10-Q 1 g27236e10vq.htm FORM 10-Q e10vq
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2011
or
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from          to
Commission file number:
1-6523
Exact Name of Registrant as Specified in its Charter:
Bank of America Corporation
State or Other Jurisdiction of Incorporation or Organization:
Delaware
IRS Employer Identification Number:
56-0906609
Address of Principal Executive Offices:
Bank of America Corporate Center
100 N. Tryon Street
Charlotte, North Carolina 28255
Registrant’s telephone number, including area code:
(704) 386-5681
Former name, former address and former fiscal year, if changed since last report:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ü     No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ü     No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one).
             
Large accelerated filer ü       Accelerated filer       Non-accelerated filer
(do not check if a smaller
reporting company)
       Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes     No ü
On July 31, 2011, there were 10,134,295,342 shares of Bank of America Corporation Common Stock outstanding.
 

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Bank of America Corporation

June 30, 2011 Form 10-Q
INDEX
                     
            Page      
Part I.
Financial
Information
  Item 1.              
            128      
            129      
            131      
            132      
            133      
            133      
            136      
            136      
            137      
            145      
            151      
            161      
            162      
            173      
            184      
            185      
            195      
            196      
            196      
            197      
            199      
            210      
            212      
            214      
            215      
                   
 
    Item 2.       4      
            6      
            12      
            15      
            19      
            30      
            31      
            33      
            35      
            40      
            42      
            46      
            49      
            51      
            62      
            64      
            64      
            64      
            69      
            75      
            76      
            93      
            103      
            107      
            107      

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            111      
            112      
            114      
            119      
            119      
            120      
            120      
            124      
                   
 
    Item 3.       127      
                   
 
    Item 4.       127      
                   
 
 
                   
 
Part II.
Other Information
     
 
    219      
                   
 
    Item 1.       219      
                   
 
    Item 1A.       219      
                   
 
    Item 2.       223      
                   
 
    Item 5(a).       223      
                   
 
    Item 6.       224      
                   
 
    Signature     225      
                   
 
    Index to Exhibits   226    
 
 EX-4.A
 EX-10.A
 EX-12
 EX-31.A
 EX-31.B
 EX-32.A
 EX-32.B
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     This report on Form 10-Q, the documents that it incorporates by reference and the documents into which it may be incorporated by reference may contain, and from time to time Bank of America Corporation (collectively with its subsidiaries, the Corporation) and its management may make, certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “expects,” “anticipates,” “believes,” “estimates,” “targets,” “intends,” “plans,” “goal” and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.” The forward-looking statements made represent the current expectations, plans or forecasts of the Corporation regarding the Corporation’s future results and revenues, and future business and economic conditions more generally, including statements concerning: 2011 expense levels; higher revenue and expense reductions in 2012; improving performance in retail businesses; home price assumptions and Home Price Index (HPI) estimates; the impact of the agreement with Assured Guaranty Ltd. and its subsidiaries (Assured Guaranty) and its cost, including the expected value of the loss-sharing reinsurance arrangement; the adequacy of the liability for the remaining representations and warranties exposure to government-sponsored enterprises, Fannie Mae (FNMA) and Freddie Mac (FHLMC) (collectively, the GSEs) and the future impact to earnings, including the impact on such estimated liability arising from the recent announcement by FNMA regarding mortgage rescissions, cancellations and claim denials and the Corporation’s ability to resolve such rescissions, cancellations or claim denials within the appeal period allowed by FNMA; the expected repurchase claims on the 2004-2008 loan vintages; the Corporation’s belief that with the provision recorded in connection with the agreement to resolve nearly all of the legacy Countrywide-issued first-lien non-GSE residential mortgage-backed securitization repurchase exposures (the BNY Mellon Settlement), and the additional representations and warranties provisions recorded in the six months ended June 30, 2011, the Corporation will provide for a substantial portion of its non-GSE representations and warranties exposure; in connection with the BNY Mellon Settlement, the Corporation’s obligations to pay, and estimates of, attorneys’ fees and costs of the group of 22 institutional investors supporting the BNY Mellon Settlement (the Investor Group) and the fees and expenses incurred by the trustee; the impact of the BNY Mellon Settlement on costs related to mortgage servicing obligations; the potential assertion and impact of additional claims not addressed by the BNY Mellon Settlement or any of the prior agreements entered into between the Corporation and the GSEs, monoline insurers and other investors; the resolution of certain related claims being litigated by investors in the event that final court approval of the BNY Mellon Settlement is obtained; the Corporation’s belief that private letter rulings from the U.S. Internal Revenue Service (IRS) and other tax rulings and opinions will be obtained during the period prior to final court approval of the BNY Mellon Settlement; representations and warranties liabilities (also commonly referred to as reserves), and the estimated range of possible loss, expenses and repurchase claims and resolution of those claims, and any related servicing, securities, fraud, indemnity or other claims; the Corporation’s intention to vigorously contest any requests for repurchase for which it concludes that a valid basis does not exist; future impact of complying with the terms of the recent consent orders with federal bank regulators regarding the foreclosure process and potential civil monetary penalties that may be levied in connection therewith; the impact of delays in connection with the Corporation’s temporary halt of foreclosure proceedings in late 2010; the progress toward achieving a resolution in negotiations with law enforcement authorities and federal agencies, including the U.S. Department of Justice (DOJ) and the U.S. Department of Housing and Urban Development (HUD), involving mortgage servicing practices; the impact on economic conditions and on the Corporation arising from any changes to the credit rating or perceived creditworthiness of instruments issued, insured or guaranteed by the U.S. government, or of institutions, agencies or instrumentalities directly linked to the U.S. government; charges to income tax expense resulting from reductions in the United Kingdom (U.K.) corporate income tax rate; future payment protection insurance (PPI) claims in the U.K.; future risk-weighted assets and any mitigation efforts to reduce risk-weighted assets; net interest income; credit trends and conditions, including credit losses, credit reserves, charge-offs, delinquency, collection and bankruptcy trends, and nonperforming asset levels; consumer and commercial service charges, including the impact of changes in the Corporation’s overdraft policy and the Corporation’s ability to mitigate a decline in revenues; liquidity; capital levels determined by or established in accordance with accounting principles generally accepted in the United States of America (GAAP) and with the requirements of various regulatory agencies, including our ability to comply with any Basel capital requirements endorsed by U.S. regulators without raising additional capital and within any applicable regulatory timelines; the revenue impact of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act); the revenue impact and the impact on the value of our assets and liabilities resulting from, and any mitigation actions taken in response to, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Financial Reform Act), including the impact of the Durbin Amendment, the Volcker Rule, the Consumer Financial Protection Bureau (the CFPB); the risk retention rules and derivatives regulations; mortgage production levels; long-term debt levels; short-term debt levels, including the expected reduction of certain short-term unsecured borrowings, including commercial paper, in the

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third quarter of 2011; run-off of loan portfolios; that it is the Corporation’s objective to maintain high-quality credit ratings; the estimated range of possible loss and the impact of various legal proceedings discussed in “Litigation and Regulatory Matters” in Note 11 — Commitments and Contingencies to the Consolidated Financial Statements; the number of delayed foreclosure sales and the resulting financial impact and other similar matters; the amount and timing of any clawback or earn-out payments relating to the sale of certain assets and liabilities of Balboa Insurance Company (Balboa); and other matters relating to the Corporation and the securities that it may offer from time to time. The foregoing is not an exclusive list of all forward-looking statements the Corporation makes. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and often are beyond the Corporation’s control. Actual outcomes and results may differ materially from those expressed in, or implied by, the Corporation’s forward-looking statements.
     You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties more fully discussed elsewhere in this report, under Item 1A. “Risk Factors” of the Corporation’s 2010 Annual Report on Form 10-K, and in any of the Corporation’s subsequent Securities and Exchange Commission (SEC) filings: the Corporation’s timing and determinations regarding any potential revised comprehensive capital plan submission and the Federal Reserve’s response; the Corporation’s intent to build capital through retaining earnings, reducing legacy asset portfolios and implementing other non-dilutive capital related initiatives; the accuracy and variability of estimates and assumptions in determining the expected total cost of the BNY Mellon Settlement to the Corporation; the accuracy and variability of estimates and assumptions in determining the estimated liability and/or estimated range of possible loss for representations and warranties exposures to the GSEs, monolines and private-label and other investors; the accuracy and the variability of estimates and assumptions in determining the portion of the Corporation’s repurchase obligations for residential mortgage obligations sold by the Corporation and its affiliates to investors that has been paid or reserved after giving effect to the BNY Mellon Settlement and the charges in the quarter ended June 30, 2011; the possibility that a substantial number of objections to the approval of the BNY Mellon Settlement will be made and that these objections will delay or prevent receipt of final court approval; whether the conditions to the BNY Mellon Settlement will be satisfied, including the receipt of final court approval and private letter rulings from the IRS and other tax rulings and opinions; whether conditions in the BNY Mellon Settlement that would permit the Corporation and legacy Countrywide to withdraw from the settlement will occur and whether the Corporation and legacy Countrywide will determine to withdraw from the settlement pursuant to the terms of the BNY Mellon Settlement; the impact of performance and enforcement of obligations under, and provisions contained in, the BNY Mellon Settlement and the agreement with the Investor Group, including performance of obligations under the BNY Mellon Settlement by the Corporation and the trustee and the performance of obligations under the agreement with the Investor Group by the Corporation and the Investor Group; the Corporation and certain of its affiliates’ ability to comply with the servicing and documentation obligations under the BNY Mellon Settlement; the potential assertion and impact of additional claims not addressed by the BNY Mellon Settlement or any of the prior agreements entered into between the Corporation and the GSEs, monoline insurers and other investors; the accuracy and variability of estimates and assumptions in determining the expected value of the loss-sharing reinsurance arrangement relating to the agreement with Assured Guaranty and the total cost of the agreement to the Corporation; the Corporation’s resolution of certain representations and warranties obligations with the GSEs and our ability to resolve its remaining claims; the Corporation’s ability to resolve its representations and warranties obligations, and any related servicing, securities, fraud, indemnity or other claims with monolines, and private-label investors and other investors, including those monolines and investors from whom we have not yet received claims or with whom we have not yet reached any resolutions; failure to satisfy our obligations as servicer in the residential mortgage securitization process; the adequacy of the liability and/or the estimated range of possible loss for the representations and warranties exposures to the GSEs, monolines and private-label and other investors; the foreclosure review and assessment process, the effectiveness of the Corporation’s response and any governmental findings or penalties or private third-party claims asserted in connection with these foreclosure matters; the ability to achieve resolution in negotiations with law enforcement authorities and federal agencies, including the DOJ and HUD, involving mortgage servicing practices, including the timing and any settlement terms; the adequacy of the reserve for future PPI claims in the U.K.; and the risk of a credit rating downgrade of the U.S. government; negative economic conditions generally including continued weakness in the U.S. housing market, high unemployment in the U.S., as well as economic challenges in many non-U.S. countries in which we operate and sovereign debt challenges; the Corporation’s mortgage modification policies and related results; the level and volatility of the capital markets, interest rates, currency values and other market indices; changes in consumer, investor and counterparty confidence in, and the related impact on, financial markets and institutions, including the Corporation as well as its business partners; the Corporation’s credit ratings and the credit ratings of its securitizations; the impact resulting from international and domestic sovereign credit uncertainties; the timing and amount of any potential dividend increase; estimates of the fair value of certain of the Corporation’s assets and liabilities; legislative and regulatory actions in the U.S. (including the impact of the Financial Reform Act, the Electronic Fund Transfer Act, the CARD Act and related regulations and interpretations) and internationally; the identification and effectiveness of any initiatives to mitigate the

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negative impact of the Financial Reform Act; the impact of litigation and regulatory investigations, including costs, expenses, settlements and judgments as well as any collateral effects on our ability to do business and access the capital markets; various monetary, tax and fiscal policies and regulations of the U.S. and non-U.S. governments; changes in accounting standards, rules and interpretations, inaccurate estimates or assumptions in the application of accounting policies, including in determining reserves, applicable guidance regarding goodwill accounting and the impact on the Corporation’s financial statements; increased globalization of the financial services industry and competition with other U.S. and international financial institutions; adequacy of the Corporation’s risk management framework; the Corporation’s ability to attract new employees and retain and motivate existing employees; technology changes instituted by the Corporation, its counterparties or competitors; mergers and acquisitions and their integration into the Corporation, including the Corporation’s ability to realize the benefits and cost savings from the Merrill Lynch & Co., Inc. (Merrill Lynch) and Countrywide Financial Corporation (Countrywide) acquisitions; the Corporation’s reputation, including the effects of continuing intense public and regulatory scrutiny of the Corporation and the financial services industry; the effects of any unauthorized disclosures of our or our customers’ private or confidential information and any negative publicity directed toward the Corporation; and decisions to downsize, sell or close units or otherwise change the business mix of the Corporation.
     Forward-looking statements speak only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.
     Notes to the Consolidated Financial Statements referred to in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) are incorporated by reference into the MD&A. Certain prior period amounts have been reclassified to conform to current period presentation. Throughout the MD&A, we use certain acronyms and abbreviations which are defined in the Glossary.
Executive Summary
Business Overview
     The Corporation is a Delaware corporation, a bank holding company and a financial holding company. When used in this report, “the Corporation” may refer to the Corporation individually, the Corporation and its subsidiaries, or certain of the Corporation’s subsidiaries or affiliates. Our principal executive offices are located in the Bank of America Corporate Center in Charlotte, North Carolina. Through our banking and various nonbanking subsidiaries throughout the United States and in certain international markets, we provide a diversified range of banking and nonbanking financial services and products through six business segments: Deposits, Global Card Services, Consumer Real Estate Services (CRES), Global Commercial Banking, Global Banking & Markets (GBAM) and Global Wealth & Investment Management (GWIM), with the remaining operations recorded in All Other. At June 30, 2011, the Corporation had $2.3 trillion in assets and approximately 288,000 full-time equivalent employees.
     As of June 30, 2011, we operated in all 50 states, the District of Columbia and more than 40 non-U.S. countries. Our retail banking footprint covers approximately 80 percent of the U.S. population and in the U.S., we serve approximately 58 million consumer and small business relationships with approximately 5,700 banking centers, 18,000 ATMs, nationwide call centers, and leading online and mobile banking platforms. We have banking centers in 13 of the 15 fastest growing states and have leadership positions in market share for deposits in seven of those states. We offer industry-leading support to approximately four million small business owners. We are a global leader in corporate and investment banking and trading across a broad range of asset classes serving corporations, governments, institutions and individuals around the world.

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     Table 1 provides selected consolidated financial data for the three and six months ended June 30, 2011 and 2010 and at June 30, 2011 and December 31, 2010.
                                          
  Table 1
  Selected Financial Data
    Three Months Ended June 30   Six Months Ended June 30  
  (Dollars in millions, except per share information)   2011   2010   2011   2010
 
Income statement
                               
Revenue, net of interest expense (FTE basis) (1)
  $ 13,483     $ 29,450     $ 40,578     $ 61,740  
Net income (loss)
    (8,826 )     3,123       (6,777 )     6,305  
Net income (loss), excluding goodwill impairment charge (2)
    (6,223 )     3,123       (4,174 )     6,305  
Diluted earnings (loss) per common share
    (0.90 )     0.27       (0.73 )     0.55  
Diluted earnings (loss) per common share, excluding goodwill impairment charge (2)
    (0.65 )     0.27       (0.48 )     0.55  
Dividends paid per common share
  $ 0.01     $ 0.01     $ 0.02     $ 0.02  
   
Performance ratios
                               
Return on average assets
    n/m       0.50  %     n/m       0.51  %
Return on average assets, excluding goodwill impairment charge (2)
    n/m       0.50       n/m       0.51  
Return on average tangible shareholders’ equity (1)
    n/m       8.98       n/m       9.26  
Return on average tangible shareholders’ equity, excluding goodwill impairment charge (1, 2)
    n/m       8.98       n/m       9.26  
Efficiency ratio (FTE basis) (1)
    n/m       58.58       n/m       56.73  
Efficiency ratio (FTE basis), excluding goodwill impairment charge (1, 2)
    n/m       58.58       n/m       56.73  
   
Asset quality
                               
Allowance for loan and lease losses at period end
                  $ 37,312     $ 45,255  
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at period end (3)
                    4.00  %     4.75  %
Nonperforming loans, leases and foreclosed properties at period end (3)
                  $ 30,058     $ 35,598  
Net charge-offs
  $ 5,665     $ 9,557       11,693       20,354  
Annualized net charge-offs as a percentage of average loans and leases outstanding (3)
    2.44  %     3.98  %     2.53  %     4.21  %
Annualized net charge-offs as a percentage of average loans and leases outstanding excluding purchased credit-impaired loans (3)
    2.54       4.11       2.63       4.36  
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs (3)
    1.64       1.18       1.58       1.10  
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs excluding purchased credit-impaired loans (3)
    1.28       1.05       1.23       0.98  
 
                 
         
    June 30   December 31
    2011   2010
Balance sheet
               
Total loans and leases
  $ 941,257     $ 940,440  
Total assets
    2,261,319       2,264,909  
Total deposits
    1,038,408       1,010,430  
Total common shareholders’ equity
    205,614       211,686  
Total shareholders’ equity
    222,176       228,248  
 
Capital ratios
               
Tier 1 common equity
    8.23  %     8.60  %
Tier 1 capital
    11.00       11.24  
Total capital
    15.65       15.77  
Tier 1 leverage
    6.86       7.21  
 
(1)  
FTE basis, return on average tangible shareholders’ equity and the efficiency ratio are non-GAAP measures. Other companies may define or calculate these measures differently. For additional information on these measures and ratios, and for a corresponding reconciliation to GAAP financial measures, see Supplemental Financial Data on page 19.
 
(2)  
Net income (loss), diluted earnings (loss) per common share, return on average assets, return on average tangible shareholders’ equity and the efficiency ratio have been calculated excluding the impact of the goodwill impairment charge of $2.6 billion in the second quarter of 2011 and accordingly, these are non-GAAP measures. For additional information on these measures and ratios, and for a corresponding reconciliation to GAAP financial measures, see Supplemental Financial Data on page 19.
 
(3)  
Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions on nonperforming loans, leases and foreclosed properties, see Nonperforming Consumer Loans and Foreclosed Properties Activity on page 90 and corresponding Table 42, and Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 98 and corresponding Table 51.
 
n/m   = not meaningful
Second Quarter 2011 Economic and Business Environment
     The banking environment and markets in which we conduct our businesses, particularly in Europe, have continued to be strongly influenced by developments in the U.S. and global economies, as well as the continued implementation and rulemaking from recent financial reforms. The U.S. economic momentum slowed in the first quarter of 2011, and remained weak in the second quarter. The sharp rise in prices of gasoline and food pushed up inflation and slowed consumer spending for a wide array of goods and services, while supply chain effects following the Japanese natural disaster aggravated the slowdown, especially in the motor vehicle sector. In response, businesses trimmed production and scaled back growth in investment spending on equipment and software. In addition, job layoffs rose and hiring moderated, contributing to a renewed upward drift in the unemployment rate to 9.2 percent in June, from 8.9 percent in March. Economic and financial performance ended the second quarter 2011 on a fairly weak note, with soft growth and concerns about Europe’s financial crisis and the recent political situation in Washington, D.C. regarding the U.S. Federal debt ceiling. These concerns heightened uncertainty and dampened confidence.

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     The housing market remained depressed, with weak sales and continued modest declines in home prices as measured by the HPI. Declines in home prices added uncertainty about future home prices, dampening home sales. The magnitude of distressed mortgages remained very high, and there were ongoing delays in foreclosure processes. Loans to businesses rose modestly, while loans to households remained weak. Credit quality of bank loans to businesses and households continued to improve.
     While the global economy showed signs of moderating, the impact of Japan’s disaster is expected to be temporary and the focus has once more shifted to Europe’s financial crisis. Core European economies, led by Germany’s strength, were healthy, but peripheral European Union nations were mired in recession-type conditions and Greece teetered toward a debt service liquidity crisis. As the second quarter of 2011 ended, a coordinated European financial support package for Greece temporarily eased financial market concerns.
     Key emerging nations, particularly China, experienced further inflation pressures during the second quarter of 2011, and their central banks tightened monetary policy and credit in efforts to constrain excess demand. Although there was some concern that these restrictive policies would generate sharper-than-desired economic slowdowns that would adversely impact global economic performance, economic growth in those countries remained healthy. For more information on our exposure in Europe, Asia, Latin America and Japan, see Non-U.S. Portfolio on page 103.
Recent Events
Private-label Securitization Settlement with the Bank of New York Mellon
     As previously announced, on June 28, 2011, the Corporation, BAC Home Loans Servicing, LP (BAC HLS, which subsequently merged with and into Bank of America, N.A. (BANA) in July 2011), and certain Countrywide affiliates entered into a settlement agreement with The Bank of New York Mellon (BNY Mellon), as trustee (Trustee), to resolve all outstanding and potential claims related to alleged representations and warranties breaches (including repurchase claims), substantially all historical loan servicing claims and certain other historical claims with respect to 525 legacy Countrywide first-lien and five second-lien non-GSE residential mortgage-backed securitization trusts (the Covered Trusts) with loans principally originated between 2004 and 2008 and for which BNY Mellon acts as trustee or indenture trustee (the BNY Mellon Settlement). The Covered Trusts had an original principal balance of approximately $424 billion, of which $409 billion was originated between 2004 and 2008, and a total current unpaid principal balance (calculated as outstanding principal plus the unpaid principal balance of defaulted loans) of approximately $220 billion, of which $217 billion was originated between 2004 and 2008, as of June 28, 2011. The BNY Mellon Settlement is supported by a group of 22 institutional investors (the Investor Group) and is subject to final court approval and certain other conditions. The BNY Mellon Settlement provides for a cash payment of $8.5 billion (the Settlement Payment) to the Trustee for distribution to the Covered Trusts after final court approval of the settlement and an estimated $100 million in additional expenses and fees to the Investor Group’s counsel and the Trustee. We are also obligated to pay certain other fees and expenses of the Trustee and the Investor Group. The BNY Mellon Settlement also includes provisions related to specific mortgage servicing standards and other servicing matters.
     The Trustee has determined that the BNY Mellon Settlement is in the best interests of the Covered Trusts and is seeking the necessary court approval of the BNY Mellon Settlement. Under an order entered by the court, certificateholders and noteholders in the Covered Trusts have the opportunity to file objections until August 30, 2011 and responses to those objections and statements in support of the settlement until October 31, 2011. In connection with the BNY Mellon Settlement, we entered into an agreement with the Investor Group, which provides that, among other things, the Investor Group will use reasonable best efforts and cooperate in good faith to effectuate the settlement, including obtaining final court approval. The Investor Group has filed, and the court has granted, a petition to intervene as a party to the proceeding so that it may support of the BNY Mellon Settlement. Several alleged investors outside the Investor Group have filed, and the court has granted, petitions to intervene as parties in the pending court proceeding. Certain of these intervenors have stated that they intend to object to the BNY Mellon Settlement, while others have said that they need more information in order to determine whether to object, and indicated that they, therefore, intend to seek discovery. In addition, it is possible that a substantial number of additional investors outside the Investor Group will also seek to intervene as parties, and some intervenors and other investors may object to the BNY Mellon Settlement. The resolutions of the objections of intervenors and/or other investors who object may delay or ultimately prevent receipt of final court approval. There can be no assurance that final court approval of the BNY Mellon Settlement will be obtained, that all conditions will be satisfied or, if certain conditions to the BNY Mellon Settlement permitting withdrawal are met, that we and legacy Countrywide will not determine to withdraw from the BNY Mellon Settlement. The court is scheduled to hold a hearing on the Trustee’s request for entry of an order approving the BNY Mellon Settlement on November 17, 2011.

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     For additional information about the BNY Mellon Settlement, see Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 51 and Other Mortgage-related Matters on page 60. For more information about the risks associated with the BNY Mellon Settlement, see Item 1A. Risk Factors on page 219.
U.S. Debt Ceiling and the Risk of U.S. Downgrade; EU Sovereign Risks
     The U.S. government recently increased its borrowing capacity under the federal debt ceiling. However, there continues to be a perceived risk of a sovereign credit ratings downgrade of the U.S. government, including the ratings of U.S. Treasury securities. In July 2011, Moody’s Investors Service, Inc. (Moody’s) placed the U.S. government under review for a possible credit rating downgrade, and on August 2, 2011 it confirmed the U.S. government’s existing sovereign rating, but stated that the U.S. government’s rating outlook is negative. Also in July 2011 Standard & Poor’s Financial Services LLC (S&P) placed its sovereign credit ratings of the U.S. government on CreditWatch with negative implications. On August 2, 2011 Fitch, Inc. (Fitch) affirmed its existing sovereign rating of the U.S. government, but stated that the rating is under review. A downgrade of U.S. sovereign credit ratings could correspondingly impact the credit ratings of instruments issued, insured or guaranteed by institutions, agencies or instrumentalities directly linked to the U.S. government. We cannot predict if, when or how any changes to the credit ratings of these organizations will affect economic conditions or the resulting impact on the Corporation. Such ratings actions could result in a significant adverse impact to the Corporation. For additional information about the risks associated with the statutory debt limit and any resulting downgrade of the U.S. government, see Item 1A. Risk Factors on page 219.
     In addition, certain European nations continue to experience varying degrees of financial stress, and yields on government-issued bonds in Greece, Ireland, Italy, Portugal and Spain have risen and remain volatile. Despite assistance packages to Greece, Ireland and Portugal, the creation of a joint EU-IMF European Financial Stability Facility in May 2010, and a recently announced plan to expand financial assistance to Greece, uncertainty over the outcome of the EU governments’ financial support programs and worries about sovereign finances persist. Market concerns over the direct and indirect exposure of European banks and insurers to these EU peripheral nations has resulted in a widening of credit spreads and increased costs of funding for some European financial institutions. For additional information about the risks associated with the financial stability of certain EU sovereigns, see Item 1A. Risk Factors on page 219.
Department of Justice / Attorney General Matters
     Law enforcement authorities in all 50 states and the DOJ and other federal agencies continue to investigate alleged irregularities in the foreclosure practices of residential mortgage servicers, including the Corporation. Authorities have publicly stated that the scope of the investigations extends beyond foreclosure documentation practices to mortgage loan modification and loss mitigation practices, including compliance with the HUD requirements related to Federal Housing Administration (FHA)-insured loans. We continue to cooperate with these investigations and are dedicating significant resources to address these issues. We and the other largest mortgage servicers continue to engage in ongoing negotiations regarding these matters with law enforcement authorities and federal agencies. The negotiations continue to focus on the amount of any settlement payment and settlement terms, including principal forgiveness, servicing standards, enforcement mechanisms and releases. Although we cannot be certain as to the ultimate outcome that may result from these negotiations or the timing of such outcome, the parties continue to make progress toward achieving a resolution of these matters. For additional information, see Off-Balance Sheet Arrangement and Contractual Obligations – Other Mortgage-related Matters on page 60.

