Bank of America Corporation 2015 Annual Report © 2016 Bank of America Corporation 00-04-1373B 3/2016 B a n k o f A m e r i c a C o r p o r a t i o n 2 0 1 5 A n n u a l R e p o r t Bank of America Corporation 2015 Annual Report To our shareholders, Thank you for investing in Bank of America. In 2015, your company earned nearly $16 billion and returned nearly $4.5 billion in capital. This progress is the result of continued strong business performance, no longer clouded over by heavy mortgage and crisis-related litigation and operating costs. Over the past several years, we’ve followed a strategy to simplify the company, rebuild our capital and liquidity, invest in our company and our capabilities, and pursue a straightforward model focused on responsible growth. At the Core of our strategy is the commitment we made to a clear purpose: to make financial lives better by connecting those we serve to the resources and expertise they need to achieve their goals. This is what drives us. A Note of Introduction from Lead Independent Director, Jack Bovender To our shareholders: On behalf of the directors of your company, I join our CEO and the management team in thanking you for choosing to invest in Bank of America. I also want to take this opportunity to add to Brian’s letter, which highlights the Board’s independent oversight of management and our focus on building long-term shareholder value. You are represented by a strong independent Board. As a steward of the company on your behalf, the Board is focused on the active and independent oversight of management. The Board oversees risk management, our governance, and carries out other important duties in coordination with Board committees that have strong, experienced chairs and members. To enhance the Board’s effectiveness, we conduct intensive and thoughtful annual self- assessments, regularly evaluate our leadership structure, and review feedback from shareholders. We have strengthened our director recruiting process to deepen our diversity of thought and experience, broaden our demographic, and bring on fresh perspectives that invigorate our discourse with management and with each other. We are committed to engaging with shareholders, and we have made enhancements to our corporate governance practices that are informed by the feedback from our engagement. The Board also regularly evaluates the company’s strategy, operating environment, performance, and the progress your company is making toward its goals. Over several days each fall, in anticipation of the coming year, we engage in a thorough review with management of the company’s multi-year strategy. We assess how the company has performed against the prior year’s plan. We examine how well the businesses are delivering for our customers and clients under the strategic plan, as well as the processes the company has in place to increase revenue, manage risk and expenses, and grow. We also consider the operating environment and management assumptions about how the environment will affect the company’s results and returns. During our regular meetings throughout the year, we further monitor and evaluate shorter-term issues and how they may impact the company’s execution of its strategy and its progress toward building long-term shareholder value. Throughout 2015, I had the pleasure of continuing to meet with our shareholders to discuss our strategic planning process and corporate governance practices. Hearing directly from these shareholders, as well as from regulators with whom we regularly visit, provides me and the other independent Board members important perspective. I look forward to more meetings in 2016. I encourage you to carefully review this report, our 2016 proxy statement, our forthcoming Business Standards Report, and the other materials the company makes available to shareholders to better understand the opportunities and challenges ahead and the company’s work to execute its strategy. We remain committed to building long-term value in the company and returning value to you, our shareholders. Sincerely, Jack O. Bovender, Jr. Lead Independent Director Responsible Growth When we look at where we stand today, our company is stronger, simpler, and better positioned to deliver long- term value to our shareholders, thanks to the straightforward way in which we serve our customers and clients. The path forward is clearly one of responsible growth. Responsible growth has four pillars: Grow and Win in the Market — No Excuses Page 4 Grow With Our Customer-Focused Strategy Page 7 Grow Within Our Risk Framework Page 8 Grow in a Sustainable Manner Page 11 u r m e r P g e r G y b 5 1 - 4 1 s e g a p ; i n k t o P l l e o J y b r e v o c : y h p a r g o t o h P m o c . i n o s d d a . w w w i n o s d d A y b i n g s e D Investment products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value Global Wealth & Investment Management is a division of Bank of America Corporation (“BofA Corp.”). Merrill Lynch, Merrill