2004 Annual Report: Financial Review: Management's Discussion and Analysis: Business Segment Operations

Business Segment Operations

Segment Description

In connection with the Merger, we realigned our business segment reporting to reflect the new business model of the combined company. As a part of this realignment, the segment formerly reported as Consumer and Commercial Banking was split into two new segments, Global Consumer and Small Business Banking and Global Business and Financial Services. We have repositioned Asset Management as Global Wealth and Investment Management, which now includes Premier Banking. Premier Banking was included in Consumer and Commercial Banking in the past, and is made up of our affluent retail customers. This will enable us to serve our customers with a diverse offering of wealth management products. Global Capital Markets and Investment Banking remained relatively unchanged, with the exception of moving the commercial leasing business to Global Business and Financial Services, and Latin America moving to All Other. All Other consists primarily of Latin America, the former Equity Investments segment, Noninterest Income and Expense amounts associated with the ALM process, including Gains on Sales of Debt Securities, the allowance for credit losses process, the residual impact of methodology allocations, intersegment eliminations, and the results of certain consumer finance and commercial lending businesses that are being liquidated.

Basis of Presentation

We prepare and evaluate segment results using certain non-GAAP methodologies and performance measures many of which were discussed in Supplemental Financial Data. The starting point in evaluating results is the operating results of the businesses, which by definition excludes Merger and Restructuring Charges. The segment results also reflect certain revenue and expense methodologies, which are utilized to determine operating income. The Net Interest Income of the business segments includes the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Net Interest Income also reflects an allocation of Net Interest Income generated by assets and liabilities used in our ALM process. The results of business segments will fluctuate based on the performance of corporate ALM activities.

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

Equity is allocated to business segments using a risk-adjusted methodology incorporating each unit’s credit, market and operational risk components. The nature of these risks is discussed further in the following sections: Credit Risk Management, Market Risk Management and Operational Risk Management.  ROE is calculated by dividing Net Income by allocated equity. SVA is defined as cash basis earnings on an operating basis less a charge for the use of capital (i.e. equity). Cash basis earnings on an operating basis are defined as Net Income adjusted to exclude Merger and Restructuring Charges, and Amortization of Intangibles. The charge for use of capital is calculated by multiplying 11 percent (management’s estimate of the shareholders’ minimum required rate of return on capital invested) by average total common shareholders’ equity at the corporate level and by average allocated equity at the business segment level. Average equity is allocated to the business level using a methodology identical to that used in the ROE calculation. Management reviews the estimate of the rate used to calculate the capital charge annually. In 2003, management reduced this rate from 12 percent to 11 percent. We use the Capital Asset Pricing Model to estimate our cost of capital. The change in the cost of capital rate from 12 percent to 11 percent was driven by a decline in long-term Treasury rates, which impacted the risk-free rate component of the calculation.

See Note 19 of the Consolidated Financial Statements for additional business segment information, selected financial information for the business segments and reconciliations to consolidated Total Revenue, Net Income and Total Assets amounts.

Global Consumer and Small Business Banking

Our strategy is to attract, retain and deepen customer relationships. A critical component of that strategy includes continuously improving customer satisfaction. We believe this focus will help us achieve our goal of being recognized as the best retail bank in North America.

The major businesses within this segment are Consumer Banking, Consumer Products and Small Business Banking.

Consumer Banking distributes a wide range of services to 33 million consumer households in 29 states and the District of Columbia through its network of 5,885 banking centers, 16,791 domestic branded ATMs, and telephone and Internet channels. Consumer Banking distributes a wide range of products and services, including deposit products such as checking accounts, money market savings accounts, time deposits and IRAs, debit card products and credit products such as credit card, home equity products and residential mortgages. Consumer Banking recorded $16.7 billion of Total Revenue for 2004. This represented a 35 percent increase. Total average Deposits within Consumer Banking were $276.7 billion, up 35 percent from 2003.

Consumer Products provides and manages products and services including the issuance and servicing of credit cards, origination, fulfillment and servicing of residential mortgage loans, including home equity loan products, direct banking via the Internet, deposit services, student lending and certain insurance services. Consumer Products contributed $8.4 billion of Total Revenue, which represented a 16 percent improvement. Average Loans and Leases during the year increased 52 percent to $49.9 billion.

Small Business Banking helps small businesses grow through the offering of business products and services which include payroll, merchant services, online banking and bill payment, as well as 401(k) programs. In addition, we provide specialized products like treasury management, lockbox, check cards with photo security and succession planning. Small Business Banking reported $1.7 billion of Total Revenue, compared to $1.2 billion in 2003. Average Loans and Leases improved 28 percent to $15.3 billion. Also, Total Deposits within Small Business Banking grew 37 percent to $31.9 billion due to the impact of the Merger and account growth.

(Dollars in millions)	2004		2003
Net interest income (fully taxable-equivalent basis)	$ 17,308		$ 12,114
Noninterest income	9,549		8,816
Total revenue	26,857		20,930
Provision for credit losses	3,341		1,678
Gains on sales of debt securities	117		13
Noninterest expense	13,334		10,333
Income before income taxes	10,299		8,932
Income tax expense	3,751		3,226
Net income	$  6,548		$  5,706
Shareholder value added	$  3,390		$  4,367
Net interest yield (fully taxable-equivalent basis)	5.35%percent		4.98%percent
Return on average equity	19.89		42.25
Efficiency ratio (fully taxable-equivalent basis)	49.64		49.37
Average:
Total loans and leases	$137,357		$ 92,776
Total assets	352,789		258,251
Total deposits	314,652		240,371
Common equity/Allocated equity	32,925		13,505
Year end:
Total loans and leases	156,280		97,341
Total assets	378,359		264,578
Total deposits	333,723		240,428

Total Revenue for Global Consumer and Small Business Banking increased $5.9 billion, or 28 percent, of which FleetBoston contributed $4.3 billion. Provision for Credit Losses increased $1.7 billion to $3.3 billion. Noninterest Expense grew by $3.0 billion, or 29 percent, to $13.3 billion. Net Income rose $842 million, or 15 percent, including the $1.1 billion impact of the addition of FleetBoston. SVA decreased $977 million, or 22 percent. This decrease was caused by an increase in the capital allocation as a result of the Merger partially offset by the increase in cash basis earnings.