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Performance Overview
     Net income (loss) was $(8.8) billion and $(6.8) billion for the three and six months ended June 30, 2011 compared to $3.1 billion and $6.3 billion for the same periods in 2010. The principal contributors to the net loss for the three and six months ended June 30, 2011 were the following: $14.0 billion of representations and warranties provision in the second quarter largely related to the BNY Mellon Settlement as well as other mortgage-related costs, including a $2.6 billion non-cash, non-tax deductible goodwill impairment charge, higher mortgage-related litigation expense and increased mortgage assessments and waivers costs. The three- and six-month periods were positively affected by lower credit costs which decreased by $4.9 billion and $10.8 billion compared to the same periods in 2010, or approximately a 60 percent decrease for both periods.
                                      
  Table 2
  Summary Income Statement
    Three Months Ended June 30   Six Months Ended June 30
  (Dollars in millions)   2011   2010   2011   2010
 
Net interest income (1)
  $ 11,493     $ 13,197     $ 23,890     $ 27,267  
Noninterest income
    1,990       16,253       16,688       34,473  
 
Total revenue, net of interest expense (1)
    13,483       29,450       40,578       61,740  
Provision for credit losses
    3,255       8,105       7,069       17,910  
Goodwill impairment
    2,603       -       2,603       -  
All other noninterest expense
    20,253       17,253       40,536       35,028  
 
Income (loss) before income taxes
    (12,628 )     4,092       (9,630 )     8,802  
Income tax expense (benefit) (1)
    (3,802 )     969       (2,853 )     2,497  
 
Net income (loss)
    (8,826 )     3,123       (6,777 )     6,305  
Preferred stock dividends
    301       340       611       688  
 
Net income (loss) applicable to common shareholders
  $ (9,127 )   $ 2,783     $ (7,388 )   $ 5,617  
 
 
                               
Per common share information
                               
Earnings (loss)
  $ (0.90 )   $ 0.28     $ (0.73 )   $ 0.56  
Diluted earnings (loss)
    (0.90 )     0.27       (0.73 )     0.55  
 
(1)  
FTE basis is a non-GAAP measure. Other companies may define or calculate this measure differently. For additional information on this measure and for a corresponding reconciliation to GAAP financial measures, see Supplemental Financial Data on page 19.
     Net interest income on a fully taxable-equivalent (FTE) basis decreased $1.7 billion and $3.4 billion for the three and six months ended June 30, 2011 compared to the same periods in 2010. The decrease was mainly due to lower consumer loan balances and yields, partially offset by the benefits of reductions in long-term debt and lower rates paid on deposits. The net interest yield on a FTE basis was 2.50 percent and 2.58 percent for the three and six months ended June 30, 2011.
     Noninterest income decreased by $14.3 billion and $17.8 billion for the three and six months ended June 30, 2011 compared to the same periods in 2010 as a result of the aforementioned increase in representations and warranties provision. For additional information about representations and warranties, see Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 51. Other components of the period-over-period change in noninterest income included a decrease in service charges due to the impact of overdraft policy changes in conjunction with the implementation of Regulation E, a decrease in equity investment income as gains on sales of certain investments in the prior-year period outpaced those in 2011 and an increase in trading account profits for the three-month period due to a strong second quarter in 2011, and a decrease for the six month period due to very strong first quarter 2010 results.
     The provision for credit losses was lower than net charge-offs for the three and six months ended June 30, 2011 resulting in reserve reductions reflecting improving portfolio trends across most of the consumer and commercial businesses, particularly the U.S. credit card portfolio. The improvement was offset in part by additions to purchased credit-impaired (PCI) loan portfolio reserves, largely in the consumer portfolios.
     Noninterest expense increased $5.6 billion and $8.1 billion for the three and six months ended June 30, 2010 compared to the same periods in 2010. The increases were driven by the goodwill impairment charge and by increases in other general operating expense which includes mortgage-related assessments and waivers costs and litigation expense both of which increased significantly compared to the same periods in 2010. Additionally, an increase in personnel costs for the six months ended June 30, 2011 contributed to the increase as we continue the build-out of several businesses and increase default-related staffing levels in the mortgage servicing business.

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Segment Results
                                                                 
Table 3
Business Segment Results
    Three Months Ended June 30   Six Months Ended June 30
    Total Revenue (1)   Net Income (Loss)   Total Revenue (1)   Net Income (Loss)
(Dollars in millions)   2011   2010   2011   2010   2011   2010   2011   2010
 
Deposits
  $ 3,301     $ 3,695     $ 430     $ 674     $ 6,490     $ 7,413     $ 785     $ 1,372  
Global Card Services
    5,536       6,948       2,035       826       11,223       13,838       3,770       1,794  
Consumer Real Estate Services
    (11,315 )     2,704       (14,520 )     (1,542 )     (9,252 )     6,237       (16,935 )     (3,619 )
Global Commercial Banking
    2,810       2,883       1,381       815       5,461       5,975       2,304       1,520  
Global Banking & Markets
    6,796       5,904       1,558       898       14,682       15,597       3,692       4,137  
Global Wealth & Investment Management
    4,490       4,189       506       329       8,982       8,230       1,039       768  
All Other
    1,865       3,127       (216 )     1,123       2,992       4,450       (1,432 )     333  
 
Total FTE basis
    13,483       29,450       (8,826 )     3,123       40,578       61,740       (6,777 )     6,305  
FTE adjustment
    (247 )     (297 )     -       -       (465 )     (618 )     -       -  
 
Total Consolidated
  $ 13,236     $ 29,153     $ (8,826 )   $ 3,123     $ 40,113     $ 61,122     $ (6,777 )   $ 6,305  
 
(1)  
Total revenue is net of interest expense and is on a FTE basis which is a non-GAAP measure. For more information on this measure and for a corresponding reconciliation to a GAAP financial measure, see Supplemental Financial Data on page 19.
     Deposits net income decreased for the three and six months ended June 30, 2011 compared to the same periods in the prior year due to a decline in revenue driven by lower noninterest income, partially offset by higher net interest income. Noninterest income decreased due to the impact of overdraft policy changes in conjunction with Regulation E, which became effective in the third quarter of 2010. Net interest income was up slightly due to a customer shift to more liquid products and continued pricing discipline.
     Global Card Services net income increased for the three and six months ended June 30, 2011 compared to the same periods in the prior year due primarily to a decrease in the provision for credit losses. Revenue decreased as a result of a decline in net interest income from lower average loans and yields as well as lower noninterest income. Provision for credit losses decreased reflecting improving economic conditions and continued expectations of improving delinquency, collection and bankruptcy trends.
     CRES net loss increased for the three and six months ended June 30, 2011 compared to the same periods in the prior year due to a decline in revenue and increased noninterest expense. This was partially offset by a decline in provision for credit losses. The decline in revenue was driven primarily by an increase in representations and warranties provision, higher expected servicing costs and lower core production income. Noninterest expense increased due to a non-cash goodwill impairment charge, higher litigation expenses and mortgage-related assessments and waivers costs.
     Global Commercial Banking net income increased for the three and six months ended June 30, 2011 compared to the same periods in the prior year largely due to a decrease in the provision for credit losses from improved asset quality, particularly in the commercial real estate portfolio. Revenue decreased primarily due to lower loan balances partially offset by earnings on higher deposits. Noninterest income increased largely due to a gain on the termination of a purchase contract.
     GBAM net income increased for the three months ended June 30, 2011 compared to the same period in the prior year reflecting higher investment banking fees and increased sales and trading revenue. Net income decreased for the six months ended June 30, 2011 compared to the same period in the prior year due to a less favorable trading environment compared to the first quarter of 2010 and higher noninterest expense driven by investments in infrastructure. This was partially offset by higher investment banking fees as noted above for the three months ended June 30, 2011.
     GWIM net income increased for the three and six months ended June 30, 2011 compared to the same periods in the prior year driven by higher revenue as well as lower credit costs, partially offset by higher noninterest expense. Net income for the three months ended June 30, 2010 included the gain and the tax-related charge from the sale of the Columbia Management long-term asset management business. Revenue increased driven by asset management fees as well as higher net interest income due to strong deposit balance growth. The provision for credit losses decreased driven by improving portfolio trends. Noninterest expense increased due to higher revenue-related expenses and personnel costs associated with the continued build-out of the business.

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     All Other reported a net loss for the three and six months ended June 30, 2011 compared to net income for the same periods in the prior year due to lower revenue and higher provision for credit losses. Revenue decreased due primarily to a decline in equity investment income, including an impairment write-down on our merchant services joint venture during the three months ended June 30, 2011, and lower fair value adjustments on structured liabilities. These items were partially offset by an increase in gains on sales of debt securities. The increase in the provision for credit losses was primarily attributable to reserve additions in the Countrywide PCI discontinued real estate and residential mortgage loan portfolios due to the impact of further declines in home prices. Also, merger and restructuring charges decreased as integration efforts with the Merrill Lynch acquisition continue to progress as planned.
Financial Highlights
Net Interest Income
     Net interest income on a FTE basis decreased $1.7 billion to $11.5 billion and $3.4 billion to $23.9 billion for the three and six months ended June 30, 2011 compared to the same periods in 2010. The decrease was primarily due to lower consumer loan balances, a decrease in consumer loan and asset and liability management (ALM) portfolio yields, a drop in long-term interest rates negatively impacting hedge results and lower trading-related revenues. Partially offsetting these items were benefits associated with ongoing reductions in long-term debt and lower rates paid on deposits. The net interest yield on a FTE basis decreased 27 basis points (bps) to 2.50 percent and 27 bps to 2.58 percent for the three and six months ended June 30, 2011 compared to the same periods in 2010 due to these same factors.
Noninterest Income
                                 
  Table 4
  Noninterest Income
    Three Months Ended
June 30
  Six Months Ended
June 30
  (Dollars in millions)   2011   2010   2011   2010
 
Card income
  $ 1,967     $ 2,023     $ 3,795     $ 3,999  
Service charges
    2,012       2,576       4,044       5,142  
Investment and brokerage services
    3,009       2,994       6,110       6,019  
Investment banking income
    1,684       1,319       3,262       2,559  
Equity investment income
    1,212       2,766       2,687       3,391  
Trading account profits
    2,091       1,227       4,813       6,463  
Mortgage banking income (loss)
    (13,196 )     898       (12,566 )     2,398  
Insurance income
    400       678       1,013       1,393  
Gains on sales of debt securities
    899       37       1,445       771  
Other income
    1,957       1,861       2,218       3,065  
Net impairment losses recognized in earnings on AFS debt securities
    (45 )     (126 )     (133 )     (727 )
 
Total noninterest income
  $ 1,990     $ 16,253     $ 16,688     $ 34,473  
 
     Noninterest income decreased $14.3 billion to $2.0 billion and $17.8 billion to $16.7 billion for the three and six months ended June 30, 2011 compared to the same periods in 2010. The following highlights the significant changes.
   
Service charges decreased $564 million and $1.1 billion for the three and six months ended June 30, 2011 largely due to the impact of overdraft policy changes in conjunction with Regulation E, which became effective in the third quarter of 2010.
 
   
Investment banking income increased $365 million and $703 million for the three and six months ended June 30, 2011 reflecting strong performance in advisory services and debt and equity issuances.
 
   
Equity investment income decreased $1.6 billion and $704 million for the three and six months ended June 30, 2011. The three months ended June 30, 2011 included an $837 million China Construction Bank (CCB) dividend, a $377 million pre-tax gain on the sale of our investment in BlackRock, Inc. (BlackRock) and a $500 million impairment write-down on our merchant services joint venture. The three months ended June 30, 2010 included net gains of $751 million on sales of certain strategic investments and a $535 million dividend on CCB. The six months ended June 30, 2011 included a $1.1 billion pre-tax gain related to an initial public offering (IPO) of an equity investment which occurred in the first quarter of 2011.

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Trading account profits increased $864 million for the three months ended June 30, 2011 and decreased $1.7 billion for the six-month period. The six-month decline reflects a less favorable trading environment in the first quarter compared to record results in the first quarter of 2010.
 
   
Mortgage banking income decreased $14.1 billion and $15.0 billion for the three and six months ended June 30, 2011 due to a $12.8 billion and $13.3 billion increase in the representations and warranties provision and less favorable mortgage servicing rights (MSR) results, net of hedges, of $885 million and $1.1 billion as a result of higher servicing costs.
 
   
Other income increased $96 million and decreased $847 million for the three and six months ended June 30, 2011. For the six months ended June 30, 2011, the decrease was primarily due to negative fair value adjustments on structured liabilities of $372 million compared to positive adjustments of $1.4 billion for the same period in 2010, partially offset by the gain of $771 million on the sale of the lender-placed insurance business of Balboa in the three months ended June 30, 2011.
Provision for Credit Losses
     The provision for credit losses decreased $4.9 billion to $3.3 billion and $10.8 billion to $7.1 billion for the three and six months ended June 30, 2011 compared to the same periods in 2010. The provision for credit losses was $2.4 billion and $4.6 billion lower than net charge-offs for the three and six months ended June 30, 2011 which is after an addition to reserves for the PCI loan portfolio of $412 million and $2.0 billion. The reduction in the allowance for credit losses in the three and six months ended June 30, 2011 was driven primarily by improving delinquencies, collections and bankruptcies across the Global Card Services portfolios.
     The provision for credit losses related to our consumer portfolio decreased $3.4 billion to $3.8 billion and $7.7 billion to $7.7 billion for the three and six months ended June 30, 2011 compared to the same periods in 2010. The provision for credit losses related to our commercial portfolio including the provision for unfunded lending commitments decreased $1.5 billion to a benefit of $523 million and $3.1 billion to a benefit of $636 million for the three and six months ended June 30, 2011 compared to the same periods in 2010.
     Net charge-offs totaled $5.7 billion, or 2.44 percent and $11.7 billion, or 2.53 percent of average loans and leases for the three and six months ended June 30, 2011 compared with $9.6 billion, or 3.98 percent and $20.4 billion, or 4.21 percent for the three and six months ended June 30, 2010. The decrease in net charge-offs was primarily driven by improvements in general economic conditions that resulted in fewer delinquencies, improved collection rates and lower bankruptcy filings across the Global Card Services U.S. loan portfolio. For more information on the provision for credit losses, see Provision for Credit Losses on page 107.

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Noninterest Expense
                                 
  Table 5
  Noninterest Expense
    Three Months Ended
June 30
  Six Months Ended
June 30
  (Dollars in millions)   2011   2010   2011   2010
 
Personnel
  $ 9,171     $ 8,789     $ 19,339     $ 17,947  
Occupancy
    1,245       1,182       2,434       2,354  
Equipment
    593       613       1,199       1,226  
Marketing
    560       495       1,124       982  
Professional fees
    766       644       1,412       1,161  
Amortization of intangibles
    382       439       767       885  
Data processing
    643       632       1,338       1,280  
Telecommunications
    391       359       762       689  
Other general operating
    6,343       3,592       11,800       7,475  
Goodwill impairment
    2,603       -       2,603       -  
Merger and restructuring charges
    159       508       361       1,029  
 
Total noninterest expense
  $ 22,856     $ 17,253     $ 43,139     $ 35,028  
 
     Noninterest expense increased $5.6 billion to $22.9 billion and $8.1 billion to $43.1 billion for the three and six months ended June 30, 2011 compared to the same periods in 2010. The increases were driven by a $2.6 billion goodwill impairment charge in our mortgage business in the three months ended June 30, 2011 and by increases in general operating expense of $2.8 billion and $4.3 billion for the three and six months ended June 30, 2011 compared to the same periods in the prior year. Other general operating expense includes mortgage-related assessments and waivers costs of $716 million and $1.6 billion for the three and six months ended June 30, 2011. Litigation expenses within other general operating expense increased to $2.3 billion and $3.2 billion for the three and six months ended June 30, 2011, of which $2.0 billion and $2.8 billion were in our mortgage business. Additionally, an increase of $1.4 billion in personnel costs for the year-to-date period contributed to the increase in noninterest expense as we continue to add client-facing professionals in GWIM, expand our international capabilities in GBAM and increase default-related staffing levels in the mortgage business.
Income Tax Expense
     The income tax benefit was $4.0 billion on a pre-tax loss of $12.9 billion for the three months ended June 30, 2011 compared to an income tax expense of $672 million on pre-tax income of $3.8 billion for the same period in 2010 and resulted in an effective tax rate of a 31.4 percent benefit on the loss compared to an effective tax rate of 17.7 percent in the prior year. The effective tax rates for the three and six months ended June 30, 2011 excluding the $2.6 billion goodwill impairment charge from pre-tax income were 39.4 percent and 44.3 percent benefit rates. The income tax benefit was $3.3 billion on the pre-tax loss of $10.1 billion for the six months ended June 30, 2011 compared to an income tax expense of $1.9 billion on pre-tax income of $8.2 billion for the same period in 2010 and resulted in an effective tax rate of a 32.9 percent benefit on the loss compared to an effective tax rate of 23.0 percent in the prior year.
     The effective tax benefit rates for the three and six months ended June 30, 2011 were higher than the tax rates for the same periods in 2010 because the benefits for net tax preference items increased the income tax benefit recorded on the pre-tax loss while the impact of such benefits was a decrease in tax expense recorded on pre-tax income for the same periods in 2010.
     On July 19, 2011, the U.K. 2011 Finance Bill was enacted which reduced the corporate income tax rate to 26 percent beginning on April 1, 2011, and then to 25 percent effective April 1, 2012. These rate reductions will favorably affect income tax expense on future U.K. earnings but also will require us to remeasure our U.K. net deferred tax assets using the lower tax rates. We will record a charge to income tax expense of approximately $800 million for this revaluation in the three months ending September 30, 2011. If corporate income tax rates were to be reduced to 23 percent by 2014 as suggested in U.K. Treasury announcements and assuming no change in the deferred tax asset balance, a charge to income tax expense of approximately $400 million for each one percent reduction in the rate would result in each period of enactment.
     In addition, it is possible that valuation allowance releases may affect the effective income tax rate later this year.

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Balance Sheet Overview
                                                 
  Table 6
  Selected Balance Sheet Data
                    Average Balance
    June 30   December 31   Three Months Ended June 30   Six Months Ended June 30
  (Dollars in millions)   2011   2010   2011   2010   2011   2010
 
Assets
                                               
Federal funds sold and securities borrowed or purchased under agreements to resell
  $ 235,181     $ 209,616     $ 259,069     $ 263,564     $ 243,311     $ 264,810  
Trading account assets (1)
    196,939       194,671       186,760       213,927       203,806       214,233  
Debt securities
    331,052       338,054       335,269       314,299       335,556       312,727  
Loans and leases
    941,257       940,440       938,513       967,054       938,738       979,267  
Allowance for loan and lease losses
    (37,312 )     (41,885 )     (38,755 )     (46,740 )     (39,752 )     (47,413 )
All other assets (1)
    594,202       624,013       658,254       782,328       657,167       781,835  
 
Total assets
  $ 2,261,319     $ 2,264,909     $ 2,339,110     $ 2,494,432     $ 2,338,826     $ 2,505,459  
 
Liabilities
                                               
Deposits
  $ 1,038,408     $ 1,010,430     $ 1,035,944     $ 991,615     $ 1,029,578     $ 986,344  
Federal funds purchased and securities loaned or sold under agreements to repurchase
    239,521       245,359       276,673       383,558       291,461       399,729  
Trading account liabilities
    74,989       71,985       96,108       100,021       90,044       95,105  
Commercial paper and other short-term borrowings
    50,632       59,962       62,019       70,493       63,581       81,313  
Long-term debt
    426,659       448,431       435,144       497,469       437,812       505,507  
All other liabilities
    208,934       200,494       198,155       217,815       193,420       205,766  
 
Total liabilities
    2,039,143       2,036,661       2,104,043       2,260,971       2,105,896       2,273,764  
Shareholders’ equity
    222,176       228,248       235,067       233,461       232,930       231,695  
 
Total liabilities and shareholders’ equity
  $ 2,261,319     $ 2,264,909     $ 2,339,110     $ 2,494,432     $ 2,338,826     $ 2,505,459  
 
(1)  
For the three and six months ended June 30, 2011, for average balance and yield calculation purposes, $40.4 billion and $20.3 billion of noninterest-earning equity trading securities were reclassified from trading account assets to all other assets. Prior period amounts are immaterial and have not been restated.
     Period-end balance sheet amounts may vary from average balance sheet amounts due to liquidity and balance sheet management activities, primarily involving our portfolios of highly liquid assets, that are designed to ensure the adequacy of capital while enhancing our ability to manage liquidity requirements for the Corporation and our customers, and to position the balance sheet in accordance with the Corporation’s risk appetite. The execution of these activities requires the use of balance sheet and capital-related limits including spot, average and risk-weighted asset limits, particularly in our trading businesses. One of our key metrics, Tier 1 leverage ratio, is calculated based on adjusted quarterly average total assets. Risk mitigation activities that contributed to the decrease in average assets during the three and six months ended June 30, 2011 included reduction of exposure within various types of low quality and alternative investments, significant loan run-off and the exit of proprietary trading.
Assets
     At June 30, 2011, total assets were $2.3 trillion, a decrease of $3.6 billion, or less than one percent, from December 31, 2010.
     Average total assets decreased $155.3 billion and $166.6 billion for the three and six months ended June 30, 2011 compared to the same periods in 2010. Almost all line items decreased with the most significant decrease in all other assets largely due to the sale of certain strategic investments, reductions in MSR hedging activity and our goodwill balance as a result of impairment charges recorded in 2010.
     In the first half of 2011, we have taken certain actions to reduce risk-weighted assets, including reducing certain capital markets risk exposures, selling assets, reducing our loan run-off portfolio and exiting proprietary trading activities. For more information, see Capital Management – Regulatory Capital on page 64.
Liabilities and Shareholders’ Equity
     At June 30, 2011, total liabilities were $2.0 trillion, an increase of $2.5 billion, or less than one percent, from December 31, 2010.
     Average total liabilities decreased $156.9 billion and $167.9 billion for the three and six months ended June 30, 2011 compared to the same periods in 2010. The decreases were primarily driven by reduced short-term borrowings and long-term debt, and the sale of First Republic Bank in 2010. These decreases were partially offset by deposit growth.

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     Shareholders’ equity decreased $6.1 billion to $222.2 billion at June 30, 2011 compared to December 31, 2010. The decrease was driven primarily by the second quarter net loss.
     Average shareholders’ equity increased $1.6 billion and $1.2 billion for the three and six months ended June 30, 2011 compared to the same periods in 2010. The increases were due to an increase in accumulated other comprehensive income (OCI) due in large part to net unrealized gains on available-for-sale (AFS) securities. The charges that drove the net loss for the three and six months ended June 30, 2011 were recorded at period end and accordingly had minimal impact on average shareholders’ equity.

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Table 7
Selected Quarterly Financial Data
    2011 Quarters   2010 Quarters
(In millions, except per share information)   Second   First   Fourth   Third   Second
 
Income statement
                                       
Net interest income
  $ 11,246     $ 12,179     $ 12,439     $ 12,435     $ 12,900  
Noninterest income
    1,990       14,698       9,959       14,265       16,253  
Total revenue, net of interest expense
    13,236       26,877       22,398       26,700       29,153  
Provision for credit losses
    3,255       3,814       5,129       5,396       8,105  
Goodwill impairment
    2,603       -       2,000       10,400       -  
Merger and restructuring charges
    159       202       370       421       508  
All other noninterest expense (1)
    20,094       20,081       18,494       16,395       16,745  
Income (loss) before income taxes
    (12,875 )     2,780       (3,595 )     (5,912 )     3,795  
Income tax expense (benefit)
    (4,049 )     731       (2,351 )     1,387       672  
Net income (loss)
    (8,826 )     2,049       (1,244 )     (7,299 )     3,123  
Net income (loss) applicable to common shareholders
    (9,127 )     1,739       (1,565 )     (7,647 )     2,783  
Average common shares issued and outstanding
    10,095       10,076       10,037       9,976       9,957  
Average diluted common shares issued and outstanding
    10,095       10,181       10,037       9,976       10,030  
 
Performance ratios
                                       
Return on average assets
    n/m       0.36  %     n/m       n/m       0.50  %
Four quarter trailing return on average assets (2)
    n/m       n/m       n/m       n/m       0.20  
Return on average common shareholders’ equity
    n/m       3.29       n/m       n/m       5.18  
Return on average tangible common shareholders’ equity (3)
    n/m       5.28       n/m       n/m       9.19  
Return on average tangible shareholders’ equity (3)
    n/m       5.54       n/m       n/m       8.98  
Total ending equity to total ending assets
    9.83  %     10.15       10.08  %     9.85  %     9.85  
Total average equity to total average assets
    10.05       9.87       9.94       9.83       9.36  
Dividend payout
    n/m       6.06       n/m       n/m       3.63  
 
Per common share data
                                       
Earnings (loss)
  $ (0.90 )   $ 0.17     $ (0.16 )   $ (0.77 )   $ 0.28  
Diluted earnings (loss)
    (0.90 )     0.17       (0.16 )     (0.77 )     0.27  
Dividends paid
    0.01       0.01       0.01       0.01       0.01  
Book value
    20.29       21.15       20.99       21.17       21.45  
Tangible book value (3)
    12.65       13.21       12.98       12.91       12.14  
 
Market price per share of common stock
                                       
Closing
  $ 10.96     $ 13.33     $ 13.34     $ 13.10     $ 14.37  
High closing
    13.72       15.25       13.56       15.67       19.48  
Low closing
    10.50       13.33       10.95       12.32       14.37  
 
Market capitalization
  $ 111,060     $ 135,057     $ 134,536     $ 131,442     $ 144,174  
 
Average balance sheet
                                       
Total loans and leases
  $ 938,513     $ 938,966     $ 940,614     $ 934,860     $ 967,054  
Total assets
    2,339,110       2,338,538       2,370,258       2,379,397       2,494,432  
Total deposits
    1,035,944       1,023,140       1,007,738       973,846       991,615  
Long-term debt
    435,144       440,511       465,875       485,588       497,469  
Common shareholders’ equity
    218,505       214,206       218,728       215,911       215,468  
Total shareholders’ equity
    235,067       230,769       235,525       233,978       233,461  
 
Asset quality (4)
                                       
Allowance for credit losses (5)
  $ 38,209     $ 40,804     $ 43,073     $ 44,875     $ 46,668  
Nonperforming loans, leases and foreclosed properties (6)
    30,058       31,643       32,664       34,556       35,598  
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (6)
    4.00  %     4.29  %     4.47  %     4.69  %     4.75  %
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (6)
    135       135       136       135       137  
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases excluding the PCI loan portfolio (6)
    105       108       116       118       121  
Amounts included in allowance that are excluded from nonperforming loans (7)
  $ 19,935     $ 22,110     $ 22,908     $ 23,661     $ 24,338  
Allowance as a percentage of total nonperforming loans and leases excluding the amounts included in the allowance that are excluded from nonperforming loans (7)
    63  %     60  %     62  %     62  %     63  %
Net charge-offs
  $ 5,665     $ 6,028     $ 6,783     $ 7,197     $ 9,557  
Annualized net charge-offs as a percentage of average loans and leases outstanding (6)
    2.44  %     2.61  %     2.87  %     3.07  %     3.98  %
Nonperforming loans and leases as a percentage of total loans and leases outstanding (6)
    2.96       3.19       3.27       3.47       3.48  
Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (6)
    3.22       3.40       3.48       3.71       3.73  
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs
    1.64       1.63       1.56       1.53       1.18  
 
Capital ratios (period end)
                                       
Risk-based capital:
                                       
Tier 1 common
    8.23  %     8.64  %     8.60  %     8.45  %     8.01  %
Tier 1
    11.00       11.32       11.24       11.16       10.67  
Total
    15.65       15.98       15.77       15.65       14.77  
Tier 1 leverage
    6.86       7.25       7.21       7.21       6.68  
Tangible equity (3)
    6.63       6.85       6.75       6.54       6.14  
Tangible common equity (3)
    5.87       6.10       5.99       5.74       5.35  
 
(1)  
Excludes merger and restructuring charges and goodwill impairment charges.
 
(2)  
Calculated as total net income for four consecutive quarters divided by average assets for the period.
 
(3)  
Tangible equity ratios and tangible book value per share of common stock are non-GAAP measures. Other companies may define or calculate these measures differently. For additional information on these ratios and corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 19 and Table 9 on pages 20 and 21.
 
(4)  
For more information on the impact of the PCI loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 76 and Commercial Portfolio Credit Risk Management on page 93.
 
(5)  
Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments.
 
(6)  
Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Nonperforming Consumer Loans and Foreclosed Properties Activity on page 90 and corresponding Table 42, and Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 98 and corresponding Table 51.
 
