Quarterly report pursuant to Section 13 or 15(d)

Summary of Significant Accounting Principles

v3.23.2
Summary of Significant Accounting Principles
6 Months Ended
Jun. 30, 2023
Accounting Policies [Abstract]  
Summary of Significant Accounting Principles Summary of Significant Accounting Principles
Bank of America Corporation, a bank holding company and a financial holding company, provides a diverse range of financial services and products throughout the U.S. and in certain international markets. The term “the Corporation” as used herein may refer to Bank of America Corporation, individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation’s subsidiaries or affiliates.
Principles of Consolidation and Basis of Presentation
The Consolidated Financial Statements include the accounts of the Corporation and its majority-owned subsidiaries and those variable interest entities (VIEs) where the Corporation is the primary beneficiary. Intercompany accounts and transactions have been eliminated. Results of operations of acquired companies are included from the dates of acquisition, and for VIEs, from the dates that the Corporation became the primary beneficiary. Assets held in an agency or fiduciary capacity are not included in the Consolidated Financial Statements. The Corporation accounts for investments in companies for which it owns a voting interest and for which it has the ability to exercise significant influence over operating and financing decisions using the equity method of accounting. These investments, which include the Corporation’s interests in affordable housing and renewable energy partnerships, are recorded in other assets. Equity method investments are subject to impairment testing, and the Corporation’s proportionate share of income or loss is included in other income.
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could materially differ from those estimates and assumptions.
These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements, and related notes thereto, of the Corporation’s 2022 Annual Report on Form 10-K.
The nature of the Corporation’s business is such that the results of any interim period are not necessarily indicative of results for a full year. In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair statement of the interim period results, have been made. The Corporation evaluates subsequent events through the date of filing with the Securities and Exchange Commission (SEC). Certain prior-period amounts have been reclassified to conform to current-period presentation.
New Accounting Standard Issued
Investments – Equity Method and Joint Ventures
The FASB updated its guidance on the accounting for tax credit investments, which permits entities to make an accounting
policy election to apply the proportional amortization method when certain conditions are met. The new accounting guidance is effective on a retrospective or modified retrospective basis beginning on January 1, 2024, with early adoption permitted. If adopted, the Corporation does not expect the guidance to have a material impact on its consolidated financial position or results of operations.
New Accounting Standard Adopted
Financial Instruments Credit Losses
On January 1, 2023, the Corporation adopted the new accounting and disclosure requirements for expected credit losses (ECL) that removed the recognition and measurement guidance on troubled debt restructurings (TDRs) and added disclosures on the financial effect and subsequent performance of certain types of modifications made to borrowers experiencing financial difficulties.
Upon adoption of the standard, the Corporation recorded a reduction of $243 million in the allowance for credit losses for the impact of changes in the methodology used to estimate the allowance for credit losses for non-collateral dependent consumer and commercial TDRs. There was no impact to the valuation of loans previously classified as collateral-dependent TDRs. After adjusting for deferred taxes, the Corporation recorded an increase of $184 million in retained earnings through a cumulative-effect adjustment.
The additional disclosures are included in Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses on a prospective basis and include loan modifications where the contractual payment terms of the borrower’s loan agreement were modified through a refinancing or restructuring. Modifications that do not impact the contractual payment terms, such as covenant waivers, insignificant payment deferrals, and any modifications made to loans carried at fair value, loans held-for-sale (LHFS) and leases are not included in the disclosures.
The Corporation uses various indicators to identify borrowers in financial difficulty. Consumer loan borrowers that are delinquent and commercial loan borrowers that are rated substandard or worse are the primary criteria used to identify borrowers who are experiencing financial difficulty.
If a borrower is current at the time of modification, the loan generally remains a performing loan as long as there is demonstrated performance prior to the modification, and payment in full under the modified terms is expected. Otherwise, the loan is placed on nonaccrual status and reported as nonperforming, excluding fully-insured consumer real estate loans, until there is sustained repayment performance for a reasonable period.
The allowance for loan and lease losses for modified loans is determined in a manner consistent with the methodology for the respective class and credit rating of the financing receivable as described in Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2022 Annual Report on Form 10-K.