Our extensive network of delivery channels including banking centers, ATMs, telephone channel and online banking enable us to provide cost effective, convenient and innovative products to our customers. Active online banking subscribers increased 73 percent in 2004. Approximately half of this growth was due to the addition of FleetBoston.

Net Interest Income increased $5.2 billion largely due to the net effect of the growth in consumer loan and lease, and deposit balances, and ALM activities. Net Interest Income was positively impacted by the $44.6 billion, or 48 percent, increase in average Loans and Leases. This increase was driven by a $15.2 billion, or 54 percent, increase in average on-balance sheet consumer credit card outstandings, a $14.8 billion, or 83 percent, increase in home equity lines and a $6.8 billion, or 26 percent, increase in residential mortgages. The FleetBoston portfolio accounted for $5.0 billion, $14.0 billion and $10.8 billion of the increases, respectively.

Deposit growth positively impacted Net Interest Income. Higher consumer deposit balances from the addition of FleetBoston customers of $63.1 billion, government tax cuts, higher customer retention and our focus on adding new customers drove the $74.3 billion, or 31 percent, increase in average Deposits.

Noninterest Income increased $733 million, or eight percent, to $9.5 billion in 2004. FleetBoston contributed $1.4 billion to Noninterest Income. Overall, this increase was primarily due to a $1.5 billion, or 49 percent, increase in Card Income to $4.5 billion and a $913 million, or 25 percent, increase in Service Charges to $4.5 billion. Card Income increased mainly due to increases in purchase volumes for both credit and debit cards, and increases in average managed credit card outstandings. These increases were due to both the growth of our card businesses, and the addition of the FleetBoston portfolio. The increase in Service Charges was due primarily to the addition of FleetBoston customers and the growth in new accounts. Partially offsetting these increases was a $1.5 billion, or 72 percent, decrease in Mortgage Banking Income to $595 million and a $186 million decrease in Trading Account Profits to a loss of $359 million. The decrease in Mortgage Banking Income was due to decreases in production volume and secondary market sales, combined with the MSR impairments recorded during the second half of the year. The decrease in Trading Account Profits was due to the negative impact of faster prepayment speeds and changes in other assumptions on the value of the Excess Spread Certificates (Certificates) prior to their conversion to MSRs. For more information on the conversion of the Certificates into MSRs, see Note 1 of the Consolidated Financial Statements.

The Provision for Credit Losses increased $1.7 billion to $3.3 billion, including higher credit card net charge-offs of $791 million, of which $320 million was attributed to the addition of the FleetBoston credit card portfolio. Organic growth, overall seasoning of credit card accounts, the return of securitized loans to the balance sheet, and increases in minimum payment requirements drove higher net charge-offs and Provision for Credit Losses. The increase in minimum payment requirements is the result of changes in industry practices and will result in increased charge-offs in 2005. For more information, see Credit Risk Management.

Noninterest Expense increased $3.0 billion, or 29 percent. Driving this increase were increases in Processing Costs of $977 million, Personnel Expense of $763 million and Other General Operating Expense of $512 million. Personnel Expense increased as a result of higher salaries of $537 million and higher benefit costs of $185 million. The impact of the addition of FleetBoston to Noninterest Expense was $1.9 billion, including $538 million of Personnel Expense and $443 million of Data Processing Costs.

Across the three major businesses within Global Consumer and Small Business Banking, our most significant product lines are Card Services, Consumer Real Estate and Consumer Deposit Products.

Card Services

Card Services provides a broad offering of credit cards to an array of customers including consumers and small businesses. Our products include traditional credit cards, a variety of co-branded and affinity card products, as well as purchasing, and travel and entertainment card products. We also provide processing services for merchant card receipts, a business where we are a market leader, due in part to our acquisition of NPC during the fourth quarter of 2004.

We evaluate our Card Services business on both a held and managed basis. Managed card revenue excludes the impact of card securitization activity, which is used as a financing tool. On a held basis, for assets that have been securitized, we record Noninterest Income, rather than Net Interest Income and Provision for Credit Losses, as we are compensated for servicing income and gains or losses on securitizations. Managed card revenue excludes the impact of the securitized credit card portfolio of $134 million and $7 million for 2004 and 2003, respectively.  These amounts are the result of the differences in internal and external funding costs as well as the amortization of previously recognized securitization gains. After the revolving period of the securitizations, the card receivables will return to our Balance Sheet. This has the effect of increasing Loans and Leases on our Balance Sheet and increasing Net Interest Income and the Provision for Credit Losses, with a reduction in Noninterest Income.

The following table presents the components of Total Revenue for Card Services on a managed and held basis.

	2004: Managed		2004: Held		2003: Managed		2003: Held
	2004				2003
(Dollars in millions)	Managed		Held		Managed		Held
Net interest income	$5,079		$4,236		$2,856		$2,537
Noninterest income	3,061		3,246		1,930		2,065
Total card services revenue	$8,140		$7,482		$4,786		$4,602

Strong credit card performance and the addition of the FleetBoston card portfolio drove Card Services results. Held credit card revenue increased $2.9 billion, or 63 percent, to $7.5 billion. Driving this increase was the $1.7 billion increase in held Net Interest Income, due to a $15.2 billion, or 54 percent, increase in average held consumer credit card outstandings, partially offset by a decline in average Deposits of $3.3 billion. The increase in held consumer credit card outstandings was due to the addition of over five million new accounts through our branch network and direct marketing programs, and the $5.0 billion impact of the addition of the held FleetBoston consumer credit card portfolio. The decline in Deposits was due to a change in the fee structure in the merchant business for certain accounts from a compensating balance to a fee for service agreement. Managed credit card revenue increased $3.4 billion, or 70 percent, to $8.1 billion. This increase included the $2.2 billion, or 78 percent, increase in managed Net Interest Income. Average managed consumer credit card outstandings were $50.3 billion in 2004 compared to $31.6 billion.