(7)  
Amounts included in allowance that are excluded from nonperforming loans primarily includes amounts allocated to Global Card Services portfolio and purchased credit-impaired loans.
 
n/m = not meaningful

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  Table 8
  Selected Year-to-Date Financial Data
    Six Months Ended June 30
  (In millions, except per share information)   2011   2010
 
Income statement
               
Net interest income
  $ 23,425     $ 26,649  
Noninterest income
    16,688       34,473  
Total revenue, net of interest expense
    40,113       61,122  
Provision for credit losses
    7,069       17,910  
Goodwill impairment
    2,603       -  
Merger and restructuring charges
    361       1,029  
All other noninterest expense (1)
    40,175       33,999  
Income (loss) before income taxes
    (10,095 )     8,184  
Income tax expense (benefit)
    (3,318 )     1,879  
Net income (loss)
    (6,777 )     6,305  
Net income (loss) available to common shareholders
    (7,388 )     5,617  
Average common shares issued and outstanding
    10,085       9,570  
Average diluted common shares issued and outstanding
    10,085       10,021  
 
Performance ratios
               
Return on average assets
    n/m       0.51  %
Return on average common shareholders’ equity
    n/m       5.45  
Return on average tangible common shareholders’ equity (2)
    n/m       9.48  
Return on average tangible shareholders’ equity (2)
    n/m       9.26  
Total ending equity to total ending assets
    9.83  %     9.85  
Total average equity to total average assets
    9.96       9.25  
Dividend payout
    n/m       3.60  
 
Per common share data
               
Earnings (loss)
  $ (0.73 )   $ 0.56  
Diluted earnings (loss)
    (0.73 )     0.55  
Dividends paid
    0.02       0.02  
Book value
    20.29       21.45  
Tangible book value (2)
    12.65       12.14  
 
Market price per share of common stock
               
Closing
  $ 10.96     $ 14.37  
High closing
    15.25       19.48  
Low closing
    10.50       14.37  
 
Market capitalization
  $ 111,060     $ 144,174  
 
Average balance sheet
               
Total loans and leases
  $ 938,738     $ 979,267  
Total assets
    2,338,826       2,505,459  
Total deposits
    1,029,578       986,344  
Long-term debt
    437,812       505,507  
Common shareholders’ equity
    216,367       207,975  
Total shareholders’ equity
    232,930       231,695  
 
Asset quality (3)
               
Allowance for credit losses (4)
  $ 38,209     $ 46,668  
Nonperforming loans, leases and foreclosed properties (5)
    30,058       35,598  
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (5)
    4.00  %     4.75  %
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5)
    135       137  
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases excluding the PCI loan portfolio (5)
    105       121  
Amounts included in allowance that are excluded from nonperforming loans (6)
    19,935       24,338  
Allowance as a percentage of total nonperforming loans and leases excluding the amounts included in the allowance that are excluded from nonperforming loans (6)
    63  %     63  %
Net charge-offs
  $ 11,693     $ 20,354  
Annualized net charge-offs as a percentage of average loans and leases outstanding (5)
    2.53  %     4.21  %
Nonperforming loans and leases as a percentage of total loans and leases outstanding (5)
    2.96       3.48  
Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (5)
    3.22       3.73  
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs
    1.58       1.10  
 
(1)  
Excludes merger and restructuring charges and goodwill impairment charge.
 
(2)  
Tangible equity ratios and tangible book value per share of common stock are non-GAAP measures. Other companies may define or calculate these measures differently. For additional information on these ratios and corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 19 and Table 10 on page 22.
 
(3)  
For more information on the impact of the PCI loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 76 and Commercial Portfolio Credit Risk Management on page 93.
 
(4)  
Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments.
 
(5)  
Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions on nonperforming loans, leases and foreclosed properties, see Nonperforming Consumer Loans and Foreclosed Properties Activity on page 90 and corresponding Table 42 and Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 98 and corresponding Table 51.
 
(6)  
Amounts included in allowance that are excluded from nonperforming loans primarily includes amounts allocated to Global Card Services portfolio and purchased credit-impaired loans.
 
n/m = not meaningful

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Supplemental Financial Data
     We view net interest income and related ratios and analyses (i.e., efficiency ratio and net interest yield) on a FTE basis. Although these are non-GAAP measures, we believe managing the business with net interest income on a FTE basis provides a more accurate picture of the interest margin for comparative purposes. To derive the FTE basis, net interest income is adjusted to reflect tax-exempt income on an equivalent before-tax basis with a corresponding increase in income tax expense. For purposes of this calculation, we use the federal statutory tax rate of 35 percent. This measure ensures comparability of net interest income arising from taxable and tax-exempt sources.
     As mentioned above, certain performance measures including the efficiency ratio and net interest yield utilize net interest income (and thus total revenue) on a FTE basis. The efficiency ratio measures the costs expended to generate a dollar of revenue, and net interest yield evaluates the bps we earn over the cost of funds. During our annual planning process, we set efficiency targets for the Corporation and each line of business. We believe the use of these non-GAAP measures provides additional clarity in assessing our results. Targets vary by year and by business and are based on a variety of factors including maturity of the business, competitive environment, market factors and other items including our risk appetite.
     We also evaluate our business based on the following ratios that utilize tangible equity, a non-GAAP measure. Return on average tangible common shareholders’ equity measures our earnings contribution as a percentage of common shareholders’ equity plus any Common Equivalent Securities (CES) less goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities. Return on average tangible shareholders’ equity (ROTE) measures our earnings contribution as a percentage of average shareholders’ equity less goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities. The tangible common equity ratio represents common shareholders’ equity plus any CES less goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities divided by total assets less goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities. The tangible equity ratio represents total shareholders’ equity less goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities divided by total assets less goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities. Tangible book value per common share represents ending common shareholders’ equity less goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities divided by ending common shares outstanding. These measures are used to evaluate our use of equity (i.e., capital). In addition, profitability, relationship and investment models all use ROTE as key measures to support our overall growth goals.

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     The aforementioned supplemental data and performance measures are presented in Tables 7 and 8. In addition, in Tables 9 and 10 we excluded the impact of goodwill impairment charges of $2.6 billion recorded in the second quarter of 2011, and $10.4 billion and $2.0 billion recorded in the third and fourth quarters of 2010 when presenting earnings (loss) and diluted earnings (loss) per common share, the efficiency ratio, return on average assets, four quarter trailing return on average assets, return on average common shareholders’ equity, return on average tangible common shareholders’ equity and ROTE. Accordingly, these are non-GAAP measures. Tables 9 and 10 provide reconciliations of these non-GAAP measures with financial measures defined by GAAP. We believe the use of these non-GAAP measures provides additional clarity in assessing the results of the Corporation. Other companies may define or calculate these measures and ratios differently.
                                         
  Table 9
  Quarterly Supplemental Financial Data and Reconciliations to GAAP Financial Measures
    2011 Quarters   2010 Quarters
  (Dollars in millions, except per share information)   Second   First   Fourth   Third   Second
 
Fully taxable-equivalent basis data
                                       
Net interest income
  $ 11,493     $ 12,397     $ 12,709     $ 12,717     $ 13,197  
Total revenue, net of interest expense
    13,483       27,095       22,668       26,982       29,450  
Net interest yield
    2.50  %     2.67  %     2.69  %     2.72  %     2.77  %
Efficiency ratio
    n/m       74.86       92.04       100.87       58.58  
 
Performance ratios, excluding goodwill impairment charges (1)
                                       
Per common share information
                                       
Earnings (loss)
  $ (0.65 )           $ 0.04     $ 0.27          
Diluted earnings (loss)
    (0.65 )             0.04       0.27          
Efficiency ratio
    n/m               83.22  %     62.33  %        
Return on average assets
    n/m               0.13       0.52          
Four quarter trailing return on average assets (2)
    n/m               0.43       0.39          
Return on average common shareholders’ equity
    n/m               0.79       5.06          
Return on average tangible common shareholders’ equity
    n/m               1.27       8.67          
Return on average tangible shareholders’ equity
    n/m               1.96       8.54          
 
(1)  
Performance ratios have been calculated excluding the impact of the goodwill impairment charges of $2.6 billion recorded during the second quarter of 2011, and $2.0 billion and $10.4 billion recorded during the fourth and third quarters of 2010, respectively.
 
(2)  
Calculated as total net income for four consecutive quarters divided by average assets for the period.
 
n/m = not meaningful

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  Table 9
  Quarterly Supplemental Financial Data and Reconciliations to GAAP Financial Measures (continued)
    2011 Quarters   2010 Quarters
  (Dollars in millions)   Second   First   Fourth   Third   Second
 
Reconciliation of net interest income to net interest income on a fully taxable-equivalent basis
                                       
Net interest income
  $ 11,246     $ 12,179     $ 12,439     $ 12,435     $ 12,900  
FTE adjustment
    247       218       270       282       297  
 
Net interest income on a fully taxable-equivalent basis
  $ 11,493     $ 12,397     $ 12,709     $ 12,717     $ 13,197  
 
Reconciliation of total revenue, net of interest expense to total revenue, net of interest expense on a fully taxable-equivalent basis
                                       
Total revenue, net of interest expense
  $ 13,236     $ 26,877     $ 22,398     $ 26,700     $ 29,153  
FTE adjustment
    247       218       270       282       297  
 
Total revenue, net of interest expense on a fully taxable-equivalent basis
  $ 13,483     $ 27,095     $ 22,668     $ 26,982     $ 29,450  
 
Reconciliation of total noninterest expense to total noninterest expense, excluding goodwill impairment charges
                                       
Total noninterest expense
  $ 22,856     $ 20,283     $ 20,864     $ 27,216     $ 17,253  
Goodwill impairment charges
    (2,603 )     -       (2,000 )     (10,400 )     -  
 
Total noninterest expense, excluding goodwill impairment charges
  $ 20,253     $ 20,283     $ 18,864     $ 16,816     $ 17,253  
 
Reconciliation of income tax expense (benefit) to income tax expense (benefit) on a fully taxable-equivalent basis
                                       
Income tax expense (benefit)
  $ (4,049 )   $ 731     $ (2,351 )   $ 1,387     $ 672  
FTE adjustment
    247       218       270       282       297  
 
Income tax expense (benefit) on a fully taxable-equivalent basis
  $ (3,802 )   $ 949     $ (2,081 )   $ 1,669     $ 969  
 
Reconciliation of net income (loss) to net income (loss), excluding goodwill impairment charges
                                       
Net income (loss)
  $ (8,826 )   $ 2,049     $ (1,244 )   $ (7,299 )   $ 3,123  
Goodwill impairment charges
    2,603       -       2,000       10,400       -  
 
Net income (loss), excluding goodwill impairment charges
  $ (6,223 )   $ 2,049     $ 756     $ 3,101     $ 3,123  
 
Reconciliation of net income (loss) applicable to common shareholders to net income (loss) applicable to common shareholders, excluding goodwill impairment charges
                                       
Net income (loss) applicable to common shareholders
  $ (9,127 )   $ 1,739     $ (1,565 )   $ (7,647 )   $ 2,783  
Goodwill impairment charges
    2,603       -       2,000       10,400       -  
 
Net income (loss) applicable to common shareholders, excluding goodwill impairment charges
  $ (6,524 )   $ 1,739     $ 435     $ 2,753     $ 2,783  
 
Reconciliation of average common shareholders’ equity to average tangible common shareholders’ equity
                                       
Common shareholders’ equity
  $ 218,505     $ 214,206     $ 218,728     $ 215,911     $ 215,468  
Goodwill
    (73,748 )     (73,922 )     (75,584 )     (82,484 )     (86,099 )
Intangible assets (excluding MSRs)
    (9,394 )     (9,769 )     (10,211 )     (10,629 )     (11,216 )
Related deferred tax liabilities
    2,932       3,035       3,121       3,214       3,395  
 
Tangible common shareholders’ equity
  $ 138,295     $ 133,550     $ 136,054     $ 126,012     $ 121,548  
 
Reconciliation of average shareholders’ equity to average tangible shareholders’ equity
                                       
Shareholders’ equity
  $ 235,067     $ 230,769     $ 235,525     $ 233,978     $ 233,461  
Goodwill
    (73,748 )     (73,922 )     (75,584 )     (82,484 )     (86,099 )
Intangible assets (excluding MSRs)
    (9,394 )     (9,769 )     (10,211 )     (10,629 )     (11,216 )
Related deferred tax liabilities
    2,932       3,035       3,121       3,214       3,395  
 
Tangible shareholders’ equity
  $ 154,857     $ 150,113     $ 152,851     $ 144,079     $ 139,541  
 
Reconciliation of period end common shareholders’ equity to period end tangible common shareholders’ equity
                                       
Common shareholders’ equity
  $ 205,614     $ 214,314     $ 211,686     $ 212,391     $ 215,181  
Goodwill
    (71,074 )     (73,869 )     (73,861 )     (75,602 )     (85,801 )
Intangible assets (excluding MSRs)
    (9,176 )     (9,560 )     (9,923 )     (10,402 )     (10,796 )
Related deferred tax liabilities
    2,853       2,933       3,036       3,123       3,215  
 
Tangible common shareholders’ equity
  $ 128,217     $ 133,818     $ 130,938     $ 129,510     $ 121,799  
 
Reconciliation of period end shareholders’ equity to period end tangible shareholders’ equity
                                       
Shareholders’ equity
  $ 222,176     $ 230,876     $ 228,248     $ 230,495     $ 233,174  
Goodwill
    (71,074 )     (73,869 )     (73,861 )     (75,602 )     (85,801 )
Intangible assets (excluding MSRs)
    (9,176 )     (9,560 )     (9,923 )     (10,402 )     (10,796 )
Related deferred tax liabilities
    2,853       2,933       3,036       3,123       3,215  
 
Tangible shareholders’ equity
  $ 144,779     $ 150,380     $ 147,500     $ 147,614     $ 139,792  
 
Reconciliation of period end assets to period end tangible assets
                                       
Assets
  $ 2,261,319     $ 2,274,532     $ 2,264,909     $ 2,339,660     $ 2,368,384  
Goodwill
    (71,074 )     (73,869 )     (73,861 )     (75,602 )     (85,801 )
Intangible assets (excluding MSRs)
    (9,176 )     (9,560 )     (9,923 )     (10,402 )     (10,796 )
Related deferred tax liabilities
    2,853       2,933       3,036       3,123       3,215  
 
Tangible assets
  $ 2,183,922     $ 2,194,036     $ 2,184,161     $ 2,256,779     $ 2,275,002  
 

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  Table 10
  Year-to-Date Supplemental Financial Data and Reconciliations to GAAP Financial Measures
    Six Months Ended June 30
  (Dollars in millions)   2011   2010
 
Fully taxable-equivalent basis data
               
Net interest income
  $ 23,890     $ 27,267  
Total revenue, net of interest expense
    40,578       61,740  
Net interest yield
    2.58  %     2.85  %
Efficiency ratio
    n/m       56.73  
 
Performance ratios, excluding goodwill impairment charge (1)
               
Per common share information
               
Loss
  $ (0.48 )        
Diluted loss
    (0.48 )        
Efficiency ratio
    n/m          
Return on average assets
    n/m          
Return on average common shareholders’ equity
    n/m          
Return on average tangible common shareholders’ equity
    n/m          
Return on average tangible shareholders’ equity
    n/m          
 
Reconciliation of net interest income to net interest income on a fully taxable-equivalent basis
               
Net interest income
  $ 23,425     $ 26,649  
FTE adjustment
    465       618  
 
Net interest income on a fully taxable-equivalent basis
  $ 23,890     $ 27,267  
 
Reconciliation of total revenue, net of interest expense to total revenue, net of interest expense on a fully taxable-equivalent basis
               
Total revenue, net of interest expense
  $ 40,113     $ 61,122  
FTE adjustment
    465       618  
 
Total revenue, net of interest expense on a fully taxable-equivalent basis
  $ 40,578     $ 61,740  
 
Reconciliation of total noninterest expense to total noninterest expense, excluding goodwill impairment charge
               
Total noninterest expense
  $ 43,139     $ 35,028  
Goodwill impairment charge
    (2,603 )     -  
 
Total noninterest expense, excluding goodwill impairment charge
  $ 40,536     $ 35,028  
 
Reconciliation of income tax expense (benefit) to income tax expense (benefit) on a fully taxable-equivalent basis
               
Income tax expense (benefit)
  $ (3,318 )   $ 1,879  
FTE adjustment
    465       618  
 
Income tax expense (benefit) on a fully taxable-equivalent basis
  $ (2,853 )   $ 2,497  
 
Reconciliation of net income (loss) to net income (loss), excluding goodwill impairment charge
               
Net income (loss)
  $ (6,777 )   $ 6,305  
Goodwill impairment charge
    2,603       -  
 
Net income (loss), excluding goodwill impairment charge
  $ (4,174 )   $ 6,305  
 
Reconciliation of net income (loss) applicable to common shareholders to net income (loss) applicable to common shareholders, excluding goodwill impairment charge
               
Net income (loss) applicable to common shareholders
  $ (7,388 )   $ 5,617  
Goodwill impairment charge
    2,603       -  
 
Net income (loss) applicable to common shareholders, excluding goodwill impairment charge
  $ (4,785 )   $ 5,617  
 
Reconciliation of average common shareholders’ equity to average tangible common shareholders’ equity
               
Common shareholders’ equity
  $ 216,367     $ 207,975  
Common Equivalent Securities
    -       5,848  
Goodwill
    (73,834 )     (86,225 )
Intangible assets (excluding MSRs)
    (9,580 )     (11,559 )
Related deferred tax liabilities
    2,983       3,446  
 
Tangible common shareholders’ equity
  $ 135,936     $ 119,485  
 
Reconciliation of average shareholders’ equity to average tangible shareholders’ equity
               
Shareholders’ equity
  $ 232,930     $ 231,695  
Goodwill
    (73,834 )     (86,225 )
Intangible assets (excluding MSRs)
    (9,580 )     (11,559 )
Related deferred tax liabilities
    2,983       3,446  
 
Tangible shareholders’ equity
  $ 152,499     $ 137,357  
 
(1)  
Performance ratios have been calculated excluding the impact of the goodwill impairment charge of $2.6 billion recorded during the second quarter of 2011.
 
n/m = not meaningful

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Core Net Interest Income
     We manage core net interest income which is reported net interest income on a FTE basis adjusted for the impact of market-based activities. As discussed in the GBAM business segment section on page 42, we evaluate our market-based results and strategies on a total market-based revenue approach by combining net interest income and noninterest income for GBAM. An analysis of core net interest income, core average earning assets and core net interest yield on earning assets, all of which adjust for the impact of market-based activities from reported net interest income on a FTE basis, is shown below. We believe the use of this non-GAAP presentation provides additional clarity in assessing our results.
                                 
  Table 11
  Core Net Interest Income
    Three Months Ended June 30   Six Months Ended June 30
  (Dollars in millions)   2011   2010   2011   2010
 
Net interest income (1)
                               
As reported
  $ 11,493     $ 13,197     $ 23,890     $ 27,267  
Impact of market-based net interest income (2)
    (914 )     (1,049 )     (1,965 )     (2,235 )
 
Core net interest income
  $ 10,579     $ 12,148     $ 21,925     $ 25,032  
 
Average earning assets (3)
                               
As reported
  $ 1,844,525     $ 1,910,790     $ 1,857,124     $ 1,921,864  
Impact of market-based earning assets (2)
    (461,775 )     (530,785 )     (465,617 )     (533,180 )
 
Core average earning assets
  $ 1,382,750     $ 1,380,005     $ 1,391,507     $ 1,388,684  
 
Net interest yield contribution (1, 4)
                               
As reported (3)
    2.50  %     2.77  %     2.58  %     2.85  %
Impact of market-based activities (2)
    0.56       0.76       0.58       0.77  
 
Core net interest yield on earning assets
    3.06  %     3.53  %     3.16  %     3.62  %
 
(1)  
FTE basis
 
(2)  
Represents the impact of market-based amounts included in GBAM.
 
(3)  
For the three and six months ended June 30, 2011, for average balance and yield calculation purposes, $40.4 billion and $20.3 billion of noninterest-earning equity trading securities were reclassified from trading account assets to other non-earning assets. Prior period amounts are immaterial and have not been restated.
 
(4)  
Calculated on an annualized basis.
     For the three and six months ended June 30, 2011, core net interest income decreased $1.6 billion to $10.6 billion and $3.1 billion to $21.9 billion compared to the same periods in 2010. The decrease was primarily due to lower consumer and commercial loan balances and yields, partially offset by lower rates paid on deposits.
     For the three and six months ended June 30, 2011, core net interest yield decreased 47 bps to 3.06 percent and 46 bps to 3.16 percent compared to the same periods in 2010 due to the factors noted above.

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Table 12
Quarterly Average Balances and Interest Rates – Fully Taxable-equivalent Basis
    Second Quarter 2011     First Quarter 2011  
            Interest                   Interest    
    Average   Income/   Yield/   Average   Income/   Yield/
(Dollars in millions)   Balance   Expense   Rate   Balance   Expense   Rate
 
Earning assets
                                               
Time deposits placed and other short-term investments (1)
  $ 27,298     $ 106       1.56  %   $ 31,294     $ 88       1.14  %
Federal funds sold and securities borrowed or purchased under agreements to resell
    259,069       597       0.92       227,379       517       0.92  
Trading account assets (2)
    186,760       1,576       3.38       221,041       1,669       3.05  
Debt securities (3)
    335,269       2,696       3.22       335,847       2,917       3.49  
Loans and leases (4):
                                               
Residential mortgage (5)
    265,420       2,763       4.16       262,049       2,881       4.40  
Home equity
    131,786       1,261       3.83       136,089       1,335       3.96  
Discontinued real estate
    15,997       129       3.22       12,899       110       3.42  
U.S. credit card
    106,164       2,718       10.27       109,941       2,837       10.47  
Non-U.S. credit card
    27,259       760       11.18       27,633       779       11.43  
Direct/Indirect consumer (6)
    89,403       945       4.24       90,097       993       4.47  
Other consumer (7)
    2,745       47       6.87       2,753       45       6.58  
                     
Total consumer
    638,774       8,623       5.41       641,461       8,980       5.65  
                     
U.S. commercial
    190,479       1,827       3.85       191,353       1,926       4.08  
Commercial real estate (8)
    45,762       382       3.35       48,359       437       3.66  
Commercial lease financing
    21,284       235       4.41       21,634       322       5.95  
Non-U.S. commercial
    42,214       339       3.22       36,159       299       3.35  
                     
Total commercial
    299,739       2,783       3.72       297,505       2,984       4.06  
                     
Total loans and leases
    938,513       11,406       4.87       938,966       11,964       5.14  
                     
Other earning assets
    97,616       866       3.56       115,336       922       3.24  
                     
Total earning assets
    1,844,525       17,247       3.75       1,869,863       18,077       3.92  
         
Cash and cash equivalents (1)
    115,956       49               138,241       63          
Other assets, less allowance for loan and lease losses (2)
    378,629                       330,434                  
         
Total assets
  $ 2,339,110                     $ 2,338,538                  
 
(1)  
For this presentation, fees earned on overnight deposits placed with the Federal Reserve are included in the cash and cash equivalents line, consistent with the Corporation’s Consolidated Balance Sheet presentation of these deposits. Net interest income and net interest yield are calculated excluding these fees.
 
(2)  
For the second quarter of 2011, $40.4 billion of noninterest-earning equity trading securities were reclassified from trading account assets to other assets. Prior period amounts are immaterial and have not been restated.
 
(3)  
Yields on AFS debt securities are calculated based on fair value rather than the cost basis. The use of fair value does not have a material impact on net interest yield.
 
(4)  
Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is recognized on a cash basis. PCI loans were recorded at fair value upon acquisition and accrete interest income over the remaining life of the loan.
 
(5)  
Includes non-U.S. residential mortgage loans of $94 million and $92 million in the second and first quarters of 2011, and $96 million, $502 million and $506 million in the fourth, third and second quarters of 2010, respectively.
 
(6)  
Includes non-U.S. consumer loans of $8.7 billion and $8.2 billion in the second and first quarters of 2011, and $7.9 billion, $7.7 billion and $7.7 billion in the fourth, third and second quarters of 2010, respectively.
 
(7)  
Includes consumer finance loans of $1.8 billion and $1.9 billion in the second and first quarters of 2011, and $2.0 billion, $2.0 billion and $2.1 billion in the fourth, third and second quarters of 2010, respectively; other non-U.S. consumer loans of $840 million and $777 million in the second and first quarters of 2011, and $791 million, $788 million and $679 million in the fourth, third and second quarters of 2010, respectively; and consumer overdrafts of $79 million and $76 million in the second and first quarters of 2011, and $34 million, $123 million and $155 million in the fourth, third and second quarters of 2010, respectively.
 
(8)  
Includes U.S. commercial real estate loans of $43.4 billion and $45.7 billion in the second and first quarters of 2011, and $49.0 billion, $53.1 billion and $61.6 billion in the fourth, third and second quarters of 2010, respectively; and non-U.S. commercial real estate loans of $2.4 billion and $2.7 billion in the second and first quarters of 2011, and $2.6 billion, $2.5 billion and $2.6 billion in the fourth, third and second quarters of 2010, respectively.

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Table of Contents

                                                                         
 Quarterly Average Balances and Interest Rates – Fully Taxable-equivalent Basis (continued)
    Fourth Quarter 2010     Third Quarter 2010     Second Quarter 2010  
            Interest                   Interest                   Interest    
    Average   Income/   Yield/   Average   Income/   Yield/   Average   Income/   Yield/
  (Dollars in millions)   Balance   Expense   Rate   Balance   Expense   Rate   Balance   Expense   Rate
 
Earning assets
                                                                       
Time deposits placed and other short-term investments (1)
  $ 28,141     $ 75       1.07  %   $ 23,233     $ 86       1.45  %   $ 30,741     $ 70       0.93  %
Federal funds sold and securities borrowed or purchased under agreements to resell
    243,589       486       0.79       254,820       441       0.69       263,564       457       0.70  
Trading account assets
    216,003       1,710       3.15       210,529       1,692       3.20       213,927       1,853       3.47  
Debt securities (3)
    341,867       3,065       3.58       328,097       2,646       3.22       314,299       2,966       3.78  
Loans and leases (4)
                                                                       
Residential mortgage (5)
    254,051       2,857       4.50       237,292       2,797       4.71       247,715       2,982       4.82  
Home equity
    139,772       1,410       4.01       143,083       1,457       4.05       148,219       1,537       4.15  
Discontinued real estate
    13,297       118       3.57       13,632       122       3.56       13,972       134       3.84  
U.S. credit card
    112,673       3,040       10.70       115,251       3,113       10.72       118,738       3,121       10.54  
Non-U.S. credit card
    27,457       815       11.77       27,047       875       12.84       27,706       854       12.37  
Direct/Indirect consumer (6)
    91,549       1,088       4.72       95,692       1,130       4.68       98,549       1,233       5.02  
Other consumer (7)
    2,796       45       6.32       2,955       47       6.35       2,958       46       6.32  
                                 
Total consumer
    641,595       9,373       5.81       634,952       9,541       5.98       657,857       9,907       6.03  
                                 
U.S. commercial
    193,608       1,894       3.88       192,306       2,040       4.21       195,144       2,005       4.12  
Commercial real estate (8)
    51,617       432       3.32       55,660       452       3.22       64,218       541       3.38  
Commercial lease financing
    21,363       250       4.69       21,402       255       4.78       21,271       261       4.90  
Non-U.S. commercial
    32,431       289       3.53       30,540       282       3.67       28,564       256       3.59  
                                 
Total commercial
    299,019       2,865       3.81       299,908       3,029       4.01       309,197       3,063       3.97  
                                 
Total loans and leases
    940,614       12,238       5.18       934,860       12,570       5.35       967,054       12,970       5.38  
                                 
Other earning assets
    113,325       923       3.23       112,280       949       3.36       121,205       994       3.29  
                                 
Total earning assets
    1,883,539       18,497       3.90       1,863,819       18,384       3.93       1,910,790       19,310       4.05  
               
Cash and cash equivalents (1)
    136,967       63               155,784       107               209,686       106          
Other assets, less allowance for loan and lease losses
    349,752                       359,794                       373,956                  
               
Total assets
  $ 2,370,258                     $ 2,379,397                     $ 2,494,432                  
 
  For footnotes see page 24.