Edge™, and U.S. Trust, are affiliated sub- divisions within Global Wealth & Investment Management. Merrill Lynch and The Private Banking and Investment Group, make available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) and other subsidiaries of BofA Corp. Merrill Edge is available through MLPF&S, and consists of the Merrill Edge Advisory Center (investment guidance) and self- directed online investing. U.S. Trust, Bank of America Private Wealth Management operates through Bank of America, N.A., and other subsidiaries of BofA Corp. Banking products are provided by Bank of America, N.A., and affiliated banks, Members FDIC and wholly owned subsidiaries of BofA Corp. Please recycle. The annual report is printed on 30% post-consumer waste (PCW) recycled paper. © 2016 Bank of America Corporation. All rights reserved. Tangible book value per share of common stock is a non-GAAP financial measure. Book value per share at December 31, 2015 was $22.54. (CEO letter continued from cover) Before reviewing our progress, I want to highlight a couple of important points. Our Board of Directors regularly reviews our strategy, the environment in which we are operating, and the progress we are making toward the goals we set. Our Lead Independent Director, Jack Bovender, discusses this in his letter to shareholders on the previous page and in our 2016 proxy statement. You may also read more about our company in our Business Standards Report, which discusses in further detail how we live our purpose and the approach we take to fulfilling our responsibilities in the areas of environmental, social and governance (ESG). In 2015, your investment in the company, measured by tangible book value per share, was at a record $15.62. That figure has increased in each of the past five years and is up 21 percent in that period — and that is after nearly $12 billion of stock repurchases and dividends paid. Our return on assets (ROA) was 0.74 percent. Our longer-term target is 1.00 percent. The gap shows we still have work to do. However, our target is realistic, driven by continued loan growth and good core expense management. Expenses, excluding the large drop in litigation, were down nearly $3 billion last year, and we expect expenses to decline again in 2016. In December, we saw the first increase in short-term interest rates in nearly a decade. And, while interest rates are still a long way from normal, this move reflects a steadily improving U.S. economy, which has continued into early 2016. We see consumers spending and businesses growing, and it’s our job to help them. We will continue to drive the core business growth, even in a below-trend economic environment in the U.S. and around the world. The $16 billion we earned in 2015 reflected progress across a range of measures: loan growth, business activity, capital, liquidity, credit improvement and cost management. Here are just a few examples of how our team supported customers and clients. Your company: • Grew core loan balances by $75 billion and deposit • balances by $78 billion. • Issued nearly 5 million new credit cards, and saw • consumer spending on credit cards rise 4 percent. • Funded $70 billion in residential home loans, helping • more than 260,000 families buy or refinance a home. • Extended more than $10.7 billion in new credit to • small business owners. • Increased loans to the midsize companies we serve • by 8 percent to $58 billion. • Raised $718 billion of capital to help companies grow. • Brian Moynihan Chairman and Chief Executive Officer 1 None of these accomplishments would have been possible without a strong financial foundation. We ended 2015 with record liquidity of more than half-a-trillion dollars. What does that mean? In a time of financial stress, we could fund our company for more than three years without tapping the markets. We also have strong capital. At the end of 2015, our common equity tier 1 ratio, on a Basel 3 fully phased-in basis, was 9.8 percent, meaning we are well on our way to meeting the 10 percent requirement that goes into effect in 2019. Part of that requirement is a buffer, enacted this year, that is equivalent to holding $47 billion of our $162 billion in capital to ensure we make it through any downturn. That is a strong insurance policy. In the meantime, we continue to improve the qualitative and quantitative measures the Federal Reserve evaluates during its annual stress test, which determines the pace at which we can continue increasing the return of capital to shareholders. Another focus has been on managing expenses, which were down $18 billion in 2015, mostly due to lower litigation costs and lower operating costs in Legacy Assets and Servicing (LAS). Even excluding those items, our core expenses keep coming down due to our efficiency efforts. At the same time, we have been steadily investing in technology, expanding our sales force and making other infrastructure improvements that are helping us better serve our clients