%		$	342,755				100.0	%
(1)  Includes lease financings of $11,376 and $14,332 at December 31, 2003 and 2002, respectively.

Concentrations of Credit Risk

From the perspective of portfolio risk management, customer concentration management is most relevant in Global Corporate and Investment Banking. Within Global Corporate and Investment Banking, concentrations continue to be addressed through the underwriting and ongoing monitoring processes, the established strategy of "originate to distribute" and partly through the purchase of credit protection through credit derivatives. We utilize various risk mitigation tools to hedge our economic risk to certain credit counterparties, including credit default swaps and CLOs in which a layer of loss is sold to third parties. However, this gives rise to earnings volatility as a consequence of accounting asymmetry as we mark to market our credit default swaps through trading account profits and CLOs as required by SFAS 133, while the loans are recorded at historical cost less an allowance for credit losses or, if held for sale, the lower of cost or market.

As previously discussed, the improvement in credit quality contributed to a $731 million, or 61 percent, decrease in provision for credit losses reported in Global Corporate and Investment Banking. However, the credit portfolio hedges lost $330 million in value for 2003 compared to an increase in value of $84 million for 2002 as a result of narrowing credit spreads due to improved credit quality in the large corporate sector. At December 31, 2003 and 2002, the notional amount of these credit derivatives was $14.8 billion and $16.7 billion, respectively.

During 2003, we entered into several transactions whereby we purchased credit protection on a portion of our residential mortgage loan portfolio from unaffiliated parties. These transactions are designed to aid us as part of our ALM overall risk management strategy. At December 31, 2003, approximately $63.4 billion of residential mortgage loans were covered by the purchased credit protection. Our regulatory risk-weighted assets were reduced as a result of this transaction because we had effectively transferred a degree of credit risk on these loans to unaffiliated parties. These transactions had the effect of reducing our risk-weighted assets by $18.6 billion and resulted in a 26 bp increase in our Tier 1 Risk-based Capital ratio at December 31, 2003.

Table 11 shows utilized commercial credit exposure by significant industry based on Standard and Poor's industry classifications and includes commercial loans and leases, commercial letters of credit, SBLCs and financial guarantees as well as the mark-to-market exposure for derivatives. As depicted in the table, we believe that utilized commercial credit exposure is well-diversified across a range of industries.

Table 11 Utilized Commercial Credit Exposure by Significant Industry
		December 31
(Dollars in millions)		2003				2002
Banks		$	25,088			$	20,889
Real estate			22,228				22,463
Diversified financials			20,427				21,818
Retailing			15,152				13,560
Education and government			13,919				10,196
Leisure and sports, hotels and restaurants			10,099				10,970
Transportation			9,355				9,941
Food, beverage and tobacco			9,134				9,692
Materials			8,860				11,256
Consumer durables and apparel			8,313				8,078
Capital goods			8,244				9,863
Commercial services and supplies			7,206				7,674
Health care equipment and services			7,064				6,729
Utilities			5,012				8,109
Media			4,701				7,675
Energy			4,348				4,770
Other(1)			33,744				36,285
Total		$	212,894			$	219,968
(1)  At December 31, 2003 and 2002, Other included amounts for Individuals and Trusts of credit exposure outstanding of $14,307 and $13,481, respectively, representing 6.7 percent and 6.1 percent of total commercial credit exposure, respectively. The remaining balance in Other included credit exposure to religious and social organizations, insurance, telecommunications services, technology hardware and equipment, and food and staples retailing.

An additional measure of the risk diversification is the distribution of loans by loan size. Table IX presents the non-real estate outstanding commercial loans and leases by significant industry. Over 99 percent of the non-real estate outstanding commercial loans and leases were less than $50 million, representing 89 percent of the total outstanding amount of non-real estate commercial loans and leases. We believe that the non-real estate commercial loan and lease portfolio is well-diversified across a range of industries.

