Bank of America 2005 Annual Report Download - page 154

BANK OF AMERICA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Key economic assumptions used in measuring the fair value of certain residual interests (included in Other Assets)
in securitizations and the sensitivity of the current fair value of residual cash flows to changes in those assumptions are
as follows:
Credit Card(1)
Subprime Consumer
Finance(2)
Automobile
Loans Commercial Loans
(Dollars in millions) 2005 2004 2005 2004 2005 2004 2005 2004
Carrying amount of residual interests (at fair value)(3) ..... $ 203 $ 349 $ 290 $ 313 $93$34$92$ 130
Balance of unamortized securitized loans .................. 2,237 6,903 2,667 4,892 3,996 1,644 1,904 3,337
Weighted average life to call or maturity (in years)(4) ....... 0.5 1.2 0.8 1.3 1.6 1.4 1.8 1.8
Revolving structures—annual payment rate ............... 12.1% 13.7% 25.8% 26.0%
Amortizing structures—annual constant prepayment rate:
Fixed rate loans ....................................... 26.3-28.9% 28.3-32.7% 17.6-25.5% 24.9%
Adjustable rate loans .................................. 37.6 27.0-40.8 ——
Impact on fair value of 100 bps favorable change .............. $2$1$—$1$—$— $— $2
Impact on fair value of 200 bps favorable change .............. 32—11 1—12
Impact on fair value of 100 bps adverse change ................ (2) (1) (8) (9) (1) ——(1)
Impact on fair value of 200 bps adverse change ................ (3) (2) (9) (17) (1) (1) (1) (1)
Expected credit losses(5) ................................... 4.0-4.3% 5.3-9.7% 3.9-5.6% 5.1-11.3% 1.8-1.8% 1.6% 0.4% 0.4%
Impact on fair value of 10% favorable change ................. $3$18$7$27$7$3$1$1
Impact on fair value of 25% favorable change ................. 847 18 71 15 622
Impact on fair value of 10% adverse change ................... (3) (15) (7) (27) (6) (2) (1) (1)
Impact on fair value of 25% adverse change ................... (8) (27) (18) (68) (15) (6) (2) (2)
Residual cash flows discount rate (annual rate) ............ 12.0% 6.0-12.0% 30.0% 30.0% 15.0-20.0% 20.0% 12.3% 12.3%
Impact on fair value of 100 bps favorable change .............. $—$—$5$6$3$1$1$1
Impact on fair value of 200 bps favorable change .............. ——11 12 5112
Impact on fair value of 100 bps adverse change ................ ——(5) (6) (2) (1) (1) (1)
Impact on fair value of 200 bps adverse change ................ ——(10) (12) (5) (1) (1) (2)
(1) The impact of changing residual cash flows discount rates is immaterial.
(2) Subprime consumer finance includes subprime real estate loan securitizations, which are serviced by third parties.
(3) Residual interests include interest-only strips, one or more subordinated tranches, accrued interest receivable, and in some cases, a cash reserve
account.
(4) Before any optional clean-up calls are executed, economic analysis will be performed.
(5) Annual rates of expected credit losses are presented for credit card, home equity lines and commercial securitizations. Cumulative lifetime rates of
expected credit losses (incurred plus projected) are presented for subprime consumer finance securitizations and auto securitizations.
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 the retained interest 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.
Static pool net credit losses are considered in determining the value of retained interests. Static pool net credit
losses include actual losses incurred plus projected credit losses divided by the original balance of each securitization
pool. For auto loan securitizations, weighted average static pool net credit losses for securitizations entered into in 2005
were 1.77 percent for the year ended December 31, 2005. For securitizations entered into in 2004, the weighted average
static pool net credit losses were 1.79 percent for the year ended December 31, 2005, and 1.63 percent for the year ended
December 31, 2004. For the subprime consumer finance securitizations, weighted average static pool net credit losses for
securitizations entered into in 2001 were 5.50 percent for the year ended December 31, 2005, and 5.93 percent for the
year ended December 31, 2004. For securitizations entered into in 1999, the weighted average static pool net credit
losses were 9.16 percent for the year ended December 31, 2005, and 12.22 percent for the year ended December 31, 2004.
Proceeds from collections reinvested in revolving credit card securitizations were $2.0 billion and $6.8 billion in 2005
and 2004. Credit card servicing fee income totaled $97 million and $134 million in 2005 and 2004. Other cash flows
received on retained interests, such as cash flows from interest-only strips, were $206 million and $345 million in 2005
and 2004, for credit card securitizations. Proceeds from collections reinvested in revolving commercial loan
securitizations were $8.7 billion and $7.5 billion in 2005 and 2004. Servicing fees and other cash flows received on
retained interests, such as cash flows from interest-only strips, were $3 million and $34 million in 2005, and $4 million
and $11 million in 2004 for commercial loan securitizations.
The Corporation reviews its loans and leases portfolio on a managed basis. Managed loans and leases are defined as
on-balance sheet Loans and Leases as well as loans in revolving securitizations, which include credit cards, home equity
lines and commercial loans. New advances on accounts for which previous loan balances were sold to the securitization
trusts will be recorded on the Corporation’s Consolidated Balance Sheet after the revolving period of the securitization,
which has the effect of increasing Loans and Leases on the Corporation’s Consolidated Balance Sheet and increasing Net
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