Edgar Filing: BANK OF AMERICA CORP /DE/

Form 10-Q for Bank of America

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 March 31, 2008

[ ] 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:

(800) 299-2265

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 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.


Large accelerated filer ü	Accelerated filer	Non-accelerated filer	Smaller reporting company
		(do not check if a 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 April 30, 2008, there were 4,452,783,993 shares of Bank of America Corporation Common Stock outstanding.

Bank of America Corporation

March 31, 2008 Form 10-Q


INDEX
			Page
Part I.	Item 1.	Financial Statements:
Financial Information		Consolidated Statement of Income for the Three Months Ended March 31, 2008 and 2007	3

		Consolidated Balance Sheet at March 31, 2008 and December 31, 2007	4

		Consolidated Statement of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2008 and 2007	5

		Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2008 and 2007	6

		Notes to Consolidated Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
		Table of Contents	41
		Discussion and Analysis	42

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	133

	Item 4.	Controls and Procedures	133




Part II.
Other Information	Item 1.	Legal Proceedings	133

	Item 1A.	Risk Factors	133

	Item 2.	Unregistered Sales of Equity Securities and the Use of Proceeds	134

	Item 6.	Exhibits	135

	Signature		136

	Index to Exhibits		137


Part 1. Financial Information Item 1. Financial Statements
Bank of America Corporation and Subsidiaries
Consolidated Statement of Income


	Three Months Ended March 31
(Dollars in millions, except per share information)	2008	2007
Interest income
Interest and fees on loans and leases	$14,415	$12,884
Interest on debt securities	2,774	2,380
Federal funds sold and securities purchased under agreements to resell	1,208	1,979
Trading account assets	2,364	2,273
Other interest income	1,098	1,044
Total interest income	21,859	20,560
Interest expense
Deposits	4,588	4,034
Short-term borrowings	4,142	5,318
Trading account liabilities	840	892
Long-term debt	2,298	2,048
Total interest expense	11,868	12,292
Net interest income	9,991	8,268

Noninterest income
Card income	3,639	3,333
Service charges	2,397	2,072
Investment and brokerage services	1,340	1,149
Investment banking income	476	638
Equity investment income	1,054	1,014
Trading account profits (losses)	(1,783)	872
Mortgage banking income	451	213
Gains on sales of debt securities	225	62
Other income (loss)	(787)	534
Total noninterest income	7,012	9,887
Total revenue, net of interest expense	17,003	18,155

Provision for credit losses	6,010	1,235

Noninterest expense
Personnel	4,726	5,025
Occupancy	849	713
Equipment	396	350
Marketing	637	555
Professional fees	285	229
Amortization of intangibles	446	389
Data processing	563	437
Telecommunications	260	251
Other general operating	863	1,037
Merger and restructuring charges	170	111
Total noninterest expense	9,195	9,097
Income before income taxes	1,798	7,823
Income tax expense	588	2,568
Net income	$1,210	$5,255
Preferred stock dividends	190	46
Net income available to common shareholders	$1,020	$5,209
Per common share information
Earnings	$0.23	$1.18
Diluted earnings	0.23	1.16
Dividends paid	0.64	0.56
Average common shares issued and outstanding (in thousands)	4,427,823	4,432,664
Average diluted common shares issued and outstanding (in thousands)	4,461,201	4,497,028

See accompanying Notes to Consolidated Financial Statements.


Bank of America Corporation and Subsidiaries
Consolidated Balance Sheet


(Dollars in millions)	March 31 2008	December 31 2007
Assets
Cash and cash equivalents	$40,512	$42,531
Time deposits placed and other short-term investments	8,807	11,773
Federal funds sold and securities purchased under agreements to resell (includes $2,661 and $2,578 measured at fair value, and $119,846 and $128,887 pledged as collateral)	120,289	129,552
Trading account assets (includes $89,934 and $88,745 pledged as collateral)	165,693	162,064
Derivative assets	50,925	34,662
Debt securities:
Available–for-sale (includes $111,718 and $107,440 pledged as collateral)	221,860	213,330
Held-to-maturity, at cost (fair value - $1,140 and $726)	1,140	726
Total debt securities	223,000	214,056
Loans and leases (includes $5,057 and $4,590 measured at fair value and $114,387 and $115,285 pledged as collateral)	873,870	876,344
Allowance for loan and lease losses	(14,891)	(11,588)
Loans and leases, net of allowance	858,979	864,756
Premises and equipment, net	11,297	11,240
Mortgage servicing rights (includes $3,163 and $3,053 measured at fair value)	3,470	3,347
Goodwill	77,872	77,530
Intangible assets	9,821	10,296
Other assets (includes $36,926 and $41,088 measured at fair value)	165,837	153,939
Total assets	$1,736,502	$1,715,746
Liabilities
Deposits in domestic offices:
Noninterest-bearing	$193,789	$188,466
Interest-bearing (includes $2,005 and $2,000 measured at fair value)	506,062	501,882
Deposits in foreign offices:
Noninterest-bearing	3,333	3,761
Interest-bearing	93,885	111,068
Total deposits	797,069	805,177
Federal funds purchased and securities sold under agreements to repurchase	219,738	221,435
Trading account liabilities	76,032	77,342
Derivative liabilities	29,170	22,423
Commercial paper and other short-term borrowings	190,856	191,089
Accrued expenses and other liabilities (includes $903 and $660 measured at fair value, and $507 and $518 of reserve for unfunded lending commitments)	64,528	53,969
Long-term debt	202,800	197,508
Total liabilities	1,580,193	1,568,943
Commitments and contingencies (Note 9 – Variable Interest Entities and Note 11 – Commitments and Contingencies)

Shareholders’ equity
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding – 7,325,067 and 185,067 shares	17,306	4,409
Common stock and additional paid-in capital, $0.01 par value; authorized – 7,500,000,000 shares; issued and outstanding – 4,452,810,412 and 4,437,885,419 shares	61,080	60,328
Retained earnings	79,554	81,393
Accumulated other comprehensive income (loss)	(884)	1,129
Other	(747)	(456)
Total shareholders’ equity	156,309	146,803
Total liabilities and shareholders’ equity	$1,736,502	$1,715,746

See accompanying Notes to Consolidated Financial Statements.


Bank of America Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders’ Equity


	Preferred Stock	Common Stock and Additional Paid-in Capital		Retained Earnings	Accumulated Other Comprehensive Income (Loss) ⁽¹⁾	Other	Total Shareholders’ Equity	Comprehensive Income
(Dollars in millions, shares in thousands)	Preferred Stock	Shares	Amount	Retained Earnings	Accumulated Other Comprehensive Income (Loss) ⁽¹⁾	Other	Total Shareholders’ Equity	Comprehensive Income
Balance, December 31, 2006	$2,851	4,458,151	$61,574	$79,024	$(7,711)	$(466)	$135,272
Cumulative adjustment for accounting changes⁽²⁾:
Leveraged leases				(1,381)			(1,381)
Fair value option and measurement				(208)			(208)
Income tax uncertainties				(146)			(146)
Net income				5,255			5,255	$5,255
Net changes in available-for-sale debt and marketable equity securities					(108)		(108)	(108)
Net changes in foreign currency translation adjustments					(12)		(12)	(12)
Net changes in derivatives					140		140	140
Employee benefit plan adjustments					31		31	31
Cash dividends paid:
Common				(2,502)			(2,502)
Preferred				(46)			(46)
Common stock issued under employee plans and related tax benefits		28,919	1,468			(401)	1,067
Common stock repurchased		(48,000)	(2,506)				(2,506)
Balance, March 31, 2007	$2,851	4,439,070	$60,536	$79,996	$(7,660)	$(867)	$134,856	$5,306
Balance, December 31, 2007	$4,409	4,437,885	$60,328	$81,393	$1,129	$(456)	$146,803
Net income				1,210			1,210	$1,210
Net changes in available-for-sale debt and marketable equity securities					(1,735)		(1,735)	(1,735)
Net changes in foreign currency translation adjustments					20		20	20
Net changes in derivatives					(316)		(316)	(316)
Employee benefit plan adjustments					18		18	18
Cash dividends paid:
Common				(2,859)			(2,859)
Preferred				(190)			(190)
Issuance of preferred stock	12,897						12,897
Common stock issued under employee plans and related tax benefits		14,925	752			(291)	461
Balance, March 31, 2008	$17,306	4,452,810	$61,080	$79,554	$(884)	$(747)	$156,309	$(803)

⁽¹⁾

Amounts shown are net-of-tax. For additional information on accumulated OCI, see Note 12 – Shareholders’ Equity and Earnings Per Common Share to the Consolidated Financial Statements.

⁽²⁾

Effective January 1, 2007, the Corporation adopted FSP 13-2, SFAS 157, SFAS 159 and FIN 48. For additional information on the adoption of these accounting pronouncements, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2007 Annual Report on Form 10-K.

See accompanying Notes to Consolidated Financial Statements.

Bank of America Corporation and Subsidiaries

Consolidated Statement of Cash Flows


	Three Months Ended March 31
(Dollars in millions)	2008	2007
Operating activities
Net income	$1,210	$5,255
Reconciliation of net income to net cash used in operating activities:
Provision for credit losses	6,010	1,235
Gains on sales of debt securities	(225)	(62)
Depreciation and premises improvements amortization	328	275
Amortization of intangibles	446	389
Deferred income tax (benefit) expense	(1,041)	244
Net increase in trading and derivative instruments	(16,061)	(8,356)
Net increase in other assets	(13,350)	(12,126)
Net increase (decrease) in accrued expenses and other liabilities	12,606	(6,740)
Other operating activities, net	6,245	255
Net cash used in operating activities	(3,832)	(19,631)
Investing activities
Net decrease in time deposits placed and other short-term investments	2,966	1,927
Net (increase) decrease in federal funds sold and securities purchased under agreements to resell	9,263	(3,348)
Proceeds from sales of available-for-sale debt securities	26,477	4,173
Proceeds from paydowns and maturities of available-for-sale debt securities	5,194	5,157
Purchases of available-for-sale debt securities	(35,134)	(2,934)
Proceeds from maturities of held-to-maturity debt securities	46	24
Purchases of held-to-maturity debt securities	(460)	-
Proceeds from sales of loans and leases	16,245	17,527
Other changes in loans and leases, net	(21,443)	(44,304)
Net purchases of premises and equipment	(431)	(358)
Proceeds from sales of foreclosed properties	33	38
(Acquisition) divestiture of business activities, net	-	(460)
Other investing activities, net	(953)	(2,040)
Net cash provided by (used in) investing activities	1,803	(24,598)
Financing activities
Net increase (decrease) in deposits	(8,108)	4,471
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase	(1,697)	16,985
Net increase (decrease) in commercial paper and other short-term borrowings	(233)	15,617
Proceeds from issuance of long-term debt	7,774	16,927
Retirement of long-term debt	(7,618)	(10,050)
Proceeds from issuance of preferred stock	12,897	-
Proceeds from issuance of common stock	46	323
Common stock repurchased	-	(2,506)
Cash dividends paid	(3,049)	(2,548)
Excess tax benefits of share-based payments	16	148
Other financing activities, net	(6)	(10)
Net cash provided by financing activities	22	39,357
Effect of exchange rate changes on cash and cash equivalents	(12)	(8)
Net decrease in cash and cash equivalents	(2,019)	(4,880)
Cash and cash equivalents at January 1	42,531	36,429
Cash and cash equivalents at March 31	$40,512	$31,549

During the three months ended March 31, 2007, the Corporation sold its operations in Chile and Uruguay for approximately $750 million in equity in Banco Itaú Holding Financeira S.A., and its assets in BankBoston Argentina for the assumption of its liabilities. The total assets and liabilities in these divestitures were $6.1 billion and $5.6 billion.

On January 1, 2007, the Corporation transferred $3.7 billion of AFS debt securities to trading account assets following the adoption of SFAS 159.

See accompanying Notes to Consolidated Financial Statements.

Bank of America Corporation and Subsidiaries

Notes to Consolidated Financial Statements

On October 1, 2007, Bank of America Corporation and its subsidiaries (the Corporation) acquired all the outstanding shares of ABN AMRO North America Holding Company, parent of LaSalle Bank Corporation (LaSalle), for $21.0 billion in cash. On July 1, 2007, the Corporation acquired all the outstanding shares of U.S. Trust Corporation for $3.3 billion in cash. These mergers were accounted for under the purchase method of accounting. Consequently, LaSalle and U.S. Trust Corporation’s results of operations were included in the Corporation’s results from their dates of acquisition.

The Corporation, through its banking and nonbanking subsidiaries, provides a diverse range of financial services and products throughout the U.S. and in selected international markets. At March 31, 2008, the Corporation operated its banking activities primarily under three charters: Bank of America, National Association (Bank of America, N.A.), FIA Card Services, N.A. and LaSalle Bank, N.A.

NOTE 1 – Summary of Significant Accounting Principles

Principles of Consolidation and Basis of Presentation

The Consolidated Financial Statements include the accounts of the Corporation and its majority-owned subsidiaries, and those variable interest entities (VIEs) where the Corporation is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated. Results of operations of companies purchased are included from the dates of acquisition and for VIEs, from the dates that the Corporation became the primary beneficiary. Assets held in an agency or fiduciary capacity are not included in the Consolidated Financial Statements. The Corporation accounts for investments in companies for which it owns a voting interest of 20 percent to 50 percent and for which it has the ability to exercise significant influence over operating and financing decisions using the equity method of accounting. These investments are included in other assets and the Corporation’s proportionate share of income or loss is included in equity investment income.

The information contained in the Consolidated Financial Statements is unaudited. In the opinion of management, normal recurring adjustments necessary for a fair statement of the interim period results have been made.

Certain prior period amounts have been reclassified to conform to current period presentation.

Recently Proposed and Issued Accounting Pronouncements

In recent meetings, the Financial Accounting Standards Board (FASB) tentatively decided to amend Statement of Financial Accounting Standards (SFAS) No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities – a replacement of FASB Statement No. 125” (SFAS 140), impacting the accounting for qualifying special-purpose entities (QSPEs), and make certain changes to FASB Interpretation (FIN) No. 46 (revised December 2003) “Consolidation of Variable Interest Entities – an interpretation of ARB No. 51” (FIN 46R). An exposure draft of the proposed requirements is expected later this year. Based on the preliminary discussions and tentative decisions, and assuming no changes to the Corporation’s current product offerings, it is possible that these changes may lead to the consolidation of certain QSPEs and VIEs, including corporation-sponsored multi-seller conduits. However, the impact on the Corporation cannot be determined until the FASB passes the final amendments to SFAS 140 and FIN 46R.

On March 19, 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB No. 133” (SFAS 161). SFAS 161 requires expanded qualitative, quantitative and credit-risk disclosures about derivatives and hedging activities and their effects on the Corporation’s financial position, financial performance and cash flows. SFAS 161 also clarifies that derivatives are subject to credit risk disclosures as required by SFAS No. 107, “Disclosures about Fair Value of Financial Instruments.” SFAS 161 is effective for the Corporation’s financial statements for the year beginning on January 1, 2009. The adoption of SFAS 161 will not impact the Corporation’s financial condition and results of operations.

On January 1, 2008, the Corporation adopted the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) No. 109, "Written Loan Commitments Recorded at Fair Value Through Earnings" (SAB 109) for loan commitments measured at fair value through earnings which were issued or modified since adoption. SAB 109 requires that the expected net future cash flows related to servicing of a loan be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The adoption of SAB 109 resulted in the recognition of $90 million in incremental mortgage banking income for the three months ended March 31, 2008.

On January 1, 2008, the Corporation adopted Emerging Issues Task Force (EITF) consensus on Issue No. 06–11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (EITF 06-11). EITF 06–11 requires on a prospective basis that the tax benefit related to dividend equivalents paid on restricted stock and restricted stock units which are expected to vest be recorded as an increase to additional paid-in capital. The adoption of EITF 06–11 did not have a material impact on the Corporation’s financial condition and results of operations.

On December 4, 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (SFAS 141R). SFAS 141R modifies the accounting for business combinations and requires, with limited exceptions, the acquirer in a business combination to recognize 100 percent of the assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition-date fair value. In addition, SFAS 141R requires the expensing of acquisition-related transaction and restructuring costs, and certain contingent assets and liabilities acquired, as well as contingent consideration, to be recognized at fair value. SFAS 141R also modifies the accounting for certain acquired income tax assets and liabilities. SFAS 141R is effective for new acquisitions consummated on or after January 1, 2009 and early adoption is not permitted.

On December 4, 2007, the FASB also issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (SFAS 160). SFAS 160 requires all entities to report noncontrolling (i.e., minority) interests in subsidiaries as equity in the Consolidated Financial Statements and to account for transactions between an entity and noncontrolling owners as equity transactions if the parent retains its controlling financial interest in the subsidiary. SFAS 160 also requires expanded disclosure that distinguishes between the interests of the controlling owners and the interests of the noncontrolling owners of a subsidiary. SFAS 160 is effective for the Corporation’s financial statements for the year beginning on January 1, 2009 and earlier adoption is not permitted. The adoption of SFAS 160 is not expected to have a material impact on the Corporation’s financial condition and results of operations.

NOTE 2 – Merger and Restructuring Activity

On July 1, 2007, the Corporation acquired all the outstanding shares of U.S. Trust Corporation for $3.3 billion in cash. The Corporation allocated $1.7 billion to goodwill and $1.2 billion to intangible assets as part of the preliminary purchase price allocation. U.S. Trust Corporation’s results of operations were included in the Corporation’s results beginning July 1, 2007. The acquisition significantly increased the size and capabilities of the Corporation’s wealth management business and positions it as one of the largest financial services companies managing private wealth in the U.S.

