Bank of America 2008 Annual Report Download - page 34

Business Segment Operations
Segment Description
We report the results of our operations through three business segments:
GCSBB,GCIB and GWIM, with the remaining operations recorded in All
Other. Certain prior period amounts have been reclassified to conform to
current period presentation. For more information on our basis of pre-
sentation, selected financial information for the business segments and
reconciliations to consolidated total revenue, net income and period end
total assets, see Note 22 – Business Segment Information to the Con-
solidated Financial Statements.
Basis of Presentation
We prepare and evaluate segment results using certain non-GAAP method-
ologies and performance measures, many of which are discussed in
Supplemental Financial Data beginning on page 29. We begin by evaluat-
ing the operating results of the businesses 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 businesses includes the
results of a funds transfer pricing process that matches assets and
liabilities with similar interest rate sensitivity and maturity characteristics.
The management accounting reporting process derives segment and
business results by utilizing allocation methodologies for revenue,
expense and capital. The net income derived for the businesses is
dependent upon revenue and cost allocations using an activity-based
costing model, funds transfer pricing, and other methodologies and
assumptions management believes are appropriate to reflect the results
of the business.
Our ALM activities maintain an overall interest rate risk management
strategy that incorporates the use of interest rate contracts to manage
fluctuations in earnings that are caused by interest rate volatility. Our goal
is to manage interest rate sensitivity so that movements in interest rates
do not significantly adversely affect net interest income. The results of
the business segments will fluctuate based on the performance of corpo-
rate ALM activities. Some ALM activities are recorded in the businesses
(e.g., Deposits and Student Lending) such as external product pricing
decisions, including deposit pricing strategies, as well as the effects of
our internal funds transfer pricing process. The net effects of other ALM
activities are reported within the Deposits and Student Lending business
for GCSBB, and for GCIB and GWIM segments under ALM/Other. In addi-
tion, certain residual impacts of the funds transfer pricing process are
retained in All Other.
Certain expenses not directly attributable to a specific business
segment are allocated to the segments based on pre-determined means.
The most significant of these expenses include data processing costs,
item processing costs and certain centralized or shared functions. Data
processing costs are allocated to the segments based on equipment
usage. Item processing costs are allocated to the segments based on the
volume of items processed for each segment. The costs of certain
centralized or shared functions are allocated based on methodologies
which reflect utilization.
Equity is allocated to business segments and related businesses
using a risk-adjusted methodology incorporating each unit’s stand-alone
credit, market, interest rate and operational risk components. The nature
of these risks is discussed further beginning on page 54. The Corporation
benefits from the diversification of risk across these components, which
is reflected as a reduction to allocated equity for each segment. For
GCSBB, this benefit is reflected as a reduction to allocated equity pro-
portionately across the three consumer businesses, Deposits and Stu-
dent Lending,Card Services, and MHEIS. For the GCIB and GWIM
segments, this benefit is recorded within ALM/Other. Average equity is
allocated to the business segments and the businesses, and is impacted
by the portion of goodwill that is specifically assigned to them.
32 Bank of America 2008