The increase in held credit card Noninterest Income of $1.2 billion resulted from higher interchange fees of $381 million. Interchange fees increased mainly due to a $21.4 billion, or 38 percent, increase in consumer credit card purchase volumes. Also impacting Noninterest Income were increases in late fees of $238 million, merchant discount fees of $197 million, overlimit fees of $107 million and cash advance fees of $64 million. The effect of the addition of FleetBoston on these fee categories was $169 million on interchange fees, $77 million on late fees, $47 million on merchant discount fees, $37 million on overlimit fees, and $24 million on cash advance fees, respectively. Noninterest Income on a managed basis increased $1.1 billion, or 59 percent, during 2004.

The held Provision for Credit Losses increased $1.2 billion, or 68 percent, to $3.0 billion driven by higher net charge-offs of $791 million, of which $320 million was attributable to the addition of the FleetBoston card portfolio. Organic growth, overall seasoning of accounts, the return of securitized loans to the balance sheet and increases in minimum payment requirements drove higher net charge-offs and Provision for Credit Losses. Net losses on the portfolio that was securitized were $524 million and $177 million for 2004 and 2003. The increase was attributable to the addition of the FleetBoston portfolio. For more information, see Credit Risk Management.

Consumer Real Estate

Consumer Real Estate generates revenue by providing an extensive line of mortgage products and services to customers nationwide. Consumer Real Estate products are available to our customers through a retail network of personal bankers located in 5,885 banking centers, dedicated sales account executives in over 190 locations and through a devoted sales force offering our customers direct telephone and online access to our products. Additionally, we serve our customers through a partnership with more than 7,200 mortgage brokers in all 50 states. The mortgage product offerings for home purchase and refinancing needs include fixed and adjustable rate loans, first and second lien loans, home equity lines of credit, and lot and construction loans. To manage this portfolio, these products are either sold into the secondary mortgage market to investors while we retain the customer relationship and servicing rights or are held in our ALM portfolio.

Consumer Real Estate is managed with a focus on its two primary businesses, first mortgage and home equity. The first mortgage business includes the origination, fulfillment, and servicing of first mortgage loan products. The home equity business includes lines of credit and second mortgages. These two businesses provide us with a business model that meets customer mortgage borrowing needs in various interest rate cycles.

The following table shows the revenue components of the Consumer Real Estate business.

(Dollars in millions)	2004		2003
Net interest income	$2,224		$1,795
Mortgage banking income (1,2)	595		2,140
Trading account profits	(349)		(159)
Gains on sales of debt securities	117		-
Other income	61		96
Total consumer real estate revenue	$2,648		$3,872
(1) Includes gains related to hedge ineffectiveness of cash flow hedges on our mortgage warehouse of $117 and $38 for 2004 and 2003. (2) For 2004 and 2003, Mortgage Banking Income included revenue of $181 and $218 for mortgage services provided to other segments that are eliminated in consolidation (in All Other).

Total revenue for the Consumer Real Estate business decreased by $1.2 billion, or 32 percent, in 2004. Net Interest Income increased by $429 million driven by higher average balances in the home equity line and loan portfolio, which grew from $21.7 billion in 2003 to $39.0 billion in 2004. This portfolio growth was attributable to an expanded home equity market through the addition of FleetBoston, which contributed $18.5 billion, and the increased product distribution. The home equity business had a record year in 2004, producing $57.1 billion in loans and lines compared to $23.4 billion in 2003. Partially offsetting this growth, Net Interest Income decreased $90 million in 2004 due to a lower level of escrow deposits held on loans serviced. Average escrow balances declined $2.8 billion during the year.

Mortgage Banking Income decreased from $2.1 billion in 2003 to $595 million. The following summarizes the components of Mortgage Banking Income. Mortgage Banking Income includes the performance of loans sold in the secondary market and the performance of the servicing portfolio.

(Dollars in millions)	2004		2003
Production income	$ 771		$1,927
Servicing income:
Servicing fees and ancillary income	614		348
Amortization of MSRs	(345)		(135)
Net MSR and SFAS 133 derivative hedge adjustments(1)	18		-
Impairment of MSRs	(463)		-
Total net servicing income	(176)		213
Total mortgage banking income	$ 595		$2,140
(1) Represents derivative hedge gains of $228, offset by a decrease in the value of the MSRs under SFAS 133 hedges of $210 for 2004. See Note 8 of the Consolidated Financial Statements.

The decrease in Mortgage Banking Income was primarily driven by a decline in the size of the first mortgage production market from the record levels of 2003. In 2004, we produced $87.5 billion residential first mortgages compared to $131.1 billion in the prior year. Of the 2004 volume, $57.5 billion was originated through retail channels and $30.0 billion was originated in our wholesale channel. This compares to 2003 with $91.8 billion originated through retail channels and $39.3 billion originated through wholesale channels. During 2004, approximately 58 percent of the production was refinance activity compared to 84 percent in 2003. Additionally, the market and customer preference has shifted the mix of fixed rate loans to 64 percent in 2004, down from 80 percent in 2003. The decline in the size of the market, excess industry capacity, and the rising interest rate environment also resulted in decreased operating margins. The volume reductions resulted in lower loan sales to the secondary market, which totaled $69.4 billion, a 35 percent decrease from the prior year.