On October 1, 2007, the Corporation acquired all the outstanding shares of LaSalle, for $21.0 billion in cash. As part of the acquisition, ABN AMRO Bank N.V. (the seller) capitalized approximately $6.3 billion as equity of intercompany debt prior to the date of acquisition. With this acquisition, the Corporation significantly expanded its presence in metropolitan Chicago, Illinois and Michigan by adding LaSalle's commercial banking clients, retail customers and banking centers. LaSalle’s results of operations were included in the Corporation’s results beginning October 1, 2007.

The LaSalle acquisition was accounted for under the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations” (SFAS 141). The preliminary purchase price has been allocated to the assets acquired and the liabilities assumed based on their fair values at the LaSalle acquisition date as summarized in the following table.


LaSalle Preliminary Purchase Price Allocation

(Dollars in millions)
Purchase price		$21,015

Preliminary Allocation of the purchase price
LaSalle stockholders' equity		12,495
LaSalle goodwill and other intangible assets		(2,728)
Adjustments to reflect assets acquired and liabilities assumed at fair value:
Loans and leases		(88)
Premises and equipment		(185)
Identified intangibles ⁽¹⁾		1,029
Other assets		(267)
Exit and termination liabilities		(426)
Other liabilities and deferred income taxes		(7)
Fair value of net assets acquired		9,823
Preliminary goodwill resulting from the LaSalle merger ⁽²⁾		$11,192

⁽¹⁾	Includes core deposit intangibles of $700 million, and other intangibles of $329 million. The amortization life for core deposit intangibles and other intangibles is 10 years. These intangibles are amortized on an accelerated basis.

⁽²⁾	No goodwill is expected to be deductible for tax purposes. The goodwill has been allocated across all of the Corporation’s business segments.

Merger and Restructuring Charges

Merger and restructuring charges are recorded in the Consolidated Statement of Income and include incremental costs to integrate the operations of the Corporation and those of acquired entities. These charges represent costs associated with these one-time activities and do not represent ongoing costs of the fully integrated combined organization. The following table presents severance and employee-related charges, systems integrations and related charges, and other merger-related charges for the three months ended March 31, 2008 and 2007.


	Three Months Ended March 31
(Dollars in millions)	2008 ⁽¹⁾	2007
Severance and employee-related charges	$45	$12
Systems integrations and related charges	90	79
Other	35	20
Total merger and restructuring charges	$170	$111

⁽¹⁾	Included for the three months ended March 31, 2008 are merger-related charges of $129 million and $41 million related to the LaSalle and U.S. Trust Corporation mergers.

Merger-related Exit Cost and Restructuring Reserves

The following table presents the changes in exit cost and restructuring reserves for the three months ended March 31, 2008 and 2007.


	Exit Cost Reserves ⁽¹⁾		Restructuring Reserves ⁽²⁾
(Dollars in millions)	2008	2007	2008	2007
Balance, January 1	$377	$125	$108	$67
Exit cost and restructuring charges:
LaSalle	87	-	31	-
U.S. Trust Corporation	-	-	13	-
MBNA	-	-	-	11
Cash payments	(59)	(26)	(55)	(33)
Balance, March 31	$405	$99	$97	$45

⁽¹⁾	Exit cost reserves were established in purchase accounting resulting in an increase in goodwill.

⁽²⁾	Restructuring reserves were established by a charge to merger and restructuring charges.

As of December 31, 2007, there were $377 million of exit cost reserves related to the MBNA Corporation (MBNA), U.S. Trust Corporation and LaSalle mergers, including $187 million for severance, relocation and other employee-related costs and $190 million for contract terminations. During the three months ended March 31, 2008, $87 million was added to the exit cost reserves related to the LaSalle merger which included $86 million in severance, relocation and other employee-related costs and $1 million in contract terminations. Cash payments of $59 million during the three months ended March 31, 2008 consisted of $58 million in severance, relocation and other employee-related costs and $1 million for contract terminations.

As of December 31, 2007, there were $108 million of restructuring reserves related to the MBNA, U.S. Trust Corporation and LaSalle mergers, including $104 million related to severance and other employee-related costs and $4 million related to contract terminations. During the three months ended March 31, 2008, $44 million was added to the restructuring reserves of which $13 million and $31 million related to severance and other employee-related costs associated with the U.S. Trust Corporation and LaSalle mergers. Cash payments of $55 million during the three months ended March 31, 2008 consisted of $53 million in severance and other employee-related costs and $2 million in contract terminations.

Payments under exit cost and restructuring reserves associated with the MBNA merger were substantially completed in 2007 while payments associated with the U.S. Trust Corporation and LaSalle mergers will continue into 2009.

NOTE 3 – Trading Account Assets and Liabilities

The following table presents the fair values of the components of trading account assets and liabilities at March 31, 2008 and December 31, 2007.


(Dollars in millions)	March 31 2008	December 31 2007
Trading account assets
U.S. Government and agency securities ⁽¹⁾	$60,284	$48,240
Corporate securities, trading loans, and other	45,693	55,360
Equity securities	24,065	22,910
Foreign sovereign debt	20,156	17,161
Mortgage trading loans and asset-backed securities	15,495	18,393
Total trading account assets	$165,693	$162,064
Trading account liabilities
U.S. Government and agency securities	$40,457	$35,375
Equity securities	18,954	25,926
Foreign sovereign debt	10,793	9,292
Corporate securities and other	5,828	6,749
Total trading account liabilities	$76,032	$77,342

⁽¹⁾	Includes $26.4 billion and $21.5 billion at March 31, 2008, and December 31, 2007 of government-sponsored enterprise obligations that are not backed by the full faith and credit of the U.S. Government.

NOTE 4 – Derivatives

All derivatives are recognized on the Consolidated Balance Sheet at fair value, taking into consideration the effects of legally enforceable master netting agreements that allow the Corporation to settle positive and negative positions and offset cash collateral held with the same counterparty on a net basis. For exchange-traded contracts, fair value is based on quoted market prices. For non-exchange traded contracts, fair value is based on dealer quotes, pricing models or quoted prices for instruments with similar characteristics. The Corporation designates at inception whether the derivative contract is considered hedging or non-hedging for SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) accounting purposes. Derivatives held for trading purposes are included in derivative assets or derivative liabilities with changes in fair value reflected in trading account profits (losses). Other derivatives that are used as economic hedges, but not designated in a hedging relationship for accounting purposes, are also included in derivative assets or derivative liabilities with changes in fair value recorded in mortgage banking income or other income (loss). A detailed discussion of derivative trading activities and asset and liability management (ALM) activities is presented in Note 1 – Summary of Significant Accounting Principles and Note 4 – Derivatives to the Consolidated Financial Statements of the Corporation’s 2007 Annual Report on Form 10-K.

The following table presents the contract/notional amounts and credit risk amounts at March 31, 2008 and December 31, 2007 of all the Corporation’s derivative positions. These derivative positions are primarily executed in the over-the-counter market. The credit risk amounts take into consideration the effects of legally enforceable master netting agreements, and on an aggregate basis have been reduced by the cash collateral applied against derivative assets. At March 31, 2008 and December 31, 2007, the cash collateral applied against derivative assets on the Consolidated Balance Sheet was $20.3 billion and $12.8 billion. In addition, at March 31, 2008 and December 31, 2007, the cash collateral placed against derivative liabilities was $14.8 billion and $10.0 billion. The average fair value of derivative assets, less cash collateral, for the three months ended March 31, 2008 and December 31, 2007 was $43.8 billion and $33.9 billion. The average fair value of derivative liabilities, less cash collateral, for the three months ended March 31, 2008 and December 31, 2007 was $27.2 billion and $20.7 billion.


	March 31, 2008		December 31, 2007
(Dollars in millions)	Contract/ Notional ⁽¹⁾	Credit Risk	Contract/ Notional ⁽¹⁾	Credit Risk
Interest rate contracts
Swaps	$25,261,266	$24,649	$22,472,949	$15,368
Futures and forwards	3,975,570	413	2,596,146	10
Written options	1,576,273	-	1,402,626	-
Purchased options	1,701,203	3,706	1,479,985	2,508
Foreign exchange contracts
Swaps	507,382	10,598	505,878	7,350
Spot, futures and forwards	1,791,479	8,121	1,600,683	4,124
Written options	336,852	-	341,148	-
Purchased options	313,036	1,416	339,101	1,033
Equity contracts
Swaps	42,814	1,700	56,300	2,026
Futures and forwards	18,825	45	12,174	10
Written options	224,102	-	166,736	-
Purchased options	242,290	6,591	195,240	6,337
Commodity contracts
Swaps	8,977	1,275	13,627	770
Futures and forwards	12,523	72	14,391	12
Written options	16,823	-	14,206	-
Purchased options	13,645	550	13,093	372
Credit derivatives	3,086,298	12,101	3,046,381	7,493

Credit risk before cash collateral		71,237		47,413
Less: Cash collateral applied		20,312		12,751
Total derivative assets		$50,925		$34,662

⁽¹⁾	Represents the total contract/notional amount of the derivatives outstanding and includes both written and purchased protection.

Fair Value, Cash Flow and Net Investment Hedges

The Corporation uses various types of interest rate and foreign exchange derivative contracts to protect against changes in the fair value of its assets and liabilities due to fluctuations in interest rates and exchange rates (fair value hedges). The Corporation also uses these types of contracts to protect against changes in the cash flows of its assets and liabilities, and other forecasted transactions (cash flow hedges). During the next 12 months, net losses on derivative instruments included in accumulated OCI of approximately $1.8 billion ($1.1 billion after-tax) are expected to be reclassified into earnings. These net losses reclassified into earnings are expected to reduce net interest income related to the respective hedged items.

The following table summarizes certain information related to the Corporation’s derivative hedges accounted for under SFAS 133 for the three months ended March 31, 2008 and 2007.


	Three Months Ended March 31
(Dollars in millions)	2008	2007
Fair value hedges
Hedge ineffectiveness recognized in net interest income	$61	$2
Cash flow hedges
Hedge ineffectiveness recognized in net interest income	(3)	-

The Corporation hedges its net investment in consolidated foreign operations determined to have functional currencies other than the U.S. dollar using forward foreign exchange contracts that typically settle in 90 days. The Corporation recorded net derivative gains in accumulated OCI associated with net investment hedges of $54 million for the three months ended March 31, 2008 as compared to losses of $35 million for the same period in the prior year.

NOTE 5 – Securities

The amortized cost, gross unrealized gains and losses, and fair value of AFS debt and marketable equity securities at March 31, 2008 and December 31, 2007 were:


(Dollars in millions)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
Available-for-sale debt securities, March 31, 2008
U.S. Treasury securities and agency debentures	$780	$24	$-	$804
Mortgage-backed securities ⁽¹⁾	175,017	198	(2,591)	172,624
Foreign securities	6,271	38	(239)	6,070
Corporate/Agency bonds	4,494	46	(263)	4,277
Other taxable securities⁽²⁾	26,672	78	(191)	26,559
Total taxable securities	213,234	384	(3,284)	210,334
Tax-exempt securities	11,926	42	(442)	11,526
Total available-for-sale debt securities	$225,160	$426	$(3,726)	$221,860
Available-for-sale marketable equity securities ⁽³⁾	$7,969	$11,653	$(687)	$18,935
Available-for-sale debt securities, December 31, 2007
U.S. Treasury securities and agency debentures	$749	$10	$-	$759
Mortgage-backed securities⁽¹⁾	166,768	92	(3,144)	163,716
Foreign securities	6,568	290	(101)	6,757
Corporate/Agency bonds	3,107	2	(76)	3,033
Other taxable securities⁽²⁾	24,608	69	(84)	24,593
Total taxable securities	201,800	463	(3,405)	198,858
Tax-exempt securities	14,468	73	(69)	14,472
Total available-for-sale debt securities	$216,268	$536	$(3,474)	$213,330
Available-for-sale marketable equity securities ⁽³⁾	$6,562	$13,530	$(352)	$19,740

⁽¹⁾	Substantially all securities were issued by U.S. government-backed or government-sponsored enterprises.

⁽²⁾	Includes asset-backed securities (ABS).

⁽³⁾	Represents those AFS marketable equity securities that are recorded in other assets on the Consolidated Balance Sheet.

At March 31, 2008 and December 31, 2007, both the amortized cost and fair value of held-to-maturity debt securities was $1.1 billion and $726 million and the accumulated net unrealized gains on AFS debt and marketable equity securities included in accumulated OCI were $4.8 billion and $6.6 billion, net of the related income tax expense of $2.8 billion and $3.7 billion.

The Corporation recognized $577 million of impairment losses on AFS securities during the three months ended March 31, 2008. No such losses were recognized during the three months ended March 31, 2007.

For all AFS debt and marketable equity securities that are in an unrealized loss position, we have the intent and ability to hold these securities to recovery.

Certain Corporate and Strategic Investments

In 2007, the Corporation made a $2.0 billion investment in Countrywide Financial Corporation (Countrywide) in the form of Series B non-voting convertible preferred securities yielding 7.25 percent, which are recorded in other assets. This investment is accounted for under the cost method of accounting. In January 2008, the Corporation announced a definitive agreement to purchase all outstanding shares of Countrywide for approximately $4.0 billion in common stock. Countrywide shareholders’ would receive 0.1822 shares of Bank of America Corporation common stock in exchange for one share of Countrywide common stock. The completion of this transaction is expected to occur early in the third quarter of 2008 subject to certain closing conditions and regulatory approvals.

The Corporation owns approximately eight percent, or 19.1 billion common shares, of China Construction Bank (CCB). These common shares are accounted for at fair value and recorded as AFS marketable equity securities in other assets. These shares are non-transferable until October 2008. At both March 31, 2008 and December 31, 2007, the cost of the CCB investment was $3.0 billion and the fair value was $14.5 billion and $16.4 billion. Dividend income on this investment is recorded in equity investment income. The Corporation also holds an option to increase its ownership interest in CCB to 19.1 percent. Additional shares received upon exercise of this option are restricted through August 2011. This option expires in February 2011. The strike price of the option is based on the IPO price that steps up on an annual basis and is currently at 103 percent of the IPO price. The strike price of the option is capped at 118 percent depending when the option is exercised.

Additionally, the Corporation owns approximately 137.0 million and 41.1 million of preferred and common shares, respectively, of Banco Itaú Holding Financeira S.A. (Banco Itaú) at March 31, 2008 which are recorded in other assets. These shares are accounted for at cost as they are non-transferable until May 2009. These shares will be accounted for as AFS marketable equity securities and carried at fair value with an offset to accumulated OCI beginning in the second quarter of 2008. Dividend income on this investment is recorded in equity investment income. At both March 31, 2008 and December 31, 2007, the cost of this investment was $2.6 billion and the fair value was $4.1 billion and $4.6 billion.

The Corporation has a 24.9 percent, or $2.7 billion, investment in Grupo Financiero Santander, S.A., the subsidiary of Grupo Santander, S.A. This investment is recorded in other assets and is accounted for under the equity method of accounting with income being recorded in equity investment income.

For additional information on securities, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2007 Annual Report on Form 10-K.

NOTE 6 – Outstanding Loans and Leases

Outstanding loans and leases at March 31, 2008 and December 31, 2007 were:


(Dollars in millions)	March 31 2008	December 31 2007
Consumer
Residential mortgage	$266,145	$274,949
Credit card – domestic	60,393	65,774
Credit card – foreign	15,518	14,950
Home equity	118,381	114,820
Direct/Indirect consumer ⁽¹⁾	80,446	76,858
Other consumer ⁽²⁾	3,746	3,850
Total consumer	544,629	551,201
Commercial
Commercial – domestic ⁽³⁾	208,212	208,297
Commercial real estate ⁽⁴⁾	62,739	61,298
Commercial lease financing	22,132	22,582
Commercial – foreign	31,101	28,376
Total commercial loans measured at historical cost	324,184	320,553
Commercial loans measured at fair value ⁽⁵⁾	5,057	4,590
Total commercial	329,241	325,143
Total loans and leases	$873,870	$876,344

⁽¹⁾	Includes foreign consumer loans of $3.2 billion and $3.4 billion at March 31, 2008 and December 31, 2007.

⁽²⁾	Includes consumer finance loans of $2.9 billion and $3.0 billion, and other foreign consumer loans of $841 million and $829 million at March 31, 2008 and December 31, 2007.

⁽³⁾	Includes small business commercial – domestic loans, primarily card related, of $20.1 billion and $19.6 billion at March 31, 2008 and December 31, 2007.

⁽⁴⁾	Includes domestic commercial real estate loans of $61.4 billion and $60.2 billion, and foreign commercial real estate loans of $1.3 billion and $1.1 billion at March 31, 2008 and December 31, 2007.

⁽⁵⁾

Certain commercial loans are measured at fair value in accordance with SFAS 159 and include commercial – domestic loans of $3.9 billion and $3.5 billion, commercial – foreign loans of $949 million and $790 million, and commercial real estate loans of $240 million and $304 million at March 31, 2008 and December 31, 2007. See Note 14 – Fair Value Disclosures to the Consolidated Financial Statements for additional discussion of fair value for certain financial instruments.

The following table presents the recorded loan amounts, without consideration for the specific component of the allowance for loan and lease losses, that were considered individually impaired in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan” (SFAS 114), at March 31, 2008 and December 31, 2007. SFAS 114 impairment includes performing troubled debt restructurings and excludes all commercial leases.


(Dollars in millions)	March 31 2008	December 31 2007
Commercial – domestic ⁽¹⁾	$1,162	$1,018
Commercial real estate	1,627	1,099
Commercial – foreign	54	19
Total impaired loans	$2,843	$2,136

⁽¹⁾	Includes small business commercial – domestic loans of $153 million and $144 million at March 31, 2008 and December 31, 2007.