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Table of Contents

                                                 
  Quarterly Average Balances and Interest Rates – Fully Taxable-equivalent Basis (continued)
    Second Quarter 2011     First Quarter 2011  
            Interest                   Interest    
    Average   Income/   Yield/   Average   Income/   Yield/
  (Dollars in millions)   Balance   Expense   Rate   Balance   Expense   Rate
 
Interest-bearing liabilities
                                               
U.S. interest-bearing deposits:
                                               
Savings
  $ 41,668     $ 31       0.30  %   $ 38,905     $ 32       0.34  %
NOW and money market deposit accounts
    478,690       304       0.25       475,954       316       0.27  
Consumer CDs and IRAs
    113,728       281       0.99       118,306       300       1.03  
Negotiable CDs, public funds and other time deposits
    13,842       42       1.22       13,995       39       1.11  
                     
Total U.S. interest-bearing deposits
    647,928       658       0.41       647,160       687       0.43  
                     
Non-U.S. interest-bearing deposits:
                                               
Banks located in non-U.S. countries
    19,234       37       0.77       21,534       38       0.72  
Governments and official institutions
    2,131       2       0.38       2,307       2       0.35  
Time, savings and other
    64,889       146       0.90       60,432       112       0.76  
                     
Total non-U.S. interest-bearing deposits
    86,254       185       0.86       84,273       152       0.73  
                     
Total interest-bearing deposits
    734,182       843       0.46       731,433       839       0.46  
                     
Federal funds purchased, securities loaned or sold under agreements to repurchase and other short-term borrowings
    338,692       1,342       1.59       371,573       1,184       1.29  
Trading account liabilities
    96,108       627       2.62       83,914       627       3.03  
Long-term debt
    435,144       2,991       2.75       440,511       3,093       2.84  
                     
Total interest-bearing liabilities
    1,604,126       5,803       1.45       1,627,431       5,743       1.43  
         
Noninterest-bearing sources:
                                               
Noninterest-bearing deposits
    301,762                       291,707                  
Other liabilities
    198,155                       188,631                  
Shareholders’ equity
    235,067                       230,769                  
         
Total liabilities and shareholders’ equity
  $ 2,339,110                     $ 2,338,538                  
         
Net interest spread
                    2.30  %                     2.49  %
Impact of noninterest-bearing sources
                    0.19                       0.17  
         
Net interest income/yield on earning assets (1)
          $ 11,444       2.49  %           $ 12,334       2.66  %
 
  For footnotes see page 24.

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Quarterly Average Balances and Interest Rates
– Fully Taxable-equivalent Basis (continued)
    Fourth Quarter 2010     Third Quarter 2010     Second Quarter 2010  
            Interest                   Interest                   Interest    
    Average   Income/   Yield/   Average   Income/   Yield/   Average   Income/   Yield/
(Dollars in millions)   Balance   Expense   Rate   Balance   Expense   Rate   Balance   Expense   Rate
 
Interest-bearing liabilities
                                                                       
U.S. interest-bearing deposits:
                                                                       
Savings
  $ 37,145     $ 35       0.36  %   $ 37,008     $ 36       0.39  %   $ 37,290     $ 43       0.46  %
NOW and money market deposit accounts
    464,531       333       0.28       442,906       359       0.32       442,262       372       0.34  
Consumer CDs and IRAs
    124,855       338       1.07       132,687       377       1.13       147,425       441       1.20  
Negotiable CDs, public funds and other time deposits
    16,334       47       1.16       17,326       57       1.30       17,355       59       1.36  
                                 
Total U.S. interest-bearing deposits
    642,865       753       0.46       629,927       829       0.52       644,332       915       0.57  
                                 
Non-U.S. interest-bearing deposits:
                                                                       
Banks located in non-U.S. countries
    16,827       38       0.91       17,431       38       0.86       19,751       36       0.72  
Governments and official institutions
    1,560       2       0.42       2,055       2       0.36       4,214       3       0.28  
Time, savings and other
    58,746       101       0.69       54,373       81       0.59       52,195       77       0.60  
                                 
Total non-U.S. interest-bearing deposits
    77,133       141       0.73       73,859       121       0.65       76,160       116       0.61  
                                 
Total interest-bearing deposits
    719,998       894       0.49       703,786       950       0.54       720,492       1,031       0.57  
                                 
Federal funds purchased, securities loaned or sold under agreements to repurchase and other short-term borrowings
    369,738       1,142       1.23       391,148       848       0.86       454,051       891       0.79  
Trading account liabilities
    81,313       561       2.74       95,265       635       2.65       100,021       715       2.87  
Long-term debt
    465,875       3,254       2.78       485,588       3,341       2.74       497,469       3,582       2.88  
                                 
Total interest-bearing liabilities
    1,636,924       5,851       1.42       1,675,787       5,774       1.37       1,772,033       6,219       1.41  
           
Noninterest-bearing sources:
                                                                       
Noninterest-bearing deposits
    287,740                       270,060                       271,123                  
Other liabilities
    210,069                       199,572                       217,815                  
Shareholders’ equity
    235,525                       233,978                       233,461                  
           
Total liabilities and shareholders’ equity
  $ 2,370,258                     $ 2,379,397                     $ 2,494,432                  
           
Net interest spread
                    2.48  %                     2.56  %                     2.64  %
Impact of noninterest-bearing sources
                    0.18                       0.13                       0.10  
           
Net interest income/yield on earning assets (1)
          $ 12,646       2.66  %           $ 12,610       2.69  %           $ 13,091       2.74  %
 
  For footnotes see page 24.

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Table 13
Year-to-Date Average Balances and Interest Rates – Fully Taxable-equivalent Basis
    Six Months Ended June 30  
    2011     2010  
            Interest                   Interest    
    Average   Income/   Yield/   Average   Income/   Yield/
(Dollars in millions)
  Balance   Expense   Rate   Balance   Expense   Rate
 
Earning assets
                                               
Time deposits placed and other short-term investments (1)
  $ 29,285     $ 194       1.34 %   $ 29,179     $ 130       0.90 %
Federal funds sold and securities borrowed or purchased under agreements to resell
    243,311       1,114       0.92       264,810       905       0.69  
Trading account assets (2)
    203,806       3,245       3.21       214,233       3,648       3.42  
Debt securities (3)
    335,556       5,613       3.35       312,727       6,139       3.93  
Loans and leases (4):
                                               
Residential mortgage (5)
    263,744       5,644       4.28       245,785       6,082       4.95  
Home equity
    133,926       2,596       3.90       150,365       3,123       4.18  
Discontinued real estate
    14,457       239       3.31       14,201       287       4.05  
U.S. Credit card
    108,042       5,555       10.37       122,027       6,491       10.73  
Non-U.S. credit card
    27,445       1,539       11.31       28,783       1,760       12.33  
Direct/Indirect consumer (6)
    89,748       1,938       4.36       99,728       2,535       5.13  
Other consumer (7)
    2,748       92       6.75       2,981       94       6.34  
                     
Total consumer
    640,110       17,603       5.53       663,870       20,372       6.17  
                     
U.S. commercial
    190,914       3,753       3.96       198,882       3,975       4.03  
Commercial real estate (8)
    47,053       819       3.51       66,361       1,116       3.39  
Commercial lease financing
    21,458       557       5.18       21,472       565       5.26  
Non-U.S. commercial
    39,203       638       3.28       28,682       520       3.65  
                     
Total commercial
    298,628       5,767       3.89       315,397       6,176       3.94  
                     
Total loans and leases
    938,738       23,370       5.01       979,267       26,548       5.45  
                     
Other earning assets
    106,428       1,788       3.39       121,648       2,047       3.39  
                     
Total earning assets
    1,857,124       35,324       3.84       1,921,864       39,417       4.14  
         
Cash and cash equivalents (1)
    127,037       112               203,334       198          
Other assets, less allowance for loan and lease losses (2)
    354,665                       380,261                  
         
Total assets
  $ 2,338,826                     $ 2,505,459                  
     
(1)  
Fees earned on overnight deposits placed with the Federal Reserve, which were included in the time deposits placed and other short-term investments line in prior periods, have been reclassified in this table to cash and cash equivalents, consistent with the balance sheet presentation of these deposits. Net interest income and net interest yield are calculated excluding these fees.
 
(2)  
For the six months ended June 30, 2011, $20.3 billion of noninterest-earning equity trading securities were reclassified from trading account assets to other assets. Prior period amounts are immaterial and have not been restated.
 
(3)  
Yields on AFS debt securities are calculated based on fair value rather than the cost basis. The use of fair value does not have a material impact on net interest yield.
 
(4)  
Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is recognized on a cash basis. Purchased credit-impaired loans were recorded at fair value upon acquisition and accrete interest income over the remaining life of the loan.
 
(5)  
Includes non-U.S. residential mortgages of $93 million and $522 million for the six months ended June 30, 2011 and 2010.
 
(6)  
Includes non-U.S. consumer loans of $8.4 billion and $7.9 billion for the six months ended June 30, 2011 and 2010.
 
(7)  
Includes consumer finance loans of $1.9 billion and $2.2 billion, and other non-U.S. consumer loans of $809 million and $671 million, and consumer overdrafts of $78 million and $144 million for the six months ended June 30, 2011 and 2010.
 
(8)  
Includes U.S. commercial real estate loans of $44.5 billion and $63.6 billion, and non-U.S. commercial real estate loans of $2.5 billion and $2.8 billion for the six months ended June 30, 2011 and 2010.

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Table of Contents

                                                 
Year-to-Date Average Balances and Interest Rates – Fully Taxable-equivalent Basis (continued)
    Six Months Ended June 30  
    2011     2010  
            Interest                   Interest    
    Average   Income/   Yield/   Average   Income/   Yield/
(Dollars in millions)
  Balance   Expense   Rate   Balance   Expense   Rate
 
Interest-bearing liabilities
                                               
U.S. interest-bearing deposits:
                                               
Savings
  $ 40,294     $ 63       0.32 %   $ 36,214     $ 86       0.48 %
NOW and money market deposit accounts
    477,330       620       0.26       429,258       713       0.33  
Consumer CDs and IRAs
    116,004       581       1.01       156,755       1,008       1.30  
Negotiable CDs, public funds and other time deposits
    13,918       81       1.17       18,552       122       1.33  
                     
Total U.S. interest-bearing deposits
    647,546       1,345       0.42       640,779       1,929       0.61  
                     
Non-U.S. interest-bearing deposits:
                                               
Banks located in non-U.S. countries
    20,378       75       0.74       19,091       68       0.72  
Governments and official institutions
    2,219       4       0.36       4,916       6       0.25  
Time, savings and other
    62,673       258       0.83       53,534       150       0.57  
                     
Total non-U.S. interest-bearing deposits
    85,270       337       0.80       77,541       224       0.58  
                     
Total interest-bearing deposits
    732,816       1,682       0.46       718,320       2,153       0.60  
                     
Federal funds purchased and securities loaned or sold under agreements to repurchase and other short-term borrowings
    355,042       2,526       1.43       481,041       1,709       0.72  
Trading account liabilities
    90,044       1,254       2.81       95,105       1,374       2.91  
Long-term debt
    437,812       6,084       2.80       505,507       7,112       2.82  
                     
Total interest-bearing liabilities
    1,615,714       11,546       1.44       1,799,973       12,348       1.38  
         
Noninterest-bearing sources:
                                               
Noninterest-bearing deposits
    296,762                       268,024                  
Other liabilities
    193,420                       205,767                  
Shareholders’ equity
    232,930                       231,695                  
               
Total liabilities and shareholders’ equity
  $ 2,338,826                     $ 2,505,459                  
               
Net interest spread
                    2.40 %                     2.76 %
Impact of noninterest-bearing sources
                    0.17                       0.06  
         
Net interest income/yield on earning assets (1)
          $ 23,778       2.57 %           $ 27,069       2.82 %
     
For footnotes see page 28.

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Business Segment Operations
Segment Description and Basis of Presentation
     We report the results of our operations through six business segments: Deposits, Global Card Services, CRES, Global Commercial Banking, GBAM and GWIM, with the remaining operations recorded in All Other. Prior period amounts have been reclassified to conform to current period presentation.
     We prepare and evaluate segment results using certain non-GAAP methodologies and performance measures, many of which are discussed in Supplemental Financial Data on page 19. In addition, return on average economic capital for the segments is calculated as net income, excluding cost of funds and earnings credit on intangibles, divided by average economic capital. Economic capital represents allocated equity less goodwill and a percentage of intangible assets. We begin by evaluating the operating results of the segments which by definition exclude merger and restructuring charges.
     The management accounting and reporting process derives segment and business results by utilizing allocation methodologies for revenue and expense. The net income derived for the businesses is dependent upon revenue and cost allocations using an activity-based costing model, funds transfer pricing, and other methodologies and assumptions management believes are appropriate to reflect the results of the business.
     Total revenue, net of interest expense, includes net interest income on a FTE basis and noninterest income. The adjustment of net interest income to a FTE basis results in a corresponding increase in income tax expense. The segment results also reflect certain revenue and expense methodologies that are utilized to determine net income. The net interest income of the businesses includes the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. For presentation purposes, in segments where the total of liabilities and equity exceeds assets, which are generally deposit-taking segments, we allocate assets to match liabilities. Net interest income of the business segments also includes an allocation of net interest income generated by our ALM activities.
     Our ALM activities include an overall interest rate risk management strategy that incorporates the use of interest rate contracts to manage fluctuations in earnings that are caused by interest rate volatility. Our goal is to manage interest rate sensitivity so that movements in interest rates do not significantly adversely affect net interest income. Our ALM activities are allocated to the business segments and fluctuate based on performance. ALM activities include external product pricing decisions including deposit pricing strategies, the effects of our internal funds transfer pricing process and the net effects of other ALM activities.
     Certain expenses not directly attributable to a specific business segment are allocated to the segments. The most significant of these expenses include data and item processing costs and certain centralized or shared functions. Data processing costs are allocated to the segments based on equipment usage. Item processing costs are allocated to the segments based on the volume of items processed for each segment. The costs of certain centralized or shared functions are allocated based on methodologies that reflect utilization.
     Equity is allocated to business segments and related businesses using a risk-adjusted methodology incorporating each segment’s credit, market, interest rate, strategic and operational risk components. The nature of these risks is discussed further on page 64. We benefit from the diversification of risk across these components which is reflected as a reduction to allocated equity for each segment. The total amount of average equity reflects both risk-based capital and the portion of goodwill and intangibles specifically assigned to the business segments. The risk-adjusted methodology is periodically refined and such refinements are reflected as changes to allocated equity in each segment.
     For more information on selected financial information for the business segments and reconciliations to consolidated total revenue, net income (loss) and period-end total assets, see Note 20 – Business Segment Information to the Consolidated Financial Statements.

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Table of Contents

Deposits
                                                 
    Three Months Ended June 30           Six Months Ended June 30    
(Dollars in millions)
  2011   2010   % Change   2011   2010   % Change
 
Net interest income (1)
  $ 2,281     $ 2,144       6 %   $ 4,486     $ 4,319       4 %
Noninterest income:
                                               
Service charges
    965       1,494       (35 )     1,888       2,973       (36 )
All other income
    55       57       (4 )     116       121       (4 )
                     
Total noninterest income
    1,020       1,551       (34 )     2,004       3,094       (35 )
                     
Total revenue, net of interest expense
    3,301       3,695       (11 )     6,490       7,413       (12 )
 
                                               
Provision for credit losses
    31       61       (49 )     64       98       (35 )
Noninterest expense
    2,599       2,572       1       5,191       5,139       1  
                     
Income before income taxes
    671       1,062       (37 )     1,235       2,176       (43 )
Income tax expense (1)
    241       388       (38 )     450       804       (44 )
                     
Net income
  $ 430     $ 674       (36 )   $ 785     $ 1,372       (43 )
                     
 
                                               
Net interest yield (1)
    2.15 %     2.06 %             2.15 %     2.09 %        
Return on average equity
    7.30       11.16               6.70       11.45          
Return on average economic capital (2, 3)
    30.41       43.52               27.93       44.82          
Efficiency ratio (1)
    78.75       69.59               79.99       69.32          
Cost per dollar deposit (4)
    2.44       2.46               2.52       2.48          
 
                                               
Balance Sheet
                                               
 
                                               
Average
                                               
Total earning assets
  $ 425,363     $ 417,132       2     $ 421,313     $ 416,185       1  
Total assets
    451,554       443,520       2       447,530       442,691       1  
Total deposits
    426,684       418,480       2       422,514       417,665       1  
Allocated equity
    23,612       24,226       (3 )     23,627       24,179       (2 )
Economic capital (5)
    5,662       6,239       (9 )     5,672       6,202       (9 )
 
                                     
                            June 30   December 31        
Period end
                          2011   2010        
                                     
Total earning assets
                          $ 422,646     $ 414,215       2  
Total assets
                            449,123       440,954       2  
Total deposits
                            424,579       415,189       2  
Client brokerage assets
                            69,000       63,597       8  
 
(1)   FTE basis
 
(2)  
Decreases in the ratios resulted from lower net income partially offset by a slight decrease in economic capital. Economic capital decreased due to improvements in interest rate risk related to changes in portfolio composition.
 
(3)  
Return on average economic capital is calculated as net income, excluding cost of funds and earnings credit on intangibles, divided by average economic capital.
 
(4)  
Cost per dollar deposit represents annualized noninterest expense, excluding certain expenses, as a percentage of average deposits.
 
(5)   Economic capital represents allocated equity less goodwill and a percentage of intangible assets.
     Deposits includes the results of consumer deposit activities which consist of a comprehensive range of products provided to consumers and small businesses. Our deposit products include traditional savings accounts, money market savings accounts, CDs and IRAs, and noninterest- and interest-bearing checking accounts. Deposit products provide a relatively stable source of funding and liquidity for the Corporation. We earn net interest spread revenue from investing this liquidity in earning assets through client-facing lending and ALM activities. The revenue is allocated to the deposit products using our funds transfer pricing process which takes into account the interest rates and maturity characteristics of the deposits.
     Deposits also generates fees such as account service fees, non-sufficient funds fees, overdraft charges and ATM fees, as well as investment and brokerage fees from Merrill Edge accounts. Merrill Edge is an integrated investing and banking service targeted at clients with less than $250,000 in total assets. Merrill Edge provides team-based investment advice and guidance, brokerage services, a self-directed online investing platform and key banking capabilities including access to the Corporation’s network of banking centers and ATMs. Deposits includes the net impact of migrating customers and their related deposit balances between Deposits and other client-managed businesses.

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Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
     Net income decreased $244 million, or 36 percent, to $430 million due to a decline in revenue driven by lower noninterest income, partially offset by higher net interest income. Noninterest income decreased $531 million, or 34 percent, to $1.0 billion due to the impact of overdraft policy changes in conjunction with Regulation E, which became effective in the third quarter of 2010. For more information on Regulation E, see Regulatory Matters of the Corporation’s 2010 Annual Report on Form 10-K on page 56. Net interest income increased $137 million, or six percent, to $2.3 billion driven by a shift to more liquid products and continued pricing discipline in the low-rate environment resulting in a 16 bps decrease in the rate paid on deposits from a year ago.
     Average deposits increased $8.2 billion from a year ago driven by organic growth in liquid products, including Merrill Edge, partially offset by the impact of transfers with other client-managed businesses.
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
     Net income decreased $587 million, or 43 percent, to $785 million due to a decrease in noninterest income of $1.1 billion, or 35 percent, to $2.0 billion. Net interest income increased $167 million, or four percent, to $4.5 billion. These period over period changes were driven by the same factors as described in the three-month discussion above.
     Average deposits increased $4.8 billion from a year ago driven by the same factors as described in the three-month discussion above.

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Global Card Services
                                                 
    Three Months Ended June 30           Six Months Ended June 30    
(Dollars in millions)
  2011   2010   % Change   2011   2010   % Change
 
Net interest income (1)
  $ 3,611     $ 4,442       (19 )%   $ 7,358     $ 9,262       (21 )%
Noninterest income:
                                               
Card income
    1,833       1,901       (4 )     3,562       3,784       (6 )
All other income
    92       605       (85 )     303       792       (62 )
                     
Total noninterest income
    1,925       2,506       (23 )     3,865       4,576       (16 )
                     
Total revenue, net of interest expense
    5,536       6,948       (20 )     11,223       13,838       (19 )
 
                                               
Provision for credit losses
    481       3,796       (87 )     1,442       7,331       (80 )
Noninterest expense
    1,882       1,852       2       3,851       3,664       5  
                     
Income before income taxes
    3,173       1,300       144       5,930       2,843       109  
Income tax expense (1)
    1,138       474       140       2,160       1,049       106  
                     
Net income
  $ 2,035     $ 826       146     $ 3,770     $ 1,794       110  
                     
 
                                               
Net interest yield (1)
    9.12 %     9.97 %             9.19 %     10.13 %        
Return on average equity
    32.66       8.14               29.73       8.61          
Return on average economic capital (2, 3)
    66.26       19.40               59.01       19.74          
Efficiency ratio (1)
    33.99       26.68               34.31       26.49          
 
                                               
Balance Sheet
                                               
 
                                               
Average
                                               
Total loans and leases
  $ 156,788     $ 177,076       (11 )   $ 159,591     $ 182,909       (13 )
Total earning assets
    158,861       178,646       (11 )     161,462       184,326       (12 )
Total assets
    161,776       187,138       (14 )     163,761       191,913       (15 )
Allocated equity
    24,982       40,677       (39 )     25,573       41,994       (39 )
Economic capital (4)
    12,341       17,501       (29 )     12,915       18,767       (31 )
 
                                     
                            June 30   December 31        
Period end
                          2011   2010        
                                     
Total loans and leases
                          $ 153,280     $ 166,899       (8 )
Total earning assets
                            156,058       168,706       (7 )
Total assets
                            161,756       170,311       (5 )
 
(1)   FTE basis
 
(2)  
Increases in the ratios resulted from higher net income and a decrease in economic capital. Economic capital decreased due to lower levels of credit risk as loan balances declined. Allocated equity decreased as a result of the $10.4 billion goodwill impairment charge recorded during the third quarter of 2010.
 
(3)  
Return on average economic capital is calculated as net income, excluding cost of funds and earnings credit on intangibles, divided by average economic capital.
 
(4)  
Economic capital represents allocated equity less goodwill and a percentage of intangible assets.
     Global Card Services provides a broad offering of products including U.S. consumer and business credit card, consumer lending, and international credit card and debit card to consumers and small businesses. We provide credit card products to customers in the U.S., U.K., Canada and Ireland. We offer a variety of co-branded and affinity credit and debit card products and are one of the leading issuers of credit cards through endorsed marketing in the U.S. and Europe. For an update on the PPI claims matter, see Note 11 — Commitments and Contingencies to the Consolidated Financial Statements.
     The majority of the provisions of the CARD Act became effective on February 22, 2010, while certain provisions became effective in the third quarter of 2010. The CARD Act has negatively impacted net interest income due to restrictions on our ability to reprice credit cards based on risk and card income due to restrictions imposed on certain fees. For more information on the CARD Act, see Regulatory Matters of the Corporation’s 2010 Annual Report on Form 10-K on page 56.
     On June 29, 2011, the Federal Reserve adopted a final rule, effective October 1, 2011, that established the maximum allowable interchange fees a bank can receive for a debit transaction, proposed fraud standards and established network routing requirements, effective April 1, 2012. For more information on the final interchange rules, see Regulatory Matters on page 62. The new interchange fee will result in a reduction of debit card revenue in the fourth quarter of 2011 of approximately $475 million.

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Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
     Net income increased $1.2 billion to $2.0 billion due to a $3.3 billion decrease in the provision for credit losses as a result of continued improvements in credit quality. This was partially offset by a decrease in revenue of $1.4 billion, or 20 percent, to $5.5 billion, primarily due to a decline in net interest income from lower average loans and yields.
     Net interest income decreased $831 million, or 19 percent, to $3.6 billion driven by lower average loans and yields. Net interest yield decreased 85 bps to 9.12 percent due to net charge-offs and paydowns of higher interest rate products.
     Noninterest income decreased $581 million, or 23 percent, to $1.9 billion compared to $2.5 billion primarily due to the absence of a $440 million pre-tax gain on the sale of our MasterCard position in the second quarter of 2010.
     The provision for credit losses improved by $3.3 billion, to $481 million compared to $3.8 billion reflecting improving economic conditions and continued expectations of improving delinquency, collection and bankruptcy trends. For more information on the improvement in the provision for credit losses, see Provision for Credit Losses on page 107.
     Average loans decreased $20.3 billion driven by higher payments, charge-offs and continued non-core portfolio run-off. In addition, Global Card Services exited $2.1 billion of loans at the end of the quarter with minimal income statement impact.
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
     Net income increased $2.0 billion to $3.8 billion as the provision for credit losses improved $5.9 billion to $1.4 billion, partially offset by a $2.6 billion decline in revenue to $11.2 billion. Net interest income of $7.4 billion decreased $1.9 billion, noninterest income declined $711 million, including approximately $300 million related to the CARD Act, to $3.9 billion and noninterest expense increased $187 million to $3.9 billion. These period over period changes were driven by the same factors described in the three-month discussion above.

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Consumer Real Estate Services
                                                 
    Three Months Ended June 30, 2011                
                            Total        
                            Consumer        
            Legacy Asset           Real Estate   Three Months Ended    
(Dollars in millions)
  Home Loans   Servicing   Other   Services   June 30, 2010   % Change
     
Net interest income (1)
  $ 481     $ 129     $ (31 )   $ 579     $ 992       (42 )%
Noninterest income:
                                               
Mortgage banking income (loss)
    938       (13,083 )     (873 )     (13,018 )     1,020       n/m  
Insurance income
    299       -       -       299       513       (42 )
All other income
    795       30       -       825       179       n/m  
                 
Total noninterest income (loss)
    2,032       (13,053 )     (873 )     (11,894 )     1,712       n/m  
                 
Total revenue, net of interest expense
    2,513       (12,924 )     (904 )     (11,315 )     2,704       n/m  
 
                                               
Provision for credit losses
    121       1,386       -       1,507       2,390       (37 )
Goodwill impairment
    -       -       2,603       2,603       -       n/m  
Noninterest expense
    1,553       4,491       -       6,044       2,738       121  
                 
Income (loss) before income taxes
    839       (18,801 )     (3,507 )     (21,469 )     (2,424 )     n/m  
Income tax expense (benefit) (1)
    308       (6,924 )     (333 )     (6,949 )     (882 )     n/m  
                 
Net income (loss)
  $ 531     $ (11,877 )   $ (3,174 )   $ (14,520 )   $ (1,542 )     n/m  
                 
 
                                               
Net interest yield (1)
    2.68 %     0.76 %     n/m       1.46 %     2.13 %        
Efficiency ratio (1)
    61.80       n/m       n/m       n/m       101.27          
 
                                               
Balance Sheet
                                               
 
                                               
Average
                                               
Total loans and leases
  $ 55,267     $ 66,416     $ -     $ 121,683     $ 130,662       (7 )
Total earning assets
    71,876       68,444       18,354       158,674       186,873       (15 )
Total assets
    73,377       84,616       40,037       198,030       227,595       (13 )
Allocated equity
    n/a       n/a       n/a       17,139       26,174       (35 )
Economic capital (2, 3)
    n/a       n/a       n/a       14,437       21,371       (32 )
 
    Six Months Ended June 30, 2011                
                            Total        
                            Consumer        
            Legacy Asset           Real Estate   Six Months Ended    
    Home Loans   Servicing   Other   Services   June 30, 2010   % Change
     
Net interest income (1)
  $ 1,056     $ 460     $ (41 )   $ 1,475     $ 2,199       (33 )%
Noninterest income:
                                               
Mortgage banking income (loss)
    1,696       (13,149 )     (870 )     (12,323 )     2,661       n/m  
Insurance income
    730       -       -       730       1,051       (31 )
All other income
    822       44       -       866       326       166  
               
Total noninterest income (loss)
    3,248       (13,105 )     (870 )     (10,727 )     4,038       n/m  
               
Total revenue, net of interest expense
    4,304       (12,645 )     (911 )     (9,252 )     6,237       n/m  
 
                                               
Provision for credit losses
    121       2,484       -       2,605       5,990       (57 )
Goodwill impairment
    -       -       2,603       2,603       -       n/m  
Noninterest expense
    3,221       7,624       -       10,845       5,985       81  
               
Income (loss) before income taxes
    962       (22,753 )     (3,514 )     (25,305 )     (5,738 )     n/m  
Income tax expense (benefit) (1)
    354       (8,388 )     (336 )     (8,370 )     (2,119 )     n/m  
               
Net income (loss)
  $ 608     $ (14,365 )   $ (3,178 )   $ (16,935 )   $ (3,619 )     n/m  
               
 
                                               
Net interest yield (1)
    2.81 %     1.37 %     (0.37 )%     1.80 %     2.36 %        
Efficiency ratio (1)
    74.84       n/m       n/m       n/m       95.96          
 
                                               
Balance Sheet
                                               
 
                                               
Average
                                               
Total loans and leases
  $ 55,632     $ 65,493     $ -     $ 121,125     $ 132,195       (8 )
Total earning assets
    75,695       67,565       22,209       165,469       188,222       (12 )
Total assets
    77,052       83,531       43,065       203,648       230,076       (11 )
Allocated equity
    n/a       n/a       n/a       17,933       26,641       (33 )
Economic capital (2, 3)
    n/a       n/a       n/a       15,211       21,837       (30 )
 
                 
Period end
  June 30, 2011   December 31, 2010        
Total loans and leases
  $ 55,454     $ 66,099     $ -     $ 121,553     $ 122,933       (1 )
Total earning assets
    69,822       68,114       11,972       149,908       172,082       (13 )
Total assets
    71,723       83,411       30,264       185,398       212,413       (13 )
 
(1)   FTE basis
 
(2)  
Economic capital decreased due to improvements in credit risk as loan balances declined and due to a lower MSR balance. Allocated equity decreased due to the $2.0 billion goodwill impairment charge recorded during the fourth quarter of 2010 and was minimally impacted by the $2.6 billion goodwill impairment charge recorded late in the second quarter of 2011.
 
