Bank of America 2011 Annual Report Download - page 163

Bank of America 2011 161
CDOs where independent pricing information cannot be
obtained for a significant portion of the underlying assets.
Income Taxes
There are two components of income tax expense: current and
deferred. Current income tax expense approximates taxes to be
paid or refunded for the current period. Deferred income tax
expense results from changes in deferred tax assets and liabilities
between periods. These gross deferred tax assets and liabilities
represent decreases or increases in taxes expected to be paid in
the future because of future reversals of temporary differences in
the bases of assets and liabilities as measured by tax laws and
their bases as reported in the financial statements. Deferred tax
assets are also recognized for tax attributes such as net operating
loss carryforwards and tax credit carryforwards. Valuation
allowances are recorded to reduce deferred tax assets to the
amounts management concludes are more-likely-than-not to be
realized.
Income tax benefits are recognized and measured based upon
a two-step model: 1) a tax position must be more-likely-than-not
to be sustained based solely on its technical merits in order to be
recognized, and 2) the benefit is measured as the largest dollar
amount of that position that is more-likely-than-not to be sustained
upon settlement. The difference between the benefit recognized
and the tax benefit claimed on a tax return is referred to as an
unrecognized tax benefit (UTB). The Corporation records income
tax-related interest and penalties, if applicable, within income tax
expense.
Retirement Benefits
The Corporation has established retirement plans covering
substantially all full-time and certain part-time employees. Pension
expense under these plans is charged to current operations and
consists of several components of net pension cost based on
various actuarial assumptions regarding future experience under
the plans.
In addition, the Corporation has established unfunded
supplemental benefit plans and supplemental executive
retirement plans (SERPs) for selected officers of the Corporation
and its subsidiaries that provide benefits that cannot be paid from
a qualified retirement plan due to Internal Revenue Code
restrictions. The Corporation’s current executive officers do not
earn additional retirement income under SERPs. These plans are
nonqualified under the Internal Revenue Code and assets used to
fund benefit payments are not segregated from other assets of
the Corporation; therefore, in general, a participant’s or
beneficiary’s claim to benefits under these plans is as a general
creditor. In addition, the Corporation has established several
postretirement healthcare and life insurance benefit plans.
Accumulated Other Comprehensive Income
The Corporation records unrealized gains and losses on AFS debt
and marketable equity securities, gains and losses on cash flow
accounting hedges, unrecognized actuarial gains and losses,
transition obligation and prior service costs on pension and
postretirement plans, foreign currency translation adjustments
and related hedges of net investments in foreign operations in
accumulated OCI, net-of-tax. Unrealized gains and losses on AFS
debt and marketable equity securities are reclassified to earnings
as the gains or losses are realized upon sale of the securities.
Unrealized losses on AFS securities deemed to represent OTTI are
reclassified to earnings at the time of the impairment charge. For
AFS debt securities that the Corporation does not intend to sell
or it is not more-likely-than-not that it will be required to sell, only
the credit component of an unrealized loss is reclassified to
earnings. Gains or losses on derivatives accounted for as cash
flow hedges are reclassified to earnings when the hedged
transaction affects earnings. Translation gains or losses on foreign
currency translation adjustments are reclassified to earnings upon
the substantial sale or liquidation of investments in foreign
operations.
Revenue Recognition
The following summarizes the Corporation’s revenue recognition
policies as they relate to certain noninterest income line items in
the Consolidated Statement of Income.
Card income is derived from fees such as interchange, cash
advance, annual, late, over-limit and other miscellaneous fees,
which are recorded as revenue when earned, primarily on an
accrual basis. Uncollected fees are included in the customer card
receivables balances with an amount recorded in the allowance
for loan and lease losses for estimated uncollectible card
receivables. Uncollected fees are written off when a card receivable
reaches 180 days past due.
Service charges include fees for insufficient funds, overdrafts
and other banking services and are recorded as revenue when
earned. Uncollected fees are included in outstanding loan
balances with an amount recorded for estimated uncollectible
service fees receivable. Uncollected fees are written off when a
fee receivable reaches 60 days past due.
Investment and brokerage services revenue consists primarily
of asset management fees and brokerage income that is
recognized over the period the services are provided or when
commissions are earned. Asset management fees consist
primarily of fees for investment management and trust services
and are generally based on the dollar amount of the assets being
managed. Brokerage income is generally derived from
commissions and fees earned on the sale of various financial
products.
Investment banking income consists primarily of advisory and
underwriting fees that are recognized in income as the services
are provided and no contingencies exist. Revenues are generally
recognized net of any direct expenses. Non-reimbursed expenses
are recorded as noninterest expense.
Earnings Per Common Share
Earnings per common share (EPS) is computed by dividing net
income (loss) allocated to common shareholders by the weighted-
average common shares outstanding, except that it does not
include unvested common shares subject to repurchase or
cancellation. Net income (loss) allocated to common shareholders
represents net income (loss) applicable to common shareholders
which is net income (loss) adjusted for preferred stock dividends
including dividends declared, accretion of discounts on preferred
stock including accelerated accretion when preferred stock is
repaid early, and cumulative dividends related to the current
dividend period that have not been declared as of period end, less
income allocated to participating securities (see below for
additional information). Diluted EPS is computed by dividing
income (loss) allocated to common shareholders plus dividends
on dilutive convertible preferred stock and preferred stock that
can be tendered to exercise warrants by the weighted-average