At March 31, 2008 and December 31, 2007, nonperforming loans and leases, including impaired and nonaccrual consumer loans, totaled $7.3 billion and $5.6 billion. In addition, included in other assets were consumer and commercial nonperforming loans held-for-sale (LHFS) of $327 million and $188 million at March 31, 2008 and December 31, 2007.

NOTE 7 – Allowance for Credit Losses

The following table summarizes the changes in the allowance for credit losses for the three months ended March 31, 2008 and 2007.


	Three Months Ended March 31
(Dollars in millions)	2008	2007
Allowance for loan and lease losses, January 1	$11,588	$9,016
Adjustment due to the adoption of SFAS 159	-	(32)
Loans and leases charged off	(3,180)	(1,743)
Recoveries of loans and leases previously charged off	465	316
Net charge-offs	(2,715)	(1,427)
Provision for loan and lease losses	6,021	1,228
Other	(3)	(53)
Allowance for loan and lease losses, March 31	14,891	8,732
Reserve for unfunded lending commitments, January 1	518	397
Adjustment due to the adoption of SFAS 159	-	(28)
Provision for unfunded lending commitments	(11)	7
Other	-	(2)
Reserve for unfunded lending commitments, March 31	507	374
Allowance for credit losses, March 31	$15,398	$9,106

NOTE 8 – Securitizations

The Corporation securitizes loans which may be serviced by the Corporation or by third parties. With each securitization, the Corporation may retain all or a portion of the securities, subordinated tranches, interest-only strips, subordinated interests in accrued interest and fees on the securitized receivables, and, in some cases, cash reserve accounts, all of which are called retained interests. These retained interests are recorded in other assets and/or AFS debt securities and are carried at fair value or amounts that approximate fair value with changes recorded in income or accumulated OCI. Changes in the fair value for credit card related interest-only strips are recorded in card income.

As of March 31, 2008 and December 31, 2007 the aggregate debt securities outstanding for the Corporation’s credit card securitization trusts were $106.1 billion and $101.3 billion. Key economic assumptions used in measuring the fair value of certain residual interests that continue to be held by the Corporation (included in other assets) from credit card securitizations and the sensitivity of the current fair value of residual cash flows to changes in those assumptions are as follows:


(Dollars in millions)	March 31 2008		December 31 2007
Carrying amount of residual interests (at fair value) ⁽¹⁾	$2,907		$2,766

Balance of unamortized securitized loans	107,847		102,967

Weighted average life to call or maturity (in years)	0.3		0.3

Monthly payment rate	10.6-15.8	%	11.6-16.6	%

Impact on fair value of 10% favorable change	$65		$51

Impact on fair value of 25% favorable change	200		158

Impact on fair value of 10% adverse change	(57)		(35)

Impact on fair value of 25% adverse change	(126)		(80)

Expected credit losses (annual rate)	3.8-5.6	%	3.7-5.4	%

Impact on fair value of 10% favorable change	$156		$141

Impact on fair value of 25% favorable change	425		374

Impact on fair value of 10% adverse change	(155)		(133)

Impact on fair value of 25% adverse change	(388)		(333)

Residual cash flows discount rate (annual rate)	11.5	%	11.5	%

Impact on fair value of 100 bps favorable change	$5		$9

Impact on fair value of 200 bps favorable change	7		13

Impact on fair value of 100 bps adverse change	(8)		(12)

Impact on fair value of 200 bps adverse change	(16)		(23)

⁽¹⁾	Residual interests include interest-only strips, subordinated tranches, subordinated interests in accrued interest and fees on the securitized receivables and cash reserve accounts which are carried at fair value or amounts that approximate fair value.

The sensitivities in the preceding table are hypothetical and should be used with caution. As the amounts indicate, changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of an interest that continues to be held by the Corporation is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. Additionally, the Corporation has the ability to hedge interest rate risk associated with retained residual positions. The above sensitivities do not reflect any hedge strategies that may be undertaken to mitigate such risk.

Principal proceeds from collections reinvested in revolving credit card securitizations were $45.6 billion and $44.7 billion for the three months ended March 31, 2008 and 2007. Contractual credit card servicing fee income totaled $533 million and $509 million for the three months ended March 31, 2008 and 2007. Other cash flows received on retained interests, such as cash flow from interest-only strips, were $1.7 billion for both the three months ended March 31, 2008 and 2007, for credit card securitizations.

NOTE 9 – Variable Interest Entities

The following table presents total assets of those VIEs in which the Corporation holds a significant variable interest and, in the unlikely event that all of the assets in the VIEs become worthless, the Corporation’s maximum exposure to loss. The Corporation’s maximum exposure to loss incorporates not only potential losses associated with assets recorded on the Corporation’s balance sheet but also off-balance sheet commitments, such as unfunded liquidity and lending commitments and other contractual arrangements. In addition to the table below, the Corporation also provided support to certain cash funds managed within Global Wealth and Investment Management (GWIM) as described in more detail in Note 11 – Commitments and Contingencies to the Consolidated Financial Statements.


	Consolidated⁽¹⁾		Unconsolidated
(Dollars in millions)	Total Assets	Loss Exposure	Total Assets	Loss Exposure
Variable interest entities, March 31, 2008
Corporation-sponsored multi-seller conduits	$11,425	$14,722	$27,354	$44,429
Collateralized debt obligation vehicles	3,358	3,288	7,143	6,474
Leveraged lease trusts	6,175	6,175	-	-
Other	11,138	9,651	8,691	6,218
Total variable interest entities	$32,096	$33,836	$43,188	$57,121
Variable interest entities, December 31, 2007
Corporation-sponsored multi-seller conduits	$11,944	$16,984	$29,363	$47,335
Collateralized debt obligation vehicles	4,464	4,311	8,324	7,410
Leveraged lease trusts	6,236	6,236	-	-
Other	13,771	12,347	8,260	5,953
Total variable interest entities	$36,415	$39,878	$45,947	$60,698

⁽¹⁾	The Corporation consolidates VIEs when it is the primary beneficiary that will absorb the majority of the expected losses or expected residual returns of the VIEs or both.

Corporation-Sponsored Multi-Seller Conduits

The Corporation administers three multi-seller conduits which provide a low-cost funding alternative to its customers by facilitating their access to the commercial paper market. These customers sell or otherwise transfer assets to the conduits, which in turn issue high-grade, short-term commercial paper that is collateralized by the underlying assets. The Corporation receives fees for providing combinations of liquidity and standby letters of credit (SBLCs) or similar loss protection commitments to the conduits. Third parties participate in a small number of the liquidity facilities on a pari passu basis with the Corporation.

At March 31, 2008, our liquidity commitments to the conduits were collateralized by various classes of assets. Assets held in the conduits incorporate features such as overcollateralization and cash reserves which are designed to provide credit support. During the three months ended March 31, 2008, there were no material write-downs or downgrades of assets.

The Corporation is the primary beneficiary of one conduit which is included in the Consolidated Financial Statements. The assets of the consolidated conduit are recorded in AFS and held-to-maturity debt securities, and other assets. At March 31, 2008, the Corporation’s liquidity commitments to the conduit were collateralized by credit card loans (24 percent), auto loans (16 percent), equipment loans (11 percent), and capital commitments and trade receivables (six percent each). None of these assets are subprime residential mortgages. In addition, 26 percent of the Corporation’s liquidity commitments were collateralized by projected cash flows from long-term contracts (e.g., television broadcast contracts, stadium revenues and royalty payments) which, as mentioned above, incorporate features that provide credit support. At March 31, 2008, the weighted average life of assets in the consolidated conduit was 5.4 years and the weighted average maturity of commercial paper issued by this conduit was 32 days. Assets of the Corporation are not available to pay creditors of the consolidated

conduit except to the extent the Corporation may be obligated to perform under the liquidity commitments and SBLCs. Assets of the consolidated conduit are not available to pay creditors of the Corporation.

The Corporation does not consolidate the other two conduits which issued capital notes and equity interests to independent third parties as it does not expect to absorb a majority of the variability of the conduits. At March 31, 2008, the Corporation’s liquidity commitments to the unconsolidated conduits were collateralized by student loans (23 percent), credit card loans (11 percent), trade receivables (nine percent), and auto loans (eight percent). Less than one percent of these assets are subprime residential mortgages. In addition, 31 percent of the Corporation’s commitments were collateralized by the conduits’ short-term lending arrangements with investment funds, primarily real estate funds, which, as mentioned above, incorporate features that provide credit support. Amounts advanced under these arrangements will be repaid when the investment funds issue capital calls to their qualified equity investors. At March 31, 2008, the weighted average life of assets in the unconsolidated conduit was 2.6 years and the weighted average maturity of commercial paper issued by these conduits was 30 days.

Net revenues earned from fees associated with these commitments were $69 million and $32 million for the three months ended March 31, 2008 and 2007.

Collateralized Debt Obligation Vehicles

CDO vehicles are SPEs that hold diversified pools of fixed income securities. They issue multiple tranches of debt securities, including commercial paper, and equity securities. The Corporation also provides liquidity support to certain CDO vehicles.

The Corporation is the primary beneficiary of certain CDOs which are included in the Consolidated Financial Statements at March 31, 2008 and December 31, 2007. Assets held in the consolidated CDOs are classified in trading account assets and AFS debt securities, including AFS debt securities with a fair value of $2.0 billion and $2.8 billion and trading account assets with a fair value of $1.0 billion and $1.3 billion at March 31, 2008 and December 31, 2007 that were acquired in connection with liquidity support provided to the CDO conduit discussed below or issued by a consolidated CDO to which we no longer provide liquidity support at March 31, 2008. The creditors of the consolidated CDOs have no recourse to the general credit of the Corporation.

The Corporation’s exposure to unconsolidated CDOs relates principally to liquidity support of $6.2 billion and $9.1 billion at March 31, 2008 and December 31, 2007. These amounts include written put options of $3.9 billion and $6.8 billion at March 31, 2008 and December 31, 2007 and other liquidity support of $2.3 billion at both March 31, 2008 and December 31, 2007. The written put options pertain to commercial paper which is the most senior class of securities issued by the CDOs and benefits from the subordination of all other securities issued by the CDOs. The Corporation is obligated under the written put options to provide funding to the CDOs by purchasing the commercial paper at predetermined contractual yields in the event of a severe disruption in the short-term funding market. The underlying collateral on the written put options includes mortgage-backed securities, ABS and CDO securities issued by other vehicles. These written put options are recorded as derivatives on the Consolidated Balance Sheet and are carried at fair value with changes in fair value recorded in trading account profits (losses). Derivative activity related to these entities is included in Note 4 – Derivatives to the Consolidated Financial Statements.

The Corporation’s liquidity support to unconsolidated CDOs, as noted above, includes other liquidity support of $2.3 billion at both March 31, 2008 and December 31, 2007. A CDO conduit administered by the Corporation obtains funds by issuing commercial paper to third party investors. The conduit held $2.3 billion of assets at both March 31, 2008 and December 31, 2007 consisting of super senior tranches of debt securities issued by other CDOs. These securities benefit from overcollateralization exceeding the amount that would be required for a AAA-rating. The Corporation provides liquidity support equal to the amount of assets in this conduit which obligates it to purchase the commercial paper at a predetermined contractual yield in the event of a severe disruption in the short-term funding market.

At March 31, 2008 and December 31, 2007, the Corporation held commercial paper with a carrying value of $5.6 billion and $6.6 billion on the balance sheet that was issued by unconsolidated CDO vehicles, of which $3.3 billion and $5.0 billion related to these written put options and $2.3 billion and $1.6 billion related to other liquidity support. We also held $1.8 billion of AFS debt securities at March 31, 2008 issued by an unconsolidated CDO to which we no longer provide liquidity support.

Leveraged Lease Trusts

The Corporation’s net investment in leveraged lease trusts totaled $6.2 billion at both March 31, 2008 and December 31, 2007. These amounts, which were recorded in loans and leases, represent the Corporation’s maximum loss exposure to these entities in the unlikely event that the leveraged lease investments become worthless. Debt issued by the leveraged lease trusts is nonrecourse to the Corporation. The Corporation has no liquidity exposure to these leveraged lease trusts.

Other

Other consolidated VIEs at March 31, 2008 and December 31, 2007 consisted primarily of securitization vehicles, including an asset acquisition conduit that holds securities on the Corporation’s behalf and term securitization vehicles that did not meet QSPE status, as well as managed investment vehicles that invest in financial assets, primarily debt securities. The Corporation’s maximum exposure to loss of these VIEs included $5.4 billion and $7.4 billion of liquidity exposure to consolidated trusts that hold municipal bonds and $1.5 billion and $1.6 billion of liquidity exposure to the consolidated asset acquisition conduit at March 31, 2008 and December 31, 2007. The assets of these consolidated VIEs were recorded in trading account assets, AFS debt securities and other assets. Other unconsolidated VIEs at March 31, 2008 and December 31, 2007 consisted primarily of securitization vehicles, managed investment vehicles that invest in financial assets, primarily debt securities, and investments in affordable housing investment partnerships. Revenues associated with administration, asset management, liquidity, and other services were $2 million and $5 million for the three months ended March 31, 2008 and 2007.

NOTE 10 – Goodwill and Intangible Assets

The following tables present goodwill and intangible assets at March 31, 2008 and December 31, 2007.


(Dollars in millions)	March 31 2008	December 31 2007
Global Consumer and Small Business Banking	$40,538	$40,340
Global Corporate and Investment Banking	29,614	29,648
Global Wealth and Investment Management	6,511	6,451
All Other	1,209	1,091
Total goodwill	$77,872	$77,530

The gross carrying values and accumulated amortization related to intangible assets at March 31, 2008 and December 31, 2007 are presented below:


	March 31, 2008		December 31, 2007
(Dollars in millions)	Gross Carrying Value	Accumulated Amortization	Gross Carrying Value	Accumulated Amortization
Purchased credit card relationships	$7,062	$2,161	$7,027	$1,970
Core deposit intangibles	4,594	2,943	4,594	2,828
Affinity relationships	1,679	452	1,681	406
Other intangibles	2,988	946	3,050	852
Total intangible assets	$16,323	$6,502	$16,352	$6,056

Amortization of intangibles expense was $446 million and $389 million for the three months ended March 31, 2008 and 2007. The Corporation estimates that aggregate amortization expense is expected to be approximately $435 million for each of the remaining quarters of 2008. In addition, the Corporation estimates the aggregate amortization expense will be approximately $1.5 billion, $1.3 billion, $1.2 billion, $990 million and $830 million for 2009 through 2013, respectively.

NOTE 11 – Commitments and Contingencies

In the normal course of business, the Corporation enters into a number of off-balance sheet commitments. These commitments expose the Corporation to varying degrees of credit and market risk and are subject to the same credit and market risk limitation reviews as those instruments recorded on the Corporation’s Consolidated Balance Sheet.

Credit Extension Commitments

The Corporation enters into commitments to extend credit such as loan commitments, SBLCs and commercial letters of credit to meet the financing needs of its customers. The unfunded legally binding lending commitments shown in the following table are net of amounts distributed (e.g., syndicated) to other financial institutions of $39.2 billion at both March 31, 2008 and December 31, 2007. At March 31, 2008, the carrying amount of these commitments, excluding fair value adjustments, was $536 million, including deferred revenue of $29 million and a reserve for unfunded legally binding lending commitments of $507 million. At December 31, 2007, the carrying amount of these commitments, excluding fair value adjustments, was $550 million, including deferred revenue of $32 million and a reserve for unfunded legally binding lending commitments of $518 million. The carrying amount of these commitments is recorded in accrued expenses and other liabilities. For information regarding our loan commitments accounted for at fair value, see Note 14 – Fair Value Disclosures to the Consolidated Financial Statements.


(Dollars in millions)	Expires in 1 year or less	Expires after 1 year through 3 years	Expires after 3 years through 5 years	Expires after 5 years	Total
Credit extension commitments, March 31, 2008
Loan commitments	$166,182	$93,978	$103,308	$28,770	$392,238
Home equity lines of credit	8,337	1,814	2,921	107,225	120,297
Standby letters of credit and financial guarantees	32,322	14,322	8,612	8,940	64,196
Commercial letters of credit	3,103	170	31	1,268	4,572
Legally binding commitments ⁽¹⁾	209,944	110,284	114,872	146,203	581,303
Credit card lines	883,710	18,261	-	-	901,971
Total credit extension commitments	$1,093,654	$128,545	$114,872	$146,203	$1,483,274

Credit extension commitments, December 31, 2007
Loan commitments	$178,931	$92,153	$106,904	$27,902	$405,890
Home equity lines of credit	8,482	1,828	2,758	107,055	120,123
Standby letters of credit and financial guarantees	31,629	14,493	7,943	8,731	62,796
Commercial letters of credit	3,753	50	33	717	4,553
Legally binding commitments ⁽¹⁾	222,795	108,524	117,638	144,405	593,362
Credit card lines	876,393	17,864	-	-	894,257
Total credit extension commitments	$1,099,188	$126,388	$117,638	$144,405	$1,487,619

⁽¹⁾

Includes commitments to VIEs disclosed in Note 9 – Variable Interest Entities to the Consolidated Financial Statements, including $44.4 billion and $47.3 billion to corporation-sponsored multi-seller conduits at March 31, 2008 and December 31, 2007 and $2.3 billion to CDOs for both period ends. Also includes commitments to SPEs that are not disclosed in Note 9 – Variable Interest Entities to the Consolidated Financial Statements because the Corporation does not hold a significant variable interest or because they are QSPEs, including $5.8 billion and $6.1 billion to municipal bond trusts at March 31, 2008 and December 31, 2007 and $1.7 billion to customer-sponsored conduits for both period ends.