Table X presents outstanding commercial real estate loans by geographic region and by property type. The amounts presented in Table X do not include outstanding loans and leases that 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 outstandings presented do not include commercial loans secured by owner-occupied real estate. Over 99 percent of the commercial real estate loans outstanding in Table X were less than $50 million, representing 96 percent of the total outstanding amount of commercial real estate loans. We believe the commercial real estate loan portfolio is well-diversified in terms of both geographic region and property type.

Foreign Portfolio

Table 12 Regional Foreign Exposure and Selected Emerging Markets Exposure(1,2)
		December 31
(Dollars in millions)		2003				2002
Regional Foreign Exposure
Asia		$	13,605			$	13,912
Europe			49,532				43,034
Africa			108				80
Middle East			584				435
Latin America			4,974				3,915
Other(3)			9,998				8,709
Total		$	78,801			$	70,085
Selected Emerging Markets(4)
Asia		$	11,012			$	10,296
Central and Eastern Europe			270				364
Latin America			4,974				3,915
Total		$	16,256			$	14,575
(1)  The balances above do not reflect the netting of local funding or liabilities against local exposures as allowed by the Federal Financial Institutions Examinations Council (FFIEC). (2)  Exposures for Asia and Latin America have been reduced by $12 and $173, respectively, at December 31, 2003, and $12 and $763, respectively, at December 31, 2002. Such amounts represent the fair value of U.S. Treasury securities held as collateral outside the country of exposure. (3)  Other includes Australia, Bermuda, Canada, Cayman Islands, New Zealand and supranational entities. (4)  There is no generally accepted definition of emerging markets. The definition that we used included all countries in Asia excluding Japan; all countries in Latin America excluding Cayman Islands and Bermuda; and all countries in Central and Eastern Europe except Greece.

Our total foreign exposure was $78.8 billion at December 31, 2003, an increase of $8.7 billion from December 31, 2002. Our foreign exposure was concentrated in Europe, which accounted for $49.5 billion, or 63 percent, of total foreign exposure. Growth in exposure in Europe during 2003 took place in Western Europe and was distributed across a variety of industries with the largest concentration in the banking sector that accounted for approximately 63 percent of the growth. At December 31, 2003 and 2002, the United Kingdom and Germany were the only countries whose total cross-border outstandings exceeded 0.75 percent of our total assets. The United Kingdom had total cross-border exposure of $10.1 billion and $9.4 billion, respectively, representing 1.37 percent and 1.42 percent of total assets, respectively. At December 31, 2003 and 2002, Germany had total cross-border exposure of $6.9 billion and $5.8 billion, respectively, representing 0.93 percent and 0.87 percent of total assets, respectively. The bulk of the exposure to both of these countries was concentrated in the banking sector.

At December 31, 2003, foreign exposure to entities in countries defined as emerging markets increased 12 percent to $16.3 billion, or 21 percent of total foreign exposure, compared to $14.6 billion or 21 percent of total exposure at the end of 2002. At December 31, 2003, 68 percent of the emerging markets exposure was in Asia compared to 71 percent at December 31, 2002. Growth in Asian emerging markets was largely concentrated in South Korea due to increases in short-term trade financing. India also contributed to growth in Asian emerging markets with increases in acceptances and trading of Indian government securities. A decline in Singapore due to a decrease in client activity partially offset this growth.

Growth in Latin America was attributable to the acquisition of 24.9 percent of the Mexican entity GFSS in the first quarter of 2003 for $1.6 billion. This growth was partially offset by a reduction in Mexican Brady Bonds that were called during the second quarter of 2003 as well as reductions in loans and trading activity in Brazil and continued reductions of our exposure in Argentina. Mexico is the only country in the region where we significantly increased our exposure. We will continue to participate in trading activities to take advantage of favorable market conditions.

