Bank of America 2011 Annual Report Download - page 264

262 Bank of America 2011
The table below presents the sensitivity of the weighted-
average lives and fair value of MSRs to changes in modeled
assumptions. These sensitivities 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 MSRs that
continue to be held by the Corporation 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. The below sensitivities do not reflect any hedge
strategies that may be undertaken to mitigate such risk.
Sensitivity Impacts
(Dollars in millions)
Prepayment rates
Impact of 10% decrease
Impact of 20% decrease
Impact of 10% increase
Impact of 20% increase
OAS level
Impact of 100 bps decrease
Impact of 200 bps decrease
Impact of 100 bps increase
Impact of 200 bps increase
December 31, 2011
Change in
Weighted-average Lives
Fixed
0.29
0.63
(0.25)
(0.48)
n/a
n/a
n/a
n/a
years
Adjustable
0.14
0.31
(0.12)
(0.23)
n/a
n/a
n/a
n/a
years
Change in
Fair Value
$ 639
1,375
(561)
(1,056)
$ 375
782
(345)
(664)
n/a = not applicable
NOTE 26 Business Segment Information
The Corporation reports the results of its operations through six
business segments: Deposits, Card Services, Consumer Real Estate
Services (CRES), formerly Home Loans & Insurance, Global
Commercial Banking, Global Banking & Markets (GBAM) and Global
Wealth & Investment Management (GWIM), with the remaining
operations recorded in All Other. The Corporation may periodically
reclassify business segment results based on modifications to its
management reporting methodologies and changes in
organizational alignment. Prior period amounts have been
reclassified to conform to current period presentation.
Deposits
Deposits includes the results of consumer deposits activities which
consist of a comprehensive range of products provided to
consumers and small businesses. Deposit products include
traditional savings accounts, money market savings accounts, CDs
and IRAs, noninterest- and interest-bearing checking accounts, as
well as investment accounts and products. These products provide
a relatively stable source of funding and liquidity. The Corporation
earns net interest spread revenue from investing this liquidity in
earning assets through client-facing lending and ALM activities.
The revenue is allocated to the deposit products using a funds
transfer pricing process which takes into account the interest rates
and implied maturity of the deposits. Deposits also generates fees
such as account service fees, non-sufficient funds fees, overdraft
charges and ATM fees, as well as investment and brokerage fees
from Merrill Edge accounts. In addition, Deposits includes the net
impact of migrating customers and their related deposit balances
between Deposits and other client-managed businesses.
Subsequent to the date of migration, the associated net interest
income, service charges and noninterest expense are recorded in
the business to which deposits were transferred.
Card Services
Card Services is one of the leading issuers of credit and debit
cards in the U.S. to consumers and small businesses providing a
broad offering of lending products including co-branded and affinity
products. During 2011, the Corporation sold its Canadian
consumer card business and is evaluating its remaining
international consumer card operations. In light of these actions,
the international consumer card business results were moved to
All Other effective July 1, 2011, prior periods have been reclassified
and the Global Card Services business segment was renamed Card
Services.
The Corporation reports its Card Services results in accordance
with new consolidation guidance that was effective on January 1,
2010. Under this new consolidation guidance, the Corporation
consolidated all previously unconsolidated credit card trusts.
Accordingly, 2011 and 2010 results are comparable to 2009
results that were presented on a managed basis, which was
consistent with the way that management evaluated the results
of the business. Managed basis assumed that securitized loans
were not sold and presented earnings on these loans in a manner
similar to the way loans that have not been sold are presented.
Consumer Real Estate Services
CRES provides an extensive line of consumer real estate products
and services to customers nationwide. CRES products include
fixed- and adjustable-rate first-lien mortgage loans for home
purchase and refinancing needs, HELOC and home equity loans.
First mortgage products are either sold into the secondary
mortgage market to investors, while retaining MSRs and the Bank
of America customer relationships, or are held on the Corporation’s
Consolidated Balance Sheet in All Other for ALM purposes. HELOC
and home equity loans are retained on the CRES balance sheet.
CRES services mortgage loans, including those loans it owns,
loans owned by other business segments and All Other, and loans
owned by outside investors.
The financial results of the on-balance sheet loans are reported
in the business segment that owns the loans or All Other. CRES
is not impacted by the Corporation’s first mortgage production
retention decisions as CRES is compensated for loans held for
ALM purposes on a management accounting basis, with a
corresponding offset recorded in All Other, and for servicing loans
owned by other business segments and All Other. CRES also
includes the impact of transferring customers and their related
loan balances between GWIM and CRES based on client
segmentation thresholds. Subsequent to the date of transfer, the
associated net interest income and noninterest expense are
recorded in the business segment to which loans were transferred.
Global Commercial Banking
Global Commercial Banking provides a wide range of lending-
related products and services, integrated working capital
management and treasury solutions to clients through the
Corporation’s network of offices and client relationship teams
along with various product partners. Clients include business
banking and middle-market companies, commercial real estate