Legally binding commitments to extend credit generally have specified rates and maturities. Certain of these commitments have adverse change clauses that help to protect the Corporation against deterioration in the borrowers’ ability to pay.

The Corporation also facilitates bridge financing (high grade debt, high yield debt and equity) to fund acquisitions, recapitalizations and other short-term needs as well as provide syndicated financing for clients. These concentrations are managed in part through the Corporation’s established “originate to distribute” strategy. These client transactions are sometimes large and leveraged. They can also have a higher degree of risk as the Corporation is providing offers or commitments for various components of the clients’ capital structures, including lower-rated unsecured and subordinated debt tranches and/or equity. In many cases, these offers to finance will not be accepted. If accepted, these conditional commitments are often retired prior to or shortly following funding via the placement of securities, syndication or the client’s decision to terminate. Where the Corporation has a commitment and there is a market disruption or other unexpected event, there may be heightened exposure in the portfolios, and higher potential for loss, unless an orderly disposition of the exposure can be made. These commitments are not necessarily indicative of actual risk or funding requirements as the commitments may expire unused, the borrower may not be successful in completing the proposed transaction or may utilize multiple financing sources, including other investment and commercial banks, as well as accessing the general capital markets instead of drawing on the commitment. In addition, the Corporation may reduce its portion of the commitment through syndications to investors and/or lenders prior to funding. Therefore, these commitments are generally significantly greater than the amounts the Corporation will ultimately fund. Additionally, the borrower’s ability to draw on the commitment may be subject to there being no material adverse change in the borrower’s financial condition, among other factors. Commitments also generally contain certain flexible pricing features to adjust for changing market conditions prior to closing.

The Corporation’s share of the leveraged finance forward calendar was $3.9 billion at March 31, 2008 compared to $12.2 billion at December 31, 2007. During the three months ended March 31, 2008, the Corporation syndicated $6.2 billion, closed but had not yet syndicated $3.8 billion, had client terminations and other transactions of $1.6 billion, and had new transactions of $3.3 billion related to our leveraged finance forward calendar. The Corporation also had unfunded real estate loan commitments of $784 million at March 31, 2008 compared to $2.2 billion at December 31, 2007 with the primary change resulting from $1.2 billion of transactions that were funded.

Other Commitments

Principal Investing and Other Equity Investments

At March 31, 2008 and December 31, 2007, the Corporation had unfunded equity investment commitments of approximately $2.2 billion and $2.6 billion. These commitments relate primarily to the Strategic Investments portfolio, as well as equity commitments included in the Corporation’s Principal Investing business, which is comprised of a diversified portfolio of investments in privately-held and publicly-traded companies at all stages of their life cycle from start-up to buyout. These investments are made either directly in a company or held through a fund and are accounted for at fair value. At March 31, 2008 and December 31, 2007, the Corporation did not have any unfunded bridge equity commitments and had funded $1.2 billion of equity bridges, which are now considered held for investment. Bridge equity commitments provide equity bridge financing to facilitate clients’ investment activities. These conditional commitments are often retired prior to or shortly following funding via syndication or the client’s decision to terminate. Where the Corporation has a binding equity bridge commitment and there is a market disruption or other unexpected event, there may be heightened exposure in the portfolio and higher potential for loss, unless an orderly disposition of the exposure can be made.

U.S. Government Guaranteed Charge Cards

At March 31, 2008 and December 31, 2007, the unfunded lending commitments related to charge cards (nonrevolving card lines) to individuals and government entities guaranteed by the U.S. Government in the amount of $9.8 billion and $9.9 billion were not included in credit card line commitments in the previous table. The outstanding balances related to these charge cards were $228 million and $193 million at March 31, 2008 and December 31, 2007.

Loan Purchases

At March 31, 2008, the Corporation had no collateralized mortgage obligation loan purchase commitments related to the Corporation’s ALM activities. At December 31, 2007, the Corporation had net collateralized mortgage obligation loan purchase commitments related to the Corporation’s ALM activities of $752 million, all of which settled in the first quarter of 2008.

In 2005, the Corporation entered into an agreement for the committed purchase of retail automotive loans over a five-year period, ending June 30, 2010. The Corporation did not purchase any loans under this agreement for the three months ended March 31, 2008. In 2007, the Corporation purchased $4.5 billion of such loans. Under the agreement, the Corporation is committed to purchase up to $5.0 billion for the fiscal period July 1, 2007 to June 30, 2008 and $10.0 billion in each of the agreement’s following two fiscal years. As of March 31, 2008, the remaining commitment amount was $25.0 billion.

Operating Leases

The Corporation is a party to operating leases for certain of its premises and equipment. Commitments under these leases approximate $2.1 billion, $1.9 billion, $1.6 billion, $1.3 billion and $1.2 billion for 2008 through 2012, respectively, and $8.2 billion for all years thereafter.

Other Commitments

Beginning in the second half of 2007, the Corporation provided support to certain cash funds managed within GWIM. The funds for which the Corporation provided support typically invest in high quality, short-term securities with a weighted average maturity of 90 days or less, including a limited number of securities issued by SIVs. Due to market disruptions, certain SIV investments were downgraded by the rating agencies and experienced a decline in fair value. The Corporation entered into capital commitments which required the Corporation to provide cash to these funds in the event the net asset value per unit of a fund declined below certain thresholds. The capital commitments expire no later than the third quarter of 2010. At March 31, 2008 and December 31, 2007, the Corporation had gross (i.e., funded and unfunded) capital commitments to the funds of $525 million and $565 million. For the three months ended March 31, 2008, the Corporation incurred losses of $127 million related to these capital commitments. At March 31, 2008 and December 31, 2007, the remaining loss exposure on capital commitments was $16 million and $183 million. Additionally, during the three months ended March 31, 2008, the Corporation purchased $994 million of investments from the funds and recorded losses of $93 million.

The Corporation may from time to time, but is under no obligation to, provide additional support to funds managed within GWIM. Future support, if any, may take the form of additional capital commitments to the funds or the purchase of assets from the funds.

The Corporation is not the primary beneficiary of the cash funds and does not consolidate the cash funds managed within GWIM because the subordinated support provided by the Corporation will not absorb a majority of the variability created by the assets of the funds. The cash funds had total assets under management of $176.2 billion at March 31, 2008.

Other Guarantees

Written Put Options

At March 31, 2008 and December 31, 2007, the Corporation provided liquidity support in the form of written put options on $3.9 billion and $10.0 billion of commercial paper issued by CDOs, including $3.2 billion issued by a consolidated CDO and $6.8 billion issued by unconsolidated CDOs at December 31, 2007. These agreements have various maturities ranging from two to five years. For more information regarding written put options, see Note 9 – Variable Interest Entities to the Consolidated Financial Statements.

Merchant Services

The Corporation provides credit and debit card processing services to various merchants by processing credit and debit card transactions on their behalf. In connection with these services, a liability may arise in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder's favor and the merchant defaults upon its obligation to reimburse the cardholder. A cardholder, through its issuing bank, generally has until the later of up to six months after the date a transaction is processed or the delivery of the product or service to present a chargeback to the Corporation as the merchant processor. If the Corporation is unable to collect this amount from the merchant, it bears the loss for the amount paid to the cardholder. For the three months ended March 31, 2008 and 2007, the Corporation processed $88.3 billion and $82.8 billion of transactions and recorded losses as a result of these chargebacks of $4 million for both periods.

At March 31, 2008 and December 31, 2007, the Corporation held as collateral $21 million and $19 million of merchant escrow deposits which the Corporation has the right to offset against amounts due from the individual merchants. The Corporation also has the right to offset any payments with cash flows otherwise due to the merchant. Accordingly, the Corporation believes that the maximum potential exposure is not representative of the actual potential loss exposure. The Corporation believes the maximum potential exposure for chargebacks would not exceed the total amount of merchant transactions processed through Visa and MasterCard for the last six months, which represents the claim period for the cardholder, plus any outstanding delayed-delivery transactions. As of March 31, 2008 and December 31, 2007, the maximum potential exposure totaled approximately $148.4 billion and $151.2 billion.

Other Guarantees

For additional information on other guarantees, see Note 13 – Commitments and Contingencies to the Consolidated Financial Statements of the Corporation’s 2007 Annual Report on Form 10-K. For additional information on recourse obligations related to residential mortgage loans sold and other guarantees related to securitizations, see Note 8 – Securitizations to the Consolidated Financial Statements of the Corporation’s 2007 Annual Report on Form 10-K.

Litigation and Regulatory Matters

The following supplements the disclosure in Note 13 – Commitments and Contingencies to the Consolidated Financial Statements of the Corporation’s 2007 Annual Report on Form 10-K.

Municipal Derivatives Matters

Beginning in March 2008, the Corporation, Bank of America, N.A. and other financial institutions have been named as defendants in complaints filed in federal courts in the District of Columbia, New York and elsewhere. Plaintiffs purport to represent classes of government and private entities that purchased municipal derivatives from defendants. The complaints allege that defendants conspired to allocate customers and fix or stabilize the prices of certain municipal derivatives from 1992 through 2006. The plaintiffs’ complaints seek unspecified damages, including treble damages.

Pension Plan Matters

The Richards case.

A settlement agreement has been executed, and preliminary court approval has been obtained.

NOTE 12 – Shareholders’ Equity and Earnings Per Common Share

Common Stock

The Corporation may repurchase shares, from time to time, in the open market or in private transactions through the Corporation’s approved repurchase program. For the three months ended March 31, 2008, the Corporation did not repurchase shares of common stock and issued 14.9 million shares under employee stock plans.

In April 2008, the Board authorized a quarterly cash dividend of $0.64 per common share payable on June 27, 2008 to shareholders of record on June 6, 2008.

In January 2008, the Board declared a first quarter cash dividend of $0.64 per common share which was paid on March 28, 2008 to shareholders of record on March 7, 2008.

Preferred Stock

In April 2008, the Corporation issued 160 thousand shares of Bank of America Corporation Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series M (Series M Preferred Stock) with a par value of $0.01 per share for $4.0 billion. The fixed rate is 8.125 percent through May 14, 2018 and then adjusts to three-month LIBOR plus 364 basis points (bps) thereafter. Ownership is held in the form of depositary shares, each representing a 1/25^th interest in a share of Series M Preferred Stock, paying a semiannual cash dividend through May 14, 2018 then adjusts to a quarterly cash dividend, on the liquidation preference of $25,000 per share of Series M Preferred Stock. The Series M Preferred Stock is not convertible.

In January 2008, the Corporation issued 240 thousand shares of Bank of America Corporation Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series K (Series K Preferred Stock) with a par value of $0.01 per share for $6.0 billion. The fixed rate is 8.00 percent through January 29, 2018 and then adjusts to three-month LIBOR plus 363 bps thereafter. Ownership is held in the form of depositary shares, each representing a 1/25^th interest in a share of Series K Preferred Stock, paying a semiannual cash dividend through January 29, 2018 then adjusts to a quarterly cash dividend, on the liquidation preference of $25,000 per share of Series K Preferred Stock. The Series K Preferred Stock is not convertible.

Also in January 2008, the Corporation issued 6.9 million shares of Bank of America Corporation 7.25% Non-Cumulative Perpetual Convertible Preferred Stock, Series L (Series L Preferred Stock) with a par value of $0.01 per share for $6.9 billion, paying a quarterly cash dividend on the liquidation preference of $1,000 per share of Series L Preferred Stock at an annual rate of 7.25 percent. Each share of the Series L Preferred Stock may be converted at any time, at the option of the holder, into 20 shares of the Corporation’s common stock plus cash in lieu of fractional shares. On or after January 30, 2013, the Corporation may cause some or all of the Series L Preferred Stock, at its option, at any time or from time to time, to be converted into shares of common stock at the then-applicable conversion rate if, for 20 trading days during any period of 30 consecutive trading days, the closing price of common stock exceeds 130 percent of the then-applicable conversion price of the Series L Preferred Stock. If the Corporation exercises its right to cause the automatic conversion of Series L Preferred Stock on January 30, 2013, it will still pay any accrued dividends payable on January 30, 2013 to the applicable holders of record.

The shares of the series of preferred stock discussed above are not subject to the operation of a sinking fund and have no participation rights. The holders of these series have no general voting rights. If any quarterly dividend payable on these series is in arrears for three or more semiannual or six or more quarterly dividend periods, as applicable (whether consecutive or not), the holders of these series and any other class or series of preferred stock ranking equally as to payment of dividends and upon which equivalent voting rights have been conferred and are exercisable (voting as a single class) will be entitled to vote for the election of two additional directors. These voting rights terminate when the Corporation has paid in full dividends on these series for at least two semiannual or four quarterly dividend periods, as applicable, following the dividend arrearage.

Accumulated OCI

The following table presents the changes in accumulated OCI for the three months ended March 31, 2008 and 2007, net-of-tax.


(Dollars in millions)	Securities ⁽¹⁾	Derivatives ⁽²⁾	Employee Benefit Plans	Foreign Currency	Total
Balance, December 31, 2007	$6,536	$(4,402)	$(1,301)	$296	$1,129
Net change in fair value recorded in accumulated OCI	(1,943)	(478)	-	20	(2,401)
Net realized losses reclassified into earnings ⁽³⁾	208	162	18	-	388
Balance, March 31, 2008	$4,801	$(4,718)	$(1,283)	$316	$(884)
Balance, December 31, 2006	$(2,733)	$(3,697)	$(1,428)	$147	$(7,711)
Net change in fair value recorded in accumulated OCI	98	31	-	(25)	104
Net realized (gains) losses reclassified into earnings ⁽³⁾	(206)	109	31	13	(53)
Balance, March 31, 2007	$(2,841)	$(3,557)	$(1,397)	$135	$(7,660)

⁽¹⁾

For the three months ended March 31, 2008 and 2007, the Corporation reclassified net realized (gains) losses into earnings on the sale and impairments of AFS debt securities of $213 million and $(39) million, net-of-tax, and net realized (gains) on the sales and impairments of AFS marketable equity securities of $(5) million and $(167) million, net-of-tax.

⁽²⁾	The amounts included in accumulated OCI for terminated interest rate derivative contracts were losses of $3.6 billion and $3.4 billion, net-of-tax, at March 31, 2008 and 2007.

⁽³⁾

Included in this line item are amounts related to derivatives used in cash flow hedge relationships. These amounts are reclassified into earnings in the same period or periods during which the hedged forecasted transactions affect earnings. This line item also includes (gains) losses on AFS debt and marketable equity securities and impairment charges. These amounts are reclassified into earnings upon sale of the related security or when the impairment charge is recognized.

Earnings per Common Share

Earnings per common share is computed by dividing net income available to common shareholders by the weighted average common shares issued and outstanding. For diluted earnings per common share, net income available to common shareholders can be affected by the conversion of the registrant’s convertible preferred stock. Where the effect of this conversion would have been dilutive, net income available to common shareholders is adjusted by the associated preferred dividends. This adjusted net income is divided by the weighted average number of common shares issued and outstanding for each period plus amounts representing the dilutive effect of stock options outstanding, restricted stock, restricted stock units and the dilution resulting from the conversion of the registrant’s convertible preferred stock, if applicable. The effects of convertible preferred stock, restricted stock, restricted stock units and stock options are excluded from the computation of diluted earnings per common share in periods in which the effect would be antidilutive. Dilutive potential common shares are calculated using the treasury stock method.

The calculation of earnings per common share and diluted earnings per common share for the three months ended March 31, 2008 and 2007 is presented below.


	Three Months Ended March 31
(Dollars in millions, except per share information; shares in thousands)	2008	2007
Earnings per common share
Net income	$1,210	$5,255
Preferred stock dividends	(190)	(46)
Net income available to common shareholders	$1,020	$5,209
Average common shares issued and outstanding	4,427,823	4,432,664
Earnings per common share	$0.23	$1.18
Diluted earnings per common share
Net income available to common shareholders	$1,020	$5,209
Average common shares issued and outstanding	4,427,823	4,432,664
Dilutive potential common shares ^{(1, 2)}	33,378	64,364
Total diluted average common shares issued and outstanding	4,461,201	4,497,028
Diluted earnings per common share	$0.23	$1.16

⁽¹⁾

For the three months ended March 31, 2008 and 2007, average options to purchase 135 million and 17 million shares were outstanding but not included in the computation of earnings per common share because they were antidilutive. For the three months ended March 31, 2008, 96.5 million average dilutive potential common shares associated with the convertible Series L Preferred Stock issued in January of 2008 were excluded from the diluted share count because the result would have been antidilutive under the “if-converted” method.

⁽²⁾	Includes incremental shares from restricted stock units, restricted stock shares and stock options.

NOTE 13 – Pension and Postretirement Plans

The Corporation sponsors noncontributory trusteed qualified pension plans that cover substantially all officers and employees, a number of noncontributory nonqualified pension plans, and postretirement health and life plans. The Bank of America Pension Plan (the Pension Plan) allows participants to select from various earnings measures, which are based on the returns of certain funds or common stock of the Corporation. The participant-selected earnings measures determine the earnings rate on the individual participant account balances in the Pension Plan. A detailed discussion of these plans is presented in Note 16 – Employee Benefit Plans to the Consolidated Financial Statements of the Corporation’s 2007 Annual Report on Form 10-K.