The primary components of our exposure in Brazil at December 31, 2003 and 2002 were $406 million and $562 million, respectively, of traditional credit exposure (loans, letters of credit, etc.) and $159 million and $290 million, respectively, of Brazilian government securities. Derivatives exposure totaled $7 million at December 31, 2003 compared to $55 million at December 31, 2002. At December 31, 2003 and 2002, the allowance for credit losses related to Brazil consisted of $76 million and $60 million, respectively, related to traditional credit exposure. Nonperforming loans in Brazil were $39 million at December 31, 2003 compared to $90 million at December 31, 2002. Net charge-offs in 2003 totaled $33 million compared to $8 million in 2002.

The primary components of our exposure in Argentina at December 31, 2003 and 2002, were $144 million and $339 million, respectively, of traditional credit exposure, and $65 million and $62 million, respectively, of Argentine government securities. Derivatives exposure totaled $2 million at both December 31, 2003 and 2002. The allowance for credit losses related to Argentina's traditional credit exposure was $104 million and $177 million at December 31, 2003 and 2002, respectively. At December 31, 2003 and 2002, Argentina nonperforming loans were $107 million and $278 million, respectively. Net charge-offs in 2003 totaled $82 million compared to $113 million in 2002.

Credit Quality Performance

We routinely review the loan and lease portfolio to determine if any credit exposure should be placed on nonperforming status. An asset is placed on nonperforming status when it is determined that principal and interest are not expected to be fully collected in accordance with its contractual terms. As evidenced by the improvement in credit quality, nonperforming assets, presented in Table 14, declined $2.2 billion from December 31, 2002 due to decreases in the nonperforming commercial loan category. Decreases in total nonperforming commercial loans were due to reduced levels of inflows of $2.8 billion, loan sales of $1.5 billion, paydowns and payoffs of $1.3 billion that resulted from increased refinancings in the capital markets, improvements in the credit quality of individual exposures and charge-offs. There are no assurances that the elevated levels of paydowns and payoffs experienced in 2003 will continue in 2004. Eighty-four percent of the reduction in nonperforming commercial loans was in our large corporate portfolio. Nonperforming commercial - domestic loans decreased by $1.3 billion and represented 1.56 percent of commercial - domestic loans at December 31, 2003 compared to 2.65 percent at December 31, 2002. Nonperforming commercial - foreign loans decreased $773 million and represented 3.83 percent of commercial - foreign loans at December 31, 2003 compared to 6.83 percent at December 31, 2002.

Within the consumer portfolio, nonperforming loans decreased $95 million to $638 million, and represented 0.27 percent of consumer loans at December 31, 2003 compared to $733 million, representing 0.37 percent of consumer loans at December 31, 2002. The decrease in nonperforming consumer loans was driven by loan sales, while the improvement in the percentage of nonperforming consumer loans to the total consumer portfolio was due to growth in residential mortgages stemming from our ALM strategies to capitalize on the large increase of refinancings in the market.

Sales of nonperforming assets in 2003 totaled $1.7 billion, comprised of $1.5 billion of nonperforming commercial loans, $141 million of nonperforming consumer loans and $123 million of foreclosed properties. Sales of nonperforming assets in 2002 totaled $543 million, comprised of $296 million of nonperforming commercial loans, $105 million of nonperforming consumer loans and $142 million of foreclosed properties.

Table 13 Commercial Criticized Exposure(1)
		December 31
		2003								2002
(Dollars in millions)		Amount					Percent	(2)		Amount					Percent	(2)
Commercial - domestic		$	8,847				6.08	%		$	16,401				10.78	%
Commercial - foreign			2,820				6.71				3,804				8.93
Commercial real estate
- domestic			956				3.83				1,150				4.62
Commercial real estate
- foreign			27				8.40				2				0.79
Total commercial
criticized exposure		$	12,650				5.94	%		$	21,357				9.71	%
(1)  Criticized exposure corresponds to the Special Mention, Substandard and Doubtful asset categories defined by regulatory authorities. Exposure amounts include loans and leases, foreclosed properties, letters of credit, bankers' acceptances, derivatives and assets held for sale. (2)  Commercial criticized exposure is taken as a percentage of total utilized exposure which includes loans and leases, foreclosed properties, letters of credit, bankers' acceptances, derivatives and assets held for sale.