(3)  
Economic capital represents allocated equity less goodwill and a percentage of intangible assets (excluding MSRs).
 
n/m   = not meaningful
 
n/a   = not applicable

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     CRES was realigned effective January 1, 2011 and its activities are now referred to as Home Loans, which includes ongoing loan production and servicing activities, Legacy Asset Servicing, which includes a separately managed legacy mortgage portfolio, and Other, which includes the results of certain MSR activities and other unallocated assets (e.g., goodwill). This realignment allows CRES management to lead the ongoing home loan business while also providing greater focus and transparency on legacy mortgage issues.
     CRES includes the impact of transferring customers and their related loan balances between GWIM and CRES based on client segmentation thresholds. For more information on the migration of customer balances, see GWIM on page 46.
     CRES generates revenue by providing an extensive line of consumer real estate products and services to customers nationwide. CRES products are available to our customers through our retail network of approximately 5,700 banking centers, mortgage loan officers in approximately 750 locations and a sales force offering our customers direct telephone and online access to our products. These products are also offered through our correspondent loan acquisition channels.
     CRES products include fixed and adjustable-rate first-lien mortgage loans for home purchase and refinancing needs, home equity lines of credit and home equity loans. First mortgage products are either sold into the secondary mortgage market to investors, while we retain MSRs and the Bank of America customer relationships, or are held on our balance sheet in All Other for ALM purposes. Home equity lines of credit and home equity loans are retained on the CRES balance sheet. CRES services mortgage loans, including those loans it owns, loans owned by other business segments and All Other, and loans owned by outside investors. On February 4, 2011, we announced that we were exiting the reverse mortgage origination business. In October 2010, we exited the first mortgage wholesale acquisition channel. These strategic changes were made to allow greater focus on our retail channels. The financial results of the on-balance sheet loans are reported in the business segment that owns the loans or All Other. CRES is not impacted by the Corporation’s first mortgage production retention decisions as CRES is compensated for loans held for ALM purposes on a management accounting basis, with a corresponding offset recorded in All Other, and for servicing loans owned by other business segments and All Other.
     Home Loans includes the ongoing loan production activities, certain servicing activities that are discussed below, and the CRES home equity portfolio not selected for inclusion in the Legacy Asset Servicing portfolio. Home Loans also included insurance operations through June 30, 2011, when the ongoing insurance business was transferred to Global Card Services following the sale of Balboa’s lender-placed insurance business. Due to the realignment of CRES, the composition of the Home Loans loan portfolio does not currently reflect a normalized level of credit losses and noninterest expense which we expect will develop over time.
     Legacy Asset Servicing is responsible for servicing and managing the exposures related to selected residential mortgage, home equity and discontinued real estate loan portfolios. In addition, it is responsible for servicing all delinquent mortgage loans. These selected loan portfolios include owned loans and loans serviced for others, including loans held in other business segments and All Other (collectively, the Legacy Asset Servicing portfolio). The Legacy Asset Servicing portfolio includes residential mortgage loans, home equity loans and discontinued real estate loans that would not have been originated under our underwriting standards at December 31, 2010. Countrywide loans that were impaired at the time of acquisition (the Countrywide PCI portfolio) as well as certain loans that met a pre-defined delinquency status or probability of default threshold as of January 1, 2011 are also included in the Legacy Asset Servicing portfolio. Since determining the pool of loans that would be included in Legacy Asset Servicing portfolio as of January 1, 2011, the criteria have not changed for this portfolio. However, the criteria for inclusion of certain assets and liabilities in the Legacy Asset Servicing portfolio will continue to be evaluated over time.
     The total owned loans in the Legacy Asset Servicing portfolio were $169.5 billion at June 30, 2011, of which $66.1 billion are reflected on the balance sheet of Legacy Asset Servicing within CRES. The remainder is held on the balance sheets of Global Commercial Banking, GWIM and All Other. For more information on the Legacy Asset Servicing portfolio criteria, see Consumer Credit Portfolio on page 76.
     Legacy Asset Servicing results reflect the net cost of legacy exposures that is included in the results of CRES, including representations and warranties provision, litigation costs and financial results of the CRES home equity portfolio selected as part of the Legacy Asset Servicing portfolio. In addition, certain revenue and expenses on loans serviced for others, including loans serviced for other business segments and All Other, are included in Legacy Asset Servicing results. The results of the Legacy Asset Servicing residential mortgage and discontinued real estate portfolios are recorded primarily in All Other.
     The Other component within CRES includes the results of certain MSR activities, including net hedge results, together with any related assets or liabilities used as economic hedges. The change in the value of the MSRs reflects the change in

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discount rates and prepayment speed assumptions, largely due to changes in interest rates, as well as the effect of changes in other assumptions, including the cost to service. These amounts are not allocated between Home Loans and Legacy Asset Servicing since the MSRs are managed as a single asset. Goodwill assigned to CRES is also included in Other; however, the remaining balance of $2.6 billion of goodwill was written off in its entirety during the three months ended June 30, 2011. For additional information on goodwill, see Note 10 – Goodwill and Intangible Assets to the Consolidated Financial Statements.
     Servicing activities include collecting cash for principal, interest and escrow payments from borrowers, and disbursing customer draws for lines of credit and accounting for and remitting principal and interest payments to investors and escrow payments to third parties along with responding to non-default related customer inquiries. These activities are performed by Home Loans. Our home retention efforts are also part of our servicing activities, along with supervising foreclosures and property dispositions. These default-related activities are performed by Legacy Asset Servicing. In an effort to help our customers avoid foreclosure, Legacy Asset Servicing evaluates various workout options prior to foreclosure sale which, combined with our temporary halt of foreclosures announced in October 2010, has resulted in elongated default timelines. We have resumed foreclosure sales in all non-judicial states; however, while we have recently resumed foreclosure proceedings in nearly all judicial states, our progress on foreclosure sales in judicial states has been significantly slower than in non-judicial states. We have also not yet resumed foreclosure sales for certain types of customers, including those in bankruptcy and those with FHA-insured loans, although we have resumed foreclosure proceedings with respect to these types of customers. For additional information on our servicing activities, see Off-Balance Sheet Arrangements and Contractual Obligations – Other Mortgage-related Matters on page 60.
     The sale of lender-placed and voluntary property and casualty insurance assets and liabilities of Balboa closed on June 1, 2011. In connection with the sale, CRES recognized a pre-tax gain of $752 million net of an inter-segment advisory fee and an allocation of $193 million of goodwill. The sale agreement included the fair value of certain earn-outs and clawback provisions which were reflected in the determination of the pre-tax gain. Under the earn-out provisions, the buyer will make payments to the Corporation if certain future revenue or profitability targets are met whereas under the clawback provision, the Corporation may be required to pay the buyer if certain loss projections or gross written premiums vary from targets established in the sale agreement after certain triggering events occur, including regulatory actions. The amount, if any, and timing of any clawback or earn-out payments could vary based upon these future performance metrics.
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
     The CRES net loss increased $13.0 billion to $14.5 billion. Revenue declined $14.0 billion to a loss of $11.3 billion due to $14.0 billion in representations and warranties provision which is included in mortgage banking income compared to a provision of $1.2 billion in 2010. The representations and warranties provision included $8.6 billion related to the BNY Mellon Settlement and $5.4 billion related to other non-GSE exposures, and to a lesser extent, GSE exposures. Other factors resulting in the revenue decline were the decreases in MSR results, net of hedges, of $885 million as a result of higher expected servicing costs, and core production income of $604 million due to a decline in new loan originations caused mainly by lower overall market demand and a drop in market share in both the retail and correspondent sales channels partially driven by pricing actions as well as the Corporation’s exit from wholesale lending. These declines were partially offset by a pre-tax gain on the sale of Balboa’s lender-placed insurance business of $752 million, net of an inter-segment advisory fee. For additional information on representations and warranties, see Note 9 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements and Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 51.
     Provision for credit losses decreased $883 million to $1.5 billion reflecting improved portfolio trends, including the Countrywide PCI home equity portfolio.
     Noninterest expense increased $5.9 billion to $8.6 billion, primarily due to a non-cash, non-tax deductible goodwill impairment charge of $2.6 billion and $2.0 billion in litigation expense. Additionally, as a result of elongated default timelines, our servicing costs have increased driven by $716 million of mortgage-related assessments and waivers costs, which included $485 million for compensatory fees that we expect to be assessed by the GSEs as a result of foreclosure delays as our agreements and first mortgage seller/servicer guides with the GSEs provide timelines to complete the liquidation of delinquent loans. In instances where we fail to meet these timelines, our agreements provide the GSEs with the option to assess compensatory fees. The remainder of the $716 million of mortgage-related assessments and waivers costs are out-of-pocket costs that we do not expect to recover. We expect such costs will continue as additional loans are delayed in the foreclosure process and as the GSEs assert more aggressive criteria. Higher default-related and other loss mitigation expenses also contributed to increased expenses. Production expense was lower due to lower origination volumes and lower insurance expenses resulting from the sale of Balboa’s lender-placed insurance business.

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Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
     The CRES net loss increased $13.3 billion to $16.9 billion. Revenue declined $15.5 billion to a loss of $9.3 billion due in large part to a decrease in mortgage banking income driven by an increase in representations and warranties provision of $13.3 billion, a decline in core production income of $1.2 billion and the decrease in MSR results, net of hedges, of $1.1 billion as a result of servicing costs. The decline in core production income was primarily due to lower production volume driven by the same factors noted in the three-month discussion. Net interest income also contributed to the decline in revenue driven primarily by lower average balances of loans held-for-sale (LHFS). Provision for credit losses decreased $3.4 billion to $2.6 billion and noninterest expense increased $7.5 billion to $13.4 billion due to the same factors noted in the three-month discussion.
Mortgage Banking Income
     CRES mortgage banking income is categorized into production and servicing income. Core production income is comprised of revenue from the fair value gains and losses recognized on our interest rate lock commitments (IRLCs) and LHFS, the related secondary market execution, and costs related to representations and warranties in the sales transactions along with other obligations incurred in the sales of mortgage loans. In addition, production income includes revenue, which is offset in All Other, for transfers of mortgage loans from CRES to the ALM portfolio related to the Corporation’s mortgage production retention decisions. Ongoing costs related to representations and warranties and other obligations that were incurred in the sales of mortgage loans in prior periods are also included in production income.
     Servicing income includes income earned in connection with servicing activities and MSR valuation adjustments, net of economic hedge activities. The costs associated with our servicing activities are included in noninterest expense.
     The table below summarizes the components of mortgage banking income.
                                     
Mortgage Banking Income
    Three Months Ended June 30   Six Months Ended June 30
(Dollars in millions)
  2011   2010   2011   2010
 
Production income (loss):
                               
Core production revenue
  $ 824     $ 1,428     $ 1,492     $ 2,711  
Representations and warranties provision
    (14,037 )     (1,248 )     (15,050 )     (1,774 )
 
Total production income (loss)
    (13,213 )     180       (13,558 )     937  
 
Servicing income:
                               
Servicing fees
    1,556       1,649       3,162       3,218  
Impact of customer payments (1)
    (639 )     (981 )     (1,345 )     (2,037 )
Fair value changes of MSRs, net of economic hedge results (2)
    (873 )     12       (870 )     209  
Other servicing-related revenue
    151       160       288       334  
 
Total net servicing income
    195       840       1,235       1,724  
 
Total CRES mortgage banking income (loss)
    (13,018 )     1,020       (12,323 )     2,661  
Eliminations (3)
    (178 )     (122 )     (243 )     (263 )
 
Total consolidated mortgage banking income (loss)
  $ (13,196 )   $ 898     $ (12,566 )   $ 2,398  
 
(1)   Represents the change in the market value of the MSR asset due to the impact of customer payments received during the period.
 
(2)   Includes sale of MSRs.
 
(3)   Includes the effect of transfers of mortgage loans from CRES to the ALM portfolio in All Other.
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
     Core production revenue of $824 million represented a decrease of $604 million, due to lower volumes partially offset by an increase in margins. Representations and warranties provision increased $12.8 billion to $14.0 billion. For additional information on representations and warranties, see Note 9 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements and Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 51.
     Net servicing income decreased $645 million as the lower impact of customer payments was more than offset by less favorable MSR results, net of hedges. MSRs results, net of hedges, were a loss of $873 million, driven primarily by a decline in the value of the MSRs of $1.5 billion resulting from the expectation of higher servicing costs. The increased servicing costs were primarily a result of higher costs in view of all the changes in servicing delinquent loans, costs associated with additional servicing obligations under the BNY Mellon Settlement and extending default workout timelines in judicial states. For additional information on MSRs and the related hedge instruments, see Mortgage Banking Risk Management on page 119.

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Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
     Core production revenue of $1.5 billion represented a decrease of $1.2 billion due to a decline in new loan originations caused mainly by lower overall market demand and a decline in market share. Representations and warranties provision increased $13.3 billion to $15.1 billion.
     Net servicing income decreased $489 million as the lower impact of customer payments was more than offset by less favorable MSR results, net of hedges. MSR results, net of hedges, were a loss of $870 million, driven by a decline in the value of the MSRs of $2.0 billion resulting from revised expectations of cash flows, primarily related to higher servicing costs.
                                 
Key Statistics
    Three Months Ended June 30   Six Months Ended June 30
(Dollars in millions, except as noted)
  2011   2010   2011   2010
 
Loan production
                               
CRES:
                               
First mortgage
  $ 38,320     $ 69,141     $ 90,839     $ 136,106  
Home equity
    879       1,831       2,454       3,602  
Total Corporation (1):
                               
First mortgage
  $ 40,370     $ 71,938     $ 97,104     $ 141,440  
Home equity
    1,054       2,137       2,782       4,164  
 
                     
                    June 30   December 31
Period end
                  2011   2010
                     
Mortgage servicing portfolio (in billions) (2, 3)
                  $ 1,992     $ 2,057  
Mortgage loans serviced for investors (in billions) (3)
                    1,578       1,628  
Mortgage servicing rights:
                               
Balance
                    12,372       14,900  
Capitalized mortgage servicing rights (% of loans serviced for investors)
          78 bps     92 bps
 
(1)  
In addition to loan production in CRES, the remaining first mortgage and home equity loan production is primarily in GWIM.
 
(2)  
Servicing of residential mortgage loans, home equity lines of credit, home equity loans and discontinued real estate mortgage loans.
 
(3)  
The total Corporation mortgage servicing portfolio consists of $1,079 billion in Home Loans and $913 billion in Legacy Asset Servicing at June 30, 2011. The total Corporation mortgage loans serviced for investors consisted of $870 billion in Home Loans and $708 billion in Legacy Asset Servicing at June 30, 2011.
     First mortgage production was $40.4 billion and $97.1 billion for the three and six months ended June 30, 2011 compared to $71.9 billion and $141.4 billion for the same periods in 2010. The decrease of $31.5 billion and $44.3 billion was primarily due to a decline in market share caused primarily by our exit from the wholesale origination channel in the fall of 2010 and a reduction in market share in both the retail and correspondent sales channels partially driven by pricing actions.
     Home equity production was $1.1 billion and $2.8 billion for the three and six months ended June 30, 2011 compared to $2.1 billion and $4.2 billion for the same periods in 2010 primarily due to a decline in reverse mortgage originations based on our decision to exit this business in February 2011.
     At June 30, 2011, the consumer MSR balance was $12.4 billion, which represented 78 bps of the related unpaid principal balance compared to $14.9 billion, or 92 bps of the related unpaid principal balance at December 31, 2010. The decline in the consumer MSR balance was primarily driven by the impact of elevated expected costs to service delinquent loans, which reduced expected cash flows and the value of the MSRs, the impact of lower mortgage rates and the decline in value due to customer payments. These declines were partially offset by the addition of new MSRs recorded in connection with sales of loans. For additional information on our servicing activities, see Off-Balance Sheet Arrangements and Contractual Obligations – Other Mortgage-related Matters on page 60.

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Global Commercial Banking
    Three Months Ended June 30           Six Months Ended June 30    
(Dollars in millions)
  2011   2010   % Change   2011   2010   % Change
 
Net interest income (1)
  $ 1,827     $ 2,097       (13 )%   $ 3,677     $ 4,290       (14 )%
Noninterest income:
                                               
Service charges
    576       589       (2 )     1,182       1,188       (1 )
All other income
    407       197       107       602       497       21  
                     
Total noninterest income
    983       786       25       1,784       1,685       6  
                     
Total revenue, net of interest expense
    2,810       2,883       (3 )     5,461       5,975       (9 )
 
                                               
Provision for credit losses
    (417 )     623       n/m       (338 )     1,559       n/m  
Noninterest expense
    1,068       974       10       2,174       2,005       8  
                     
Income before income taxes
    2,159       1,286       68       3,625       2,411       50  
Income tax expense (1)
    778       471       65       1,321       891       48  
                     
Net income
  $ 1,381     $ 815       69     $ 2,304     $ 1,520       52  
                     
 
                                               
Net interest yield (1)
    2.60 %     3.13 %             2.66 %     3.26 %        
Return on average equity
    13.67       7.46               11.33       6.93          
Return on average economic capital (2, 3)
    27.92       14.14               22.85       13.04          
Efficiency ratio (1)
    38.01       33.80               39.81       33.56          
 
                                               
Balance Sheet
                                               
 
                                               
Average
                                               
Total loans and leases
  $ 189,346     $ 206,603       (8 )   $ 190,883     $ 210,450       (9 )
Total earning assets
    281,844       268,552       5       278,272       265,125       5  
Total assets
    320,428       305,788       5       316,521       301,925       5  
Total deposits
    166,481       145,499       14       163,366       144,572       13  
Allocated equity
    40,515       43,869       (8 )     41,008       44,222       (7 )
Economic capital (4)
    19,817       23,159       (14 )     20,309       23,558       (14 )
 
                                     
                            June 30   December 31        
Period end
                          2011   2010        
                                     
Total loans and leases
                          $ 189,434     $ 194,038       (2 )
Total earning assets
                            242,272       274,637       (12 )
Total assets
                            280,289       312,802       (10 )
Total deposits
                            170,156       161,279       6  
 
(1)   FTE basis
 
(2)  
Increases in the ratios resulted from higher net income and lower economic capital. Economic capital decreased due to improved credit quality, declining loan balances and improvements in counterparty credit exposure.
 
(3)  
Return on average economic capital is calculated as net income, excluding cost of funds and earnings credit on intangibles, divided by average economic capital.
 
(4)  
Economic capital represents allocated equity less goodwill and a percentage of intangible assets.
 
n/m   = not meaningful
     Global Commercial Banking provides a wide range of lending-related products and services, integrated working capital management and treasury solutions to clients through our network of offices and client relationship teams along with various product partners. Our clients include business banking and middle-market companies, commercial real estate firms and governments, and are generally defined as companies with annual sales up to $2 billion. Our lending products and services include commercial loans and commitment facilities, real estate lending, asset-based lending and indirect consumer loans. Our capital management and treasury solutions include treasury management, foreign exchange and short-term investing options. Effective in the first quarter of 2011, management responsibility for the merchant processing joint venture, Banc of America Merchant Services, LLC, was moved from GBAM to Global Commercial Banking where it more closely aligns with the business model. Prior periods have been restated to reflect this change. In the three months ended June 30, 2011, we recorded a $500 million impairment write-down on our investment in the joint venture. Because of the recent transfer of the joint venture to Global Commercial Banking, the impairment write-down was recorded in All Other for management accounting purposes. For additional information, see Note 5 – Securities to the Consolidated Financial Statements.

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Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
     Net income increased $566 million, or 69 percent, to $1.4 billion driven by lower credit costs from improved asset quality. Revenue decreased $73 million, primarily due to lower loan balances partially offset by earnings on higher deposit balances and a gain on the termination of a purchase contract.
     Net interest income decreased $270 million due to the decline in average loans and a lower net interest allocation related to ALM activities. Offsetting this decrease was an increase in average deposits of $21.0 billion, as clients continue to maintain high levels of liquidity. Noninterest income increased $197 million, or 25 percent, largely due to a gain on the termination of a purchase contract.
     The provision for credit losses decreased $1.0 billion to a benefit of $417 million driven by improved overall economic conditions and an accelerated rate of loan resolutions in the commercial real estate portfolio.
     Noninterest expense increased $94 million due to an increase in Federal Deposit Insurance Corporation (FDIC) expense driven by growth in deposit balances, higher foreclosed property expense driven by lower gains on real estate owned sales, and higher other support costs.
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
     Net income increased $784 million, or 52 percent, to $2.3 billion due to an improvement of $1.9 billion in the provision for credit losses partially offset by lower revenue. The decrease in net interest income of $613 million was due to a lower net interest allocation related to ALM activities and lower loan balances. The decrease in provision for credit losses and the increase in noninterest expense were driven by the same factors described in the three-month discussion above.
Global Commercial Banking Revenue
     Global Commercial Banking revenue can also be categorized into treasury services revenue primarily from capital and treasury management, and business lending revenue derived from credit-related products and services.
     Treasury services revenue for the three and six months ended June 30, 2011 was $1.2 billion and $2.4 billion, essentially flat compared to the same periods in 2010. Net interest income increased from $727 million to $746 million for the three months ended June 30, 2011 compared to the same period in 2010 driven by the impact of an increase of $21.0 billion in average deposits. Noninterest income decreased from $521 million to $499 million for the three months ended June 30, 2011 compared to the same period in 2010 as the use of certain treasury services declined and clients continued to convert from paper to electronic services. These actions, combined with our clients leveraging compensating balances to offset fees, have negatively impacted treasury services revenue.
     Business lending revenue for the three and six months ended June 30, 2011 was $1.6 billion and $3.0 billion, a decrease of $71 million and $448 million compared to the same periods in 2010. Net interest income declined from $1.4 billion to $1.1 billion for the three months ended June 30, 2011 and from $2.8 billion to $2.2 billion for the six months ended June 30, 2011 driven by a lower net interest allocation related to ALM activities and lower loan balances compared to the same periods in 2010. Noninterest income increased from $265 million to $483 million for the three months ended June 30, 2011 and from $688 million to $825 million for the six months ended June 30, 2011 compared to the same periods in 2010. This increase was due in part to a gain on the termination of a purchase contract. Average loan and lease balances decreased $17.3 billion and $19.6 billion, or eight percent and nine percent, for the three and six months ended June 30, 2011 compared to the same periods in 2010 due to client deleveraging.

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Global Banking & Markets
                                                 
    Three Months Ended June 30           Six Months Ended June 30    
(Dollars in millions)
  2011   2010   % Change   2011   2010   % Change
 
Net interest income (1)
  $ 1,791     $ 2,002       (11 )%   $ 3,828     $ 4,172       (8 )%
Noninterest income:
                                               
Service charges
    442       468       (6 )     917       931       (2 )
Investment and brokerage services
    587       676       (13 )     1,264       1,299       (3 )
Investment banking fees
    1,637       1,301       26       3,148       2,517       25  
Trading account profits
    2,071       1,202       72       4,691       6,273       (25 )
All other income
    268       255       5       834       405       106  
                     
Total noninterest income
    5,005       3,902       28       10,854       11,425       (5 )
                     
Total revenue, net of interest expense
    6,796       5,904       15       14,682       15,597       (6 )
 
                                               
Provision for credit losses
    (82 )     (133 )     38       (284 )     103       n/m  
Noninterest expense
    4,713       4,735       -       9,435       9,024       5  
                     
Income before income taxes
    2,165       1,302       66       5,531       6,470       (15 )
Income tax expense (1)
    607       404       50       1,839       2,333       (21 )
                     
Net income
  $ 1,558     $ 898       73     $ 3,692     $ 4,137       (11 )
                     
 
                                               
Return on average equity
    16.44 %     7.03 %             18.61 %     15.99 %        
Return on average economic capital (2, 3)
    23.40       9.06               25.86       20.28          
Efficiency ratio (1)
    69.35       80.19               64.26       57.86          
 
                                               
Balance Sheet
                                               
 
                                               
Average
                                               
Total trading-related assets (4, 5)
  $ 460,153     $ 522,304       (12 )   $ 459,278     $ 519,767       (12 )
Total loans and leases
    109,473       95,839       14       106,604       97,427       9  
Total earning assets (4, 5)
    569,517       622,820       (9 )     572,701       628,193       (9 )
Total assets (4, 5)
    750,908       779,060       (4 )     730,907       781,949       (7 )
Total deposits
    118,133       112,565       5       115,097       108,124       6  
Allocated equity
    38,001       51,245       (26 )     40,004       52,182       (23 )
Economic capital (6)
    27,078       40,705       (33 )     29,126       41,582       (30 )
 
                                     
                            June 30   December 31        
Period end
                          2011   2010        
                                     
Total trading-related assets (4, 5)
                          $ 445,220     $ 417,714       7  
Total loans and leases
                            114,165       99,964       14  
Total earning assets (4, 5)
                            557,327       514,462       8  
Total assets (4, 5)
                            691,249       655,778       5  
Total deposits
                            123,618       110,971       11  
 
(1)   FTE basis
 
(2)  
Increases in the ratios resulted from higher net income for the three-month period and a decrease in economic capital for both the three- and six-month periods. Economic capital decreased due to lower credit risk and improvements in counterparty credit exposure.
 
(3)  
Return on average economic capital is calculated as net income, excluding cost of funds and earnings credit on intangibles, divided by average economic capital.
 
(4)   Includes assets which are not considered earning assets (i.e., derivative assets).
 
(5)  
Total earning assets and total assets include asset allocations to match liabilities (i.e., deposits).
 
(6)  
Economic capital represents allocated equity less goodwill and a percentage of intangible assets.
 
n/m   = not meaningful
     GBAM provides financial products, advisory services, financing, securities clearing, settlement and custody services globally to our institutional investor clients in support of their investing and trading activities. We also work with our commercial and corporate clients to provide debt and equity underwriting and distribution capabilities, merger-related and other advisory services, and risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income and mortgage-related products. As a result of our market-making activities in these products, we may be required to manage positions in government securities, equity and equity-linked securities, high-grade and high-yield corporate debt securities, commercial paper, mortgage-backed securities (MBS) and asset-backed securities (ABS). Underwriting debt and equity issuances, securities research and certain market-based activities are executed through our global broker/dealer affiliates which are our primary dealers in several countries. GBAM is a leader in the global distribution of fixed-income, currency and energy commodity products and derivatives. GBAM also has one of the largest equity trading operations in the world and is a leader in the origination and distribution of equity and equity-related products. Our corporate banking services provide a wide range of lending-related products and services, integrated working capital management and treasury solutions to clients through our network of offices and client relationship teams along with various product partners. Our corporate clients are generally defined as companies with annual sales greater than $2 billion.