Net periodic benefit cost (income) for the three months ended March 31, 2008 and 2007 included the following components:


	Three Months Ended March 31
	Qualified Pension Plans		Nonqualified Pension Plans		Postretirement Health and Life Plans
(Dollars in millions)	2008	2007	2008	2007	2008	2007
Components of net periodic benefit cost (income)
Service cost	$88	$86	$2	$3	$5	$3
Interest cost	210	180	19	18	23	22
Expected return on plan assets	(361)	(316)	-	-	(3)	(2)
Amortization of transition obligation	-	-	-	-	8	8
Amortization of prior service cost (credits)	12	12	(2)	(2)	-	-
Recognized net actuarial loss (gain)	16	33	3	5	(8)	(6)
Net periodic benefit cost (income)	$(35)	$(5)	$22	$24	$25	$25

During 2008, the Corporation expects to contribute $105 million and $101 million to its Nonqualified Pension Plans and Postretirement Health and Life Plans. For the three months ended March 31, 2008, the Corporation contributed $52 million and $25 million to these plans. The Corporation does not expect to contribute to its Qualified Pension Plans during 2008.

Note 14 – Fair Value Disclosures

Fair Value Option

Corporate Loans and Loan Commitments

The Corporation accounts for certain large corporate loans and loan commitments which exceeded the Corporation’s single name credit risk concentration guidelines at fair value in accordance with SFAS 159. Lending commitments, both funded and unfunded, are actively managed and monitored, and, as appropriate, credit risk for these lending relationships may be mitigated through the use of credit derivatives, with the Corporation’s credit view and market perspectives determining the size and timing of the hedging activity. These credit derivatives do not meet the requirements for hedge accounting under SFAS 133 and are therefore carried at fair value with changes in fair value recorded in other income. SFAS 159 allows the Corporation to account for these loans and loan commitments at fair value, which is more consistent with management’s view of the underlying economics and the manner in which they are managed. In addition, accounting for these loans and loan commitments at fair value reduces the accounting asymmetry that would otherwise result from carrying the loans at historical cost and the credit derivatives at fair value.

At March 31, 2008 and December 31, 2007, funded loans that the Corporation fair values had an aggregate fair value of $5.06 billion and $4.59 billion recorded in loans and leases and an aggregate outstanding principal balance of $5.41 billion and $4.82 billion. At March 31, 2008 and December 31, 2007, unfunded loan commitments that the Corporation fair values had an aggregate fair value of $903 million and $660 million recorded in accrued expenses and other liabilities and an aggregate committed exposure of $20.3 billion and $20.9 billion. Interest income on these loans and commitment fees on these loan commitments are recorded in interest and fees on loans and leases. At March 31, 2008 and December 31, 2007, none of these loans were 90 days or more past due and still accruing interest or had been placed on nonaccrual status. Net losses resulting from changes in fair value of these loans and loan commitments of $361 million and $27 million were recorded in other income during the three months ended March 31, 2008 and 2007. These changes in fair value were predominately offset by hedging activities. These losses were primarily attributable to changes in instrument-specific credit risk.

Loans Held-for-Sale

The Corporation also accounts for certain LHFS at fair value. Using fair value allows a better offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting under SFAS 133. The Corporation does not fair value other LHFS primarily because these loans are floating rate loans that are not economically hedged using derivative instruments. Fair values for LHFS are based on quoted market prices, where available, or are determined by discounting estimated cash flows using interest rates approximating the Corporation’s current origination rates for similar loans and adjusted to reflect the inherent credit risk. At March 31, 2008 and December 31, 2007, residential mortgage loans, commercial mortgage loans, and other LHFS that the Corporation fair values had an aggregate fair value of $12.10 billion and $15.77 billion and an aggregate outstanding principal balance of $13.49 billion and $16.72 billion and were recorded in other assets. Interest income on these loans is recorded in other interest income. Net gains (losses) resulting from changes in fair value of these loans during the three months ended March 31, 2008 and 2007, including realized gains (losses) on sale, of $15 million and $56 million were recorded in mortgage banking income, $(611) million and $(7) million were recorded in trading account profits (losses), and $(45) million and $5 million were recorded in other income. These changes in fair value were predominately offset by hedging activities. Approximately $40 million of these losses were attributable to instrument-specific credit risk during the three months ended March 31, 2008.

Structured Reverse Repurchase Agreements

The Corporation fair values certain structured reverse repurchase agreements which are hedged with derivatives. Using fair value allows the Corporation to reduce volatility in earnings without the burden of complying with the requirements of hedge accounting under SFAS 133. At March 31, 2008 and December

31, 2007, these instruments had an aggregate fair value of $2.66 billion and $2.58 billion and a principal balance of $2.64 billion and $2.54 billion recorded in federal funds sold and securities purchased under agreements to resell. Interest earned on these instruments continues to be recorded in interest income. Net gains resulting from changes in fair value of these instruments of $3 million and $2 million were recorded in other income for the three months ended March 31, 2008 and 2007. The Corporation does not fair value other financial instruments within the same balance sheet category because they were not economically hedged using derivatives.

Long-term Deposits

The Corporation fair values certain long-term fixed rate deposits which are economically hedged with derivatives. At March 31, 2008 and December 31, 2007, these instruments had an aggregate fair value of $2.01 billion and $2.00 billion and a principal balance of $1.94 billion and $1.99 billion recorded in interest-bearing deposits. Interest paid on these instruments continues to be recorded in interest expense. Net losses resulting from changes in fair value of these instruments of $54 million and $1 million were recorded in other income for the three months ended March 31, 2008 and 2007. Using fair value allows the Corporation to reduce the accounting volatility that would otherwise result from the accounting asymmetry created by accounting for the financial instruments at historical cost and the economic hedges at fair value. The Corporation does not fair value other financial instruments within the same balance sheet category because they were not economically hedged using derivatives.

Fair Value Measurement

SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Corporation determines the fair values of its financial instruments based on the fair value hierarchy established in SFAS 157 which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value. The Corporation carries certain corporate loans and loan commitments, LHFS, structured reverse repurchase agreements, and long-term deposits at fair value in accordance with SFAS 159. The Corporation also carries at fair value trading account assets and liabilities, derivative assets and liabilities, AFS debt securities, MSRs, and certain other assets. A detailed discussion on how the Corporation measures fair value is presented in Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2007 Annual Report on Form 10-K.

Level 1, 2 and 3 Valuation Techniques

Financial instruments are considered Level 1 when valuation can be based on quoted prices in active markets for identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data of substantially the full term of the assets or liabilities. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable and when determination of the fair value requires significant management judgment or estimation.

The Corporation also uses market indices for direct inputs to certain models, where the cash settlement is directly linked to appreciation or depreciation of that particular index (primarily in the context of structured credit products). In those cases, no material adjustments are made off of the index-based values. In other cases, market indices are also used as inputs to valuation, but are adjusted for trade specific factors such as rating, credit quality, vintage and other factors.

Corporate Loans and Loan Commitments

The fair values of loans and loan commitments are based on market prices, where available, or discounted cash flows using market-based credit spreads of comparable debt instruments or credit derivatives of the specific borrower or comparable borrowers. Results of discounted cash flow calculations may be adjusted, as appropriate, to reflect other market conditions or the perceived credit risk of the borrower.

Structured Reverse Repurchase Agreements and Long-term Deposits

The fair values of structured reverse repurchase agreements and long-term deposits are determined using quantitative models, including discounted cash flow models, that require the use of multiple market inputs including interest rates and spreads to generate continuous yield or pricing curves and volatility factors, which are used to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

Trading Account Assets and Liabilities and Available-for-Sale Debt Securities

The fair values of trading account assets and liabilities are primarily based on actively traded markets where prices are based on either direct market quotes or observed transactions. The fair values of AFS debt securities are generally based on quoted market prices or market prices for similar assets. Liquidity is a significant factor in the determination of the fair values of trading account assets or liabilities and AFS debt securities. Market price quotes may not be readily available for some positions, or positions within a market sector where trading activity has slowed significantly or ceased such as certain CDO positions and other ABS. Some of these instruments are valued using a net asset value approach, which considers the value of the underlying securities. Underlying assets are valued using external pricing services, where available, or matrix pricing based on the vintages and ratings. Situations of illiquidity generally are triggered by the market’s perception of credit uncertainty regarding a single company or a specific market sector. In these instances, fair value is determined based on limited available market information and other factors, principally from reviewing the issuer’s financial statements and changes in credit ratings made by one or more rating agencies.

Derivative Assets and Liabilities

The fair values of derivative assets and liabilities traded in the over-the-counter market are determined using quantitative models that require the use of multiple market inputs including interest rates, prices, and indices to generate continuous yield or pricing curves and volatility factors, which are used to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. Estimation risk is greater for derivative asset and liability positions that are either option-based or have longer maturity dates where observable market inputs are less readily available or are unobservable, in which case, quantitative-based extrapolations of rate, price or index scenarios are used in determining fair values. The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality and other deal specific factors, where appropriate.

Mortgage Servicing Rights

The fair values of MSRs are determined using models which depend on estimates of prepayment rates, the resultant weighted average lives of the MSRs and the option adjusted spread levels. For more information on MSRs, see Note 15 – Mortgage Servicing Rights to the Consolidated Financial Statements.

Other Assets

The Corporation fair values certain other assets including certain LHFS, AFS equity securities and certain retained residual interests in securitization vehicles. The fair values of LHFS are based on quoted market prices, where available, or are determined by discounting estimated cash flows using interest rates approximating the Corporation’s current origination rates for similar loans adjusted to reflect the inherent credit risk. The fair values of AFS equity securities are generally based on quoted market prices or market prices for similar assets. However, non-public investments are initially valued at transaction price and subsequently adjusted when evidence is available to support such adjustments. Retained residual interests in securitization vehicles are based on certain observable inputs such as interest rates and credit spreads, as well as unobservable inputs such as estimated net charge-off and payment rates.

Assets and liabilities measured at fair value on a recurring basis, including financial instruments that the Corporation accounts for at fair value in accordance with SFAS 159, are summarized below:


	March 31, 2008
	Fair Value Measurements Using
(Dollars in millions)	Level 1	Level 2	Level 3	Netting Adjustments ⁽¹⁾	Assets/Liabilities at Fair Value
Assets
Federal funds sold and securities purchased under agreements to resell	$-	$2,661	$-	$-	$2,661
Trading account assets	54,062	106,109	5,522	-	165,693
Derivative assets	1,082	782,438	10,834	(743,429)	50,925
Available-for-sale debt securities	2,221	209,981	9,658	-	221,860
Loans and leases ⁽²⁾	-	-	5,057	-	5,057
Mortgage servicing rights	-	-	3,163	-	3,163
Other assets ⁽³⁾	19,019	12,411	5,496	-	36,926
Total assets	$76,384	$1,113,600	$39,730	$(743,429)	$486,285

Liabilities
Interest-bearing deposits in domestic offices	$-	$2,005	$-	$-	$2,005
Trading account liabilities	58,395	17,637	-	-	76,032
Derivative liabilities	987	755,599	10,518	(737,934)	29,170
Accrued expenses and other liabilities	-	-	903	-	903
Total liabilities	$59,382	$775,241	$11,421	$(737,934)	$108,110

	December 31, 2007
	Fair Value Measurements Using
(Dollars in millions)	Level 1	Level 2	Level 3	Netting Adjustments ⁽¹⁾	Assets/Liabilities at Fair Value
Assets
Federal funds sold and securities purchased under agreements to resell	$-	$2,578	$-	$-	$2,578
Trading account assets	42,986	115,051	4,027	-	162,064
Derivative assets	516	442,471	8,972	(417,297)	34,662
Available-for-sale debt securities	2,089	205,734	5,507	-	213,330
Loans and leases ⁽²⁾	-	-	4,590	-	4,590
Mortgage servicing rights	-	-	3,053	-	3,053
Other assets ⁽³⁾	19,796	15,971	5,321	-	41,088
Total assets	$65,387	$781,805	$31,470	$(417,297)	$461,365

Liabilities
Interest-bearing deposits in domestic offices	$-	$2,000	$-	$-	$2,000
Trading account liabilities	57,331	20,011	-	-	77,342
Derivative liabilities	534	426,223	10,175	(414,509)	22,423
Accrued expenses and other liabilities	-	-	660	-	660
Total liabilities	$57,865	$448,234	$10,835	$(414,509)	$102,425

⁽¹⁾	Amounts represent the impact of legally enforceable master netting agreements that allow the Corporation to settle positive and negative positions and also cash collateral held or placed with the same counterparties.

⁽²⁾	Loans and leases at March 31, 2008 and December 31, 2007 included $22.1 billion and $22.6 billion of leases that were not eligible for the fair value option as they were specifically excluded from fair value option election in accordance with SFAS 159.

⁽³⁾

Other assets include equity investments held by Principal Investing, AFS equity securities and certain retained residual interests in securitization vehicles, including interest-only strips. Certain LHFS are also accounted for at fair value in accordance with SFAS 159. Substantially all of other assets are eligible for fair value accounting at March 31, 2008 and December 31, 2007.

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2008 and 2007.


	Total Fair Value Measurements
	Three Months Ended March 31, 2008
Level 3 Instruments Only (Dollars in millions)	Net Derivatives⁽¹⁾	Trading Account Assets	Available- for-Sale Debt Securities	Loans and Leases ⁽²⁾	Mortgage Servicing Rights	Other Assets ⁽³⁾	Accrued Expenses and Other Liabilities ⁽²⁾
Balance, January 1, 2008	$(1,203)	$4,027	$5,507	$4,590	$3,053	$5,321	$(660)
Total realized and unrealized gains (losses):
Included in earnings	490	(560)	(489)	(125)	(47)	423	(243)
Included in other comprehensive income	-	-	(582)	-	-	-	-
Purchases, issuances, and settlements	524	(568)	1,252	592	157	(124)	-
Transfers in to/out of Level 3	505	2,623	3,970	-	-	(124)	-
Balance, March 31, 2008	$316	$5,522	$9,658	$5,057	$3,163	$5,496	$(903)

	Total Fair Value Measurements
	Three Months Ended March 31, 2007
Level 3 Instruments Only (Dollars in millions)	Net Derivatives⁽¹⁾	Trading Account Assets	Available-for-Sale Debt Securities	Loans and Leases ⁽²⁾	Mortgage Servicing Rights	Other Assets ⁽³⁾	Accrued Expenses and Other Liabilities ⁽²⁾
Balance, January 1, 2007	$788	$303	$1,133	$3,947	$2,869	$6,605	$(349)
Total realized and unrealized gains (losses):
Included in earnings	(64)	(30)	-	1	121	730	(28)
Included in other comprehensive income	-	-	4	-	-	(51)	-
Purchases, issuances, and settlements	(108)	(4)	(65)	(89)	(27)	(1,403)	-
Transfers in to/out of Level 3	(8)	-	-	-	-	(14)	-
Balance, March 31, 2007	$608	$269	$1,072	$3,859	$2,963	$5,867	$(377)

⁽¹⁾	Net derivatives at March 31, 2008 and 2007 included derivative assets of $10.83 billion and $6.91 billion and derivative liabilities of $10.52 billion and $6.31 billion.

⁽²⁾	Amounts represent items which are accounted for at fair value in accordance with SFAS 159 including commercial loan commitments recorded in accrued expenses and other liabilities.

⁽³⁾	Other assets include equity investments held by Principal Investing and certain retained interests in securitization vehicles, including interest-only strips. Certain portfolios of LHFS, principally reverse mortgages, are also accounted for at fair value in accordance with SFAS 159.

The table below summarizes gains and losses due to changes in fair value, including both realized and unrealized gains and losses, recorded in earnings for Level 3 assets and liabilities during the three months ended March 31, 2008 and 2007. These amounts include those gains and losses generated by loans, LHFS and loan commitments which are accounted for at fair value in accordance with SFAS 159.


	Total Gains (Losses)
Level 3 Instruments Only (Dollars in millions)	Net Derivatives	Trading Account Assets	Available- for-Sale Debt Securities	Loans and Leases ⁽¹⁾	Mortgage Servicing Rights	Other Assets ⁽²⁾	Accrued Expenses and Other Liabilities ⁽¹⁾	Total
Classification of realized and unrealized gains (losses) included in earnings for the three months ended March 31, 2008:
Card income	$-	$-	$-	$-	$-	$464	$-	$464
Equity investment income	-	-	-	-	-	6	-	6
Trading account profits (losses)	358	(560)	-	(2)	-	(30)	(5)	(239)
Mortgage banking income (loss)	132	-	-	-	(47)	(25)	-	60
Other income	-	-	(489)	(123)	-	8	(238)	(842)
Total	$490	$(560)	$(489)	$(125)	$(47)	$423	$(243)	$(551)
Classification of realized and unrealized gains (losses) included in earnings for the three months ended March 31, 2007:
Card income	$-	$-	$-	$-	$-	$181	$-	$181
Equity investment income	-	-	-	-	-	508	-	508
Trading account losses	(69)	(30)	-	-	-	-	-	(99)
Mortgage banking income	5	-	-	-	121	-	-	126
Other income	-	-	-	1	-	41	(28)	14
Total	$(64)	$(30)	$-	$1	$121	$730	$(28)	$730

⁽¹⁾	Amounts represent items which are accounted for at fair value in accordance with SFAS 159.

⁽²⁾	Amounts include certain portfolios of LHFS which are accounted for at fair value in accordance with SFAS 159.

The table below summarizes changes in unrealized gains or losses recorded in earnings during the three months ended March 31, 2008 and 2007 for Level 3 assets and liabilities that are still held at March 31, 2008 and 2007. These amounts include changes in fair value of loans, LHFS and loan commitments which are accounted for at fair value in accordance with SFAS 159.