and grow our business. Responsible Growth When we look at where we stand today, our company is stronger, simpler, and better positioned to deliver long-term value to our shareholders, thanks to the straightforward way in which we serve our customers and clients. The path forward is clearly one of responsible growth. Responsible growth has four pillars: • We must grow and win in the market — no excuses. • We must grow with our customer-focused strategy. We aren’t going to grow by buying assets where we do not have an underlying relationship with the customer, such as mortgages originated by another company. Our growth will come through knowing our customers and clients, and being able to do more for them. • We must grow within our Risk Framework. This is the foundation of everything we do. • We must grow in a sustainable manner. This means having the right business model, which sustains investments in growth and innovation while producing good, consistent returns. Sustainable also means having rigorous governance practices, and making decisions that are right for the customer, strengthen the brand and treat our employees well. 2 In 2015, we increased our tangible common equity to a record $162 billion. This is more than double what we had before the financial crisis and shows how much stronger we are now. Excess capital that we cannot return to shareholders remains on our balance sheet for our investors and is reflected in book value. Our Risk Framework sets clear roles, responsibilities and accountability for how we manage risk and provides a blueprint for how the Board, through delegation of authority to committees and executive officers, establishes the risk appetite and associated limits for our activities. We must grow and win in the market As we’ve discussed before, we serve three groups of customers — people, companies and institutional investors. In the U.S., we serve all three customer groups, and outside the U.S., we serve larger companies and institutional investors. This approach has helped simplify our operations and reduce our risk profile. Our 2015 results demonstrate that we grew across all our businesses. For the people we serve, this is the best consumer and wealth management franchise in the country. We serve 47 million households, and every week, we interact with customers more than 130 million times. In the time it takes you to read this letter, we will have had more than 100,000 contacts with customers. Your company is: • A highly efficient deposit-gathering franchise with the largest retail deposit share in the U.S. • No. 1 in home equity lending. • No. 1 in investment asset growth with Merrill Edge. • No. 1 in digital sales functionality, and we have the No. 1 online and mobile banking platform. Within the Consumer Banking and Wealth Management businesses, deposits grew by $64 billion, or 8 percent, from 2014. That is up more than $100 billion since the end of 2012, and that deposit growth alone is equal to a midsized U.S.-bank. We’ve introduced more ways that customers can interact with us and made it more convenient for them. We have more than 31 million digital customers, and mobile banking continues to grow with more than 19 million users. Why do we drive these capabilities? Why do we continue to invest in digital banking? Why are we tripling our investment in 2016? It is simply because this is how customers want to do business with us. Our customers deposit 250,000 checks a day through their mobile devices, reflecting 15 percent of consumer deposit transactions. We would need an additional 650 financial centers to handle the deposit activity that is currently being done on those mobile devices. In addition, over $3.6 billion in payments are sent by our mobile banking customers each week, and $14.2 billion is sent via online banking. To assist customers face-to-face, we still have more than 35,000 teammates who handle our 6 million financial center visits a week. This includes a growing specialized sales force to help customers with more complex transactions. In the past year, we added more than 800 Financial Solutions Advisors, Mortgage Loan Officers and Small Business Bankers as we optimized our branch network for relationship-deepening opportunities. 3 With the touch of a button, customers can now use mobile and online banking to schedule a time in advance to meet with one of our specialists in our financial centers. We now have 21,000 scheduled appointments per week. Grow and Win in the Market — No Excuses Loans and Leases in Primary Lending Segments ($B, EOP) Loan balances were up $75 billion this year across our consumer, wealth management, global banking and global markets businesses, demonstrating a steady increase. $751 $619 $669 $676 #1 U.S. wealth management market position across client assets, deposits and loans for seven consecutive years Source: Barron’s Penta (September 2015) 2012 2013 2014 2015 Deposit Balances ($B, EOP) Since 2012, we have added $92 billion in deposits, the equivalent of a mid- sized bank. Brokerage Assets (Merrill Edge®) ($B) Our Merrill Edge brokerage platform offers a simple and personalized investing experience for clients; since 2012, brokerage assets have grown 62%. 