Bank of America 2010 Annual Report Download - page 46

Global Card Services
(Dollars in millions) 2010 2009
(1)
% Change
Net interest income
(2)
$17,821 $ 19,972 (11)%
Noninterest income:
Card income
7,658 8,553 (10)
All other income
142 521 (73)
Total noninterest income
7,800 9,074 (14)
Total revenue, net of interest expense
25,621 29,046 (12)
Provision for credit losses
12,648 29,553 (57)
Goodwill impairment
10,400 –n/m
All other noninterest expense
6,953 7,726 (10)
Loss before income taxes
(4,380) (8,233) 47
Income tax expense (benefit)
(2)
2,223 (2,972) 175
Net loss $(6,603) $ (5,261) (26)
Net interest yield
(2)
10.10% 9.43%
Return on average tangible shareholders’ equity
22.50 n/m
Efficiency ratio
(2)
67.73 26.60
Efficiency ratio, excluding goodwill impairment charge
(2)
27.14 26.60
Balance Sheet
Average
Total loans and leases $176,232 $211,981 (17)%
Total earning assets
176,525 211,737 (17)
Total assets
181,766 228,438 (20)
Allocated equity
36,567 41,031 (11)
Year end
Total loans and leases $167,367 $196,289 (15)%
Total earning assets
168,224 196,046 (14)
Total assets
169,762 212,668 (20)
Allocated equity
27,490 42,842 (36)
(1)
Prior year amounts are presented on a managed basis for comparative purposes. For information on managed basis, refer to Note 26 – Business Segment Information to the Consolidated Financial Statements beginning on page 237.
(2)
FTE basis
n/m = not meaningful
Global Card Services provides a broad offering of products including U.S. con-
sumer and business card, consumer lending, international card and debit card to
consumers and small businesses. We provide credit card products to customers
in the U.S., Canada, Ireland, Spain and the U.K. We offer a variety of co-branded
and affinity credit and debit card products and are one of the leading issuers of
credit cards through endorsed marketing in the U.S. and Europe.
On February 22, 2010, the majority of the provisions of the CARD Act
became effective and negatively impacted net interest income during 2010
due to restrictions on our ability to reprice credit cards based on risk and on
card income due to restrictions imposed on certain fees. The 2010 full-year
impact on revenue was approximately $1.5 billion. For more information on
the CARD Act, see Regulatory Matters beginning on page 60.
The Corporation reports its Global Card Services results in accordance
with new consolidation guidance. Under this new consolidation guidance, we
consolidated all credit card trusts on January 1, 2010. Accordingly, current
year results are comparable to prior year results that are presented on a
managed basis. For more information on managed basis, refer to Note 26 –
Business Segment Information to the Consolidated Financial Statements and
for more information on the new consolidation guidance, refer to Balance
Sheet Overview – Impact of Adopting New Consolidation Guidance beginning
on page 33 and Note 8 – Securitizations and Other Variable Interest Entities to
the Consolidated Financial Statements.
As a result of the Financial Reform Act, which was signed into law on
July 21, 2010, we believe that our debit card revenue in Global Card Services
will be adversely impacted beginning in the third quarter of 2011. Based on
2010 volumes, our estimate of revenue loss due to the debit card interchange
fee standards to be adopted under the Financial Reform Act was approxi-
mately $2.0 billion annually. This estimate resulted in a $10.4 billion goodwill
impairment charge for Global Card Services. Depending on the final rule-
making under the Durbin Amendment, additional goodwill impairment may
occur in Global Card Services. For additional information, refer to Regulatory
Matters – Debit Interchange Fees on page 61 and Complex Accounting Esti-
mates beginning on page 111.
Global Card Services recorded a net loss of $6.6 billion primarily due to
the $10.4 billion goodwill impairment charge in 2010. Excluding this charge,
Global Card Services would have reported net income of $3.8 billion com-
pared to a net loss of $5.3 billion in the prior year, primarily due to a decrease
in provision for credit losses. Revenue decreased $3.4 billion, or 12 percent,
to $25.6 billion, driven by lower average loans, reduced interest and fee
income primarily resulting from the implementation of the CARD Act and the
impact of recording an incremental reserve of $592 million for future payment
protection insurance claims in the U.K. that have not yet been asserted. For
more information on payment protection insurance, refer to Note 14 – Com-
mitments and Contingencies to the Consolidated Financial Statements.
Net interest income decreased $2.2 billion, or 11 percent, to $17.8 billion
as average loans decreased $35.7 billion partially offset by lower funding
costs. The decline in average loans was due to the elevated level of net
charge-offs and risk mitigation strategies that were implemented throughout
the recent economic cycle.
Noninterest income decreased $1.3 billion, or 14 percent, to $7.8 billion
driven by lower card income primarily due to the implementation of the CARD Act
and the impact of recording a reserve related to future payment protection
insurance claims. The decrease was partially offset by higher interchange
income during 2010 and the gain on the sale of our MasterCard equity holdings.
Provision for credit losses improved $16.9 billion due to lower delinquencies
and bankruptcies as a result of the improved economic environment. This resulted
in reserve reductions of $7.0 billion in 2010 compared to reserve increases of
$3.4 billion in 2009. The prior year included a reserve addition due to maturing
securitizations which had an unfavorable impact on the 2009 provision expense.
In addition, net charge-offs declined $6.5 billion in 2010 compared to 2009.
Excluding the goodwill impairment charge of $10.4 billion, noninterest
expense decreased $773 million primarily driven by a higher proportion of
costs associated with banking center sales and service efforts being aligned
to Deposits from Global Card Services.
44 Bank of America 2010