Bank of America 2014 Annual Report Download - page 261

Bank of America 2014 259
All Other
All Other consists of ALM activities, equity investments, the
international consumer card business, liquidating businesses,
residual expense allocations and other. ALM activities encompass
the whole-loan residential mortgage portfolio and investment
securities, interest rate and foreign currency risk management
activities including the residual net interest income allocation, the
impact of certain allocation methodologies and accounting hedge
ineffectiveness. Additionally, certain residential mortgage loans
that are managed by CRES are held in All Other. The results of
certain ALM activities are allocated to the business segments.
Basis of Presentation
The management accounting and reporting process derives
segment and business results by utilizing allocation
methodologies for revenue and expense. 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.
Total revenue, net of interest expense, includes net interest
income on an FTE basis and noninterest income. The adjustment
of net interest income to an FTE basis results in a corresponding
increase in income tax expense. The segment results also reflect
certain revenue and expense methodologies that 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. In segments where the total of
liabilities and equity exceeds assets, which are generally deposit-
taking segments, the Corporation allocates assets to match
liabilities. Net interest income of the business segments also
includes an allocation of net interest income generated by certain
of the Corporation’s ALM activities. In addition, the business
segments are impacted by the migration of customers and clients
and their deposit, loan and brokerage balances between client-
managed businesses. Subsequent to the date of migration, the
associated net interest income, noninterest income and
noninterest expense are recorded in the business to which the
customers or clients migrated.
The Corporation’s ALM activities include an overall interest rate
risk management strategy that incorporates the use of various
derivatives and cash instruments to manage fluctuations in
earnings and capital that are caused by interest rate volatility. The
Corporation’s goal is to manage interest rate sensitivity so that
movements in interest rates do not significantly adversely affect
earnings and capital. The results of a majority of the Corporation’s
ALM activities are allocated to the business segments and
fluctuate based on the performance of the ALM activities. ALM
activities include external product pricing decisions including
deposit pricing strategies, the effects of the Corporation’s internal
funds transfer pricing process and the net effects of other ALM
activities.
Certain expenses not directly attributable to a specific
business segment are allocated to the segments. The most
significant of these expenses include data and 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 other centralized or shared functions are allocated based
on methodologies that reflect utilization.