Table 14 Nonperforming Assets(1)
		December 31
(Dollars in millions)		2003				2002
Commercial - domestic		$	1,507			$	2,781
Commercial - foreign			586				1,359
Commercial real estate - domestic			140				161
Commercial real estate - foreign			2				3
Total commercial			2,235				4,304
Residential mortgage			531				612
Home equity lines			43				66
Direct/Indirect consumer			28				30
Consumer finance			32				19
Foreign consumer			4				6
Total consumer			638				733
Total nonperforming loans			2,873				5,037
Foreclosed properties			148				225
Total nonperforming assets(2)		$	3,021			$	5,262
(1)  In 2003, $575 in interest income was contractually due on nonperforming loans and troubled debt restructured loans. Of this amount, $141 was actually recorded as interest income in 2003. (2)  Balances do not include $202 and $120 of nonperforming assets included in other assets at December 31, 2003 and 2002, respectively.

Table 15 presents the additions to and reductions in nonperforming assets in the commercial and consumer portfolios during 2003 and 2002.

Table 15 Nonperforming Assets Activity
(Dollars in millions)		2003				2002
Nonperforming assets, January 1		$	5,262			$	4,908
Commercial
Additions to nonperforming assets:
New nonaccrual loans and
foreclosed properties			2,134				4,963
Advances on loans			199				244
Total commercial additions			2,333				5,207
Reductions in nonperforming assets:
Paydowns, payoffs and sales			(2,804	)			(2,171	)
Returns to performing status			(197	)			(149	)
Charge-offs(1)			(1,352	)			(2,354	)
Transfers to assets held for sale			(108	)			-
Total commercial reductions			(4,461	)			(4,674	)
Total commercial net additions to
(reductions in) nonperforming assets			(2,128	)			533
Consumer
Additions to nonperforming assets:
New nonaccrual loans and
foreclosed properties			1,583				1,694
Transfers from assets held for sale(2)			5				77
Total consumer additions			1,588				1,771
Reductions in nonperforming assets:
Paydowns, payoffs and sales			(712	)			(957	)
Returns to performing status			(878	)			(886	)
Charge-offs(1)			(111	)			(107	)
Total consumer reductions			(1,701	)			(1,950	)
Total consumer net reductions in
nonperforming assets			(113	)			(179	)
Total net additions to (reductions in)
nonperforming assets			(2,241	)			354
Nonperforming assets, December 31		$	3,021			$	5,262
(1)  Certain loan products, including commercial credit card, consumer credit card and consumer non-real estate loans, are not classified as nonperforming; therefore, the charge-offs on these loans are not included above. (2)  Includes assets held for sale that were foreclosed and transferred to foreclosed properties.

Domestic commercial loans past due 90 days or more and still accruing interest were $133 million and $223 million at December 31, 2003 and 2002, respectively. Consumer loans past due 90 days or more and still accruing interest were $698 million and $541 million at December 31, 2003 and 2002, respectively, which included held credit card loans of $616 million and $424 million, respectively.

Commercial - domestic loan net charge-offs, as presented in Table 17, decreased $714 million to $757 million in 2003 compared to 2002, reflecting overall improvement in the portfolio and to a lesser extent, reductions in various industry sectors, the largest of which was telecommunications services.

Commercial - foreign loan net charge-offs were $306 million in 2003 compared to $521 million in 2002. The decrease was attributable to reductions in exposure to the telecommunications and media industry sectors. The largest concentration of commercial - foreign loan net charge-offs in 2003, excluding Parmalat, was attributable to Argentina.

Held credit card net charge-offs increased $420 million to $1.5 billion in 2003 compared to 2002, of which $173 million were from new advances on previously securitized balances. Such advances are recorded on our balance sheet after the revolving period of the securitization, which has the effect of increasing loans on our balance sheet, increasing net interest income and increasing charge-offs, with a corresponding reduction in noninterest income. Major factors driving the remaining increase were continued seasoning of outstandings from new credit card growth over the past two years and economic conditions including higher bankruptcy filings. We expect the trend related to the impact of the growth of seasoned credit card portfolio to continue.