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Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
     Net income increased $660 million to $1.6 billion driven by higher investment banking fees and increased sales and trading revenue, while noninterest expense remained relatively flat. Noninterest expense in the current-year period included higher revenue-related compensation and costs related to investments in infrastructure while the prior-year period included the U.K. employer bonus tax of $395 million. Provision benefit decreased $51 million due to lower reserve releases versus prior year.
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
     Net income decreased $445 million to $3.7 billion due to a less favorable trading environment in the first quarter of 2011 compared to last year’s record first quarter and higher noninterest expense driven by increased costs related to investments in infrastructure. The provision for credit losses decreased $387 million to a provision benefit of $284 million driven by stabilization in borrower credit profiles and a legal settlement recovery.
Components of Global Banking & Markets
Sales and Trading Revenue
     Sales and trading revenue is segregated into fixed income including investment and non-investment grade corporate debt obligations, commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (RMBS), swaps and collateralized debt obligations (CDOs); currencies including interest rate and foreign exchange contracts; commodities including primarily futures, forwards and options; and equity income from equity-linked derivatives and cash equity activity. For additional information on sales and trading revenue, see Note 4 — Derivatives to the Consolidated Financial Statements.
                                 
    Three Months Ended June 30     Six Months Ended June 30
(Dollars in millions)
  2011   2010   2011   2010
 
Sales and trading revenue (1)
                               
Fixed income, currencies and commodities
  $ 2,697     $ 2,230     $ 6,343     $ 7,717  
Equity income
    1,081       882       2,330       2,396  
 
Total sales and trading revenue
  $ 3,778     $ 3,112     $ 8,673     $ 10,113  
 
(1)   Includes $43 million and $98 million of net interest income on a FTE basis for the three and six months ended June 30, 2011 as compared to $76 million and $148 million for the same periods in 2010.
     Sales and trading revenue increased $666 million, or 21 percent, to $3.8 billion for the three months ended June 30, 2011 compared to the same period in 2010. Fixed income, currencies and commodities (FICC) revenue increased $467 million to $2.7 billion for the three months ended June 30, 2011 compared to the same period in 2010 driven by credit and commodities. Equity income was $1.1 billion for the three months ended June 30, 2011 compared to $882 million for the same period in 2010 with the increase due to favorable market conditions, primarily in the equity derivatives business. Sales and trading revenue includes total commissions and brokerage fee revenue of $583 million ($547 million from equities and $36 million from FICC) for the three months ended June 30, 2011 compared to $657 million ($600 million from equities and $57 million from FICC) for the same period in 2010. We recorded DVA gains during the three months ended June 30, 2011 of $121 million compared to gains of $77 million in the same period in 2010.
     Sales and trading revenue decreased $1.4 billion, or 14 percent, to $8.7 billion for the six months ended June 30, 2011 compared to the same period in 2010 due to a less favorable trading environment in the first quarter of 2011. FICC revenue decreased $1.4 billion to $6.3 billion for the six months ended June 30, 2011 compared to the same period in 2010 primarily due to our rates and currencies business and the wind down of our proprietary trading business. Equity income was $2.3 billion for the six months ended June 30, 2011 compared to $2.4 billion for the same period in the prior year with the decrease driven primarily by lower equity derivative trading volumes partially offset by an increase in commission revenue. Sales and trading revenue includes total commissions and brokerage fee revenue of $1.3 billion ($1.2 billion from equities and $75 million from FICC) for the six months ended June 30, 2011 compared to $1.3 billion ($1.2 billion from equities, and $101 million from FICC) for the same period in 2010. We recorded DVA losses during the six months ended June 30, 2011 of $236 million compared to gains of $246 million in the same period in 2010.

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     In conjunction with regulatory reform measures and our initiative to optimize our balance sheet, we have exited our proprietary trading business as of June 30, 2011, which involved trading activities in a variety of products, including stocks, bonds, currencies and commodities. Proprietary trading revenue was $231 million and $434 million for the three and six months ended June 30, 2011 compared to $432 million and $888 million in the same periods in 2010. For additional information, see Financial Reform Act – Limitations on Certain Activities on page 62.
Investment Banking Fees
     Product specialists within GBAM provide advisory services, and underwrite and distribute debt and equity issuances and certain other loan products. The table below presents total investment banking fees for GBAM which represents 97 percent of the Corporation’s total investment banking income for both the three and six months ended June 30, 2011 and 99 percent and 98 percent for the same periods in 2010, with the remainder comprised of investment banking income reported in GWIM and Global Commercial Banking.
                                 
    Three Months Ended June 30     Six Months Ended June 30
(Dollars in millions)
  2011   2010   2011   2010
 
Investment banking fees
                               
Advisory (1)
  $ 381     $ 242     $ 700     $ 409  
Debt issuance
    880       773       1,679       1,509  
Equity issuance
    376       286       769       599  
 
Total investment banking fees
  $ 1,637     $ 1,301     $ 3,148     $ 2,517  
 
(1)   Advisory includes fees on debt and equity advisory services and mergers and acquisitions.
     Investment banking fees increased $336 million for the three months ended June 30, 2011 compared to the same period in the prior year reflecting strong performance across all categories, particularly advisory, equity issuance, leveraged finance and investment-grade. Investment banking fees increased $631 million for the six months ended June 30, 2011 compared to the prior-year period reflecting strong performance across advisory services and debt and equity issuances.
Global Corporate Banking
     Client relationship teams along with product partners work with our customers to provide a wide range of lending-related products and services, integrated working capital management and treasury solutions through the Corporation’s global network of offices. Global Corporate Banking revenues of $1.4 billion and $2.9 billion for the three and six months ended June 30, 2011 remained in line with the same periods in the prior year. Global treasury services revenues of $624 million and $1.2 billion for the three and six months ended June 30, 2011 were consistent with the same periods in the prior year as growth in deposit volumes across all the regions was offset by a challenging rate environment. Global Corporate Banking average deposits increased six percent and eight percent to $110.6 billion and $108.0 billion for the three and six months ended June 30, 2011 compared to the same periods in the prior year resulting from clients continuing to hold excess liquidity due to restrained spending. Global Corporate Banking lending activities continued to show strength as average loan balances increased 17 percent and 12 percent to $92.8 billion and $90.2 billion for the three and six months ended June 30, 2011 compared to the same periods in prior year, primarily from increases in non-U.S. commercial loan and trade finance portfolios.
Collateralized Debt Obligation Exposure
     CDO vehicles hold diversified pools of fixed-income securities and issue multiple tranches of debt securities including commercial paper, and mezzanine and equity securities. Our CDO-related exposure can be divided into funded and unfunded super senior liquidity commitment exposure and other super senior exposure (i.e., cash positions and derivative contracts). For more information on our CDO positions, see Note 8 – Securitizations and Other Variable Interest Entities to the Consolidated Financial Statements. Super senior exposure represents the most senior class of notes that are issued by the CDO vehicles. These financial instruments benefit from the subordination of all other securities issued by the CDO vehicles. In the three and six months ended June 30, 2011, we recorded $3 million of gains and $2 million of losses from our CDO-related exposure compared to $313 million and $605 million of losses for the same periods in 2010.

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     At June 30, 2011, our super senior CDO exposure before consideration of insurance, net of write-downs, was $1.1 billion, comprised of $805 million in trading account assets and $283 million in AFS debt securities, compared to $2.0 billion, comprised of $1.3 billion in trading account assets and $675 million in AFS debt securities at December 31, 2010. Of our super senior CDO exposure at June 30, 2011, $569 million was hedged and $518 million was unhedged compared to $772 million hedged and $1.2 billion unhedged at December 31, 2010. Unrealized losses recorded in accumulated OCI on super senior cash positions and retained positions from liquidated CDOs in aggregate decreased $14 million and $365 million during the three and six months ended June 30, 2011 to $101 million primarily due to tightening of RMBS and CMBS spreads and the sale of two ABS CDOs.
     The table below presents our original total notional, mark-to-market receivable and credit valuation adjustment for credit default swaps and other positions with monolines. The receivable for super senior CDOs reflects hedge gains recorded from inception of the contracts in connection with write-downs on super senior CDOs.
                                                 
Credit Default Swaps with Monoline Financial Guarantors
    June 30, 2011   December 31, 2010
            Other                   Other    
    Super   Guaranteed           Super   Guaranteed    
(Dollars in millions)
  Senior CDOs   Positions   Total   Senior CDOs   Positions   Total
 
Notional
  $ 2,968     $ 32,656     $ 35,624     $ 3,241     $ 35,183     $ 38,424  
Mark-to-market or guarantor receivable
  $ 2,578     $ 6,150     $ 8,728     $ 2,834     $ 6,367     $ 9,201  
Credit valuation adjustment
    (2,363 )     (3,314 )     (5,677 )     (2,168 )     (3,107 )     (5,275 )
 
Total
  $ 215     $ 2,836     $ 3,051     $ 666     $ 3,260     $ 3,926  
 
Credit valuation adjustment %
    92 %     54 %     65 %     77 %     49 %     57 %
(Write-downs) gains
  $ (314 )   $ (354 )   $ (668 )   $ (386 )   $ 362     $ (24 )
 
     Total monoline exposure, net of credit valuation adjustments decreased $875 million driven by terminated monoline contracts when compared to December 31, 2010. The increase in the credit valuation adjustment as a percent of total super senior CDO exposure was driven by reductions in recovery expectations for a monoline counterparty. Total write-downs for the six months ended June 30, 2011 were $668 million which included changes in credit valuation adjustments as well as hedge losses due to breakdowns in correlations.
     With the Merrill Lynch acquisition, we acquired a loan with a carrying value of $3.8 billion as of June 30, 2011 that is collateralized by U.S. super senior ABS CDOs. Merrill Lynch originally provided financing to the borrower for an amount equal to approximately 75 percent of the fair value of the collateral. The loan is recorded in All Other and all scheduled payments on the loan have been received to date. Events of default under the loan are customary events of default, including failure to pay interest when due and failure to pay principal at maturity. Collateral for the loan is excluded from our CDO exposure. The loan matures in September 2023.

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Global Wealth & Investment Management
                                                 
    Three Months Ended June 30           Six Months Ended June 30    
(Dollars in millions)
  2011   2010   % Change   2011   2010   % Change
 
Net interest income (1)
  $ 1,571     $ 1,443       9 %   $ 3,140     $ 2,907       8 %
Noninterest income:
                                               
Investment and brokerage services
    2,378       2,195       8       4,756       4,303       11  
All other income
    541       551       (2 )     1,086       1,020       6  
                     
Total noninterest income
    2,919       2,746       6       5,842       5,323       10  
                     
Total revenue, net of interest expense
    4,490       4,189       7       8,982       8,230       9  
 
                                               
Provision for credit losses
    72       122       (41 )     118       363       (67 )
Noninterest expense
    3,631       3,269       11       7,230       6,368       14  
                     
Income before income taxes
    787       798       (1 )     1,634       1,499       9  
Income tax expense (1)
    281       469       (40 )     595       731       (19 )
                     
Net income
  $ 506     $ 329       54     $ 1,039     $ 768       35  
                     
 
                                               
Net interest yield (1)
    2.34 %     2.42 %             2.32 %     2.49 %        
Return on average equity
    11.54       7.27               11.80       8.61          
Return on average economic capital (2, 3)
    29.97       19.10               30.21       22.76          
Efficiency ratio (1)
    80.88       78.05               80.50       77.37          
 
                                               
Balance Sheet
                                               
 
                                               
Average
                                               
Total loans and leases
  $ 102,200     $ 98,811       3     $ 101,529     $ 98,826       3  
Total earning assets
    268,968       239,186       12       272,958       235,284       16  
Total assets
    289,050       259,801       11       293,170       256,510       14  
Total deposits
    255,219       226,276       13       256,859       223,956       15  
Allocated equity
    17,574       18,179       (3 )     17,755       18,002       (1 )
Economic capital (4)
    6,868       7,380       (7 )     7,038       7,209       (2 )
                                                 
                                     
                            June 30   December 31        
Period end
                          2011   2010        
                                     
Total loans and leases
                          $ 102,878     $ 100,724       2  
Total earning assets
                            263,867       275,260       (4 )
Total assets
                            284,294       296,251       (4 )
Total deposits
                            255,580       257,982       (1 )
 
(1)   FTE basis
 
(2)  
Increases in ratios resulted from higher net income and a decrease in economic capital. Economic capital decreased modestly due to improvements in interest rate risk due to changes in portfolio composition.
 
(3)  
Return on average economic capital is calculated as net income, excluding cost of funds and earnings credit on intangibles, divided by average economic capital.
 
(4)  
Economic capital represents allocated equity less goodwill and a percentage of intangible assets.
     GWIM consists of three primary businesses: Merrill Lynch Global Wealth Management (MLGWM); U.S. Trust, Bank of America Private Wealth Management (U.S. Trust); and Retirement Services.
     MLGWM’s advisory business provides a high-touch client experience through a network of more than 16,000 financial advisors focused on clients with over $250,000 in total investable assets. MLGWM provides tailored solutions to meet our clients’ needs through a full set of brokerage, banking and retirement products in both domestic and international locations.
     U.S. Trust, together with MLGWM’s Private Banking & Investments Group, provides comprehensive wealth management solutions targeted at wealthy and ultra-wealthy clients with investable assets of more than $5 million, as well as customized solutions to meet clients’ wealth structuring, investment management, trust and banking needs, including specialty asset management services.
     Retirement Services partners with financial advisors to provide institutional and personal retirement solutions including investment management, administration, recordkeeping and custodial services for 401(k), pension, profit-sharing, equity award and non-qualified deferred compensation plans. Retirement Services also provides comprehensive investment advisory services to individuals, small to large corporations and pension plans.

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     GWIM results also include the BofA Global Capital Management (BACM) business, which is comprised primarily of the cash and liquidity asset management business that was retained following the sale of Columbia Management long-term asset management business in May 2010.
     For the three and six months ended June 30, 2011, revenue from MLGWM was $3.5 billion and $7.0 billion, up 11 percent and 15 percent compared to the same periods in 2010 driven by higher net interest income and higher asset management fees due to market and long-term assets under management (AUM) flows. Revenue from U.S. Trust was $711 million and $1.4 billion, up four percent and six percent compared to the same periods in the prior year driven by higher net interest income and higher asset management fees. Revenue from Retirement Services was $273 million and $545 million, up 12 percent and 13 percent compared to the same periods in the prior year primarily driven by higher investment and brokerage services due to higher market valuations and long-term flows.
     GWIM results include the impact of migrating clients and their related deposit and loan balances to or from Deposits, CRES and the ALM portfolio, as presented in the table below. Current year’s migration includes the additional movement of balances to Merrill Edge, which is in Deposits. Subsequent to the date of the migration, the associated net interest income, noninterest income and noninterest expense are recorded in the business to which the clients migrated.
                                       
Migration Summary
    Three Months Ended June 30   Six Months Ended June 30
(Dollars in millions)
  2011   2010   2011   2010
 
Average
                               
Total deposits — GWIM from / (to) Deposits
  $ (2,087 )   $ 2,016     $ (1,704 )   $ 1,472  
Total loans — GWIM to CRES and the ALM portfolio
    (184 )     (1,437 )     (93 )     (1,254 )
 
                               
Period end
                               
Total deposits — GWIM from / (to) Deposits
  $ 1,310     $ (652 )   $ (2,053 )   $ 2,031  
Total loans — GWIM to CRES and the ALM portfolio
    (189 )     (75 )     (189 )     (1,430 )
 
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
     Net income increased $177 million, or 54 percent, to $506 million driven by higher net interest income and noninterest income as well as lower credit costs, partially offset by higher noninterest expense. The prior-year period net income included a tax-related charge from the sale of the Columbia Management long-term asset management business. Net interest income increased $128 million, or nine percent, to $1.6 billion driven by a $28.9 billion increase in average deposits and the related effect on interest expense. Noninterest income increased $173 million, or six percent, to $2.9 billion primarily due to higher asset management fees from improved equity market levels and flows into long-term AUM. Brokerage revenue was essentially flat due to slow market activity. Provision for credit losses decreased $50 million to $72 million driven by improving portfolio trends within the home equity portfolio, partially offset by the impact of declines in home prices on the residential mortgage portfolio. Noninterest expense increased $362 million, or 11 percent, to $3.6 billion driven by higher revenue-related expenses, support costs and personnel costs associated with the continued build-out of the business.
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
     Net income increased $271 million, or 35 percent, to $1.0 billion driven by the same factors discussed above. Net interest income increased $233 million, or eight percent, to $3.1 billion driven by the $32.9 billion increase in average deposits partially offset by a lower allocation of income related to ALM activities. Noninterest income increased $519 million, or 10 percent, to $5.8 billion due to higher asset management fees from improved equity market levels and flows into long-term AUM as well as higher brokerage income. The provision for credit losses decreased $245 million to $118 million driven by improving portfolio trends in the home equity and commercial portfolios. The increase in noninterest expense of $862 million was driven by the same factors as described in the three-month discussion above.

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Client Balances
     The table below presents client balances which consist of AUM, client brokerage assets, assets in custody, client deposits, and loans and leases. The increase in client balances was driven by inflows into long-term AUM and fee-based brokerage assets as well as higher market levels offset by liquidity outflows from BACM and declines in other brokerage assets.
                 
Client Balances by Type
    June 30     December 31  
(Dollars in millions)
  2011     2010  
 
Assets under management
  $ 660,928     $ 630,498  
Brokerage assets
    1,066,078       1,077,049  
Assets in custody
    116,499       115,033  
Deposits
    255,580       257,982  
Loans and leases
    102,878       100,724  
 
Total client balances
  $ 2,201,963     $ 2,181,286  
 

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All Other
                                                 
    Three Months Ended June 30           Six Months Ended June 30    
(Dollars in millions)
  2011   2010   % Change   2011   2010   % Change
 
Net interest income (1)
  $ (167 )   $ 77       n/m     $ (74 )   $ 118       n/m  
Noninterest income:
                                               
Equity investment income
    1,139       2,253       (49 )%     2,547       2,765       (8 )%
Gains on sales of debt securities
    831       14       n/m       1,299       662       96  
All other income (loss)
    62       783       (92 )     (780 )     905       n/m  
                     
Total noninterest income
    2,032       3,050       (33 )     3,066       4,332       (29 )
                     
Total revenue, net of interest expense
    1,865       3,127       (40 )     2,992       4,450       (33 )
 
                                               
Provision for credit losses
    1,663       1,246       33       3,462       2,466       40  
Merger and restructuring charges
    159       508       (69 )     361       1,029       (65 )
All other noninterest expense
    157       605       (74 )     1,449       1,814       (20 )
                     
Income (loss) before income taxes
    (114 )     768       n/m       (2,280 )     (859 )     (165 )
Income tax expense (benefit) (1)
    102       (355 )     n/m       (848 )     (1,192 )     29  
                     
Net income (loss)
  $ (216 )   $ 1,123       n/m     $ (1,432 )   $ 333       n/m  
                     
 
                                               
Balance Sheet
                                               
 
                                               
Average
                                               
Total loans and leases
  $ 258,397     $ 257,322       -     $ 258,374     $ 256,742       1  
Total assets (2)
    167,364       291,530       (43 )     183,289       300,395       (39 )
Total deposits
    46,684       64,709       (28 )     47,642       67,770       (30 )
Allocated equity (3)
    73,244       29,091       152       67,030       24,475       174  
                                                 
                                     
                            June 30   December 31        
Period end
                          2011   2010        
                                     
Total loans and leases
                          $ 259,285     $ 254,516       2  
Total assets (2)
                            209,210       243,099       (14 )
Total deposits
                            42,355       57,424       (26 )
 
(1)   FTE basis
 
(2)  
Includes elimination of segments’ excess asset allocations to match liabilities (i.e., deposits) of $676.7 billion and $672.3 billion for the three and six months ended June 30, 2011 compared to $611.2 billion and $600.1 billion for the same periods in 2010, and $629.6 billion and $647.3 billion at June 30, 2011 and December 31, 2010.
 
(3)  
Represents the risk-based capital assigned to All Other as well as the remaining portion of equity not specifically allocated to the segments. Allocated equity increased due to excess capital not being assigned to the business segments.
     All Other consists of two broad groupings, Equity Investments and Other. Equity Investments includes Global Principal Investments (GPI), Strategic and other investments, and Corporate Investments. In the second quarter of 2011, we sold our investment in BlackRock, previously included in Strategic and other investments. During 2010, we sold the equity investments in Corporate Investments. Other includes liquidating businesses, merger and restructuring charges, ALM functions (i.e., residential mortgage portfolio and investment securities) and related activities (i.e., economic hedges and fair value option on structured liabilities), the impact of certain allocation methodologies and any accounting hedge ineffectiveness. Other includes certain residential mortgage and discontinued real estate loans that are managed by Legacy Asset Servicing within CRES. For additional information on the other activities included in All Other, see Note 26 – Business Segment Information to the Consolidated Financial Statements of the Corporation’s 2010 Annual Report on Form 10-K.
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
     All Other reported a net loss of $216 million compared to net income of $1.1 billion due to lower revenue and higher provision for credit losses. The decrease in revenue was driven by a $1.1 billion decrease in equity investment income (see Equity Investment Activity on page 50) and lower positive fair value adjustments of $214 million on structured liabilities compared to $1.2 billion. Additionally, a $500 million impairment write-down on our merchant services joint venture during the three months ended June 30, 2011 contributed to the decrease in revenue. These were partially offset by an $817 million increase in gains on sales of debt securities. Also, merger and restructuring charges decreased $349 million as integration efforts with the Merrill Lynch acquisition continue to progress as planned.
     Provision for credit losses increased $417 million to $1.7 billion driven primarily by reserve additions to the Countrywide PCI discontinued real estate and residential mortgage portfolios due to the impact of further declines in the home price outlook and higher credit costs related to the non-PCI residential mortgage portfolio driven by the impact of refreshed valuations of underlying collateral.

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     Income tax expense was $102 million compared to a benefit of $355 million for the same period in 2010. The current-period expense reflects the residual tax expense after allocation of tax benefits to the segments.
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
     All Other reported a net loss of $1.4 billion compared to net income of $333 million due to lower revenue and higher provision for credit losses. The decrease in revenue was driven by negative fair value adjustments of $372 million on structured liabilities compared to positive fair value adjustments of $1.4 billion, and a $218 million decrease in equity investment income (see Equity Investment Activity below). These were partially offset by a $637 million increase in gains on sales of debt securities. Also, merger and restructuring charges decreased $668 million.
     Provision for credit losses increased $996 million to $3.5 billion driven by reserve additions to the Countrywide PCI discontinued real estate and residential mortgage portfolios. These increases were partially offset by lower provision for credit losses related to the non-PCI residential mortgage portfolio due to improving delinquencies in early 2011.
     The income tax benefit was $848 million compared to $1.2 billion for the same period in 2010 driven by the factors described above.
Equity Investment Activity
     The tables below present the components of the equity investments in All Other at June 30, 2011 and December 31, 2010, and also a reconciliation to the total consolidated equity investment income for the three and six months ended June 30, 2011 and 2010.
                 
Equity Investments
    June 30   December 31
(Dollars in millions)
  2011   2010
 
Global Principal Investments
  $ 10,805     $ 11,656  
Strategic and other investments
    20,190       22,545  
 
Total equity investments included in All Other
  $ 30,995     $ 34,201  
 
                                 
Equity Investment Income
    Three Months Ended June 30     Six Months Ended June 30  
(Dollars in millions)
  2011   2010   2011   2010
 
Global Principal Investments
  $ 399     $ 814     $ 1,764     $ 1,391  
Strategic and other investments
    740       1,433       783       1,679  
Corporate Investments
          6             (305 )
 
Total equity investment income included in All Other
    1,139       2,253       2,547       2,765  
Total equity investment income included in the business segments
    73       513       140       626  
 
Total consolidated equity investment income
  $ 1,212     $ 2,766     $ 2,687     $ 3,391  
 
     GPI is comprised of a diversified portfolio of investments in private equity, real estate and other alternative investments. These investments are made either directly in a company or held through a fund with related income recorded in equity investment income. GPI had unfunded equity commitments of $1.1 billion and $1.4 billion at June 30, 2011 and December 31, 2010 related to certain of these investments. During the six months ended June 30, 2011, we recorded a $1.1 billion gain related to an IPO of an equity investment, which occurred in the first quarter of 2011.
     Strategic and other investments is primarily comprised of our investment in CCB of $19.6 billion, which decreased by $176 million from December 31, 2010 due to a decline in the CCB share price. At June 30, 2011, we owned approximately 10 percent, or 25.6 billion common shares of CCB. In the three months ended June 30, 2011, we recorded an $837 million dividend on our investment in CCB compared to a $535 million dividend in the same period in 2010. Also in the three months ended June 30, 2011, we sold our investment in BlackRock, resulting in a $377 million gain and recorded an impairment write-down of $500 million on our merchant services joint venture, Banc of America Merchant Services, LLC. After the recent transfer of the merchant services joint venture to Global Commercial Banking during the first quarter of 2011, the write-down was taken in All Other for management accounting purposes. In the three months ended March 31, 2010, the $2.7 billion Corporate Investments equity securities portfolio, which consisted of highly liquid publicly-traded equity securities, was sold resulting in a loss of $331 million. In the three months ended June 30, 2010, we sold certain strategic investments, resulting in a net gain of $751 million. For additional information on certain Corporate and Strategic Investments, see Note 5 – Securities to the Consolidated Financial Statements.