2015 2014 2013 2012 $1,197 $1,119 $1,119 $1,105 Global Banking and Global Markets Loans ($B, EOP) Our Global Banking and Global Markets businesses continued to deliver for clients, growing loans by 28% since 2012. 2015 2014 2013 2012 $399 $348 $353 $312 4 Information as of December 31, 2015 unless otherwise noted. $76 $96 $114 $123 2012 2013 2014 2015 Capital Raised for Clients ($B) In 2015, we raised $718 billion for our corporate and institutional clients around the globe. (Source: Dealogic) $605 $700 $755 $718 2012 2013 2014 2015 We are one of the largest lenders to large corporate and midsized companies and small businesses. We also have one of the world’s top- tier investment banks, ranked No. 3 in investment banking fees in 2015. In the past year, we’ve added more than 200 business and commercial bankers across the U.S., bringing our global expertise local for each client to help their companies and our economy grow. Additionally, we continue to innovate and invest in technology to reduce costs, and importantly, expand and improve our clients’ experience with us. Our ability to meet our customers’ needs the way they want is resulting in strong organic growth across every consumer business category — checking, credit cards, mortgages, auto loans, and deposits — and we are growing faster than the market. Even as we continue to reduce costs, customer satisfaction is increasing because we are doing business the way they want us to. Turning to wealth management, Merrill Lynch and U.S. Trust are two of the best brands in the wealth management business, and have the No. 1 market position across assets, deposits and loans. As of year-end 2015, our clients had entrusted us with $2.4 trillion of their money to steward for them. For the year, our wealth management business had record loan levels, with loan growth of 9 percent, and significantly higher deposit levels. Our financial advisors continued to broaden and deepen client relationships, providing them strong investment advising capabilities along with full financial planning. Total client balance flows in Global Wealth and Investment Management were $75 billion for the year. These businesses continue to integrate the broad capabilities of our company to meet client needs, and we continued to invest here, increasing our number of financial advisors by 4 percent last year. For the companies we serve, our Global Banking business works with virtually every company in the S&P 500. In many products and geographies, Global Banking has greater market share than our consumer business, delivering solid and recurring profitability. In 2015, we had strong loan growth of 12 percent for our commercial and corporate clients, and strong deposit growth. We also raised $718 billion in capital for our clients last year. These loans and capital help fuel the real economy in the U.S. and around the world, helping small, medium and large businesses grow, add jobs and help families prosper. Recognizing these businesses we serve are the engines of the economy, we bring the broadest array of solutions, both domestic and international, to our clients — capital raising, lending, cash management, trade financing, currency risk hedging, lending in local currencies, and more. This helps companies grow, improve cash flow, and invest for the future. We remain well-positioned for growth and continue to expand and invest in our teams to develop new clients and build new relationships. Finally, turning to the institutional investors our company serves, our Global Markets business is one of the most capable platforms in the world. This business provides capital to companies necessary for growth, and serves many of the world’s largest institutional investors who manage savings and investments through pension and retirement funds. Our presence and global reach in fixed income and equity products allow us to provide them access to investment opportunities. 5 We offer these clients our expertise backed by your award- winning Global Research team, which has been ranked No. 1 in the world by Institutional Investor magazine for five consecutive years. With competitors exiting parts of this business and capital markets and trading revenue down industrywide, the question is posed: why have a markets business? We have it first and foremost because our clients need our help to raise capital. In addition, our investors need to find opportunities to put their capital to work. The key then is to have a sales and trading and capital markets business that focuses on those missions and avoids the proprietary activities that got the industry in trouble in the last crisis. We have reshaped this business to do that. It is balanced and its narrower scope of activities enables it to weather