As a matter of corporate practice, we do not discuss specific client relationships; however, we have made an exception for two names due to the publicity and interest surrounding them: Enron Corporation and its related entities (Enron), and Parmalat. At December 31, 2003 and 2002, our credit exposure related to Enron was $102 million and $185 million respectively, of which $81 million and $150 million was secured. Nonperforming loans related to Enron were $78 million and $159 million at December 31, 2003 and 2002, respectively. During 2003 and 2002, we charged off $58 million and $48 million, respectively, related to Enron. Our credit exposure related to Parmalat was $274 million and $617 million at December 31, 2003 and 2002, respectively, of which $123 million and $290 million was supported by credit insurance or collateralized by cash. Our exposure at December 31, 2003 included both loans and derivatives. Direct loans and letters of credit totaling $244 million consisted of loans of $105 million that were supported by credit insurance and $121 million that were not cash collateralized or credit insured with specific reserves of $66 million, and undrawn letters of credit collateralized by cash of $18 million. In addition, our exposure also included derivatives of $30 million. Nonperforming loans related to Parmalat were $226 million at December 31, 2003. There were no nonperforming loans related to Parmalat at December 31, 2002. In the fourth quarter of 2003, we exercised our contractual rights under the credit agreements to repay $167 million of loans collateralized by cash and retained $18 million of cash collateral that secured undrawn letters of credit. We charged off $114 million of direct loans that were not cash collateralized or credit insured. In addition, we marked down the value of our derivatives by 75 percent, or $92 million, resulting in the balance of $30 million at December 31, 2003.

Included in Other Assets are loans held for sale and leveraged lease partnership interests of $8.4 billion and $332 million, respectively, at December 31, 2003 and $13.8 billion and $387 million, respectively, at December 31, 2002. Included in these balances are nonperforming loans held for sale and leveraged lease partnership interests of $199 million and $3 million, respectively, at December 31, 2003 and $118 million and $2 million, respectively, at December 31, 2002.

Allowance for Credit Losses

Loans and Leases

The specific component of the allowance for loan and lease losses covers those commercial loans that are nonperforming or impaired. An allowance is established when the discounted cash flows (or collateral value or observable market price) is lower than the carrying value of that loan. For purposes of computing the specific loss component of the allowance, larger impaired loans are evaluated individually and smaller impaired loans are evaluated as a pool using historical loss experience for the respective product type and risk rating of the loan.

The formula component of the allocated allowance covers performing commercial loans and leases, and consumer loans. The allowance for commercial loans is established by product type by analyzing historical loss experience, by internal risk rating, current economic conditions and performance trends within each portfolio segment. The formula component allowance for consumer loans is based on aggregated portfolio segment evaluations generally by product type. Loss forecast models are utilized for consumer products that consider a variety of factors including, but not limited to, historical loss experience, estimated defaults or foreclosures based on portfolio trends, delinquencies, economic trends and credit scores.

The general component of the allowance for loan and lease losses is maintained to cover uncertainties that affect our estimate of probable losses. These uncertainties include the imprecision inherent in the forecasting methodologies, as well as domestic and global economic uncertainty, large single name defaults or event risk. We assess these components, among other current events and conditions, to determine the overall level of the general component. The relationship of the general component to the total allowance for credit losses may fluctuate from period to period. We evaluate the adequacy of the allowance for loan and lease losses based on the combined total of specific, formula and general components.

We monitor differences between estimated and actual incurred loan and lease losses. This monitoring process includes periodic assessments by senior management of loan and lease portfolios and the models used to estimate incurred losses in those portfolios.

Additions to the allowance for loan and lease losses are made by charges to the provision. Credit exposures (excluding derivatives) deemed to be uncollectible are charged against the allowance for loan and lease losses. Recoveries of previously charged off amounts are credited to the allowance for loan and lease losses.