During 2004, impairment charges totaled $463 million, including a $261 million adjustment for changes in valuation assumptions and prepayment adjustments to align with changing market conditions and customer behavioral trends. As an economic hedge to the changes associated with the value of MSRs, a combination of derivatives and AFS securities (e.g. mortgage-backed securities) was utilized. During 2004, Consumer Real Estate realized $117 million in Gains on Sales of Debt Securities and $65 million of Net Interest Income from Securities used as an economic hedge of MSRs. At December 31, 2004, $564 million in MSRs were covered by these economic hedges. The remaining $1.8 billion in MSRs were hedged using a SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) strategy.

Additionally, contributing to Consumer Real Estate revenue, Trading Account Profits decreased by $190 million. Prior to conversion of the Certificates to MSRs in June 2004, changes in the value of the Certificates, MSRs and derivatives used for risk management were recognized as Trading Account Profits. Trading Account Profits included $342 million and $310 million of downward adjustments for changes to valuation assumptions and prepayment adjustments in 2004 and 2003, respectively. For more information on the conversion, see Note 1 of the Consolidated Financial Statements.

Other income includes premiums collected through our mortgage insurance captive and other miscellaneous revenue items.

Servicing income is recognized when cash is received for performing servicing activities for others. Servicing activities primarily include collecting cash for principal, interest and escrow payments from borrowers, and accounting for and remitting principal and interest payments to investors of mortgage-backed securities. Servicing income also includes any ancillary income, such as late fees, derived in connection with these activities. The servicing portfolio includes originated and retained residential mortgages, loans serviced for others and home equity loans. As discussed more fully below, the servicing portfolio ended 2004 at $332.5 billion, an increase of $57.4 billion from December 31, 2003. The addition of FleetBoston customers contributed $33.8 billion of this increase.

We recognize an intangible asset for the MSRs, which represents the right to perform specified residential mortgage servicing activities for others. The amount capitalized as MSRs represents the current fair value of future net cash flows expected to be realized for performing servicing activities. MSRs are amortized as a reduction of actual servicing income received. The following table outlines statistical information on the MSRs:

	December 31, 2004		December 31, 2003
	December 31
(Dollars in millions)	2004		2003
MSR data:
Balance (1,2)	$  2,359		$  2,684
Capitalization rate	1.19%		1.47%
Unpaid balance (3)	$197,795		$183,116
Number of customers (in thousands)	1,582		1,586
(1) MSRs outside of Global Consumer and Small Business Banking at December 31, 2004 and 2003 were $123 and $78, respectively, in Global Capital Markets and Investment Banking. (2) Includes $2,283 of Certificates at December 31, 2003. For more information on the Certificates, see Note 1 of the Consolidated Financial Statements. (3) Represents only loans serviced for others.

As of December 31, 2004, the MSR balance was $2.4 billion, or 12 percent lower than at the end of 2003. This value represented 119 bps as a percent of the related unpaid principal balance, a 19 percent decrease from 2003. For more information on MSRs, see Note 1 and Note 8 of the Consolidated Financial Statements.

Consumer Deposit Products

Consumer Deposit Products provides a comprehensive range of deposit products to consumers and small businesses. Our deposit products include traditional savings accounts, money market savings accounts, CDs and IRAs, regular and interest checking accounts, and a variety of business checking options. These products are further segmented to address customer specific needs and our multicultural strategy.

We added approximately 2.1 million net new checking accounts and 2.6 million net new savings accounts during 2004. This growth resulted from continued improvement in sales and service results in the Banking Center Channel, improved cross-sale ratios, the introduction of new products, advancement of our multicultural strategy, and access to the former FleetBoston franchise, where we opened 174,000 net new checking and 193,000 net new savings accounts since April 1, 2004. Account growth has occurred through productivity improvements in existing stores, as well as new store openings, which totaled 167 in 2004.

We generate revenue on deposit products through the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics, fees generated on our accounts, and interchange income from our debit cards. Our deposit-taking activities are integrally linked to our liquidity management and ALM interest rate risk management processes. We seek to optimize the value of deposits through both our client-facing asset generation and our ALM investment process. The following table presents the components of Total Revenue for Consumer Deposit Products.

(Dollars in millions)	2004		2003
Net interest income	$ 7,735		$ 5,647
Deposit service charges	4,496		3,577
Debit card income	1,232		896
Total noninterest income	5,728		4,473
Total deposit revenue (1)	$13,463		$10,120
(1) Deposit revenue outside of Global Consumer and Small Business Banking was $985 and $666, respectively, for 2004 and 2003.

Deposit revenue grew $3.3 billion, or 33 percent. Driving this growth was the addition of FleetBoston, which contributed $2.1 billion of deposit revenue.

Net Interest Income increased $2.1 billion, or 37 percent. The primary driver of the increase was the $80.3 billion, or 35 percent, increase in average Deposits. Of this growth, $63.0 billion was related to the addition of FleetBoston customers through the Merger. The addition of FleetBoston contributed $1.5 billion to Net Interest Income.

Deposit service charges increased $919 million, or 26 percent, due to the $515 million impact of the addition of FleetBoston, and the growth of new accounts across our franchise.

Debit card income increased $336 million, or 38 percent. Driving the increase was growth in transaction activity, evidenced by a 40 percent increase in purchase volumes, partially offset by the negative impact of a lower interchange rate on signature debit card transactions. The impact of the addition of FleetBoston to debit card income was $134 million.

Global Business and Financial Services

This segment provides financial solutions to our clients throughout all stages of their financial cycles. Our strategy is to bring the capabilities of a global financial services organization to the local level. We serve our clients through a variety of businesses including Global Treasury Services, Middle Market Banking, Commercial Real Estate Banking, Leasing, Business Capital and Dealer Financial Services. Beginning in 2005, Global Business and Financial Services will include Latin America. See the All Other section below for more information on Latin America. Also beginning in 2005, Global Business and Financial Services will include Business Banking, which serves our client-managed small business customers.