	Changes in Unrealized Gains (Losses)
Level 3 Instruments Only (Dollars in millions)	Net Derivatives	Trading Account Assets	Available- for- Sale Debt Securities	Loans and Leases⁽¹⁾	Mortgage Servicing Rights	Other Assets⁽²⁾	Accrued Expenses and Other Liabilities⁽¹⁾	Total
Changes in unrealized gains (losses) relating to assets still held at reporting date for the three months ended March 31, 2008:
Card income	$-	$-	$-	$-	$-	$203	$-	$203
Equity investment income	-	-	-	-	-	(62)	-	(62)
Trading account profits (losses)	103	(541)	-	-	-	(27)	-	(465)
Mortgage banking income (loss)	71	-	-	-	(96)	(19)	-	(44)
Other income	-	-	(476)	(153)	-	(1)	(354)	(984)
Total	$174	$(541)	$(476)	$(153)	$(96)	$94	$(354)	$(1,352)
Changes in unrealized gains (losses) relating to assets still held at reporting date for the three months ended March 31, 2007:
Card income	$-	$-	$-	$-	$-	$28	$-	$28
Equity investment income	-	-	-	-	-	118	-	118
Trading account losses	(158)	(30)	-	-	-	-	-	(188)
Mortgage banking income	4	-	-	-	60	-	-	64
Other income	-	-	-	(1)	-	-	(31)	(32)
Total	$(154)	$(30)	$-	$(1)	$60	$146	$(31)	$(10)

⁽¹⁾	Amounts represented items which are accounted for at fair value in accordance with SFAS 159.

⁽²⁾	Amounts include certain portfolios of LHFS which are accounted for at fair value in accordance with SFAS 159.

Certain assets and liabilities are measured at fair value on a non-recurring basis (e.g., LHFS, unfunded loan commitments held-for-sale, and commercial and residential reverse mortgage MSRs, all of which are carried at the lower of cost or market). At March 31, 2008 and December 31, 2007, LHFS that the Corporation does not account for at fair value with an aggregate cost of $19.78 billion and $14.70 billion had been written down to fair value of $18.66 billion and $14.50 billion (of which $1.93 billion and $1.20 billion were measured using Level 2 inputs, and $16.73 billion and $13.30 billion were measured using Level 3 inputs within the fair value hierarchy). During the three months ended March 31, 2008 and 2007, losses of $509 million and $41 million were recorded in other income (primarily leveraged LHFS), losses of $8 million and $4 million were recorded in mortgage banking income (primarily consumer mortgage LHFS), and losses of $173 million and $0 were recorded in trading account profits (losses) (primarily commercial mortgage LHFS).

NOTE 15 – Mortgage Servicing Rights

The Corporation accounts for residential first mortgage MSRs at fair value with changes in fair value recorded in the Consolidated Statement of Income in mortgage banking income. The Corporation economically hedges these MSRs with certain derivatives such as options, forward settlement contracts and interest rate swaps.

The following table presents activity for residential first mortgage MSRs for the three months ended March 31, 2008 and 2007.


	Three Months Ended March 31
(Dollars in millions)	2008	2007
Balance, beginning of the period	$3,053	$2,869
Additions	366	171
Impact of customer payments	(197)	(183)
Other changes in MSR market value	(59)	106
Balance, March 31	$3,163	$2,963

For the three months ended March 31, 2008, other changes in MSR market value of $(59) million reflects the change in discount rates and prepayment speed assumptions, mostly due to changes in interest rates, as well as the effect of model changes. The amount does not include $12 million resulting from the actual cash received exceeding expected prepayments. The net amount of $(47) million is included in the line “mortgage banking income (loss)” in the table “Total Gains (Losses)” in Note 14 – Fair Value Disclosures to the Consolidated Financial Statements.

The key economic assumptions used in valuations of MSRs include modeled prepayment rates, the resultant weighted average lives of the MSRs and the option adjusted spread levels. Commercial and residential reverse mortgage MSRs are accounted for using the amortization method (i.e., lower of cost or market). Commercial and residential reverse mortgage MSRs totaled $307 million and $294 million at March 31, 2008 and December 31, 2007 and are not included in the table above.

NOTE 16 – Business Segment Information

The Corporation reports the results of its operations through three business segments: Global Consumer and Small Business Banking (GCSBB), Global Corporate and Investment Banking (GCIB) and Global Wealth and Investment Management (GWIM). The Corporation may periodically reclassify business segment results based on modifications to its management reporting methodologies and changes in organizational alignment.

Global Consumer and Small Business Banking

GCSBB provides a diversified range of products and services to individuals and small businesses. The Corporation reports GCSBB’s results, specifically credit card, business card and certain unsecured lending portfolios, on a managed basis. This basis of presentation excludes the Corporation’s securitized mortgage and home equity portfolios for which the Corporation retains servicing. Reporting on a managed basis is consistent with the way that management evaluates the results of GCSBB. Managed basis assumes that securitized loans were not sold and presents earnings on these loans in a manner similar to the way loans that have not been sold (i.e., held loans) are presented. Loan securitization is an alternative funding process that is used by the Corporation to diversify funding sources. Loan securitization removes loans from the Consolidated Balance Sheet through the sale of loans to an off-balance sheet QSPE which is excluded from the Corporation’s Consolidated Financial Statements in accordance with GAAP.

The performance of the managed portfolio is important in understanding GCSBB’s results as it demonstrates the results of the entire portfolio serviced by the business. Securitized loans continue to be serviced by the business and are subject to the same underwriting standards and ongoing monitoring as held loans. In addition, retained excess servicing income is exposed to similar credit risk and repricing of interest rates as held loans. GCSBB’s managed income statement line items differ from a held basis as follows:

•

Managed net interest income includes GCSBB’s net interest income on held loans and interest income on the securitized loans less the internal funds transfer pricing allocation related to securitized loans.

•

Managed noninterest income includes GCSBB’s noninterest income on a held basis less the reclassification of certain components of card income (e.g., excess servicing income) to record managed net interest income and provision for credit losses. Noninterest income, both on a held and managed basis, also includes the impact of adjustments to the interest-only strip that are recorded in card income as management continues to manage this impact within GCSBB.

•

Provision for credit losses represents the provision for credit losses on held loans combined with realized credit losses associated with the securitized loan portfolio.

Global Corporate and Investment Banking

GCIB provides a wide range of financial services to both the Corporation’s issuer and investor clients that range from business banking clients to large international corporate and institutional investor clients using a strategy to deliver value-added financial products and advisory solutions.

Global Wealth and Investment Management

GWIM offers investment and brokerage services, estate management, financial planning services, fiduciary management, credit and banking expertise, and diversified asset management products to institutional clients, as well as affluent and high net-worth individuals. GWIM also includes the impact of migrated qualifying affluent customers, including their related deposit balances, from GCSBB. After migration, the associated net interest income, service charges and noninterest expense on the deposit balances are recorded in GWIM.

All Other

All Other consists of equity investment activities including Principal Investing, Corporate Investments and Strategic Investments, the residual impact of the allowance for credit losses and the cost allocation processes, merger and restructuring charges, intersegment eliminations, and the results of certain businesses that are expected to be or have been sold or are in the process of being liquidated (e.g., the Corporation’s operations in Chile and Uruguay and Marsico Capital Management, LLC). All Other also includes certain amounts associated with ALM activities, including the residual impact of funds transfer pricing allocation methodologies, amounts associated with the change in the value of derivatives used as economic hedges of interest rate and foreign exchange rate fluctuations that did not qualify for SFAS 133 hedge accounting treatment, foreign exchange rate fluctuations related to SFAS No. 52, “Foreign Currency Translation” revaluation of foreign denominated debt issuances, certain gains (losses) on sales of whole mortgage loans, and gains (losses) on sales of debt securities. All Other also includes adjustments to noninterest income and income tax expense to remove the FTE impact of items (primarily low-income housing tax credits) that have been grossed up within noninterest income to a FTE amount in the business segments. In addition, GCSBB is reported on a managed basis which includes a “securitization impact” adjustment which has the effect of assuming that loans that have been securitized were not sold and presenting these loans in a manner similar to the way loans that have not been sold are presented. All Other’s results include a corresponding “securitization offset” which removes the impact of these securitized loans in order to present the consolidated results of the Corporation on a GAAP basis (i.e., held basis).

Basis of Presentation

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 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. Net interest income of the business segments also includes an allocation of net interest income generated by the Corporation’s ALM activities.

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

The following table presents total revenue, net of interest expense, on a FTE basis and net income for the three months ended March 31, 2008 and March 31, 2007, and total assets at March 31, 2008 and 2007 for each business segment, as well as All Other.


*Business Segments*
Three Months Ended March 31
	Total Corporation ⁽¹⁾		Global Consumer and Small Business Banking ^{(2, 3)}		Global Corporate and Investment Banking ⁽²⁾
(Dollars in millions)	2008	2007	2008	2007	2008	2007
Net interest income ⁽⁴⁾	$10,291	$8,597	$7,684	$7,004	$3,599	$2,422
Noninterest income	7,012	9,887	5,622	4,327	(431)	2,978
Total revenue, net of interest expense	17,303	18,484	13,306	11,331	3,168	5,400
Provision for credit losses ⁽⁵⁾	6,010	1,235	6,452	2,411	523	115
Amortization of intangibles	446	389	331	328	48	43
Other noninterest expense	8,749	8,708	4,808	4,347	2,413	2,887
Income before income taxes	2,098	8,152	1,715	4,245	184	2,355
Income tax expense ⁽⁴⁾	888	2,897	625	1,573	69	878
Net income	$1,210	$5,255	$1,090	$2,672	$115	$1,477
Period-end total assets	$1,736,502	$1,502,157	$437,237	$409,883	$791,962	$716,132


	Global Wealth and Investment Management ⁽²⁾		All Other^{(2, 3)}
(Dollars in millions)	2008	2007	2008	2007
Net interest income ⁽⁴⁾	$998	$923	$(1,990)	$(1,752)
Noninterest income	924	858	897	1,724
Total revenue, net of interest expense	1,922	1,781	(1,093)	(28)
Provision for credit losses ⁽⁵⁾	243	23	(1,208)	(1,314)
Amortization of intangibles	60	16	7	2
Other noninterest expense	1,256	959	272	515
Income (loss) before income taxes	363	783	(164)	769
Income tax expense ⁽⁴⁾	135	292	59	154
Net income (loss)	$228	$491	$(223)	$615
Period-end total assets	$163,013	$127,404	$344,290	$248,738

⁽¹⁾	There were no material intersegment revenues among the segments.

⁽²⁾	Total assets include asset allocations to match liabilities (i.e., deposits).

⁽³⁾	GCSBB is presented on a managed basis with a corresponding offset recorded in All Other.

⁽⁴⁾

FTE basis

⁽⁵⁾	Provision for credit losses represents: For GCSBB – Provision for credit losses on held loans combined with realized credit losses associated with the securitized loan portfolio and for All Other – Provision for credit losses combined with the GCSBB securitization offset.

GCSBB is reported on a managed basis which includes a “securitization impact” adjustment which has the effect of presenting securitized loans in a manner similar to the way loans that have not been sold are presented. All Other’s results include a corresponding “securitization offset” which removes the impact of these securitized loans in order to present the consolidated results of the Corporation on a held basis. The tables below reconcile GCSBB and All Other to a held basis by reclassifying net interest income, all other income and realized credit losses associated with the securitized loans to card income.


*Global Consumer and Small Business Banking – Reconciliation*
	Three Months Ended March 31, 2008			Three Months Ended March 31, 2007
(Dollars in millions)	Managed Basis ⁽¹⁾	Securitization Impact ⁽²⁾	Held Basis	Managed Basis ⁽¹⁾	Securitization Impact ⁽²⁾	Held Basis
Net interest income ⁽³⁾	$7,684	$(2,055)	$5,629	$7,004	$(1,890)	$5,114
Noninterest income:
Card income	2,725	704	3,429	2,381	839	3,220
Service charges	1,566	-	1,566	1,377	-	1,377
Mortgage banking income	656	-	656	302	-	302
All other income	675	(65)	610	267	(77)	190
Total noninterest income	5,622	639	6,261	4,327	762	5,089
Total revenue, net of interest expense	13,306	(1,416)	11,890	11,331	(1,128)	10,203
Provision for credit losses	6,452	(1,416)	5,036	2,411	(1,128)	1,283
Noninterest expense	5,139	-	5,139	4,675	-	4,675
Income before income taxes	1,715	-	1,715	4,245	-	4,245
Income tax expense ⁽³⁾	625	-	625	1,573	-	1,573
Net income	$1,090	$-	$1,090	$2,672	$-	$2,672

⁽¹⁾	Provision for credit losses represents provision for credit losses on held loans combined with realized credit losses associated with the securitized loan portfolio.

⁽²⁾	The securitization impact on net interest income is on a funds transfer pricing methodology consistent with the way funding costs are allocated to the businesses.

⁽³⁾

FTE basis


*All Other – Reconciliation*
	Three Months Ended March 31, 2008			Three Months Ended March 31, 2007
(Dollars in millions)	Reported Basis ⁽¹⁾	Securitization Offset ⁽²⁾	As Adjusted	Reported Basis ⁽¹⁾	Securitization Offset ⁽²⁾	As Adjusted
Net interest income ⁽³⁾	$(1,990)	$2,055	$65	$(1,752)	$1,890	$138
Noninterest income:
Card income	664	(704)	(40)	721	(839)	(118)
Equity investment income	268	-	268	896	-	896
Gains on sales of debt securities	220	-	220	61	-	61
All other income (loss)	(255)	65	(190)	46	77	123
Total noninterest income	897	(639)	258	1,724	(762)	962
Total revenue, net of interest expense	(1,093)	1,416	323	(28)	1,128	1,100
Provision for credit losses	(1,208)	1,416	208	(1,314)	1,128	(186)
Merger and restructuring charges	170	-	170	111	-	111
All other noninterest expense	109	-	109	406	-	406
Income (loss) before income taxes	(164)	-	(164)	769	-	769
Income tax expense ⁽³⁾	59	-	59	154	-	154
Net income (loss)	$(223)	$-	$(223)	$615	$-	$615

⁽¹⁾	Provision for credit losses represents provision for credit losses in All Other combined with the GCSBB securitization offset.

⁽²⁾	The securitization offset to net interest income is on a funds transfer pricing methodology consistent with the way funding costs are allocated to the businesses.

⁽³⁾

FTE basis

The following table presents reconciliations of the three business segments’ (GCSBB, GCIB and GWIM) total revenue, net of interest expense, on a FTE basis and net income to the Consolidated Statement of Income. The adjustments presented in the table below include consolidated income and expense amounts not specifically allocated to individual business segments.


	Three Months Ended March 31
(Dollars in millions)	2008	2007
Segments’ total revenue, net of interest expense ⁽¹⁾	$18,396	$18,512
Adjustments:
ALM activities	279	96
Equity investment income	268	896
Liquidating businesses	73	426
FTE basis adjustment	(300)	(329)
Managed securitization impact to total revenue, net of interest expense	(1,416)	(1,128)
Other	(297)	(318)
Consolidated revenue, net of interest expense	$17,003	$18,155
Segments’ net income	$1,433	$4,640
Adjustments, net of taxes:
ALM activities	(28)	(4)
Equity investment income	169	564
Liquidating businesses	33	305
Merger and restructuring charges	(107)	(70)
Other	(290)	(180)
Consolidated net income	$1,210	$5,255

⁽¹⁾

FTE basis

Bank of America Corporation and Subsidiaries

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

Table of Contents

Page


Recent Events		43

Performance Overview		44

Financial Highlights		45

Supplemental Financial Data		50

Business Segment Operations		56

Global Consumer and Small Business Banking		57

Global Corporate and Investment Banking		63

Global Wealth and Investment Management		72

All Other		77

Off- and On-Balance Sheet Arrangements		79

Obligations and Commitments		83

Fair Values of Level 3 Assets and Liabilities		84

Managing Risk		87

Strategic Risk Management		87

Liquidity Risk and Capital Management		88

Credit Risk Management		92

Consumer Portfolio Credit Risk Management		93

Commercial Portfolio Credit Risk Management		102

Foreign Portfolio		113

Provision for Credit Losses		115

Allowance for Credit Losses		116

Market Risk Management		119

Trading Risk Management		120

Interest Rate Risk Management for Nontrading Activities		124

Mortgage Banking Risk Management		128

Operational Risk Management		128

Recent Accounting and Reporting Developments		129

Complex Accounting Estimates		129

Glossary		130

Throughout the MD&A, we use certain acronyms and

abbreviations which are defined in the Glossary beginning on page 130.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report on Form 10-Q contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from those expressed in, or implied by, our forward-looking statements. Words such as “expects,” “anticipates,” “believes,” “estimates” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward-looking statements. Readers of the Form 10-Q of Bank of America Corporation and its subsidiaries (the Corporation) should not rely solely on the forward-looking statements and should consider all uncertainties and risks throughout this report as well as those discussed under Item 1A. “Risk Factors” of the Corporation’s 2007 Annual Report on Form 10-K. The statements are representative only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statement.

Possible events or factors that could cause results or performance to differ materially from those expressed in our forward-looking statements include the following: changes in general economic conditions and economic conditions in the geographic regions and industries in which the Corporation operates which may affect, among other things, the level of nonperforming assets, charge-offs and provision expense; changes in the interest rate environment and market liquidity which may reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets; changes in foreign exchange rates; adverse movements and volatility in debt and equity capital markets; changes in market rates and prices which may adversely impact the value of financial products including securities, loans, deposits, debt and derivative financial instruments, and other similar financial instruments; political conditions and related actions by the United States abroad which may adversely affect the Corporation’s businesses and economic conditions as a whole; liabilities resulting from litigation and regulatory investigations, including costs, expenses, settlements and judgments; changes in domestic or foreign tax laws, rules and regulations as well as court, Internal Revenue Service or other governmental agencies’ interpretations thereof; various monetary and fiscal policies and regulations, including those determined by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of Currency, the Federal Deposit Insurance Corporation, state regulators and the Financial Services Authority; changes in accounting standards, rules and interpretations; competition with other local, regional and international banks, thrifts, credit unions and other nonbank financial institutions; ability to grow core businesses; ability to develop and introduce new banking-related products, services and enhancements, and gain market acceptance of such products; mergers and acquisitions and their integration into the Corporation; decisions to downsize, sell or close units or otherwise change the business mix of the Corporation; and management’s ability to manage these and other risks.