Unfunded Lending Commitments

We monitor differences between estimated and actual incurred credit losses. This monitoring process includes periodic assessments by senior management of credit portfolios and the models used to estimate incurred losses in those portfolios.

Additions to the reserve for unfunded lending commitments are made by changes to the provision for unfunded lending commitments. Credit exposures (excluding derivatives) deemed to be uncollectible are charged against the reserve.

Table 16 presents a rollforward of the allowance for credit losses.

Table 16 Allowance for Credit Losses
(Dollars in millions)			2003				2002
Allowance for loan and lease
losses, January 1		$	6,358			$	6,278
Loans and leases charged off
Commercial - domestic			(989	)			(1,793	)
Commercial - foreign			(408	)			(566	)
Commercial real estate - domestic			(46	)			(45	)
Total commercial			(1,443	)			(2,404	)
Residential mortgage			(64	)			(56	)
Home equity lines			(38	)			(40	)
Direct/Indirect consumer			(322	)			(355	)
Consumer finance			(280	)			(333	)
Credit card			(1,657	)			(1,210	)
Other consumer domestic			(57	)			(57	)
Foreign consumer			(6	)			(5	)
Total consumer			(2,424	)			(2,056	)
Total loans and leases charged off			(3,867	)			(4,460	)
Recoveries of loans and leases previously
charged off
Commercial - domestic			232				322
Commercial - foreign			102				45
Commercial real estate - domestic			5				8
Total commercial			339				375
Residential mortgage			24				14
Home equity lines			26				14
Direct/Indirect consumer			141				145
Consumer finance			68				78
Credit card			143				116
Other consumer domestic			19				21
Foreign consumer			1				-
Total consumer			422				388
Total recoveries of loans and leases
previously charged off			761				763
Net charge-offs			(3,106	)			(3,697	)
Provision for loan and lease losses			2,916				3,801
Other, net			(5	)			(24	)
Allowance for loan and lease losses,
December 31		$	6,163			$	6,358
Reserve for unfunded lending commitments,
January 1		$	493			$	597
Provision for unfunded lending commitments			(77	)			(104	)
Reserve for unfunded lending commitments,
December 31		$	416			$	493
Total		$	6,579			$	6,851
Loans and leases outstanding at December 31		$	371,463			$	342,755
Allowance for loan and lease losses as a
percentage of loans and leases outstanding
at December 31			1.66	%			1.85	%
Average loans and leases outstanding during
the year		$	356,148			$	336,819
Net charge-offs as a percentage of average
outstanding loans and leases during the year			0.87	%			1.10	%
Allowance for loan and lease losses as a
percentage of nonperforming loans at
December 31			215				126
Ratio of allowance for loan and lease losses
at December 31 to net charge-offs			1.98				1.72

For reporting purposes, we allocate the allowance across products; however, the allowance is available to absorb all credit losses without restriction. Table 17 presents our allocation by product type.

Table 17 Allocation of the Allowance for Credit Losses by Product Type
		December 31
		2003								2002
(Dollars in millions)		Amount					Percent			Amount					Percent
Allowance for loan
and lease losses
Commercial - domestic		$	1,420				21.6	%		$	2,231				32.5	%
Commercial - foreign			619				9.4				855				12.5
Commercial real estate
- domestic			404				6.2				430				6.3
Commercial real estate
- foreign			9				0.1				9				0.1
Total commercial(1)			2,452				37.3				3,525				51.4
Residential mortgage			149				2.3				108				1.6
Home equity lines			61				0.9				49				0.7
Direct/Indirect consumer			340				5.2				361				5.3
Consumer finance			376				5.7				323				4.7
Credit card			1,602				24.3				1,031				15.1
Foreign consumer			8				0.1				9				0.1
Total consumer			2,536				38.5				1,881				27.5
General			1,175				17.9				952				13.9
Allowance for loan
and lease losses		$	6,163				93.7	%		$	6,358				92.8	%
Reserve for unfunded lending
commitments
Commercial - domestic		$	80				1.2	%		$	160				2.3	%
Commercial - foreign			60				0.9				32				0.5
Commercial real estate			5				0.1				9				0.1
Total commercial			145				2.2				201				2.9
General			271				4.1				292				4.3
Reserve for unfunded
lending commitments		$	416				6.3	%		$	493				7.2	%
Total		$	6,579				100.0	%		$	6,851				100.0	%
(1)  Includes commercial impaired loans of $391 and $919 at December 31, 2003 and 2002, respectively.

