Bank of America 2009 Annual Report Download - page 41

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 Global Markets business segment section beginning on
page 47, we evaluate our market-based results and strategies on a total
market-based revenue approach by combining net interest income and
noninterest income for Global Markets. We also adjust for loans that we
originated and subsequently sold into credit card securitizations. Non-
interest 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 – man-
aged basis, core average earning assets – managed basis and core net
interest yield on earning assets – managed basis, which adjust for the
impact of these two non-core items from reported net interest income on
a FTE basis, is shown below.
Core net interest income on a managed basis increased $2.3 billion
to $52.8 billion for 2009 compared to 2008. The increase was driven by
the favorable interest rate environment and the acquisitions of Merrill
Lynch and Countrywide. These items were partially offset by the impact of
deleveraging the ALM portfolio earlier in 2009, lower consumer loan lev-
els and the adverse impact of our nonperforming loans. For more
information on our nonperforming loans, see Credit Risk Management on
page 66.
On a managed basis, core average earning assets increased $130.1
billion to $1.4 trillion for 2009 compared to 2008 primarily due to the
acquisitions of Merrill Lynch and Countrywide partially offset by lower loan
levels and earlier deleveraging of the AFS debt securities portfolio.
Core net interest yield on a managed basis decreased 19 bps to 3.69
percent for 2009 compared to 2008, primarily due to the addition of
lower yielding assets from the Merrill Lynch and Countrywide acquisitions,
reduced consumer loan levels and the impact of deleveraging the ALM
portfolio earlier in 2009 partially offset by the favorable interest rate
environment.
Table 8 Core Net Interest Income – Managed Basis
(Dollars in millions) 2009 2008
Net interest income (1)
As reported $ 48,410 $ 46,554
Impact of market-based net interest income
(2)
(6,119) (4,939)
Core net interest income 42,291 41,615
Impact of securitizations
(3)
10,524 8,910
Core net interest income – managed basis $ 52,815 $ 50,525
Average earning assets
As reported $1,830,193 $1,562,729
Impact of market-based earning assets
(2)
(481,542) (360,667)
Core average earning assets 1,348,651 1,202,062
Impact of securitizations
(4)
83,640 100,145
Core average earning assets – managed basis $1,432,291 $1,302,207
Net interest yield contribution (1)
As reported 2.65% 2.98%
Impact of market-based activities
(2)
0.49 0.48
Core net interest yield on earning assets 3.14 3.46
Impact of securitizations 0.55 0.42
Core net interest yield on earning assets – managed basis 3.69% 3.88%
(1) FTE basis
(2) Represents the impact of market-based amounts included in Global Markets.
(3) Represents the impact of securitizations utilizing actual bond costs. This is different from the business segment view which utilizes funds transfer pricing methodologies.
(4) Represents average securitized loans less accrued interest receivable and certain securitized bonds retained.
Business Segment Operations
Segment Description and Basis of Presentation
We report the results of our operations through six business segments:
Deposits, Global Card Services, Home Loans & Insurance, Global Bank-
ing, Global Markets and GWIM, with the remaining operations recorded in
All Other. The Corporation may periodically reclassify business segment
results based on modifications to its management reporting method-
ologies and changes in organizational alignment. Prior period amounts
have been reclassified to conform to current period presentation.
We prepare and evaluate segment results using certain non-GAAP
methodologies and performance measures, many of which are discussed
in Supplemental Financial Data beginning on page 37. We begin by evalu-
ating the operating results of the segments which by definition exclude
merger and restructuring charges. The segment results also reflect cer-
tain revenue and expense methodologies which are utilized to determine
net income. The net interest income of the business segments includes
the results of a funds transfer pricing process that matches assets and
liabilities with similar interest rate sensitivity and maturity characteristics.
Equity is allocated to business segments and related businesses
using a risk-adjusted methodology incorporating each segment’s stand-
alone credit, market, interest rate and operational risk components. The
nature of these risks is discussed further beginning on page 56. The
Corporation benefits from the diversification of risk across these compo-
nents which is reflected as a reduction to allocated equity for each seg-
ment. Average equity is allocated to the business segments and is
affected by the portion of goodwill that is specifically assigned to them.
For more information on our basis of presentation, selected financial
information for the business segments and reconciliations to consolidated
total revenue, net income and year-end total assets, see Note 23 – Busi-
ness Segment Information to the Consolidated Financial Statements.
Bank of America 2009 39