The Corporation, headquartered in Charlotte, North Carolina, operates in 32 states, the District of Columbia and more than 30 foreign countries. The Corporation provides a diversified range of banking and nonbanking financial services and products domestically and internationally through three business segments: Global Consumer and Small Business Banking (GCSBB), Global Corporate and Investment Banking (GCIB), and Global Wealth and Investment Management (GWIM).

At March 31, 2008, the Corporation had $1.7 trillion in assets and approximately 209,000 full-time equivalent employees. Notes to Consolidated Financial Statements referred to in the MD&A are incorporated by reference into the MD&A. Certain prior period amounts have been reclassified to conform to current period presentation.

Recent Events

2008 Continuing Market Dislocations and Economic Environment

The market dislocations experienced in the financial markets that began during the second half of 2007 continued during the first quarter of 2008. Significant and broad-based illiquidity in the credit markets combined with lingering concern about subprime loans have driven continued deterioration in the value of certain structured securities (e.g., CDOs) resulting in additional losses on CDOs and related subprime exposure (CDO exposure). The continuing market dislocations also resulted in other trading account losses related primarily to our structured and credit products, including writedowns on our leveraged finance and CMBS portfolios. For more information on CDOs, leveraged finance, the related ongoing exposure and the impacts of the continuing market dislocation, see the Capital Markets and Advisory Services (CMAS) discussion beginning on page 65.

In addition, the market illiquidity continued to impact the credit ratings of certain structured investment vehicles (SIVs). During the first quarter, we provided additional support to certain cash funds managed within GWIM by entering into capital commitments and purchasing certain investments from these funds. For more information on our cash fund support, see the GWIM discussion beginning on page 72.

Furthermore, the slowing economy and declining consumer real estate prices have continued to negatively affect our home equity portfolio as well as other areas of our consumer portfolio. In addition, deterioration in the credit quality of our small business and commercial homebuilder portfolios has continued. For more information on credit quality, see the Credit Risk Management discussion beginning on page 92.

The subprime mortgage dislocation also impacted the ratings of certain monoline insurance providers (monolines), which has affected the pricing of certain municipal securities and the liquidity of the short-term public finance markets. We have direct and indirect exposure to monolines and, in certain situations, recognized losses related to some of these exposures during the first quarter. For more information related to our monoline exposure, see the Industry Concentrations discussion on page 110.

The above conditions together with deterioration in the overall economy will continue to affect these and other markets in which we do business and will adversely impact our results in 2008. The degree of the impact is dependent upon the duration and severity of the aforementioned conditions.

Other Recent Events

In April 2008, we issued 160 thousand shares of Bank of America Corporation Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series M (Series M Preferred Stock) with a par value of $0.01 per share for $4.0 billion. The fixed rate is 8.125 percent through May 14, 2018 and then adjusts to three-month LIBOR plus 364 basis points (bps) thereafter.

In April 2008, the Board of Directors (the Board) declared a regular quarterly cash dividend on common stock of $0.64 per share, payable on June 27, 2008 to common shareholders of record on June 6, 2008. In January 2008, the Board declared a regular quarterly cash dividend on common stock of $0.64 per share which was paid on March 28, 2008 to common shareholders of record on March 7, 2008.

In January 2008, we announced changes in our CMAS business within GCIB which better align the strategy of this business with GCIB’s broader integrated platform. We continue to provide corporate, commercial and sponsored clients with debt and equity capital-raising services, strategic advice, and a full range of corporate banking capabilities. However, we have reduced activities in certain structured products (e.g., CDOs) and are resizing the international platform to emphasize debt, cash management, and selected trading services, including rates and foreign exchange. This realignment, once completed, will result in the reduction of 680 front office personnel with additional infrastructure headcount reduction. We also plan to sell our equity prime brokerage business.

In January 2008, we announced a definitive agreement to purchase all outstanding shares of Countrywide Financial Corporation (Countrywide), the largest mortgage lender in the U. S., for approximately $4.0 billion in common stock.

Countrywide shareholders’ would receive 0.1822 shares of Bank of America Corporation common stock in exchange for one share of Countrywide common stock. The acquisition would make us the nation’s leading mortgage lender and loan servicer. The completion of this transaction is subject to closing conditions and regulatory approvals and is expected to close early in the third quarter of 2008. In August of 2007, we made a $2.0 billion investment in Countrywide in the form of Series B non-voting convertible preferred securities yielding 7.25 percent.

In January 2008, we issued 240 thousand shares of Bank of America Corporation Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series K with a par value of $0.01 per share for $6.0 billion. The fixed rate is 8.00 percent through January 29, 2018 and then adjusts to three-month LIBOR plus 363 bps thereafter. In addition, we issued 6.9 million shares of Bank of America Corporation 7.25% Non-Cumulative Perpetual Convertible Preferred Stock, Series L with a par value of $0.01 per share for $6.9 billion.

Performance Overview

Net income was $1.2 billion, or $0.23 per diluted common share for the three months ended March 31, 2008, decreases of 77 percent and 80 percent from $5.3 billion, or $1.16 per diluted common share for the same period in 2007.


*Table 1*
*Business Segment Total Revenue and Net Income*
	Three Months Ended March 31
	Total Revenue ⁽¹⁾		Net Income
(Dollars in millions)	2008	2007	2008	2007
Global Consumer and Small Business Banking ⁽²⁾	$13,306	$11,331	$1,090	$2,672
Global Corporate and Investment Banking	3,168	5,400	115	1,477
Global Wealth and Investment Management	1,922	1,781	228	491
All Other ⁽²⁾	(1,093)	(28)	(223)	615
Total FTE basis	17,303	18,484	1,210	5,255
FTE adjustment	(300)	(329)	-	-
Total Consolidated	$17,003	$18,155	$1,210	$5,255

⁽¹⁾	Total revenue is net of interest expense, and is on a FTE basis for the business segments and All Other. For more information on a FTE basis, see Supplemental Financial Data beginning on page 50.

⁽²⁾	GCSBB is presented on a managed basis with a corresponding offset recorded in All Other.

The table above presents total revenue and net income for the business segments and All Other and the following discussion presents a summary of the results for the business segments and All Other. For more information on these results, see Business Segment Operations beginning on page 56.

•

GCSBB’s net income decreased as higher revenue was more than offset by increased provision for credit losses and noninterest expense. Revenue increased driven by the impacts of organic growth, the LaSalle Bank Corporation (LaSalle) acquisition and the gain on the Visa initial public offering (IPO). Higher provision for credit losses resulted from the impacts of the housing weakness and slowing economy. Noninterest expense increased due to the addition of LaSalle, partially offset by the reversal of Visa-related litigation costs. For more information on GCSBB, see page 57.

•

GCIB’s net income decreased driven by losses associated with our CDO-related exposures and the continuing impact of the market disruptions on various parts of our CMAS business. Also contributing was a higher provision for credit losses due to the impact of the housing market slowdown on the homebuilder loan portfolio. For more information on GCIB, see page 63.

•

GWIM’s net income decreased as higher total revenue was more than offset by higher provision for credit losses and noninterest expense. Total revenue grew due to increased net interest income and growth in investment and brokerage services income partially offset by losses associated with the support provided to certain cash funds managed within GWIM. Provision for credit losses increased driven by deterioration in the home equity portfolio. Noninterest expense increased due to the addition of U.S. Trust Corporation and LaSalle. For more information on GWIM, see page 72.

•

All Other reported a net loss due to a decline in equity investment income combined with increased provision for credit losses on our ALM residential mortgage portfolio. For more information on All Other, see page 77.

Financial Highlights

Net Interest Income

Net interest income on a FTE basis increased $1.7 billion to $10.3 billion for the three months ended March 31, 2008 compared to the same period in 2007. The increase was driven by the contribution from market-based net interest income related to our CMAS business, which benefited from a decrease in the cost of market-based funding due to a decline in short-term interest rates, as well as higher loan levels and the acquisition of LaSalle. Partially offsetting these increases was the impact of competitive deposit pricing in the industry as well as the lagged effect of repricing our deposit products in a decreasing rate environment. The net interest yield on a FTE basis increased 12 bps to 2.73 percent for the three months ended March 31, 2008 compared to the same period in 2007, due to the improvement in market-based yield related to our CMAS business stated above, partially offset by the impact of the addition of LaSalle. For more information on net interest income on a FTE basis, see Table 7 on page 54.

Noninterest Income


*Table 2*
*Noninterest Income*
	Three Months Ended March 31
(Dollars in millions)	2008	2007
Card income	$3,639	$3,333
Service charges	2,397	2,072
Investment and brokerage services	1,340	1,149
Investment banking income	476	638
Equity investment income	1,054	1,014
Trading account profits (losses)	(1,783)	872
Mortgage banking income	451	213
Gains on sales of debt securities	225	62
Other income (loss)	(787)	534
Total noninterest income	$7,012	$9,887

Noninterest income decreased $2.9 billion to $7.0 billion for the three months ended March 31, 2008 compared to the same period in 2007, due to the following:

•

Card income on a held basis grew $306 million primarily due to the favorable change in value of the interest-only strip and an increase in cash advance fees.

•

Service charges grew $325 million resulting from new account growth in deposit accounts and the beneficial impact of the LaSalle acquisition.

•

Investment and brokerage services increased $191 million due primarily to the U.S. Trust Corporation and LaSalle acquisitions, organic growth in AUM and brokerage activity partially offset by the absence of fee income in the first quarter resulting from the sale of Marsico Capital Management, LLC (Marsico) in 2007.

•

Investment banking income decreased $162 million driven by reduced debt underwriting and advisory fees due to current disruptions in the markets.

•

Equity investment income increased $40 million as the gain associated with the Visa IPO of $776 million was offset by a reduction in gains from our Principal Investing portfolio due to the lack of liquidity in the marketplace.

•

Trading account profits (losses) were $(1.8) billion for the three months ended March 31, 2008, related to our CDO exposure and the continuing impact of the market disruptions on various parts of our CMAS business. Impairment writedowns associated with CDO securities classified as AFS were recognized in other income. For more information on the impact of these events refer to the GCIB discussion beginning on page 63.

•

Mortgage banking income increased $238 million due to an increased MSR valuation and higher mortgage volume which was originated for distribution, partially offset by the impact of widening credit spreads and illiquidity in the secondary market. The adoption of SAB 109 resulted in the recognition of $90 million in incremental mortgage banking income for the three months ended March 31, 2008.

•

Other income (loss) decreased $1.3 billion to a loss of $787 million due to impairment writedowns of $561 million associated with CDOs classified as AFS debt securities and $439 million of writedowns associated with our leveraged finance loans and commitments. In addition, we recorded losses of $220 million associated with the support provided to certain cash funds managed within GWIM and writedowns of certain investments that were purchased from the funds.

Provision for Credit Losses

The provision for credit losses increased $4.8 billion to $6.0 billion for the three months ended March 31, 2008 compared to the same period in 2007. Deterioration in the housing markets, particularly in geographic areas that have experienced the most significant home price declines as well as seasoning and the impacts of a slowing economy drove reserve increases and higher net charge-offs.

For more information on credit quality, see Provision for Credit Losses beginning on page 115.

Noninterest Expense


*Table 3*
*Noninterest Expense*
	Three Months Ended March 31
(Dollars in millions)	2008	2007
Personnel	$4,726	$5,025
Occupancy	849	713
Equipment	396	350
Marketing	637	555
Professional fees	285	229
Amortization of intangibles	446	389
Data processing	563	437
Telecommunications	260	251
Other general operating	863	1,037
Merger and restructuring charges	170	111
Total noninterest expense	$9,195	$9,097

Noninterest expense increased $98 million to $9.2 billion for the three months ended March 31, 2008 compared to the same period in 2007 primarily due to increases in various line items including occupancy, data processing, marketing and merger and restructuring charges. Personnel expense declined $299 million as the impact of the acquisitions of LaSalle and U.S. Trust Corporation were more than offset by a reduction in performance-based incentive compensation and a decrease in stock-based compensation granted to eligible employees. Other general operating expense decreased by $174 million mostly driven by the reversal of certain Visa-related litigation costs associated with the completion of the Visa IPO.

Income Tax Expense

Income tax expense was $588 million for the three months ended March 31, 2008 compared to $2.6 billion for the same period in 2007 resulting in an effective tax rate of 32.7 percent and 32.8 percent.

Assets

At March 31, 2008, total assets were $1.7 trillion, an increase of $20.8 billion, or one percent, from December 31, 2007. Growth in period end total assets was mostly due to increases in derivative assets, debt securities and other assets. These increases were partially offset by a decrease in federal funds sold and securities purchased under resale agreements. The increase in derivative assets was primarily due to the weakening of the U.S. dollar which drove higher replacement costs for outstanding foreign currency contracts and an increase in the value of our credit derivatives due to widening credit spreads on purchased credit protection. Debt securities increased due in part to the securitization of residential mortgage loans into mortgage-backed securities that were retained by us. The increase in other assets was primarily due to higher levels of unsettled trades relating to our capital markets activities which have cleared since quarter end.

Average total assets for the three months ended March 31, 2008 increased $243.5 billion, or 16 percent, from the comparable period in 2007 primarily due to higher loans and leases and debt securities. The increase in average loans and leases was attributable to organic growth and the LaSalle merger. The increase in debt securities was driven by the LaSalle merger.

Liabilities and Shareholders’ Equity

At March 31, 2008, total liabilities were $1.6 trillion, an increase of $11.3 billion, or one percent, from December 31, 2007. The increase in period end total liabilities was primarily attributable to increases in accrued expenses and other liabilities mostly due to higher payables associated with our capital markets activities. Partially offsetting this increase was a decrease in foreign office interest-bearing deposits.

Average total liabilities for the three months ended March 31, 2008 increased $222.4 billion, or 16 percent, from the comparable period in 2007. The increase in average total liabilities was attributable to higher deposits and long-term debt to support growth in overall assets and fund the LaSalle merger. In addition these increases were attributable to the assumption of liabilities associated with LaSalle.

Period end shareholders’ equity was $156.3 billion at March 31, 2008, an increase of $9.5 billion from December 31, 2007, due to the issuance of preferred stock of $12.9 billion, net income and the issuance of common stock related to restricted stock activity. These increases were partially offset by dividend payments and a decrease in accumulated OCI.

Average shareholders’ equity for the three months ended March 31, 2008 compared to the same period in 2007, increased $21.1 billion to $154.7 billion due to the same period-end factors discussed above except that accumulated OCI increased due to the fair value adjustment related to our investment in China Construction Bank (CCB).


*Table 4*
*Selected Quarterly Financial Data*
	2008 Quarter		2007 Quarters
(Dollars in millions, except per share information)	First		Fourth		Third		Second		First
Income statement
Net interest income	$9,991		$9,164		$8,615		$8,386		$8,268
Noninterest income	7,012		3,508		7,314		11,177		9,887
Total revenue, net of interest expense	17,003		12,672		15,929		19,563		18,155
Provision for credit losses	6,010		3,310		2,030		1,810		1,235
Noninterest expense, before merger and restructuring charges	9,025		10,137		8,459		9,018		8,986
Merger and restructuring charges	170		140		84		75		111
Income (loss) before income taxes	1,798		(915)		5,356		8,660		7,823
Income tax expense (benefit)	588		(1,183)		1,658		2,899		2,568
Net income	$1,210		$268		$3,698		$5,761		$5,255
Average common shares issued and outstanding (in thousands)	4,427,823		4,421,554		4,420,616		4,419,246		4,432,664
Average diluted common shares issued and outstanding (in thousands)	4,461,201		4,470,108		4,475,917		4,476,799		4,497,028
Performance ratios
Return on average assets	0.28	%	0.06	%	0.93	%	1.48	%	1.40	%
Return on average common shareholders’ equity	2.90		0.60		11.02		17.55		16.16
Return on tangible shareholders’ equity ⁽¹⁾	6.31		1.60		21.90		34.06		31.39
Total ending equity to total ending assets	9.00		8.56		8.77		8.85		8.98
Total average equity to total average assets	8.77		8.32		8.51		8.55		8.78
Dividend payout	n/m		n/m		77.97		43.60		48.02
Per common share data
Earnings	$0.23		$0.05		$0.83		$1.29		$1.18
Diluted earnings	0.23		0.05		0.82		1.28		1.16
Dividends paid	0.64		0.64		0.64		0.56		0.56
Book value	31.22		32.09		30.45		29.95		29.74
Market price per share of common stock
Closing	$37.91		$41.26		$50.27		$48.89		$51.02
High closing	45.03		52.71		51.87		51.82		54.05
Low closing	35.31		41.10		47.00		48.80		49.46
Market capitalization	$168,806		$183,107		$223,041		$216,922		$226,481
Average balance sheet
Total loans and leases	$875,661		$868,119		$780,516		$740,199		$714,042
Total assets	1,764,927		1,742,467		1,580,565		1,561,649		1,521,418
Total deposits	787,623		781,625		702,481		697,035		686,704
Long-term debt	198,463		196,444		175,265		158,500		148,627
Common shareholders’ equity	141,456		141,085		131,606		130,700		130,737
Total shareholders’ equity	154,728		144,924		134,487		133,551		133,588
Asset Quality
Allowance for credit losses ⁽²⁾	$15,398		$12,106		$9,927		$9,436		$9,106
Nonperforming assets measured at historical cost	7,827		5,948		3,372		2,392		2,059
Allowance for loan and lease losses as a percentage of total loans and leases outstanding measured at historical cost ⁽³⁾	1.71	%	1.33	%	1.21	%	1.20	%	1.21	%
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases measured at historical cost	203		207		300		397		443
Net charge-offs	$2,715		$1,985		$1,573		$1,495		$1,427
Annualized net charge-offs as a percentage of average loans and leases outstanding measured at historical cost ⁽³⁾	1.25	%	0.91	%	0.80	%	0.81	%	0.81	%
Nonperforming loans and leases as a percentage of total loans and leases outstanding measured at historical cost ⁽³⁾	0.84		0.64		0.40		0.30		0.27
Nonperforming assets as a percentage of total loans, leases and foreclosed properties ⁽³⁾	0.90		0.68		0.43		0.32		0.29
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs	1.36		1.47		1.53		1.51		1.51
Capital ratios (period end)
Risk-based capital:
Tier 1	7.51	%	6.87	%	8.22	%	8.52	%	8.57	%
Total	11.71		11.02		11.86		12.11		11.94
Tier 1 Leverage	5.61		5.04		6.20		6.33		6.25

⁽¹⁾	Tangible shareholders’ equity is a non-GAAP measure. For additional information on ROTE and a corresponding reconciliation of tangible shareholders’ equity to a GAAP financial measure, see Supplemental Financial Data beginning on page 50.