Global Treasury Services provides integrated working capital management and treasury solutions to clients across the U.S. and 37 countries. Our clients include multi-nationals, middle market companies, correspondent banks, commercial real estate firms and governments. Our services include treasury management, trade finance, foreign exchange, short-term credit facilities and short-term investing. The revenues and operating results where customers and clients are serviced are reflected in this segment, as well as Global Consumer and Small Business Banking, and Global Capital Markets and Investment Banking.

Middle Market Banking provides commercial lending, treasury management products and investment banking services to middle-market companies across the U.S.

Commercial Real Estate Banking, with offices in more than 60 cities across the U.S., provides project financing and treasury management to private developers, homebuilders and commercial real estate firms. Commercial Real Estate Banking also includes community development banking, which provides lending and investing services to low- and moderate-income communities.

Leasing provides leasing solutions to small business, middle-market and large corporations in the U.S. and internationally, offering expertise in the municipal, corporate aircraft, healthcare and vendor markets.

Business Capital provides asset-based lending financing solutions customized to meet clients' capital needs by leveraging their assets on a secured basis in the U.S., Canada and European markets.

Dealer Financial Services provides lending and investing services, including floor plan programs for marine, recreational vehicle and auto dealerships to more than 10,000 dealer clients across the U.S.

(Dollars in millions)	2004		2003
Net interest income (fully taxable-equivalent basis)	$  4,593		$  3,118
Noninterest income	2,129		1,399
Total revenue	6,722		4,517
Provision for credit losses	(241)		458
Noninterest expense	2,476		1,797
Income before income taxes	4,487		2,262
Income tax expense	1,654		791
Net income	$  2,833		$  1,471
Shareholder value added	$    884		$    846
Net interest yield (fully taxable-equivalent basis)	3.40 %percent		3.19 %percent
Return on average equity	15.34percent		25.01percent
Efficiency ratio (fully taxable-equivalent basis)	36.84percent		39.75percent
Average:
Total loans and leases	$129,671		$ 93,378
Total assets	154,521		103,786
Total deposits	53,088		31,461
Common equity/Allocated equity	18,473		5,882
Year end:
Total loans and leases	145,072		96,168
Total assets	178,093		107,791
Total deposits	61,395		37,882

Total Revenue for Global Business and Financial Services increased $2.2 billion, or 49 percent, in 2004. The addition of FleetBoston accounted for $1.7 billion of the increase. The Provision for Credit Losses decreased $699 million, to a negative $241 million. Noninterest Expense increased $679 million to $2.5 billion. Net Income rose $1.4 billion, or 93 percent, including the $824 million impact of the Merger. SVA increased $38 million, or four percent. This segment’s capital allocation increased due to Goodwill as a result of the Merger which was offset by the increase in Net Income.

Net Interest Income increased $1.5 billion, largely due to the increase in commercial loan and lease, and deposit balances driven by the addition of FleetBoston earning assets and the net results of ALM activities. Net Interest Income was positively impacted by the $36.3 billion, or 39 percent, increase in average outstanding commercial loans. Also contributing to the improvement in Net Interest Income was the $21.6 billion, or 69 percent, increase in average commercial deposits. Impacting these increases was the $29.3 billion effect on average Loans and Leases and the $17.6 billion effect on average Deposits related to the addition of FleetBoston.

During 2004, Noninterest Income increased $730 million, or 52 percent, to $2.1 billion. Included in the results was $601 million of Noninterest Income related to FleetBoston. Overall, the increase was driven by a $341 million increase in Other Noninterest Income to $518 million, and a $261 million, or 36 percent, increase in Service Charges to $988 million. Other Noninterest Income increased by $109 million due to higher income from community development tax credit real estate investments. The increase in Service Charges was primarily driven by the Merger. Also affecting the increase in Noninterest Income was the $43 million increase in Trading Account Profits.

The Provision for Credit Losses declined $699 million to a negative $241 million. The decrease was partially driven by a $264 million, or 59 percent, decrease in net charge-offs. Additionally, notable improvement in credit quality has been achieved in a number of our major businesses. For more information, see Credit Risk Management.

Noninterest Expense increased $679 million, or 38 percent, due to the $644 million addition of FleetBoston. Driving the increase was a $300 million increase in total Personnel Expense and a $260 million increase in Data Processing Expense.

Global Capital Markets and Investment Banking

Our strategy is to align our resources with sectors where we can deliver value-added financial advisory solutions to our issuer and investor clients. This segment provides a broad range of financial services to domestic and international corporations, financial institutions, and government entities. Clients are supported through offices in 35 countries that are divided into four distinct geographic regions: U.S. and Canada; Asia; Europe, Middle East and Africa; and Mexico. Products and services provided include loan originations, mergers and acquisitions advisory, debt and equity underwriting and trading, cash management, derivatives, foreign exchange, leveraged finance, structured finance and trade services.

This segment offers clients a comprehensive range of global capabilities through the following three financial services: Global Investment Banking, Global Credit Products and Global Treasury Services.

Global Investment Banking is comprised of Corporate and Investment Banking and Global Capital Markets. Global Investment Banking underwrites and makes markets in equity and equity-linked securities, high-grade and high-yield corporate debt securities, commercial paper, and mortgage-backed and asset-backed securities. We also provide debt and equity securities research, loan syndications, mergers and acquisitions advisory services and private placements. Further, we provide risk management solutions for customers using interest rate, equity, credit and commodity derivatives, foreign exchange, fixed income and mortgage-related products. In support of these activities, the businesses may take positions in these products and participate in market-making activities. The Global Investment Banking business is a primary dealer in the U.S. and in several international locations.

Global Credit Products provides credit and lending services for our corporate clients and institutional investors. Global Credit Products is also responsible for actively managing loan and counterparty risk in our large corporate portfolio using available risk mitigation techniques, including credit default swaps.

Global Treasury Services provides the technology, strategies and integrated solutions to help financial institutions, government agencies and corporate clients manage their cash flows.