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Off-Balance Sheet Arrangements and Contractual Obligations
     We have contractual obligations to make future payments on debt and lease agreements. Additionally, in the normal course of business, we enter into a number of off-balance sheet commitments including commitments to extend credit such as loan commitments, standby letters of credit (SBLCs) and commercial letters of credit to meet the financing needs of our customers. For additional information on our obligations and commitments, see Note 11 – Commitments and Contingencies to the Consolidated Financial Statements, page 51 of the MD&A of the Corporation’s 2010 Annual Report on Form 10-K, as well as Note 13 – Long-term Debt and Note 14 – Commitments and Contingencies to the Consolidated Financial Statements of the Corporation’s 2010 Annual Report on Form 10-K.
Representations and Warranties
     We securitize first-lien residential mortgage loans generally in the form of MBS guaranteed by the GSEs or by Government National Mortgage Association (GNMA) in the case of the FHA-insured and U.S. Department of Veterans Affairs-guaranteed mortgage loans. In addition, in prior years, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations (in certain of these securitizations, monolines or financial guarantee providers insured all or some of the securities), or in the form of whole loans. In connection with these transactions, we or our subsidiaries or legacy companies make or have made various representations and warranties. Breaches of these representations and warranties may result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies to the GSEs, GNMA, whole-loan buyers, securitization trusts, monoline insurers or other financial guarantors (collectively, repurchases). In such cases, we would be exposed to any credit loss on the repurchased mortgage loans.
     Subject to the requirements and limitations of the applicable sales and securitization agreements, these representations and warranties can be enforced by the GSEs, GNMA, the whole-loan buyer, the securitization trustee, or others as governed by the applicable agreement or, in certain first-lien and home equity securitizations where monoline insurers or other financial guarantee providers have insured all or some of the securities issued, by the monoline insurer or other financial guarantor at any time. In the case of loans sold to parties other than the GSEs or GNMA, the contractual liability to repurchase typically arises only if there is a breach of the representations and warranties that materially and adversely affects the interest of the investor, or investors, in the loan, or of the monoline insurer or other financial guarantor (as applicable). Contracts with the GSEs and GNMA do not contain an equivalent requirement.
     For additional information about accounting for representations and warranties and our representations and warranties claims and exposures, see Recent Events – Private-label Securitization Settlement with the Bank of New York Mellon, Complex Accounting Estimates – Representations and Warranties, Note 9 – Representations and Warranties Obligations and Corporate Guarantees and Note 11 – Commitments and Contingencies to the Consolidated Financial Statements, Item 1A. Risk Factors on page 219 and Item 1A. Risk Factors of the Corporation’s 2010 Annual Report on Form 10-K.
Representations and Warranties Bulk Settlement Actions
     Beginning in the fourth quarter of 2010, we have settled, or entered into agreements to settle, certain bulk representations and warranties claims, and in certain settlements bulk servicing claims, with a trustee, a monoline insurer and with the GSEs. We have contested, and will continue to vigorously contest any request for repurchase when we conclude that a valid basis for repurchase does not exist. However, in an effort to resolve these legacy mortgage-related issues, we have reached bulk settlements, or agreements for bulk settlements, including settlement amounts which have been material, with certain of the above referenced counterparties in lieu of a loan-by-loan review process. We may reach other settlements in the future if opportunities arise on terms determined to be advantageous to us. The following discussion is a summary of the significant settlement actions we have taken beginning in the fourth quarter of 2010 and the related impact on the representations and warranties provision and liability.
Settlement with the Bank of New York Mellon, as Trustee
     On June 28, 2011, we, BAC HLS and certain legacy Countrywide affiliates entered into the BNY Mellon Settlement. The Covered Trusts referenced in the BNY Mellon Settlement had an original principal balance of approximately $424 billion, of which $409 billion was originated between 2004 and 2008, and a total current unpaid principal balance of approximately $220 billion at June 28, 2011, of which $217 billion was originated between 2004 and 2008.
     The BNY Mellon Settlement is supported by the Investor Group. As previously disclosed, in October 2010, BAC HLS received a letter from a law firm on behalf of certain members of the Investor Group alleging a servicer event of default and asserting breaches of certain loan servicing obligations, including an alleged failure to provide notice to the

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Trustee and other parties to the pooling and servicing agreements of breaches of representations and warranties with respect to the mortgage loans included in certain of the Covered Trusts. In connection with the BNY Mellon Settlement, we entered into an agreement with the Investor Group, which provides that, among other things, the Investor Group will use reasonable best efforts and cooperate in good faith to effectuate the BNY Mellon Settlement, including obtaining final court approval.
     The BNY Mellon Settlement provides for the Settlement Payment of $8.5 billion to the Trustee for distribution to the Covered Trusts after final court approval of the BNY Mellon Settlement. In addition to the Settlement Payment, we are obligated to pay attorneys’ fees and costs to the Investor Group’s counsel as well as all fees and expenses incurred by the Trustee in connection with the BNY Mellon Settlement, which are currently estimated at $100 million. We are also obligated to pay the Investor Group’s counsel and the Trustees’ fees and expenses related to obtaining final court approval of the BNY Mellon Settlement and certain tax rulings.
     The BNY Mellon Settlement also includes provisions related to specific mortgage servicing standards and other servicing matters, including the transfer of servicing related to certain high-risk loans to qualified subservicers and the benchmarking of loan servicing against defined industry standards regarding default-servicing timelines. For additional information about the servicing matters, see Off-Balance Sheet Arrangements and Contractual Obligations – Other Mortgage-related Matters on page 60.
     The BNY Mellon Settlement does not cover a small number of legacy Countrywide-issued first-lien non-GSE RMBS transactions with loans originated principally between 2004 and 2008, including for example, six legacy Countrywide-issued first-lien non-GSE RMBS transactions in which BNY Mellon is not the trustee. The BNY Mellon Settlement also does not cover legacy Countrywide-issued second-lien securitization transactions in which a monoline insurer or other financial guarantor provides financial guaranty insurance. In addition, because the BNY Mellon Settlement is with the Trustee on behalf of the Covered Trusts and releases rights under the governing agreements for the Covered Trusts, the BNY Mellon Settlement does not release investors’ securities law or fraud claims based upon disclosures made in connection with their decision to purchase, sell, or hold securities issued by the Covered Trusts. To date, various investors, including certain members of the Investor Group, are pursuing securities law or fraud claims related to one or more of the Covered Trusts. We are not able to determine whether any additional securities law or fraud claims will be made by investors in the Covered Trusts. For those Covered Trusts where a monoline insurer or other financial guarantor has an independent right to assert repurchase claims directly, the BNY Mellon Settlement does not release such insurer’s or guarantor’s repurchase claims.
     The BNY Mellon Settlement is subject to final court approval and other conditions. The Trustee has determined that the BNY Mellon Settlement is in the best interests of the Covered Trusts and is seeking the necessary court approval of the BNY Mellon Settlement by commencing a judicial proceeding in New York State court requesting that the court approve the BNY Mellon Settlement as to all the Covered Trusts (the Article 77 Proceeding). The court has signed an order providing that notice of the settlement terms be provided to certificateholders and noteholders in the Covered Trusts. Under the court’s order, certificateholders and noteholders in the Covered Trusts have the opportunity to file objections until August 30, 2011 and responses to those objections and statements in support of the BNY Mellon Settlement until October 31, 2011. The Investor Group has filed, and the court has granted, a petition to intervene as a party in the Article 77 Proceeding so that it may support the BNY Mellon Settlement. The court is scheduled to hold a hearing on the Trustee’s request for entry of an order approving the BNY Mellon Settlement on November 17, 2011.
     Given the number of Covered Trusts, the number of investors in those Covered Trusts and the complexity of the BNY Mellon Settlement, it is not possible to predict how many investors will seek to intervene in the court proceeding, how many of those and other investors may ultimately object to the BNY Mellon Settlement, or the timing or ultimate outcome of the court approval process, which can include appeals and could take a substantial period of time. Several alleged investors outside the Investor Group have filed, and the court has granted, petitions to intervene as parties in the pending court proceeding. Certain of these intervenors have stated that they intend to object to the BNY Mellon Settlement, while others have said that they need more information in order to determine whether to object, and indicated that they therefore intend to seek discovery. In addition, it is possible that a substantial number of additional investors outside the Investor Group will also seek to intervene as parties, and some intervenors and other investors may object to the BNY Mellon Settlement. The resolutions of the objections of intervenors and/or other investors who object may delay or ultimately prevent receipt of final court approval. If final court approval is not obtained by December 31, 2015, we and legacy Countrywide may withdraw from the BNY Mellon Settlement, if the Trustee consents. The BNY Mellon Settlement also provides that if Covered Trusts representing unpaid principal balance exceeding a specified amount are excluded from the final BNY Mellon Settlement, based on investor objections or otherwise, we and legacy Countrywide have the option to withdraw from the BNY Mellon Settlement pursuant to the terms of the BNY Mellon Settlement agreement.

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     In addition to final court approval, the BNY Mellon Settlement is conditioned on receipt of private letter rulings from the IRS as well as receipt of legal opinions under California and New York state tax laws and regulations. While there can be no assurance that such rulings or opinions will be obtained, we currently anticipate that the process related to these conditions will be completed during the period prior to final court approval.
     There can be no assurance that final court approval of the BNY Mellon Settlement will be obtained, that all conditions will be satisfied or, if certain conditions to the BNY Mellon Settlement permitting withdrawal are met, that we and legacy Countrywide will not determine to withdraw from the settlement. If final court approval is not obtained or if we and legacy Countrywide determine to withdraw from the BNY Mellon Settlement in accordance with its terms, our future representations and warranties losses could be substantially different than existing accruals and the estimated range of possible loss over existing accruals described under Experience with Investors Other than Government-sponsored Enterprises on page 57. For more information about the risks associated with the BNY Mellon Settlement, see Item 1A. Risk Factors on page 219.
Settlement with Assured Guaranty
     On April 14, 2011, we, including certain legacy Countrywide affiliates, entered into an agreement with Assured Guaranty, to resolve all of this monoline insurer’s outstanding and potential repurchase claims related to alleged representations and warranties breaches involving 29 first- and second-lien RMBS trusts where Assured Guaranty provided financial guarantee insurance (the Assured Guaranty Settlement). The agreement also resolves historical loan servicing issues and other potential liabilities with respect to these trusts. The agreement covers 21 first-lien RMBS trusts and eight second-lien RMBS trusts, which had an original principal balance of approximately $35.8 billion and total unpaid principal balance of approximately $20.2 billion as of April 14, 2011. The agreement includes cash payments totaling approximately $1.1 billion to Assured Guaranty, as well as a loss-sharing reinsurance arrangement that has an expected value of approximately $470 million, and other terms, including termination of certain derivative contracts. The cash payments consist of $850 million paid on April 14, 2011, $57 million paid on June 30, 2011 and the remainder payable in three equal installments at the end of each quarter through March 31, 2012. The total cost recognized for the Assured Guaranty Settlement as of June 30, 2011 was approximately $1.6 billion. As a result of this agreement, we consolidated $5.2 billion in consumer loans and the related trust debt on our Consolidated Balance Sheet as of June 30, 2011 due to the establishment of reinsurance contracts at the time of the Assured Guaranty Settlement. For additional information, see Consumer Credit Risk – Consumer Loans Accounted for Under the Fair Value Option on page 90.
Government-sponsored Enterprises Agreements
     On December 31, 2010, we reached separate agreements with each of the GSEs under which we paid $2.8 billion to resolve repurchase claims involving certain first-lien residential mortgage loans sold to the GSEs by entities related to legacy Countrywide (the GSE Agreements). The agreement with FHLMC extinguished all outstanding and potential mortgage repurchase and make-whole claims arising out of any alleged breaches of selling representations and warranties related to loans sold directly by legacy Countrywide to FHLMC through 2008, subject to certain exceptions. The agreement with FNMA substantially resolved the existing pipeline of repurchase and make-whole claims outstanding as of September 20, 2010 arising out of alleged breaches of selling representations and warranties related to loans sold directly by legacy Countrywide to FNMA. For additional information about these agreements, see Note 9 – Representations and Warranties Obligations and Corporate Guarantees and Note 11 – Commitments and Contingencies to the Consolidated Financial Statements, and Item 1A. Risk Factors of the Corporation’s 2010 Annual Report on Form 10-K.
Unresolved Claims Status
     At June 30, 2011, our total unresolved repurchase claims were approximately $11.6 billion compared to $10.7 billion at December 31, 2010. These repurchase claims include $1.7 billion in demands from investors in the Covered Trusts received in the third quarter of 2010 but otherwise do not include any repurchase claims related to the Covered Trusts. The increase in unresolved claims is primarily attributable to an increase in new claims submitted by the GSEs for both legacy Countrywide originations not covered by the GSE Agreements and legacy Bank of America originations, in addition to an increase in the volume of claims appealed by us and awaiting review and response from one GSE. This increase in unresolved claims was partially offset by resolution of certain monoline claims through the Assured Guaranty Settlement discussed above.

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Representations and Warranties Liability
     The liability for representations and warranties and corporate guarantees is included in accrued expenses and other liabilities on the Consolidated Balance Sheet and the related provision is included in mortgage banking income (loss). The methodology used to estimate the liability for representations and warranties is a function of the representations and warranties given and considers a variety of factors, which include depending on the counterparty, actual defaults, estimated future defaults, historical loss experience, estimated home prices, other economic conditions, estimated probability that a repurchase claim will be received, consideration of whether presentation thresholds will be met, number of payments made by the borrower prior to default and estimated probability that a loan will be required to be repurchased as well as other relevant facts and circumstances, such as bulk settlements and identity of the counterparty or type of counterparty, as we believe appropriate. The estimate of the liability for representations and warranties is based on currently available information, significant judgment and a number of factors, including those set forth above, that are subject to change. Changes to any one of these factors could significantly impact the estimate of the liability and could have a material adverse impact on our results of operations for any particular period.
     At June 30, 2011 and December 31, 2010, the liability was $17.8 billion and $5.4 billion. For the three and six months ended June 30, 2011, the provision for representations and warranties and corporate guarantees was $14.0 billion and $15.1 billion compared to $1.2 billion and $1.8 billion for the same periods in 2010. Of the $14.0 billion provision recorded in the three months ended June 30, 2011, $8.6 billion was attributable to the BNY Mellon Settlement and $5.4 billion was attributable to other non-GSE exposures, and to a lesser extent, GSE exposures. The BNY Mellon Settlement led to the determination that we now have sufficient experience to record a liability related to our exposure on certain other private-label securitizations. This determination, combined with changes in our experience with the behavior of certain counterparties, including the GSEs, in the first six months of 2011, was the driver of this additional provision. A significant factor in the estimate of the liability for losses is the repurchase rate, which increased in both the three and six months ended June 30, 2011.
     Our liability at June 30, 2011 for obligations under representations and warranties given to the GSEs considers, among other things, higher estimated repurchase rates based on recent higher than expected claims, including claims on loans that defaulted more than 18 months ago and on loans where the borrower has made a significant number of payments (e.g., at least 25 payments), in each case in numbers that were not expected based on historical claims during the three and six months ended June 30, 2011. It also considers the GSE Agreements and their expected impact on the repurchase rates on future repurchase claims we might receive on loans that have defaulted or that we estimate will default.
Estimated Range of Possible Loss
Government-sponsored Enterprises
     Our estimated liability for obligations under representations and warranties with respect to the GSEs is necessarily dependent on, and limited by, our historical claims experience with the GSEs and may materially change in the future based on factors outside our control. We believe our predictive repurchase models, utilizing our historical repurchase experience with the GSEs while considering current developments, including the GSE Agreements and recent GSE behavior, projections of future defaults as well as certain other assumptions regarding economic conditions, home prices and other matters, allow us to reasonably estimate the liability for obligations under representations and warranties on loans sold to the GSEs and our estimate of the liability for these obligations has been accounted for in the recorded liability for representations and warranties for these loans. However, future provisions associated with obligations under representations and warranties made to the GSEs may be materially impacted if actual results are different from our assumptions regarding economic conditions, home prices and other matters, including the repurchase behavior of the GSEs and the estimated repurchase rates. While we have an established history of working with the GSEs on repurchase claims, our experience with them continues to evolve and impact our estimated repurchase rates and liability. In addition, the recent FNMA announcement regarding mortgage insurance rescissions, cancellations and claim denials could result in increased repurchase requests from FNMA that exceed the repurchase requests contemplated by our estimated liability.
     We are not able to anticipate changes in the behavior of the GSEs from our past experiences. Therefore, it is not possible to reasonably estimate a possible loss or range of possible loss with respect to any such potential impact in excess of current accruals on future GSE provisions if the behavior of the GSEs changes from past experience. See Complex Accounting Estimates – Representations and Warranties on page 123 for information related to the sensitivity of the assumptions used to estimate our liability for obligations under representations and warranties.

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Non-Government-sponsored Enterprises
     As discussed on page 51, the population of private-label securitizations included in the BNY Mellon Settlement encompasses almost all legacy Countrywide first-lien private-label securitizations including loans originated principally in the 2004 through 2008 vintage. For the remainder of the population of private-label securitizations, although we believe it is probable that other claimants may come forward with claims that meet the requirements of the terms of the securitizations, we have experienced limited activity that has met the standards required. We believe that the provisions recorded in connection with the BNY Mellon Settlement and the additional non-GSE representations and warranties provisions recorded in the three and six months ended June 30, 2011, have provided for a substantial portion of our non-GSE repurchase claims. However, it is reasonably possible that future representations and warranties losses may occur in excess of the amounts recorded for these exposures. In addition, as discussed below, we have not recorded any representations and warranties liability for certain potential monoline exposures and certain potential whole loan and other private-label securitization exposures. We currently estimate that the range of possible loss related to non-GSE representations and warranties exposure as of June 30, 2011 could be up to $5 billion over existing accruals. This estimate of the range of possible loss for non-GSE representations and warranties does not represent a probable loss, is based on currently available information, significant judgment, and a number of assumptions, including the assumption that the conditions to the BNY Mellon Settlement are satisfied and those set forth below, that are subject to change.
     The methodology used to estimate the non-GSE representations and warranties liability and the corresponding range of possible loss considers a variety of factors including our experience related to actual defaults, estimated future defaults and historical loss experience. Among the factors that impact the non-GSE representations and warranties liability and the corresponding estimated range of possible loss are: (1) contractual loss causation requirements, (2) the representations and warranties provided, and (3) the requirement to meet certain presentation thresholds. The first factor is based on our belief that a non-GSE contractual liability to repurchase a loan generally arises only if the counterparties prove there is a breach of representations and warranties that materially and adversely affects the interest of the investor or all investors, or the monoline insurer (as applicable), in a securitization trust and, accordingly, we believe that the repurchase claimants must prove that the alleged representations and warranties breach was the cause of the loss. The second factor is related to the fact that non-GSE securitizations include different types of representations and warranties than those provided to the GSEs. We believe the non-GSE securitizations’ representations and warranties are less rigorous and actionable than the comparable agreements with the GSEs. The third factor is related to the fact that certain presentation thresholds need to be met in order for any repurchase claim to be asserted under the non-GSE agreements. A securitization trustee may investigate or demand repurchase on its own action, and most agreements contain a threshold, for example 25 percent of the voting rights per trust, that allows investors to declare a servicing event of default under certain circumstances or to request certain action, such as requesting loan files, that the trustee may choose to accept and follow, exempt from liability, provided the trustee is acting in good faith. If there is an uncured servicing event of default, and the trustee fails to bring suit during a 60-day period, then, under most agreements, investors may file suit. In addition to this, most agreements also allow investors to direct the securitization trustee to investigate loan files or demand the repurchase of loans, if security holders hold a specified percentage, for example, 25 percent, of the voting rights of each tranche of the outstanding securities.
     The methodology used to estimate the non-GSE representations and warranties liability and the corresponding range of possible loss was updated in the second quarter of 2011 to consider the implied repurchase experience based on the BNY Mellon Settlement and assumes that the conditions to the BNY Mellon Settlement are satisfied. It also considers our assumptions regarding economic conditions, including estimated second quarter 2011 home prices. Since the non-GSE transactions that were included in the BNY Mellon Settlement differ from those that were not included in the BNY Mellon Settlement, we adjusted the experience implied in the settlement in order to determine the estimated non-GSE representations and warranties liability and the corresponding range of possible loss. The judgmental adjustments made include consideration of the differences in the mix of products in the securitizations, loan originator, likelihood of claims differences, the differences in the number of payments that the borrower has made prior to default, and the sponsor of the securitization. Although we continue to believe that presentation thresholds, as described above, are a factor in the determination of probable loss, given the BNY Mellon Settlement, the upper end of the estimated range of possible loss assumes that the presentation threshold can be met for all of the non-GSE securitization transactions.
     Future provisions and/or ranges of possible loss for non-GSE representations and warranties may be significantly impacted if actual results are different from our assumptions in our predictive models, including, without limitation, those regarding ultimate resolution of the BNY Mellon Settlement, estimated repurchase rates, economic conditions, home prices, consumer and counterparty behavior, and a variety of judgmental factors. Adverse developments with respect to one or more of the assumptions underlying the liability for representations and warranties and the corresponding estimated range of possible loss could result in significant increases to future provisions and this estimated range of possible loss. For example, if courts were to disagree with our interpretation that the underlying agreements require a claimant to prove that the representations and warranties breach was the cause of the loss, it could

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significantly impact this estimated range of possible loss. Additionally, if recent court rulings related to monoline litigation, including one related to us, that have allowed sampling of loan files instead of a loan-by-loan review to determine if a representations and warranties breach has occurred are followed generally by the courts, private-label securitization investors may view litigation as a more attractive alternative as compared to a loan-by-loan review. Finally, although we believe that the representations and warranties typically given in non-GSE transactions are less rigorous and actionable than those given in GSE transactions, we do not have significant loan-level experience to measure the impact of these differences on the probability that a loan will be required to be repurchased.
     The liability for obligations under representations and warranties with respect to GSE and non-GSE exposures and the corresponding estimated range of possible loss for non-GSE representations and warranties exposures do not include any losses related to litigation matters disclosed in Note 11 – Commitments and Contingencies to the Consolidated Financial Statements, nor do they include any separate foreclosure costs and related costs and assessments or any possible losses related to potential claims for breaches of performance of servicing obligations, potential securities law or fraud claims or potential indemnity or other claims against us. We are not able to reasonably estimate the amount of any possible loss with respect to any such servicing, securities law (except to the extent reflected in the aggregate range of possible loss for litigation and regulatory matters disclosed in Note 11 – Commitments and Contingencies to the Consolidated Financial Statements), fraud or other claims against us; however, such loss could be material.
Government-sponsored Enterprises Experience
     Our current repurchase claims experience with the GSEs is predominantly concentrated in the 2004 through 2008 origination vintages where we believe that our exposure to representations and warranties liability is most significant. Our repurchase claims experience related to loans originated prior to 2004 has not been significant and we believe that the changes made to our operations and underwriting policies have reduced our exposure related to loans originated after 2008. The cumulative repurchase claims for 2007 originations exceed all other vintages as the volume of loans originated in 2007 was significantly higher than any other vintage which, together with the high delinquency level in this vintage, contributes to the high level of repurchase claims compared to the other vintages.
     Bank of America and legacy Countrywide sold approximately $1.1 trillion of loans originated from 2004 through 2008 to the GSEs. As of June 30, 2011, 11 percent of the loans in these vintages have defaulted or are 180 days or more past due (severely delinquent). At least 25 payments have been made on approximately 61 percent of severely delinquent or defaulted loans. Through June 30, 2011, we have received $27.7 billion in repurchase claims associated with these vintages, representing approximately two percent of the loans sold to the GSEs in these vintages. Including the agreement reached with FNMA on December 31, 2010, we have resolved $22.0 billion of these claims with a net loss experience of approximately 30 percent. The claims resolved and the loss rate do not include $839 million in claims extinguished as a result of the agreement with FHLMC due to the global nature of the agreement and, specifically, the absence of a formal apportionment of the agreement amount between current and future claims. Our collateral loss severity rate on approved repurchases has averaged approximately 45 to 55 percent.

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     Table 14 highlights our experience with the GSEs related to loans originated from 2004 through 2008.
  Table 14
                                 
Overview of GSE Balances – 2004-2008 Originations
    Legacy Originator
                            Percent of
(Dollars in billions)
  Countrywide   Other   Total   total
 
Original funded balance
  $ 846     $ 272     $ 1,118          
Principal payments
    (431 )     (144 )     (575 )        
Defaults
    (43 )     (6 )     (49 )        
 
Total outstanding balance at June 30, 2011
  $ 372     $ 122     $ 494          
 
Outstanding principal balance 180 days or more past due (severely delinquent)
  $ 58     $ 13     $ 71          
Defaults plus severely delinquent
    101       19       120          
 
Payments made by borrower:
                               
Less than 13
                  $ 15       13 %
13-24
                    31       26  
25-36
                    35       29  
More than 36
                    39       32  
 
Total payments made by borrower
                  $ 120       100 %
 
Outstanding GSE pipeline of representations and warranties claims (all vintages)
                               
As of December 31, 2010
                  $ 2.8          
As of June 30, 2011
                    5.1          
Cumulative GSE representations and warranties losses (2004-2008 vintages)
                  $ 7.8          
 
     We have an established history of working with the GSEs on repurchase claims. However, the behavior of the GSEs continues to evolve. Notably in recent periods, we have been experiencing elevated levels of new claims, including claims on default vintages and loans in which borrowers have made a significant number of payments (e.g., at least 25 payments), in each case, in numbers that were not expected based on historical experience. Additionally, the criteria by which the GSEs are ultimately willing to resolve claims have become more rigid over time.
     FNMA recently issued an announcement requiring servicers to report, effective October 1, 2011, all mortgage insurance rescissions, cancellations and claim denials with respect to loans sold to FNMA. The announcement also confirmed FNMA’s position that a mortgage insurance company’s issuance of a rescission, cancellation notice or claim denial constitutes a breach of the lender’s representations and warranties and permits FNMA to require the lender to repurchase the mortgage loan or promptly remit a make-whole payment covering FNMA’s loss even if the lender is contesting the mortgage insurer’s rescission cancellation or claim denial. Through June 30, 2012, lenders have 90 days to appeal FNMA’s repurchase request and 30 days (or such other time frame specified by FNMA) to appeal after that date. To be successful in its appeal, a lender must provide documentation confirming reinstatement or continuation of coverage according to the FNMA announcement. This announcement could result in more repurchase requests from FNMA than the assumptions in our estimated liability contemplate. We also expect that in many cases (particularly in the context of litigation), we will not be able to resolve rescissions, cancellations or claim denials with the mortgage insurance companies before the expiration of the appeal period allowed by FNMA and, as a result, our representations and warranties liability may increase.
Experience with Investors Other than Government-sponsored Enterprises
     In prior years, legacy companies and certain subsidiaries have sold pools of first-lien mortgage loans and home equity loans as private-label securitizations or in the form of whole loans. As detailed in Table 15, legacy companies and certain subsidiaries sold loans originated from 2004 through 2008 with an original principal balance of $963 billion to investors other than GSEs, of which approximately $495 billion in principal has been paid and $229 billion has defaulted or are severely delinquent at June 30, 2011.
     As it relates to private-label securitizations, a contractual liability to repurchase mortgage loans generally arises only if counterparties prove there is a breach of the representations and warranties that materially and adversely affects the interest of the investor or all investors in a securitization trust or of the monoline insurer or other financial guarantor (as applicable). We believe that the longer a loan performs, the less likely it is that an alleged representations and warranties breach had a material impact on the loan’s performance or that a breach even exists. Because the majority of the borrowers in this population would have made a significant number of payments if they are not yet 180 days or more past due, we believe that the principal balance at the greatest risk for repurchase claims in this population of private-label securitization investors is a combination of loans that have already defaulted and those that are currently severely delinquent. Additionally, the obligation to repurchase loans also requires that counterparties have the contractual right to demand repurchase of the loans (presentation thresholds). While we believe the agreements for private-label securitizations generally contain less rigorous representations and warranties and place higher burdens on investors seeking repurchases than the comparable agreements with the GSEs and GNMA, the agreements generally include a representation that underwriting practices were prudent and customary.

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     Any amounts paid related to repurchase claims from a monoline insurer are paid to the securitization trust and are applied in accordance with the terms of the governing securitization documents, which may include use by the securitization trust to repay any outstanding monoline advances or reduce future advances from the monolines. To the extent that a monoline has not advanced funds or does not anticipate that it will be required to advance funds to the securitization trust, the likelihood of receiving a repurchase claim from a monoline may be reduced as the monoline would receive limited or no benefit from the payment of repurchase claims. Moreover, some monolines are not currently performing their obligations under the financial guaranty policies they issued which may, in certain circumstances, impact their ability to present repurchase claims.
     Table 15 details the population of loans originated between 2004 and 2008 and the population of loans sold as whole loans or in non-agency securitizations by entity and product together with the defaulted and severely delinquent loans stratified by the number of payments the borrower made prior to default or becoming severely delinquent at June 30, 2011. As shown in Table 15, at least 25 payments have been made on approximately 61 percent of the defaulted and severely delinquent loans. We believe many of the defaults observed in these securitizations have been, and continue to be, driven by external factors like the substantial depreciation in home prices, persistently high unemployment and other negative economic trends, diminishing the likelihood that any loan defect (assuming one exists at all) was the cause of a loan’s default. As of June 30, 2011, approximately 24 percent of the loans sold to non-GSEs that were originated between 2004 and 2008 have defaulted or are severely delinquent. Of the original principal balance for Countrywide, $409 billion is included in the BNY Mellon Settlement.
                                                                         
Table 15
 
Overview of Non-Agency Securitization and Whole Loan Balances
 
(Dollars in billions)
  Principal Balance                             Defaulted or Severely Delinquent  
                    Outstanding                                        
            Outstanding     Principal             Defaulted     Borrower Made     Borrower Made     Borrower Made     Borrower Made  
    Original     Principal Balance     Balance 180 Days     Defaulted     or Severely     less than 13     13 to 24     25 to 36     more than 36  
By Entity
  Principal Balance     June 30, 2011     or More Past Due     Principal Balance     Delinquent     Payments     Payments     Payments     Payments  
 
Bank of America
  $ 100     $ 31     $ 5     $ 3     $ 8     $ 1     $ 2     $ 2     $ 3  
Countrywide (1)
    716       271       87       90       177       24       45       47       61  
Merrill Lynch
    65       20       6       11       17       3       4       3       7  
First Franklin
    82       22       7       20       27       4       6       5       12  
 
Total (2, 3, 4)
  $ 963     $ 344     $ 105     $ 124     $ 229     $ 32     $ 57     $ 57     $ 83  
 
 
                                                                       
By Product
                                                                       
 
Prime
  $ 302     $ 111     $ 17     $ 13     $ 30     $ 2     $ 6     $ 8     $ 14  
Alt-A
    172       76       21       25       46       7       12       12       15  
Pay option
    150       61       30       24       54       5       14       16       19  
Subprime
    245       78       36       46       82       16       19       17       30  
Home equity
    88       16       -       16       16       2       5       4       5  
Other
    6       2       1       -       1       -       1       -       -  
 
Total
  $ 963     $ 344     $ 105     $ 124     $ 229     $ 32     $ 57     $ 57     $ 83  
 
(1)   $409 billion of original principal balance is included in the BNY Mellon Settlement.
 
