Bank of America 2007 Annual Report Download - page 44

Supplemental Financial Data
Table 6 provides a reconciliation of the supplemental financial data men-
tioned 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 pre-
sentation 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 year-to-year 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 accu-
rate 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 effi-
ciency ratio, net interest yield and operating leverage utilize net interest
income (and thus total revenue) on a FTE basis. The efficiency ratio meas-
ures 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, invest-
ment 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 6.
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 per-
centage 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.
42 Bank of America 2007