⁽²⁾	Includes the allowance for loan and lease losses, and the reserve for unfunded lending commitments.

⁽³⁾	Ratios do not include loans measured at fair value in accordance with SFAS 159.

n/m	= not meaningful

Supplemental Financial Data

Table 5 provides a reconciliation of the supplemental financial data mentioned below with financial measures defined by GAAP. Other companies may define or calculate supplemental financial data differently.

Operating Basis Presentation

In managing our business, we may at times look at performance excluding certain nonrecurring items. For example, as an alternative to net income, we view results on an operating basis, which represents net income excluding merger and restructuring charges. The operating basis of presentation is not defined by GAAP. We believe that the exclusion of merger and restructuring charges, which represent events outside our normal operations, provides a meaningful period-to-period comparison and is more reflective of normalized operations.

Net Interest Income - FTE Basis

In addition, we view net interest income and related ratios and analysis (i.e., efficiency ratio, net interest yield and operating leverage) on a FTE basis. Although this is a non-GAAP measure, 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.

Performance Measures

As mentioned above, certain performance measures including the efficiency ratio, net interest yield and operating leverage 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 how many basis points we are earning over the cost of funds. Operating leverage measures the total percentage revenue growth minus the total percentage expense growth for the corresponding period. During our annual integrated planning process, we set operating leverage and 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, investment appetite, competitive environment, market factors, and other items (e.g., risk appetite). The aforementioned performance measures and ratios, return on average assets and dividend payout ratio, as well as those measures discussed more fully below, are presented in Table 5.

Return on Average Common Shareholders’ Equity and Return on Average Tangible Shareholders’ Equity

We also evaluate our business based upon ROE and ROTE measures. ROE and ROTE utilize non-GAAP allocation methodologies. ROE measures the earnings contribution of a unit as a percentage of the shareholders’ equity allocated to that unit. ROTE measures our earnings contribution as a percentage of shareholders’ equity reduced by goodwill. These measures are used to evaluate our use of equity (i.e., capital) at the individual unit level and are integral components in the analytics for resource allocation. In addition, profitability, relationship, and investment models all use ROE as key measures to support our overall growth goal.


*Table 5* *Supplemental Financial Data and Reconciliations to GAAP Financial Measures*
	Three Months Ended March 31
(Dollars in millions)	2008		2007
Operating basis
Operating earnings	$1,317		$5,325
Return on average assets	0.30	%	1.42	%
Return on average common shareholders’ equity	3.20		16.38
Return on average tangible shareholders’ equity	6.87		31.81
Operating efficiency ratio (FTE basis)	52.15		48.62
Dividend payout ratio	n/m		47.39
Operating leverage (FTE basis)	(6.82)		1.13
FTE basis data
Net interest income	$10,291		$8,597
Total revenue, net of interest expense	17,303		18,484
Net interest yield	2.73	%	2.61	%
Efficiency ratio	53.13		49.22
Reconciliation of net income to operating earnings
Net income	$1,210		$5,255
Merger and restructuring charges	170		111
Related income tax benefit	(63)		(41)
Operating earnings	$1,317		$5,325
Reconciliation of average shareholders’ equity to average tangible shareholders’ equity
Average shareholders’ equity	$154,728		$133,588
Average goodwill	(77,628)		(65,703)
Average tangible shareholders’ equity	$77,100		$67,885
Reconciliation of return on average assets to operating return on average assets
Return on average assets	0.28	%	1.40	%
Effect of merger and restructuring charges, net-of-tax	0.02		0.02
Operating return on average assets	0.30	%	1.42	%
Reconciliation of return on average common shareholders’ equity to operating return on average common shareholders’ equity
Return on average common shareholders’ equity	2.90	%	16.16	%
Effect of merger and restructuring charges, net-of-tax	0.30		0.22
Operating return on average common shareholders’ equity	3.20	%	16.38	%
Reconciliation of return on average tangible shareholders’ equity to operating return on average tangible shareholders’ equity
Return on average tangible shareholders’ equity	6.31	%	31.39	%
Effect of merger and restructuring charges, net-of-tax	0.56		0.42
Operating return on average tangible shareholders’ equity	6.87	%	31.81	%
Reconciliation of efficiency ratio to operating efficiency ratio (FTE basis)
Efficiency ratio	53.13	%	49.22	%
Effect of merger and restructuring charges	(0.98)		(0.60)
Operating efficiency ratio	52.15	%	48.62	%
Reconciliation of dividend payout ratio to operating dividend payout ratio
Dividend payout ratio	n/m		48.02	%
Effect of merger and restructuring charges, net-of-tax	n/m		(0.63)
Operating dividend payout ratio	n/m		47.39	%
Reconciliation of operating leverage to operating basis operating leverage (FTE basis)
Operating leverage	(7.46)	%	1.00	%
Effect of merger and restructuring charges	0.64		0.13
Operating leverage	(6.82)	%	1.13	%

n/m = not meaningful

Core Net Interest Income – Managed Basis

We manage core net interest income—managed basis, which adjusts reported net interest income on a FTE basis for the impact of market-based activities and certain securitizations, net of retained securities. As discussed in the GCIB business segment section beginning on page 63, we evaluate our market-based results and strategies on a total market-based revenue approach by combining net interest income and noninterest income for CMAS. We also adjust for loans that we originated and subsequently sold into certain securitizations. These securitizations include off-balance sheet loans and leases, primarily credit card securitizations where servicing is retained by the Corporation, but excludes first mortgage securitizations. Noninterest income, rather than net interest income and provision for credit losses, is recorded for assets that have been securitized as we are compensated for servicing the securitized assets and record servicing income and gains or losses on securitizations, where appropriate. We believe the use of this non-GAAP presentation provides additional clarity in managing our results. An analysis of core net interest income – managed basis, core average earning assets – managed basis and core net interest yield on earning assets – managed basis, which adjusts for the impact of these two non-core items from reported net interest income on a FTE basis, is shown below.


*Table 6*

*Core Net Interest Income – Managed Basis*
	Three Months Ended March 31
(Dollars in millions)	2008		2007
Net interest income ⁽¹⁾

As reported	$10,291		$8,597

Impact of market-based net interest income ⁽²⁾	(1,308)		(481)

Core net interest income	8,983		8,116

Impact of securitizations ⁽³⁾	2,090		1,859

Core net interest income – managed basis	$11,073		$9,975

Average earning assets

As reported	$1,510,295		$1,321,946

Impact of market-based earning assets ⁽²⁾	(403,403)		(409,291)

Core average earning assets	1,106,892		912,655

Impact of securitizations	102,577		102,529

Core average earning assets – managed basis	$1,209,469		$1,015,184

Net interest yield contribution ^{(1, 4)}

As reported	2.73	%	2.61	%

Impact of market-based activities ⁽²⁾	0.52		0.96

Core net interest yield on earning assets	3.25		3.57

Impact of securitizations	0.42		0.38

Core net interest yield on earning assets – managed basis	3.67	%	3.95	%

⁽¹⁾

FTE basis

⁽²⁾

Represents the impact of market-based amounts included in the CMAS business within GCIB. For the three months ended March 31, 2008, the impact of market-based net interest income excludes $27 million of net interest income on loans that are accounted for at fair value in accordance with SFAS 159.

⁽³⁾

Represents the impact of securitizations utilizing actual bond costs. This is different from the segment view which utilizes funds transfer pricing methodologies.

⁽⁴⁾

Calculated on an annualized basis.

Core net interest income on a managed basis increased $1.1 billion for the three months ended March 31, 2008 compared to the same period in 2007. The increase was driven by higher consumer and commercial loan levels from organic growth, the positive impact of the LaSalle acquisition, and increased hedge income. These increases were partially offset by the impact of competitive deposit pricing in the industry, primarily consumer time deposits, as well as the lagged effect of repricing our deposit products in a decreasing rate environment and a shift in funding mix.

On a managed basis, core average earning assets increased $194.3 billion for the three months ended March 31, 2008 compared to the same period in 2007 due to higher levels of managed loans, increased levels from ALM activities and the impact of the LaSalle acquisition.

Core net interest yield on a managed basis decreased 28 bps to 3.67 percent for the three months ended March 31, 2008 compared to the same period in 2007 and was driven by competitively pricing our deposits in a decreasing rate environment, the impact of the funding of the LaSalle acquisition and a shift in the funding mix.


*Table 7* *Quarterly Average Balances and Interest Rates - FTE Basis*
	First Quarter 2008				Fourth Quarter 2007
(Dollars in millions)	Average Balance	Interest Income/ Expense	Yield/ Rate		Average Balance	Interest Income/ Expense	Yield/ Rate
Earning assets
Time deposits placed and other short-term investments	$10,596	$94	3.56	%	$10,459	$122	4.63	%
Federal funds sold and securities purchased under agreements to resell	145,043	1,208	3.34		151,938	1,748	4.59
Trading account assets	192,410	2,417	5.04		190,700	2,422	5.06
Debt securities ⁽¹⁾	219,377	2,835	5.17		206,873	2,795	5.40
Loans and leases ⁽²⁾:
Residential mortgage	270,541	3,837	5.68		277,058	3,972	5.73
Credit card – domestic	63,277	1,774	11.28		60,063	1,781	11.76
Credit card – foreign	15,241	474	12.51		14,329	464	12.86
Home equity	116,562	1,872	6.46		112,369	2,043	7.21
Direct/Indirect consumer ⁽³⁾	78,941	1,699	8.65		75,426	1,658	8.72
Other consumer ⁽⁴⁾	3,813	87	9.14		3,918	71	7.24
Total consumer	548,375	9,743	7.13		543,163	9,989	7.32
Commercial – domestic	212,394	3,198	6.06		213,200	3,704	6.89
Commercial real estate ⁽⁵⁾	62,202	887	5.74		59,702	1,053	6.99
Commercial lease financing	22,227	261	4.69		22,239	574	10.33
Commercial – foreign	30,463	387	5.11		29,815	426	5.67
Total commercial	327,286	4,733	5.81		324,956	5,757	7.03
Total loans and leases	875,661	14,476	6.64		868,119	15,746	7.21
Other earning assets	67,208	1,129	6.75		74,909	1,296	6.89
Total earning assets ⁽⁶⁾	1,510,295	22,159	5.89		1,502,998	24,129	6.39
Cash and cash equivalents	33,949				33,714
Other assets, less allowance for loan and lease losses	220,683				205,755
Total assets	$1,764,927				$1,742,467

Interest-bearing liabilities
Domestic interest-bearing deposits:
Savings	$31,798	$50	0.63	%	$31,961	$50	0.63	%
NOW and money market deposit accounts	248,949	1,139	1.84		240,914	1,334	2.20
Consumer CDs and IRAs	188,005	2,071	4.43		183,910	2,179	4.70
Negotiable CDs, public funds and other time deposits	32,201	320	4.00		34,997	420	4.76
Total domestic interest-bearing deposits	500,953	3,580	2.87		491,782	3,983	3.21
Foreign interest-bearing deposits:
Banks located in foreign countries	39,196	400	4.10		45,050	557	4.91
Governments and official institutions	14,650	132	3.62		16,506	192	4.62
Time, savings and other	53,064	476	3.61		51,919	521	3.98
Total foreign interest-bearing deposits	106,910	1,008	3.79		113,475	1,270	4.44
Total interest-bearing deposits	607,863	4,588	3.04		605,257	5,253	3.44
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings	452,854	4,142	3.68		456,530	5,599	4.87
Trading account liabilities	82,432	840	4.10		81,500	825	4.02
Long-term debt	198,463	2,298	4.63		196,444	2,638	5.37
Total interest-bearing liabilities ⁽⁶⁾	1,341,612	11,868	3.55		1,339,731	14,315	4.25
Noninterest-bearing sources:
Noninterest-bearing deposits	179,760				176,368
Other liabilities	88,827				81,444
Shareholders’ equity	154,728				144,924
Total liabilities and shareholders’ equity	$1,764,927				$1,742,467
Net interest spread			2.34	%			2.14	%
Impact of noninterest-bearing sources			0.39				0.47
Net interest income/yield on earning assets		$10,291	2.73	%		$9,814	2.61	%

⁽¹⁾	Yields on AFS debt securities are calculated based on fair value rather than historical cost balances. The use of fair value does not have a material impact on net interest yield.

⁽²⁾	Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is recognized on a cash basis.

⁽³⁾	Includes foreign consumer loans of $3.3 billion in the first quarter of 2008, and $3.6 billion, $3.8 billion, $3.9 billion and $3.9 billion in the fourth, third, second and first quarters of 2007, respectively.

⁽⁴⁾

Includes consumer finance loans of $3.0 billion in the first quarter of 2008, and $3.1 billion, $3.2 billion, $3.4 billion and $3.0 billion in the fourth, third, second and first quarters of 2007, respectively; and other foreign consumer loans of $857 million in the first quarter of 2008, and $845 million, $843 million, $775 million and $1.9 billion in the fourth, third, second and first quarters of 2007, respectively.

⁽⁵⁾	Includes domestic commercial real estate loans of $61.0 billion of the first quarter of 2008, and $58.5 billion, $38.0 billion, $36.2 billion and $35.5 billion in the fourth, third, second and first quarters of 2007, respectively.

⁽⁶⁾

Interest income includes the impact of interest rate risk management contracts, which decreased interest income on assets $103 million in the first quarter of 2008, and $134 million, $170 million, $117 million and $121 million in the fourth, third, second and first quarters of 2007, respectively. Interest expense includes the impact of interest rate risk management contracts, which increased interest expense on liabilities $49 million in the first quarter of 2008, and $201 million, $226 million, $207 million and $179 million in the fourth, third, second and first quarters of 2007, respectively. For further information on interest rate contracts, see Interest Rate Risk Management for Nontrading Activities beginning on page 124.

Quarterly Average Balances and Interest Rates –FTE Basis (continued)


	Third Quarter 2007				Second Quarter 2007				First Quarter 2007
(Dollars in millions)	Average Balance	Interest Income/ Expense	Yield/ Rate		Average Balance	Interest Income/ Expense	Yield/ Rate		Average Balance	Interest Income/ Expense	Yield/ Rate
Earning assets
Time deposits placed and other short-term investments	$11,879	$148	4.92	%	$15,310	$188	4.92	%	$15,023	$169	4.57	%
Federal funds sold and securities purchased under agreements to resell	139,259	1,839	5.27		166,258	2,156	5.19		166,195	1,979	4.79
Trading account assets	194,661	2,604	5.33		188,287	2,364	5.03		175,249	2,357	5.41
Debt securities ⁽¹⁾	174,568	2,380	5.45		177,834	2,394	5.39		186,498	2,451	5.27
Loans and leases ⁽²⁾:
Residential mortgage	274,385	3,928	5.72		260,099	3,708	5.70		246,618	3,504	5.69
Credit card – domestic	57,491	1,780	12.29		56,235	1,777	12.67		57,720	1,887	13.26
Credit card – foreign	11,995	371	12.25		11,946	350	11.76		11,133	317	11.55
Home equity	98,611	1,884	7.58		94,267	1,779	7.57		89,559	1,679	7.60
Direct/Indirect consumer ⁽³⁾	73,245	1,600	8.67		68,175	1,441	8.48		64,038	1,303	8.25
Other consumer ⁽⁴⁾	4,055	96	9.47		4,153	100	9.71		4,928	122	9.93
Total consumer	519,782	9,659	7.39		494,875	9,155	7.41		473,996	8,812	7.50
Commercial – domestic	176,554	3,207	7.21		166,529	3,039	7.32		163,620	2,934	7.27
Commercial real estate ⁽⁵⁾	38,977	733	7.47		36,788	687	7.49		36,117	672	7.55
Commercial lease financing	20,044	246	4.91		19,784	217	4.40		19,651	175	3.55
Commercial – foreign	25,159	377	5.95		22,223	319	5.75		20,658	330	6.48
Total commercial	260,734	4,563	6.95		245,324	4,262	6.97		240,046	4,111	6.94
Total loans and leases	780,516	14,222	7.25		740,199	13,417	7.26		714,042	12,923	7.31
Other earning assets	74,912	1,215	6.46		70,311	1,108	6.31		64,939	1,010	6.28
Total earning assets ⁽⁶⁾	1,375,795	22,408	6.48		1,358,199	21,627