Bank of America 2008 Annual Report Download - page 167

Earnings Per Common Share
The calculation of earnings per common share and diluted earnings per common share for 2008, 2007 and 2006 is presented below. See Note 1 –
Summary of Significant Accounting Principles to the Consolidated Financial Statements for a discussion on the calculation of earnings per common
share.
(Dollars in millions, except per share information; shares in thousands) 2008 2007 2006
Earnings per common share
Net income $ 4,008 $ 14,982 $ 21,133
Preferred stock dividends
(1)
(1,452) (182) (22)
Net income available to common shareholders $ 2,556 $ 14,800 $ 21,111
Average common shares issued and outstanding 4,592,085 4,423,579 4,526,637
Earnings per common share $ 0.56 $ 3.35 $ 4.66
Diluted earnings per common share
Net income available to common shareholders $ 2,556 $ 14,800 $ 21,111
Average common shares issued and outstanding 4,592,085 4,423,579 4,526,637
Dilutive potential common shares
(2, 3)
20,406 56,675 69,259
Total diluted average common shares issued and outstanding 4,612,491 4,480,254 4,595,896
Diluted earnings per common share $ 0.55 $ 3.30 $ 4.59
(1) In 2008, preferred stock dividends includes $130 million of Series N Preferred Stock fourth quarter 2008 cumulative preferred dividends not declared as of year end and $50 million of accretion of discounts on
preferred stock issuances.
(2) For 2008, 2007 and 2006, average options to purchase 181 million, 28 million and 355 thousand shares, respectively, were outstanding but not included in the computation of earnings per common share because
they were antidilutive. For 2008, 128 million average dilutive potential common shares associated with the convertible Series L Preferred Stock issued in January of 2008 were excluded from the diluted share count
because the result would have been antidilutive under the “if-converted” method.
(3) Includes incremental shares from restricted stock units, restricted stock shares, stock options and warrants.
Note 15 – Regulatory Requirements and
Restrictions
The FRB requires the Corporation’s banking subsidiaries to maintain
reserve balances based on a percentage of certain deposits. Average
daily reserve balances required by the FRB were $7.1 billion and $5.7 bil-
lion for 2008 and 2007. Currency and coin residing in branches and cash
vaults (vault cash) are used to partially satisfy the reserve requirement.
The average daily reserve balances, in excess of vault cash, held with the
FRB amounted to $133 million and $49 million for 2008 and 2007.
The primary source of funds for cash distributions by the Corporation
to its shareholders is dividends received from its banking subsidiaries
Bank of America, N.A., FIA Card Services, N.A., and Countrywide Bank,
FSB. In 2008, the Corporation received $12.2 billion in dividends from its
banking subsidiaries. In 2009, Bank of America, N.A., FIA Card Services,
N.A., and Countrywide Bank, FSB can declare and pay dividends to the
Corporation of $0, $226 million and $695 million plus an additional
amount equal to their net profits for 2009, as defined by statute, up to
the date of any such dividend declaration. The other subsidiary national
banks can initiate aggregate dividend payments in 2009 of $1.2 billion
plus an additional amount equal to their net profits for 2009, as defined
by statute, up to the date of any such dividend declaration. The amount of
dividends that each subsidiary bank may declare in a calendar year with-
out approval by the Office of the Comptroller of the Currency (OCC) is the
subsidiary bank’s net profits for that year combined with its net retained
profits, as defined, for the preceding two years. In addition, the Corpo-
ration’s declaration of common stock dividends is subject to certain
restrictions in connection with its preferred stock issued to the U.S.
Treasury under the TARP Capital Purchase Program. For additional
information see Note 14 – Shareholders’ Equity and Earnings Per Com-
mon Share to the Consolidated Financial Statements.
The FRB, OCC, Office of Thrift Supervision (OTS) and FDIC (collectively,
the Agencies) have issued regulatory capital guidelines for U.S. banking
organizations. Failure to meet the capital requirements can initiate certain
mandatory and discretionary actions by regulators that could have a
material effect on the Corporation’s financial statements. At
December 31, 2008 and 2007, the Corporation, Bank of America, N.A.
and FIA Card Services, N.A. were classified as “well-capitalized” under
this regulatory framework. Effective July 1, 2008, the Corporation
acquired Countrywide Bank, FSB which is regulated by the OTS and is,
therefore, subject to OTS capital requirements. Countrywide Bank, FSB is
required by OTS regulations to maintain a tangible equity ratio of at least
two percent to avoid being classified as “critically undercapitalized.” At
December 31, 2008, Countrywide Bank, FSB’s tangible equity ratio was
6.64 percent and was classified as “well-capitalized” for regulatory pur-
poses. Management believes that the Corporation, Bank of America, N.A.,
FIA Card Services, N.A. and Countrywide Bank, FSB will remain “well-
capitalized.”
The regulatory capital guidelines measure capital in relation to the
credit and market risks of both on- and off-balance sheet items using
various risk weights. Under the regulatory capital guidelines, Total Capital
consists of three tiers of capital. Tier 1 Capital includes common share-
holders’ equity, Trust Securities, minority interests and qualifying pre-
ferred stock, less goodwill and other adjustments. Tier 2 Capital consists
of preferred stock not qualifying as Tier 1 Capital, mandatory convertible
debt, limited amounts of subordinated debt, other qualifying term debt,
the allowance for credit losses up to 1.25 percent of risk-weighted assets
and other adjustments. Tier 3 Capital includes subordinated debt that is
unsecured, fully paid, has an original maturity of at least two years, is not
redeemable before maturity without prior approval by the FRB and
includes a lock-in clause precluding payment of either interest or principal
if the payment would cause the issuing bank’s risk-based capital ratio to
fall or remain below the required minimum. Tier 3 Capital can only be
used to satisfy the Corporation’s market risk capital requirement and may
not be used to support its credit risk requirement. At December 31, 2008
and 2007, the Corporation had no subordinated debt that qualified as
Tier 3 Capital.
Certain corporate sponsored trust companies which issue Trust Secu-
rities are not consolidated pursuant to FIN 46R. In accordance with FRB
guidance, the FRB allows Trust Securities to qualify as Tier 1 Capital with
revised quantitative limits that will be effective on March 31, 2009. As a
result, we include Trust Securities in Tier 1 Capital.
Such limits restrict core capital elements to 15 percent for internation-
ally active bank holding companies. In addition, the FRB revised the qual-
itative standards for capital instruments included in regulatory capital.
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