market volatility well. Having those capabilities inside of a large, well- capitalized, diverse company like ours also is safer for our clients. And, because of our relative position in the business, serving clients in the largest fee pools in the world, we are able to operate the business quite profitably. In all of 2015, there were only four days when our trading business was not profitable. The fact remains there are only a handful of banks around the world that can handle the global needs of corporate clients, and your bank is one of those. So, this business is key to our customers, its risk has been reduced, and it makes money in almost all circumstances, helping our clients raise funds to grow and prosper. And our investor clients make money for their investors, the savers of America, by showing them the trends in the markets and providing access to the companies that are issuing debt or equity. This relationship between companies and investors that we help create is key to making American and global capitalism work and growing the real economy. As we look across our businesses and the clients they serve, we have a leading set of capabilities in every area where we operate. That is the power of your company; that is the strength of the model and the balance we are striking to ensure we are doing all we can for our customers and clients, while optimizing our balance sheet to perform efficiently with the post-crisis regulations we must follow. We must grow with our customer-focused strategy We have a simple goal. We need to do more with our customers by bringing them everything they need to live their financial lives. I am often asked, “Why don’t you just go out and buy loans and grow faster?” We won’t do that because we want to save our balance sheet, as strong and big as it is, to serve our customers and clients, the relationships we work so hard to develop. In addition, one of the lessons we learned during the 6 Over the past four years, we have raised nearly $2.8 trillion in capital for corporate and institutional clients around the world, helping these clients expand their businesses and invest in the future. Grow With Our Customer-Focused Strategy 2.8MM Preferred Rewards member enrollments #1 BofA Merrill Lynch Global Research ranked top research firm five years in a row (Source: Institutional Investor) $2.4T Wealth Management client balances $5.8B Investment banking fees Relationships with: 81% of the 2015 Global Fortune 500 96% of the 2015 U.S. Fortune 1,000 New Credit Card Accounts (MM) and Percent of Cards Issued to Existing Customers We’re successfully deepening relationships with current clients with credit card products that reward them for doing more business with us. 3.3 60% 3.9 61% 4.5 67% 2012 2013 2014 5.0 57% 2015 Mobile Banking Users (MM) Our award-winning mobile platform is driving improvements in customer satisfaction, adding more than 5,500 users every day. 12.0 14.4 16.5 18.7 2012 2013 2014 2015 We extended $10.7 billion in new credit to small business owners, resulting in total small business lending of nearly $25.2 billion. The number of client-facing financial specialists in our Bank of America financial centers grew more than 14% since 2012 to 7,000+ Information as of December 31, 2015 unless otherwise noted. 7 Grow Within Our Risk Framework Global Excess Liquidity Sources and Time to Required Funding We added to our record liquidity levels in 2015 with Global Excess Liquidity Sources of more than $500 billion. We have enough parent liquidity to last more than three years before we would need market funding. $372 $376 $504 $439 38 39 39 33 2012 2013 2014 2015 Global Excess Liquidity Sources ($B) Time to Required Funding (months) Total Global Excess Liquidity Sources over $500 billion Our capital and liquidity remain near record levels and our balance sheet is smaller with improved asset quality. Average Value at Risk (VaR)/Trading Assets In challenging market conditions, our Global Markets team continued to deliver for clients while still lowering risk. $466 $469 $450 $433 $75 $69 2012 2013 $56 2014 $53 2015 Trading Assets ($B) Average VaR ($MM)1 Net Charge-Offs ($B) Since 2012, net charge-offs have declined significantly… 2015 2014 2013 2012 $4.3 $4.4 $7.9 $14.9 Tangible Common Equity ($B)2 …while our tangible common equity has grown to a record high. 2015 2014 2013 2012 $162 $152 $146 $144 Information as of December 31, 2015 unless otherwise noted. 1 Our VaR model uses historical simulation approach based on three years of historical data and an expected shortfall methodology equivalent to a 99% confidence level. 2 Tangible common equity is a non-GAAP financial measure. Common shareholders’ equity was $234B, $224B, $219B and $218B for the years ended December 31, 2015, 2014, 2013 and 2012, respectively. 