(2)   Includes $185 billion of original principal balance related to transactions with monoline participation.
 
(3)   Excludes transactions sponsored by Bank of America and Merrill Lynch where no representation or warranties were made.
 
(4)   Includes exposures on third-party sponsored transactions related to legacy entity originations.
Monoline Insurers
     Legacy companies have sold $184.5 billion of loans originated between 2004 and 2008 into monoline-insured securitizations, which are included in Table 15, including $103.9 billion of first-lien mortgages and $80.6 billion of second-lien mortgages. Of these balances, $46.0 billion of the first-lien mortgages and $49.5 billion of the second-lien mortgages have been paid in full and $33.2 billion of the first-lien mortgages and $16.2 billion of the second-lien mortgages have defaulted or are severely delinquent at June 30, 2011. At least 25 payments have been made on approximately 57 percent of the defaulted and severely delinquent loans. Of the first-lien mortgages sold, $39.1 billion, or 38 percent, were sold as whole loans to other institutions which subsequently included these loans with those of other originators in private-label securitization transactions in which the monolines typically insured one or more securities. Through June 30, 2011, we have received $6.5 billion of representations and warranties claims related to the monoline-insured transactions. Of these repurchase claims, $2.0 billion were resolved through the Assured Guaranty Settlement, $829 million were resolved through repurchase or indemnification with losses of $727 million and $125 million were rescinded by the investor or paid in full. The majority of these resolved claims related to second-lien mortgages.

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Unresolved Monoline Repurchase Claims
     At June 30, 2011, for loans originated between 2004 and 2008, the unpaid principal balance of loans related to unresolved monoline repurchase claims was $3.5 billion, including $3.0 billion that have been reviewed where it is believed a valid defect has not been identified which would constitute an actionable breach of representations and warranties and $547 million that are in the process of review. At June 30, 2011, the unpaid principal balance of loans for which the monolines had requested loan files for review but for which no repurchase claim had been received was $6.1 billion, excluding loans that had been paid in full and file requests for loans included in the trusts settled with Assured Guaranty. There will likely be additional requests for loan files in the future leading to repurchase claims.
     We have had limited experience with the monoline insurers, other than Assured Guaranty, in the repurchase process as each of these monoline insurers has instituted litigation against legacy Countrywide and/or Bank of America, which limits our ability to enter into constructive dialogue with these monolines to resolve the open claims. It is not possible at this time to reasonably estimate probable future repurchase obligations with respect to those monolines with whom we have limited repurchase experience and, therefore, no representations and warranties liability has been recorded in connection with these monolines, other than a liability for repurchase claims where we have determined that there are valid loan defects. Our estimated range of possible loss related to non-GSE representations and warranties exposure as of June 30, 2011 includes possible losses related to these monoline insurers.
Whole Loans and Private-label Securitizations
     Legacy entities, and to a lesser extent Bank of America, sold whole loans to investors, and the majority of the sales were executed through private-label securitizations, including third-party sponsored transactions. The loans sold with total principal balance of $778.2 billion, included in Table 15, were originated between 2004 and 2008, of which $399.2 billion have been paid in full and $179.7 billion are defaulted or severely delinquent at June 30, 2011. In connection with these transactions, we provided representations and warranties, and the whole-loan investors may retain those rights even when the whole loans were aggregated with other collateral into private-label securitizations sponsored by the whole-loan investors. At least 25 payments have been made on approximately 62 percent of the defaulted and severely delinquent loans. We have received approximately $8.4 billion of representations and warranties claims from whole-loan investors and private-label securitization investors related to these vintages, including $5.9 billion from whole-loan investors, $819 million from one private-label securitization counterparty which were submitted prior to 2008 and $1.7 billion in claims from private-label securitization investors in the Covered Trusts received in the third quarter of 2010.
     We have resolved $5.6 billion of the claims received from whole-loan investors and private-label securitization investors with losses of $1.2 billion. Approximately $2.4 billion of these claims were resolved through repurchase or indemnification and $3.2 billion were rescinded by the investor. Claims outstanding related to these vintages totaled $2.8 billion at June 30, 2011, substantially all of which we have reviewed and declined to repurchase based on an assessment of whether a material breach exists.
     The majority of the claims that we have received outside of the GSEs and monolines are from third-party whole-loan investors. Certain whole-loan investors have engaged with us in a consistent repurchase process and we have used that experience to record a liability related to existing and future claims from such counterparties. The BNY Mellon Settlement led to the determination that we have sufficient experience to record a liability related to our exposure on certain other private-label securitizations as of June 30, 2011. However, the BNY Mellon Settlement did not provide sufficient experience related to certain private-label securitizations sponsored by third-party whole-loan investors. As it relates to certain private-label securitizations sponsored by third parties whole-loan investors and certain other whole loan sales, it is not possible to determine whether a loss has occurred or is probable and, therefore, no representations and warranties liability has been recorded in connection with these transactions. Our estimated range of possible loss related to non-GSE representations and warranties exposure as of June 30, 2011 includes possible losses related to these whole loan sales and private-label securitizations sponsored by third-party whole-loan investors.
     Private-label securitization investors generally do not have the contractual right to demand repurchase of loans directly or the right to access loan files. The inclusion of the $1.7 billion in outstanding claims does not mean that we believe these claims have satisfied the contractual thresholds required for these investors to direct the securitization trustee to take action or that these claims are otherwise procedurally or substantively valid. One of these claimants has filed litigation against us relating to certain of these claims; the claims in this litigation would be extinguished if there is final court approval of the BNY Mellon Settlement. Additionally, certain private-label securitizations are insured by the monoline insurers, which are not reflected in these amounts regarding whole loan sales and private-label securitizations.

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Other Mortgage-related Matters
Servicing Matters and Foreclosure Processes
     We service a large portion of the loans we or our subsidiaries have securitized and also service loans on behalf of third-party securitization vehicles and other investors. Servicing agreements with the GSEs generally provide the GSEs with broader rights relative to the servicer than are found in servicing agreements with private investors. For example, each GSE typically has the right to demand that the servicer repurchase loans that breach the seller’s representations and warranties made in connection with the initial sale of the loans even if the servicer was not the seller. The GSEs also reserve the contractual right to demand indemnification or loan repurchase for certain servicing breaches. In addition, our agreements with the GSEs and their first mortgage seller/servicer guides provide for timelines to resolve delinquent loans through workout efforts or liquidation, if necessary. In addition, many non-agency RMBS and whole-loan servicing agreements require the servicer to indemnify the trustee or other investor for or against failures by the servicer to perform its servicing obligations or acts or omissions that involve willful malfeasance, bad faith or gross negligence in the performance of, or reckless disregard of, the servicer’s duties.
     In October 2010, we voluntarily stopped taking residential mortgage foreclosure proceedings to judgment in states where foreclosure requires a court order following a legal proceeding (judicial states) and stopped foreclosure sales in all states in order to complete an assessment of related business processes. We have resumed foreclosure sales in all non-judicial states; however, while we have recently resumed foreclosure proceedings in nearly all judicial states, our progress on foreclosure sales in judicial states has been significantly slower than in non-judicial states. We have also not yet resumed foreclosure sales for certain types of customers, including those in bankruptcy and those with FHA-insured loans, although we have resumed foreclosure proceedings with respect to these types of customers. The implementation of changes in procedures and controls, including loss mitigation procedures related to our ability to recover on FHA insurance-related claims, as well as governmental, regulatory and judicial actions, may result in continuing delays in foreclosure proceedings and foreclosure sales, as well as creating obstacles to the collection of certain fees and expenses, in both judicial and non-judicial foreclosures.
     On April 13, 2011, we entered into a consent order with the Federal Reserve and BANA entered into a consent order with the Office of the Comptroller of the Currency (OCC) to address the regulators’ concerns about residential mortgage servicing practices and foreclosure processes. Also, on this date, the other 13 largest mortgage servicers in the U.S. separately entered into consent orders with their respective federal bank regulators related to residential mortgage servicing practices and foreclosure processes. The orders resulted from an interagency horizontal review conducted by federal bank regulators of major residential mortgage servicers. While federal bank regulators found that loans foreclosed upon had been generally considered for other alternatives (such as loan modifications), were seriously delinquent, and that servicers could support their standing to foreclose, several areas for process improvement requiring timely and comprehensive remediation across the industry were also identified. We identified most of these areas for process improvement after our own review in late 2010 and continue to make significant progress in these areas. The federal bank regulator consent orders with the mortgage servicers do not assess civil monetary penalties. However, the consent orders do not preclude the assertion of civil monetary penalties and a federal bank regulator has stated publicly that it believes monetary penalties are appropriate.
     The consent order with the OCC requires servicers to make several enhancements to their servicing operations, including implementation of a single point of contact model for borrowers throughout the loss mitigation and foreclosure processes, adoption of measures designed to ensure that foreclosure activity is halted once a borrower has been approved for a modification unless the borrower fails to make payments under the modified loan and implementation of enhanced controls over third-party vendors that provide default servicing support services. In addition, the consent order required that servicers retain an independent consultant, approved by the OCC, in order to conduct a review of all foreclosure actions pending, or foreclosure sales that occurred, between January 1, 2009 and December 31, 2010 and submit a plan to the OCC to remediate all financial injury to borrowers caused by any deficiencies identified through the review. The OCC accepted the independent consultant that we retained to conduct the foreclosure review. Additionally, we have submitted an action plan to the OCC which will undergo a period of review by the OCC. The OCC may require changes to the action plan, and may consider the ongoing negotiations with the DOJ and other federal and state authorities regarding foreclosure and servicing practices discussed below in its review of our action plan.
     In addition, law enforcement authorities in all 50 states and the DOJ and other federal agencies continue to investigate alleged irregularities in the foreclosure practices of residential mortgage servicers, including us. Authorities have publicly stated that the scope of the investigations extends beyond foreclosure documentation practices to mortgage loan modification and loss mitigation practices, including compliance with HUD requirements related to FHA-insured loans. We continue to cooperate with these investigations and are dedicating significant resources to address these issues. We and the

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other largest mortgage servicers continue to engage in ongoing negotiations regarding these matters with law enforcement authorities and federal agencies. The negotiations continue to focus on the amount of any settlement payment and settlement terms, including principal forgiveness, servicing standards, enforcement mechanisms and releases. Although we cannot be certain as to the ultimate outcome that may result from these negotiations or the timing of such outcome, the parties continue to make progress toward achieving a resolution of these matters.
     We continue to be subject to additional borrower and non-borrower litigation and governmental and regulatory scrutiny related to our past and current servicing and foreclosure activities. This scrutiny may extend beyond our pending foreclosure matters to issues arising out of alleged irregularities with respect to previously completed foreclosure activities. The current environment of heightened regulatory scrutiny has the potential to subject us to inquiries or investigations that could significantly adversely affect our reputation. Such investigations by state and federal authorities, as well as any other governmental or regulatory scrutiny of our foreclosure processes, could result in material fines, penalties, equitable remedies, additional default servicing requirements and process changes, or other enforcement actions, and could result in significant legal costs in responding to governmental investigations and additional litigation.
     In the three and six months ended June 30, 2011, we incurred $716 million and $1.6 billion of mortgage-related assessments and waivers costs which included $485 million and $1.0 billion for compensatory fees that we expect to be assessed by the GSEs as a result of foreclosure delays with the remainder being out-of-pocket costs that we do not expect to recover because of foreclosure delays. We incurred $230 million in the fourth quarter of 2010. We expect that these costs will remain elevated as additional loans are delayed in the foreclosure process and as the GSEs assert more aggressive criteria. We also expect that additional costs related to resources necessary to perform the foreclosure process assessment, to revise affidavit filings and to implement other operational changes will continue for at least the remainder of 2011. This will likely result in continued higher noninterest expense, including higher default servicing costs and legal expenses, in CRES and has impacted and may continue to impact the value of our MSRs related to these serviced loans. It is also possible that the delays in foreclosure sales may result in additional costs and expenses, including costs associated with the maintenance of properties or possible home price declines while foreclosures are delayed. In addition, required process changes, including those required under the consent orders with federal bank regulators, are likely to result in further increases in our default servicing costs over the longer term. Finally, the time to complete foreclosure sales may continue to be protracted, which may result in a greater number of nonperforming loans and increased servicing advances and may impact the collectability of such advances and the value of our MSR asset, MBS and real estate owned properties.
     An increase in the time to complete foreclosure sales also may increase the number of severely delinquent loans in our mortgage servicing portfolio, result in increasing levels of consumer nonperforming loans and could have a dampening effect on net interest margin as nonperforming assets increase. Accordingly, delays in foreclosure sales, including any delays beyond those currently anticipated, our continued process enhancements, including those required under the OCC and federal bank regulator consent orders and any issues that may arise out of alleged irregularities in our foreclosure process could significantly increase the costs associated with our mortgage operations.
Private-label Securitization Settlement – Servicing Matters
     In connection with the BNY Mellon Settlement, BAC HLS has agreed to implement certain servicing changes. On a schedule that began with the signing of the BNY Mellon Settlement, BAC HLS agreed to transfer the servicing related to certain high-risk loans to qualified subservicers. In addition, upon final court approval of the BNY Mellon Settlement, BAC HLS has agreed to the benchmarking of loans not in subservicing arrangements against defined industry standards regarding default-servicing timelines. The transfer of loans to subservicers will reduce the servicing fees payable to BAC HLS in the future. Upon final court approval, failure to meet the established benchmarking standards for loans not in subservicing arrangements can trigger the payment of agreed-upon fees. BAC HLS’s obligations with respect to these servicing changes will terminate if final court approval is not obtained.
     The Trustee and BAC HLS have also agreed to clarify and conform certain servicing standards related to loss mitigation. In particular, the BNY Mellon Settlement would clarify that it is permissible to apply the same loss-mitigation strategies to the Covered Trusts as are applied to BAC HLS affiliates’ held-for-investment (HFI) portfolios. This provision of the agreement is effective immediately and is not conditioned on final court approval.
     We and legacy Countrywide also have agreed to work to resolve with the Trustee certain note and mortgage documentation issues related to the enforceability of mortgages in foreclosure (e.g., title policy and mortgage recordation issues). If certain documentation issues remain outstanding when a loan reaches foreclosure, we and/or legacy Countrywide is obligated to reimburse the related Covered Trust for any loss if BAC HLS is unable to foreclose on the mortgage and the Covered Trust is not made whole by a title policy because of documentation exceptions. This agreement will terminate if final court approval of the BNY Mellon Settlement is not obtained, although we could still have exposure under the pooling and servicing agreements related to the mortgages in the Covered Trusts for such documentation issues.

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     Certain servicing and documentation obligations began upon signing of the BNY Mellon Settlement agreement, while others, including potential payment of servicing-related fees, are conditioned on final court approval of the BNY Mellon Settlement. We estimate that the costs associated with additional servicing obligations under the BNY Mellon Settlement contributed $400 million to the second quarter 2011 valuation charge related to the MSR asset. The additional servicing actions are consistent with the consent orders with the OCC and the Federal Reserve.
Regulatory Matters
     For additional information regarding significant regulatory matters including Regulation E and the CARD Act, refer to Item 1A. Risk Factors, as well as Regulatory Matters on page 56 of the MD&A of the Corporation’s 2010 Annual Report on Form 10-K.
Financial Reform Act
     The Financial Reform Act, which was signed into law on July 21, 2010, enacts sweeping financial regulatory reform and has altered and will continue to alter the way in which we conduct certain businesses, increase our costs and reduce our revenues. Many aspects of the Financial Reform Act remain subject to final rulemaking and will take effect over several years, making it difficult to anticipate the precise impact on the Corporation, our customers or the financial services industry.
Debit Interchange Fees
     On June 29, 2011, the Federal Reserve adopted a final rule with respect to the Durbin Amendment effective on October 1, 2011 which, among other things, establishes a regulatory cap for many types of debit interchange transactions to equal no more than 21 cents plus five bps of the value of the transaction. Furthermore, the Federal Reserve adopted an interim rule to allow a debit card issuer to recover an additional one cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements promulgated by the Federal Reserve, with which we intend to comply. The Federal Reserve also approved rules governing routing and exclusivity, requiring issuers to offer two unaffiliated networks for routing debit transactions on each debit or prepaid product, which are effective April 1, 2012. For additional information, see Global Card Services on page 33.
Limitations on Certain Activities
     We anticipate that the final regulations associated with the Financial Reform Act will include limitations on proprietary trading as well as the sponsorship or investment in hedge funds and private equity funds (the Volcker Rule), as will be defined by various regulators. The implementing regulations for the Volcker Rule will include clarifications to the definition of proprietary trading and distinctions between permitted and prohibited activities which have not yet been finalized. The final regulations are required to be in place by October 21, 2011, and the Volcker Rule becomes effective twelve months after such rules are final or on July 21, 2012, whichever is earlier. The Volcker Rule then gives certain financial institutions two years from the effective date, with opportunities for additional extensions, to bring activities and investments into conformance. In response to these developments, GBAM has exited its proprietary trading business as of June 30, 2011.
     The ultimate impact of the Volcker Rule’s prohibition on proprietary trading and the sponsorship or investment in hedge funds and private equity funds continues to remain uncertain, including any additional significant operational and compliance costs we may incur. For additional information about our proprietary trading business, see GBAM on page 42.
Derivatives
     The Financial Reform Act includes measures to broaden the scope of derivative instruments subject to regulation by requiring clearing and exchange trading of certain derivatives; imposing new capital margins, reporting, registration and business conduct requirements for certain market participants; and imposing position limits on certain over-the-counter (OTC) derivatives. Although the Financial Reform Act required regulators to promulgate the rulemakings necessary to implement these regulations by July 16, 2011, the regulators have indicated that the rulemaking process will continue through at least the end of 2011. Further, the regulators have granted temporary relief from certain requirements that would have taken effect on July 16, 2011 absent any rulemaking. This temporary relief is effective until final rules relevant to each requirement become effective, or in the case of the Commodity Futures Trading Commission (CFTC), until the earlier of the effective date of relevant final rules or December 31, 2011. The ultimate impact of these derivatives regulations and the

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time it will take to comply continues to remain uncertain. The final regulations will impose additional operational and compliance costs on us and may require us to restructure certain businesses, thereby negatively impacting our revenues and results of operations.
FDIC Deposit Insurance Assessments
     On February 7, 2011, the FDIC issued a new regulation implementing revisions to the assessment system mandated by the Financial Reform Act, which became effective on April 1, 2011. The new regulation was reflected in the June 30, 2011 FDIC fund balance and will be reflected in the invoices for payments due September 30, 2011. Among other things, the final rule changed the assessment base for insured depository institutions from adjusted domestic deposits to average consolidated total assets during an assessment period, less average tangible equity capital during that assessment period. Additionally, the FDIC has broad discretionary authority to increase assessments on large and highly complex institutions on a case by case basis. Any future increases in required deposit insurance premiums or other bank industry fees could have an adverse impact on our financial condition and results of operations.
Credit Risk Retention
     On March 29, 2011, numerous federal regulators jointly issued a proposed rule regarding credit risk retention that would, among other things, require retention by sponsors of at least five percent of the credit risk of the assets underlying certain ABS and MBS securitizations and would limit the ability to transfer or hedge that credit risk. The proposed rule as currently written would likely have an adverse impact on our ability to engage in many types of the MBS and ABS securitizations conducted in CRES, GBAM and other business segments, impose additional operational and compliance costs on us, and negatively influence the value, liquidity and transferability of ABS or MBS, loans and other assets. However, it remains unclear what requirements will be included in the final rule and what the ultimate impact of the final rule will be on our CRES, GBAM and other business segments or on our consolidated results of operations.
The Consumer Financial Protection Bureau
     The activities of the Corporation, as a consumer lender, are subject to regulation under various U.S. federal laws, including the Truth-in-Lending, Equal Credit Opportunity, Fair Credit Reporting, Fair Debt Collection Practice, Electronic Funds Transfer and CARD acts, as well as various state laws. These statutes impose requirements on consumer loan origination and collection practices. The Financial Reform Act created the CFPB to supervise, enforce and write all federal consumer financial protection rules. On July 21, 2011, the CFPB assumed its authorities to supervise and enforce existing consumer financial protection rules. Once a Director of the CFPB assumes that position, the full authority to write new consumer financial protection rules will be vested in the CFPB.
Certain Other Provisions
     The Financial Reform Act also provides for a new resolution process administered by the FDIC to unwind large systemically important financial companies; expands the role of state regulators in enforcing consumer protection requirements over banks; includes new minimum leverage and risk-based capital requirements for large financial institutions; and disqualifies trust preferred securities and other hybrid capital securities from Tier 1 capital. Many of the provisions under the Financial Reform Act have begun to be phased in or will be phased in over the next several months or years and will be subject both to further rulemaking and the discretion of applicable regulatory bodies.
     The Financial Reform Act will continue to have a significant and negative impact on our earnings through fee reductions, higher costs and new restrictions, as well as reductions to available capital. The Financial Reform Act may also continue to have a material adverse impact on the value of certain assets and liabilities held on our balance sheet. The ultimate impact of the Financial Reform Act on our businesses and results of operations will depend on regulatory interpretation and rulemaking, as well as the success of any of our actions to mitigate the negative earnings impact of certain provisions. For information on the impact of the Financial Reform Act on our credit ratings, see Liquidity Risk on page 69.
U.K. Bank Levy
     The U.K. government bank levy legislation was enacted on July 19, 2011. The rate on banks operating in the U.K. has been set at 7.5 bps for short-term liabilities and 3.75 bps for long-term liabilities for 2011 and will increase to 7.8 bps for short-term liabilities and 3.9 bps for long-term liabilities beginning in 2012. Based on current estimates, the cost of the bank levy is expected to be approximately $95 million annually beginning this year, and is non-deductible for U.K. tax purposes.

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Managing Risk
Overview
     Risk is inherent in every activity that we undertake. Our business exposes us to strategic, credit, market, liquidity, compliance, operational and reputational risk. We must manage these risks to maximize our long-term results by ensuring the integrity of our assets and the quality of our earnings. Our risk management infrastructure is continually evolving to meet the heightened challenges posed by the increased complexity of the financial services industry and markets, by our increased size and global footprint, and by the 2008 financial crisis. We have a defined risk framework and risk appetite which is approved annually by the Corporation’s Board of Directors (the Board).
     We take a comprehensive approach to risk management. Risk management planning is fully integrated with strategic, financial and customer/client planning so that goals and responsibilities are aligned across the organization. Risk is managed in a systematic manner by focusing on the Corporation as a whole as well as managing risk across the enterprise and within individual business units, products, services and transactions, and across all geographic locations. We maintain a governance structure that delineates the responsibilities for risk management activities, as well as governance and oversight of those activities, by executive management and the Board. For a more detailed discussion of our risk management activities, see pages 59 through 107 of the MD&A of the Corporation’s 2010 Annual Report on Form 10-K.
Strategic Risk Management
     Strategic risk is embedded in every line of business and is one of the major risk categories along with credit, market, liquidity, compliance and operational risks. It is the risk that results from adverse business decisions, ineffective or inappropriate business plans, or failure to respond to changes in the competitive environment, business cycles, customer preferences, product obsolescence, regulatory environment, business strategy execution and/or other inherent risks of the business including reputational and operational risk. In the financial services industry, strategic risk is elevated due to changing customer, competitive and regulatory environments. Our appetite for strategic risk is assessed within the context of the strategic plan, with strategic risks selectively and carefully considered in the context of the evolving marketplace. Strategic risk is managed in the context of our overall financial condition and assessed, managed and acted on by the Chief Executive Officer and executive management team. Significant strategic actions, such as material acquisitions or capital actions, are reviewed and approved by the Board.
     For more information on our Strategic Risk Management activities, refer to pages 62 and 63 of the MD&A of the Corporation’s 2010 Annual Report on Form 10-K.
Capital Management
     Bank of America manages its capital position to maintain a strong and flexible financial condition in order to perform through changing economic cycles, take advantage of organic growth opportunities, maintain ready access to financial markets, remain a source of financial strength for our subsidiaries, and return capital to our shareholders as appropriate.
     To determine the appropriate level of capital, we assess the results of our Internal Capital Adequacy Assessment Process (ICAAP), the current economic and market environment, and feedback from investors, ratings agencies and regulators. For additional information regarding the ICAAP, see page 63 of the MD&A of the Corporation’s 2010 Annual Report on Form 10-K.
     Capital management is integrated into the risk and governance processes, as capital is a key consideration in development of the strategic plan, risk appetite and risk limits. Economic capital is allocated to each business unit and used to perform risk-adjusted return analysis at the business unit, client relationship and transaction level.
Regulatory Capital
     As a financial services holding company, we are subject to the risk-based capital guidelines (Basel I) issued by the banking agencies. At June 30, 2011, we operated banking activities primarily under two charters: BANA and FIA Card Services, N.A. Under these guidelines, the Corporation and its affiliated banking entities measure capital adequacy based on Tier 1 common capital, Tier 1 capital and Total capital (Tier 1 plus Tier 2 capital). Capital ratios are calculated by

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dividing each capital amount by risk-weighted assets. Additionally, Tier 1 capital is divided by adjusted quarterly average total assets to derive the Tier 1 leverage ratio.
     Certain corporate-sponsored trust companies which issue trust preferred capital debt securities (Trust Securities) are not consolidated. In accordance with Federal Reserve guidance, Trust Securities continue to qualify as Tier 1 capital with revised quantitative limits. As a result, the Corporation includes Trust Securities in Tier 1 capital. The Financial Reform Act includes a provision under which the Corporation’s previously issued and outstanding Trust Securities in the aggregate amount of $20.0 billion (approximately 143 bps of Tier 1 capital) at June 30, 2011 will no longer qualify as Tier 1 capital effective January 1, 2013. This amount excludes $1.6 billion of hybrid Trust Securities that are expected to be converted to preferred stock prior to the date of implementation. The exclusion of Trust Securities from Tier 1 capital will be phased in incrementally over a three-year phase-in period. The treatment of Trust Securities during the phase-in period remains unclear and is subject to future rulemaking.
     For additional information on these and other regulatory requirements, see Note 18 – Regulatory Requirements and Restrictions to the Consolidated Financial Statements of the Corporation’s 2010 Annual Report on Form 10-K.
Capital Composition and Ratios
     Tier 1 common capital decreased $10.5 billion to $114.7 billion at June 30, 2011 compared to December 31, 2010. The decrease was driven by the second quarter losses and an increase in deferred tax assets disallowed for regulatory capital reporting purposes. The $7.9 billion increase in the deferred tax asset disallowance was due to the expiration of the longer look-forward period granted by the regulators at the time of the Merrill Lynch acquisition and the second quarter pre-tax loss. Tier 1 capital and Total capital decreased by $10.5 billion and $11.6 billion at June 30, 2011 compared to December 31, 2010.
     Risk-weighted assets declined by $63.2 billion to $1,393 billion at June 30, 2011. The risk-weighted asset reduction is consistent with our continued efforts to reduce non-core assets and legacy loan portfolios. The Tier 1 common capital ratio decreased 37 bps to 8.23 percent, the Tier 1 capital ratio decreased 24 bps to 11.00 percent and the Total capital ratio decreased 12 bps to 15.65 percent driven by the same factors noted above. The Tier 1 leverage ratio decreased 35 bps to 6.86 percent reflecting the decrease in Tier 1 capital and the lower risk-weighted assets mentioned above.
     Table 16 presents the Corporation’s capital ratios and related information at June 30, 2011 and December 31, 2010.
                                                 
Table 16
Regulatory Capital
    June 30, 2011   December 31, 2010
    Actual   Minimum   Actual   Minimum
(Dollars in millions)
  Ratio   Amount   Required (1)   Ratio   Amount   Required (1)
 
Tier 1 common equity ratio
    8.23 %   $ 114,684       n/a       8.60 %   $ 125,139       n/a  
Tier 1 capital ratio
    11.00       153,134     $ 55,710       11.24       163,626     $ 58,238  
Total capital ratio
    15.65       217,986       111,420       15.77       229,594       116,476  
Tier 1 leverage ratio
    6.86       153,134       89,337       7.21       163,626       90,811