During the third quarter of 2003, we updated historic loss rate factors used in estimating the allowance for credit losses to incorporate more current information.

The allowance for total commercial loan and lease losses declined $1.1 billion to $2.5 billion as a result of improvement in credit quality, reflected by the $8.7 billion and $2.1 billion decreases in commercial criticized exposure and commercial nonperforming assets; and a $13.9 billion reduction in commercial loans and leases between December 31, 2003 and December 31, 2002. Specific reserves on commercial impaired loans decreased $528 million, or 57 percent, in 2003, reflecting a decrease in our investment in specific loans considered impaired of $1.9 billion to $2.1 billion at December 31, 2003. The reduction in the levels of impaired loans and the respective reserves resulted from the overall improvements in commercial credit quality, loan sales, paydowns and payoffs largely due to increased refinancings in the capital markets, and net chargeoffs. The allowance for loan and lease losses in the consumer portfolio increased $655 million from December 31, 2002 due to portfolio growth, new advances on previously securitized consumer credit balances, continued seasoning of outstandings from new consumer credit card growth and economic conditions including higher bankruptcy filings. General reserves on loans and leases at December 31, 2003 were $1.2 billion, up $223 million from December 31, 2002, reflecting the uncertainty around the extent and depth of the domestic recovery, the impact of rising interest rates on sectors of the portfolio, the uncertainty in the global arena and continued exposure to large single name defaults or event risk. The reserve for unfunded lending commitments decreased $77 million between December 31, 2003 and December 31, 2002 due to improvements in the overall commercial credit quality. Given our overall assessment of probable losses in the portfolio, the allowance for credit losses was reduced by $272 million from December 31, 2002.

Problem Loan Management

In September 2001, Bank of America, N.A. contributed to SSI commercial loans with a gross book balance of $3.2 billion in exchange for a class of preferred and for a class of common stock of SSI. For financial reporting under GAAP, the loan contribution was accounted for at carryover book basis as appropriate for entities under common control, and there was no change in the designation or measurement of the loans because the individual loan resolution strategies were not affected by the realignment or contribution. From time to time, management may identify certain loans to be considered for accelerated disposition. At that time, such loans or pools of loans would be redesignated as held for sale and remeasured at the lower of cost or market.

The loan contribution was effected as an exchange for tax purposes. As is common in workout situations, the loans had a tax basis higher than their fair market value. Under the Internal Revenue Code (the Code), SSI received a carryover tax basis in the contributed loans. In addition, under the Code, the aggregate tax basis of the class of preferred and the class of common stock received in the exchange was equal to the basis of the loans contributed. Under the Code, the preferred stock's allocated tax basis was equal to its fair market value and the common stock was allocated the remaining tax basis, resulting in a tax basis in excess of its fair market value and book basis. We took into account the tax loss that resulted from the difference in tax basis and fair market value, recognized on the sale of this class of common stock to an unrelated third party, as well as the carryover tax basis in the contributed loans. We believe that recognition of the tax loss continues to be appropriate.

During 2003 and 2002, Bank of America, N.A. sold commercial loans with a gross book balance of approximately $3.0 billion and $2.7 billion, respectively, to SSI. For tax purposes, under the Code, the sales were treated as a taxable exchange. The tax and accounting treatment of these sales had no financial statement impact on us because the sales were transfers among entities under common control, and there was no change in the individual loan resolution strategies.