Bank of America 2008 Annual Report Download - page 33

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 38,
we evaluate our market-based results and strategies on a total market-
based revenue approach by combining net interest income and non-
interest 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 securiti-
zations. Noninterest income, rather than net interest income and provi-
sion 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 appro-
priate. We believe the use of this non-GAAP presentation provides addi-
tional 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.
Core net interest income on a managed basis increased $8.1 billion
to $49.5 billion for 2008 compared to 2007. The increase was driven by
strong loan growth, as well as the acquisitions of Countrywide and
LaSalle. Core net interest income on a managed basis also benefited
from the reduced interest rate environment however this benefit was
partially offset by the spread dislocation between the Federal Funds rate
and LIBOR.
On a managed basis, core average earning assets increased $213.1
billion to $1.3 trillion for 2008 compared to 2007 due to higher average
managed loans and an increase in debt securities. The increase in
managed loans was driven by higher consumer managed loans resulting
from organic growth and the acquisition of Countrywide. In addition, aver-
age commercial loans increased primarily due to organic growth and the
acquisition of LaSalle which occurred in the fourth quarter of 2007. The
average balance in the debt securities portfolio increased from 2007 due
to net purchases of securities, the securitization of residential mortgage
loans into mortgage-backed securities which we retained and the LaSalle
and Countrywide acquisitions.
Core net interest yield on a managed basis remained flat at 3.82
percent for 2008, as the beneficial impact of the current interest rate
environment and loan growth was offset by the addition of lower yielding
assets from the Countrywide and LaSalle acquisitions.
Table 7 Core Net Interest Income – Managed Basis
(Dollars in millions) 2008 2007
Net interest income (1)
As reported $ 46,554 $ 36,190
Impact of market-based net interest income
(2)
(6,011) (2,718)
Core net interest income 40,543 33,472
Impact of securitizations
(3)
8,910 7,841
Core net interest income – managed basis $ 49,453 $ 41,313
Average earning assets
As reported $1,562,729 $1,390,192
Impact of market-based earning assets
(2)
(368,751) (412,587)
Core average earning assets 1,193,978 977,605
Impact of securitizations
(4)
100,145 103,371
Core average earning assets – managed basis $1,294,123 $1,080,976
Net interest yield contribution (1)
As reported 2.98% 2.60%
Impact of market-based activities
(2)
0.42 0.82
Core net interest yield on earning assets 3.40 3.42
Impact of securitizations 0.42 0.40
Core net interest yield on earning assets – managed basis 3.82% 3.82%
(1) FTE basis
(2) Represents the impact of market-based amounts included in the CMAS business within GCIB. For 2008 and 2007, the impact of market-based net interest income excludes $113 million and $70 million of net interest
income on loans for which the fair value option has been elected and is not considered market-based income.
(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.
Bank of America 2008 31