Bank of America 2009 Annual Report Download - page 45

Home Loans & Insurance
(Dollars in millions) 2009 2008
Net interest income
(1)
$ 4,974 $ 3,311
Noninterest income:
Mortgage banking income 9,321 4,422
Insurance income 2,346 1,416
All other income 261 161
Total noninterest income 11,928 5,999
Total revenue, net of interest expense 16,902 9,310
Provision for credit losses 11,244 6,287
Noninterest expense 11,683 6,962
Loss before income taxes (6,025) (3,939)
Income tax benefit
(1)
(2,187) (1,457)
Net loss $ (3,838) $ (2,482)
Net interest yield
(1)
2.57% 2.55%
Efficiency ratio
(1)
69.12 74.78
Balance Sheet
Average
Total loans and leases $130,519 $105,724
Total earning assets 193,262 129,674
Total assets 230,234 147,461
Allocated equity 20,533 9,517
Year end
Total loans and leases $131,302 $122,947
Total earning assets 188,466 175,609
Total assets 232,706 205,046
(1) FTE basis
Home Loans & Insurance generates revenue by providing an extensive
line of consumer real estate products and services to customers nation-
wide. Home Loans & Insurance products are available to our customers
through a retail network of 6,011 banking centers, mortgage loan officers
in approximately 880 locations and a sales force offering our customers
direct telephone and online access to our products. These products are
also offered through our correspondent and wholesale loan acquisition
channels. Home Loans & Insurance products include fixed and adjustable
rate first-lien mortgage loans for home purchase and refinancing needs,
reverse mortgages, home equity lines of credit and home equity loans.
First mortgage products are either sold into the secondary mortgage
market to investors while retaining MSRs and the Bank of America cus-
tomer relationships, or are held on our balance sheet in All Other for ALM
purposes. Home Loans & Insurance is not impacted by the Corporation’s
mortgage production retention decisions as Home Loans & Insurance is
compensated for the decision on a management accounting basis with a
corresponding offset recorded in All Other. In addition, Home Loans &
Insurance offers property, casualty, life, disability and credit insurance.
While the results of Countrywide’s deposit operations are included in
Deposits, the majority of its ongoing operations are recorded in Home
Loans & Insurance. Countrywide’s acquired first mortgage and dis-
continued real estate portfolios are recorded in All Other and are man-
aged as part of our overall ALM activities.
Home Loans & Insurance includes the impact of migrating customers
and their related loan balances between GWIM and Home Loans &
Insurance. As of the date of migration, the associated net interest income
and noninterest expense are recorded in the segment to which the cus-
tomers were migrated. Total loans of $11.5 billion were migrated from
GWIM in 2009 compared to $1.6 billion in 2008. The increase was
mainly due to client segmentation threshold changes resulting from the
Merrill Lynch acquisition.
Home Loans & Insurance recorded a net loss of $3.8 billion in 2009
compared to a net loss of $2.5 billion in 2008, as growth in noninterest
income and net interest income was more than offset by higher provision
for credit losses and higher noninterest expense.
Net interest income grew $1.7 billion, or 50 percent, driven primarily
by an increase in average loans held-for-sale (LHFS) and home equity
loans. The $19.1 billion increase in average LHFS was the result of
higher mortgage loan volume driven by the lower interest rate environ-
ment. The growth in average home equity loans of $23.7 billion, or 23
percent, was due primarily to the migration of certain loans from GWIM to
Home Loans & Insurance as well as the full-year impact of Countrywide
balances.
Noninterest income increased $5.9 billion to $11.9 billion driven by
higher mortgage banking income which benefited from the full-year impact
of Countrywide and lower current interest rates which drove higher pro-
duction income.
Provision for credit losses increased $5.0 billion to $11.2 billion
driven by continued economic and housing market weakness particularly
in geographic areas experiencing higher unemployment and falling home
prices. Additionally, reserve increases in the Countrywide home equity
purchased impaired loan portfolio were $2.8 billion higher in 2009 com-
pared to 2008 reflecting further reduction in expected principal cash
flows.
Noninterest expense increased $4.7 billion to $11.7 billion largely
due to the full-year impact of Countrywide as well as increased
compensation costs and other expenses related to higher production
volume and delinquencies. Partly contributing to the increase in expenses
was the more than doubling of personnel and other costs in the area of
our business that is responsible for assisting distressed borrowers with
loan modifications or other workout solutions.
Mortgage Banking Income
We categorize Home Loans & Insurance mortgage banking income into
production and servicing income. Production income is comprised of
revenue from the fair value gains and losses recognized on our IRLCs and
LHFS and the related secondary market execution, and costs related to
representations and warranties in the sales transactions and other obliga-
tions incurred in the sales of mortgage loans. In addition, production
income includes revenue for transfers of mortgage loans from Home
Loans & Insurance to the ALM portfolio related to the Corporation’s mort-
gage production retention decisions which is eliminated in All Other.
Servicing activities primarily include collecting cash for principal, inter-
est and escrow payments from borrowers, disbursing customer draws for
lines of credit and accounting for and remitting principal and interest
payments to investors and escrow payments to third parties. Our home
retention efforts are also part of our servicing activities, along with
responding to customer inquiries and supervising foreclosures and prop-
erty dispositions. Servicing income includes ancillary income earned in
connection with these activities such as late fees, and MSR valuation
adjustments, net of economic hedge activities.
Bank of America 2009 43