(Dollars in millions)	2004		2003
Net interest income (fully taxable-equivalent basis)	$  4,122		$  4,289
Noninterest income	4,927		4,045
Total revenue	9,049		8,334
Provision for credit losses	(459)		303
Losses on sales of debt securities	(10)		(14)
Noninterest expense	6,556		5,327
Income before income taxes	2,942		2,690
Income tax expense	992		896
Net income	$  1,950		$  1,794
Shareholder value added	$    891		$    893
Net interest yield (fully taxable-equivalent basis)	1.49 %percent		1.86 %percent
Return on average equity	19.46percent		21.35percent
Efficiency ratio (fully taxable-equivalent basis)	72.45percent		63.91percent
Average:
Total loans and leases	$ 34,237		$ 36,640
Total assets	323,101		272,942
Total deposits	76,884		66,095
Common equity/Allocated equity	10,021		8,404
Year end:
Total loans and leases	33,899		29,104
Total assets	307,451		225,839
Total deposits	79,376		58,504

Total Revenue was $9.0 billion, reflecting a $715 million, or nine percent, increase in 2004. The increase in Market-based revenues was driven by trading-related revenue and Investment Banking Income. The Provision for Credit Losses decreased $762 million to a negative $459 million. Total Noninterest Expense increased $1.2 billion to $6.6 billion. Net Income increased $156 million, or nine percent. SVA was relatively flat in 2004.

Net Interest Income decreased $167 million, or four percent, to $4.1 billion. Driving this decrease was the $200 million, or nine percent, decrease in trading-related Net Interest Income. Despite the growth in trading-related average earning assets during the year, a flattening yield curve decreased the contribution to Net Interest Income. Nontrading-related Net Interest Income increased $33 million, or two percent, as the benefit of the $10.8 billion, or 16 percent, increase in average Deposits was partially offset by the $2.4 billion, or seven percent, decrease in average Loans and Leases. Average Deposits increased despite the withdrawal of compensating balances by the U.S. Treasury due to changes in our compensation agreements with them.

Noninterest Income increased $882 million, or 22 percent. Increases in Trading Account Profits, Investment Banking Income and Service Charges drove the improvement. The following table presents the detail of Investment Banking Income within the segment.

(Dollars in millions)	2004		2003
Securities underwriting	$  920		$  962
Syndications	521		407
Advisory services	310		229
Other	32		38
Total Investment Banking Income(1)	$1,783		$1,636
(1) Investment Banking Income recorded in other business units in 2004 and 2003 was $103 and $100.

Investment Banking Income increased $147 million, or nine percent, due to market share increases in high-yield debt, mortgage-backed securities and convertible debt. The continued strong momentum in mergers and acquisitions, and syndicated loans drove the 35 percent and 28 percent increases, respectively, in advisory services and syndication fees.

Trading-related revenue, which includes Net Interest Income from trading-related positions and Trading Account Profits in Noninterest Income, is presented in the following table. Not included are commissions from equity transactions which are recorded in Noninterest Income as Investment and Brokerage Services Income.

(Dollars in millions)	2004		2003
Net interest income (fully taxable-equivalent basis)	$2,039		$2,239
Trading account profits (1)	1,028		587
Total trading-related revenue (1)	$3,067		$2,826
Trading-related revenue by product
Fixed income	$1,547		$1,352
Interest rate (fully taxable-equivalent basis)	667		954
Foreign exchange	757		551
Equities (2)	195		344
Commodities	45		(45)
Market-based trading-related revenue	3,211		3,156
Credit portfolio hedges (3)	(144)		(330)
Total trading-related revenue (1)	$3,067		$2,826
(1) Trading Account Profits for the Corporation were $869 and $409 for 2004 and 2003. In 2004, the difference relates to the impact of the valuation of the Certificates, which was partially offset by gains in Global Wealth and Investment Management and Latin America of $86 and $72, respectively. In 2003, the difference relates primarily to the impact of the Certificates. See the discussion at the end of Consumer Real Estate for more information on the Certificates. Total trading-related revenue for the Corporation was $2,908 and $2,648 for 2004 and 2003, and was impacted in a similiar manner as Trading Account Profits. (2) Does not include commissions from equity transactions which were $666 and $648 in 2004 and 2003. (3) Includes credit default swaps and related products used for credit risk management.

Market-based trading-related revenue increased by $55 million, or two percent. Fixed income continued to show strong results increasing $195 million, or 14 percent, driven by growth in our commercial mortgage-backed and structured finance activity. Foreign exchange revenue increased $206 million, or 37 percent, due to volatility of the dollar in the latter half of the year and increased customer activity. Commodities revenue increased $90 million due to the absence of the negative impact of the SARS outbreak, which occurred during 2003.

Partially offsetting these increases were declines in interest rate and equities revenues. Interest rate revenues declined by $287 million, or 30 percent, largely due to reduced corporate customer activity and lower trading-related profits as a result of FRB tightening, uncertainty related to the election, declining volatility in the options market and more subdued economic growth than anticipated during the year. Trading-related equities revenues declined by $149 million, or 43 percent. Including commissions on equity transactions, trading-related equities revenues declined $131 million, or 13 percent. The overall decline in trading-related equities revenue was driven by net losses on a single retained stock position in 2004 combined with the absence of gains on a single position that we recorded in 2003.

Total trading-related revenues also included the cost associated with credit portfolio hedges of $144 million in 2004, an improvement of $186 million. The improvement was primarily due to stable spreads in the first half of the year versus spreads tightening throughout 2003.

The Provision for Credit Losses decreased $762 million to a negative $459 million due to notable improvements in credit quality in the large corporate portfolio partially due to the high levels of liquidity in the capital markets, which enabled us to distribute paper more readily.  Also contributing to the decrease in the Provision for Credit Losses was the reduction in net charge-offs of $311 million, or 71 percent. Additionally, nonperforming assets declined $589 million, or 58 percent, to $424 million at December 31, 2004. For more information, see Credit Risk Management.

