Bank of America 2014 Annual Report Download - page 158

156 Bank of America 2014
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 are
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 more
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 common
shares outstanding plus amounts representing the dilutive effect
of stock options outstanding, restricted stock, restricted stock
units, outstanding warrants and the dilution resulting from the
conversion of convertible preferred stock, if applicable.
Unvested share-based payment awards that contain
nonforfeitable rights to dividends are participating securities that
are included in computing EPS using the two-class method. The
two-class method is an earnings allocation formula under which
EPS is calculated for common stock and participating securities
according to dividends declared and participating rights in
undistributed earnings. Under this method, all earnings,
distributed and undistributed, are allocated to participating
securities and common shares based on their respective rights to
receive dividends.
In an exchange of non-convertible preferred stock, income
allocated to common shareholders is adjusted for the difference
between the carrying value of the preferred stock and the fair value
of the consideration exchanged. In an induced conversion of
convertible preferred stock, income allocated to common
shareholders is reduced by the excess of the fair value of the
consideration exchanged over the fair value of the common stock
that would have been issued under the original conversion terms.
Foreign Currency Translation
Assets, liabilities and operations of foreign branches and
subsidiaries are recorded based on the functional currency of each
entity. For certain of the foreign operations, the functional currency
is the local currency, in which case the assets, liabilities and
operations are translated, for consolidation purposes, from the
local currency to the U.S. Dollar reporting currency at period-end
rates for assets and liabilities and generally at average rates for
results of operations. The resulting unrealized gains or losses, as
well as gains and losses from certain hedges, are reported as a
component of accumulated OCI, net-of-tax. When the foreign
entity’s functional currency is determined to be the U.S. Dollar, the
resulting remeasurement gains or losses on foreign currency-
denominated assets or liabilities are included in earnings.
Credit Card and Deposit Arrangements
Endorsing Organization Agreements
The Corporation contracts with other organizations to obtain their
endorsement of the Corporation’s loan and deposit products. This
endorsement may provide to the Corporation exclusive rights to
market to the organization’s members or to customers on behalf
of the Corporation. These organizations endorse the Corporation’s
loan and deposit products and provide the Corporation with their
mailing lists and marketing activities. These agreements generally
have terms that range from two to five years. The Corporation
typically pays royalties in exchange for the endorsement.
Compensation costs related to the credit card agreements are
recorded as contra-revenue in card income.
Cardholder Reward Agreements
The Corporation offers reward programs that allow its cardholders
to earn points that can be redeemed for a broad range of rewards
including cash, travel and gift cards. The Corporation establishes
a rewards liability based upon the points earned that are expected
to be redeemed and the average cost per point redeemed. The
points to be redeemed are estimated based on past redemption
behavior, card product type, account transaction activity and other
historical card performance. The liability is reduced as the points
are redeemed. The estimated cost of the rewards programs is
recorded as contra-revenue in card income.