Noninterest Expense increased $1.2 billion, or 23 percent. This increase was due, in part, to an increase in litigation-related charges of $460 million, including the reversal of legal expenses previously recorded in All Other that were reclassified to this segment. Also impacting Noninterest Expense were higher incentive compensation for market-based activities of $279 million and the mutual fund settlement of $143 million.

Global Wealth and Investment Management

This segment provides tailored investment services to individual and institutional clients in various stages and economic cycles. Our clients are served through five major businesses, Premier Banking, Banc of America Investments (BAI), The Private Bank, Columbia Management Group (CMG) and Other Services, each offering specific products and services based on clients’ needs.

Premier Banking joins with BAI, our full-service retail brokerage business, to bring together personalized banking and investment expertise through priority service with client-dedicated teams. These teams provide comprehensive advice, cash management strategies, and customized investment and financial planning solutions for mass affluent clients. Mass affluent clients have a personal wealth profile that includes investable assets plus a mortgage that exceeds $250,000 or they have at least $100,000 of investable assets.

 BAI serves 1.3 million accounts through a network of over 2,100 financial advisors throughout the U.S.

The Private Bank provides integrated wealth management solutions to high-net-worth individuals, mid-market institutions and charitable organizations with investable assets greater than $3 million. Services include investment, trust, banking and lending services.

During the third quarter of 2004, we announced a new business designed to serve the needs of ultra high-net-worth individuals and families. The goal is for this new business to provide a higher level of contact and tailored wealth management solutions to clients with investable assets greater than $50 million. We expect this business to be rolled out during the first quarter of 2005.

CMG is an asset management organization primarily serving the needs of institutional customers. CMG provides asset management services, liquidity strategies and separate accounts. CMG also provides mutual funds offering a full range of investment styles across an array of products including equities, fixed income (taxable and nontaxable) and cash products. In addition to its service of institutional clients, CMG distributes its products and services to individuals through The Private Bank, BAI and nonproprietary channels including other brokerage firms.

Other Services include the Investment Services Group, which provides products and services from traditional capital markets products to alternative investments and Banc of America Specialist, a New York Stock Exchange market-maker. Other Services also included U.S. Clearing which provides retail clearing services to broker/dealers and other correspondent firms. U.S. Clearing was sold in the fourth quarter of 2004.

(Dollars in millions)	2004		2003
Net interest income (fully taxable-equivalent basis)	$  2,854		$ 1,952
Noninterest income	3,064		2,078
Total revenue	5,918		4,030
Provision for credit losses	(20)		11
Noninterest expense	3,449		2,101
Income before income taxes	2,489		1,918
Income tax expense	905		684
Net income	$  1,584		$ 1,234
Shareholder value added	$    782		$   854
Net interest yield (fully taxable-equivalent basis)	3.35 %percent		3.52 %percent
Return on average equity	20.17percent		33.94percent
Efficiency ratio (fully taxable-equivalent basis)	58.28percent		52.11percent
Average:
Total loans and leases	$ 44,049		$37,675
Total assets	91,443		58,606
Total deposits	83,049		53,996
Common equity/Allocated equity	7,854		3,637
Year end:
Total loans and leases	49,776		38,689
Total assets	121,974		69,370
Total deposits	111,107		62,730

Total Revenue for Global Wealth and Investment Management increased $1.9 billion, or 47 percent, for 2004. The Provision for Credit Losses decreased $31 million to a negative $20 million. Total Noninterest Expense increased $1.3 billion to $3.4 billion. Net Income increased 28 percent to $1.6 billion. SVA decreased $72 million, or eight percent, as the increase in cash basis earnings was more than offset by the increase in the capital allocation that resulted from the Merger.

Net Interest Income increased 46 percent to $2.9 billion due to growth in Deposits in both Premier Banking and The Private Bank, loan growth in The Private Bank, and the addition of FleetBoston earning assets to the portfolio. Net results of ALM activities also drove the increase. Average Deposits increased $29.1 billion, or 54 percent, primarily due to migration of account balances from Consumer Banking to Premier Banking, the impact of the Merger, as well as increased deposit-taking in The Private Bank. Average Loans and Leases increased $6.4 billion, or 17 percent, due to the inclusion of the FleetBoston Loans and Leases and increased loan activity in The Private Bank.

	December 31, 2004		December 31, 2003
	December 31
(Dollars in billions)	2004		2003
Assets under management	$451.5		$296.7
Client brokerage assets	149.9		88.8
Assets in custody	107.0		49.9
Total client assets	$708.4		$435.4

Assets under management generate fees based on a percentage of their market value. They consist largely of mutual funds and separate accounts, which are comprised of money market products, equities, and taxable and nontaxable fixed income securities. Compared to 2003, assets under management increased $154.8 billion, or 52 percent, due to the addition of $148.9 billion of FleetBoston assets under management and increased market valuation partially offset by outflows primarily in money market products. Client brokerage assets, a source of commission revenue, were up $61.1 billion, or 69 percent, due to the addition of $55.4 billion FleetBoston client brokerage assets. Client brokerage assets consist largely of investments in annuities, money market mutual funds, bonds and equities. Assets in custody increased $57.1 billion, or 114 percent, and represent trust assets administered for customers. The addition of $54.5 billion of assets in custody from FleetBoston drove the increase. Trust assets encompass a broad range of asset types including real estate, private company ownership interest, personal property and investments.

Noninterest Income consists primarily of Investment and Brokerage Services, which represents fees earned on client assets, as well as brokerage commissions and trailer fees. Investment and Brokerage Services revenue increased $1.1 billion, or 71 percent, to $2.7 billion. The increase in Investment and Brokerage Services revenue was primarily due to growth in all client assets categories, driven by the addition of FleetBoston. The impact of FleetBoston on Investment and Brokerage Services was $974 million.

Noninterest Expense increased $1.3 billion, or 64 percent, due to the $889 million increase in expenses related to the inclusion of FleetBoston and this segment’s allocation of the mutual fund settlement, which amounted to approximately $143 million pre-tax. Also impacting Noninterest Expense was an increase in Personnel Expense reflecting the addition of 637 client managers in Premier Banking, additional financial advisors in BAI and increased incentives in BAI due to increased sales and changes to payout schedules.

All Other

Included in All Other are our Latin America and Equity Investments businesses, and Other.

Latin America includes our full-service Latin American operations in Brazil, Argentina and Chile. These businesses provide a wide array of products to indigenous and multinational corporations, as well as consumers. These services include lending, deposit-taking, asset management, private banking and treasury operations. The consumer business focuses on the affluent and middle-market segments. Our largest book of business is in Brazil, while Argentina has our largest branch network, with 87 branches. Our Brazilian and Chilean operations have 65 branches and 43 branches, respectively. Beginning in 2005, Latin America will be re-aligned with the Global Business and Financial Services segment. For more information on our Latin American operations, see Foreign Portfolio.

Equity Investments include Principal Investing and other corporate investments. Principal Investing is comprised of a diversified portfolio of investments in privately-held and publicly-traded companies at all stages of their lifecycle from start-up to buyout.

Other includes Noninterest Income and Expense amounts associated with the ALM process, including Gains on Sales of Debt Securities, the allowance for credit losses process, the residual impact of methodology allocations, intersegment eliminations, and the results of certain consumer finance and commercial lending businesses that are being liquidated.

(Dollars in millions)	2004	2003
Net interest income (fully taxable-equivalent basis)	$  636	$   634
Noninterest income	428	112
Total revenue	1,064	746
Provision for credit losses	148	389
Gains on sales of debt securities	2,016	942
Merger and restructuring charges	618	-
Noninterest expense	594	597
Income before income taxes	1,720	702
Income tax expense	492	97
Net income	$1,228	$   605
Shareholder value added	$   36	$(1,339)

Latin America

The results of Latin America are driven by the addition of the FleetBoston operations in the region. For more information on our Latin American operations, see Foreign Portfolio. Prior to the Merger, our business in the region had been reduced to very low levels. For 2004, Latin America reported Net Income of $310 million compared to a Net Loss of $48 million in 2003. Total Revenue increased $801 million from $33 million to $834 million. The results reflect an improvement in credit quality including the disposition of problem assets, as well as improved economic conditions in the region. Our increased presence in the region as a result of the addition of the FleetBoston business also contributed to the results. SVA increased by $227 million due to higher Net Income.

Net Interest Income increased $470 million from $24 million to $494 million. The increase was driven by the $458 million impact of the addition of the FleetBoston Latin America business.

Noninterest Income increased $331 million from $9 million to $340 million in 2004. The increase was driven by increases in Service Charges, Investment and Brokerage Services, and Trading Account Profits of $78 million, $77 million and $72 million, respectively, due to the addition of FleetBoston.

The Provision for Credit Losses decreased $284 million from $89 million in 2003 to a negative $195 million, due to continued improvement in the credit quality of the portfolio. Driving this decrease was a reduction in net charge-offs of $113 million and improved credit quality.

Noninterest Expense increased $509 million from $19 million to $528 million for 2004 due to the $497 million impact of the addition of the FleetBoston business.

Equity Investments

Equity Investments reported Net Income of $192 million in 2004, a $441 million improvement compared to a $249 million Net Loss in 2003. Total Revenue increased $696 million to $440 million. The improvements were primarily due to higher gains in Principal Investing driven by increasing liquidity in the private equity markets. SVA increased by $364 million, or 77 percent, due to the improvement in the results.

The following table presents the Principal Investing equity portfolio by major industry at December 31, 2004 and 2003:

	December 31, 2004	December 31, 2003		FleetBoston April 1, 2004
	December 31			FleetBoston April 1, 2004
(Dollars in millions)	2004	2003
Consumer discretionary	$2,058	$1,435		$  834
Industrials	1,118	876		527
Information technology	1,089	741		391
Telecommunications services	769	639		271
Financials	606	332		146
Health care	576	385		211
Materials	421	266		188
Consumer staples	230	245		88
Real estate	229	229		113
Energy	81	29		67
Individual trusts, nonprofits, government	49	48		162
Utilities	24	35		6
Total	$7,250	$5,260		$3,004

Noninterest Income within the Principal Investing portfolio primarily consists of Equity Investment Gains (Losses), and increased $712 million to $594 million. While impairments were relatively unchanged at $445 million, cash gains increased by $576 million to $849 million. Also contributing to the improvement was an increase of $143 million in fair value adjustment gains.

Other

Other recorded $726 million of Net Income in 2004, compared to $902 million in 2003. Total Revenue decreased $1.2 billion to a negative $210 million. The decrease was the result of a $440 million decrease in Net Interest Income, from $771 million to $331 million, primarily caused by a reduction of capital in Other, as more capital has been deployed to the business segments, and by the continued runoff of previously exited businesses. The revenue decrease was also caused by the $739 million decline in Noninterest Income primarily caused by the absence of whole mortgage loan sale gains during 2004. Gains on Sales of Debt Securities increased $1.1 billion to $2.0 billion as we continue to reposition the ALM portfolio in response to interest rate fluctuations and to manage mortgage prepayment risk. Provision for Credit Losses increased $65 million resulting from higher ALM whole loan mortgage portfolio levels, changes to components of the formula and other factors, partially offset by reduced credit costs associated with previously exited businesses. Noninterest Expense increased $87 million to $555 million, and included Merger and Restructuring Charges of $618 million offset by costs allocated to the segments. For more information on Merger and Restructuring Charges, see Note 2 of the Consolidated Financial Statements.