8 We continue to support our business clients by making credit available. Loan balances in our Global Banking and Global Markets businesses increased 28 percent from 2012 to $399 billion. crisis was that a substantial portion of our legacy issues came from loans we acquired that were originated elsewhere. One of the ways we drive our customer-focused strategy is through our business integration work. Several years ago, we embraced a local market-driven approach. We organized the country into roughly 90 market coverage areas. At the local market level, our teams are working together to look at every customer and client relationship in their market and ask — are we doing all we can for them? We have seen dramatic growth in the way we are referring existing clients to other teammates who may not yet have a relationship with those particular clients. From nearly 300,000 referrals five years ago to roughly 5 million in 2015, we believe this is a competitive differentiator, and we are driving it. This approach not only gets us the referrals and the business, but also creates a unique brand. It creates a global company that feels local. Last fall, after a visit to meet with customers and my teammates in Portland, Maine, I received a note from a client that to me was one of the highest compliments our firm could receive. He shared how, over the last year or so, he had seen “big” feeling “small” starting to happen. “Somehow, Bank of America feels like a small bank, albeit with incredible solutions for business clients.” We must grow within our Risk Framework As a financial services company, our business is to take risk in a responsible manner that serves our clients and helps the economy grow. Whether investing in a small business, making a credit decision, or preventing fraud, nearly every aspect of our work calls for sound judgment and a commitment to doing what’s right for our customers and shareholders. Our culture emphasizes that we are one team, and we have a shared responsibility to manage risk, act responsibly, have an ownership mindset, and escalate issues so they can be addressed proactively. Over the past several years, we’ve reduced risk significantly — whether trading, operating or credit risk. For example, net charge-offs, nonperforming assets and delinquencies all improved again in 2015. Charge-offs were the lowest they have been in a decade. What’s important here is how we did it — by focusing our efforts on core, creditworthy customers. This is at the heart of our approach to responsible growth: to understand our customers and clients well and do more with them at lower risk. Our Risk Framework is crucial to our ability to manage risk, run our business and grow responsibly. The Risk Framework is not a concept; it is a deep set of metrics against which we measure our teams to ensure that we maintain strong risk management discipline. 9 We have invested heavily to improve our risk management practices, and we are committed to having best-in-class risk management capabilities, because we know that managing risk well is foundational to everything else we do. We must grow in a sustainable manner Building a sustainable company is about how, at the core of everything we do, we are guided by our principles to make the right decisions that will hold us in good stead today and in the future. We think about this in a variety of ways. First, it’s important to maintain focus on operational excellence, and on the momentum we’ve built managing expenses. We have made significant improvement in decreasing our operating expenses. If you strip out expenses for litigation and LAS, which alone are down nearly $11 billion over the past four years, expenses for 2015 decreased more than $12 billion since 2011, and we expect them to fall again this year. This progress is enabled by the investments we make in efficiency. For example, over the last five years we have reduced our real estate footprint by 34 percent, or 44 million square feet. To put that in context, the Empire State Building is roughly 3 million square feet. We’ve also reduced our financial centers by nearly 1,000 as we’ve optimized our footprint. One example on the technology front is the work we have done to reduce the number of server models we use. We started with nearly 500 different models and are reducing that down. When this and other technology infrastructure efficiency efforts are completed in 2019, we will save more than $500 million in annual costs. We continue to identify and pursue this type of simplification and efficiency, every day throughout the company. Importantly, we have done all this work while investing in growth initiatives and increasing our sales force. We spend $3 billion each year on developing new technology initiatives. This is not to run the platform; this is all new development. Sustainability is also about trust. As a company, we are rebuilding trust that was impacted during the financial crisis. That comes down to everything from how we do business, to how we govern our company, to how we invest in our communities, and to how we treat our employees. We made progress in all these areas in the past year. In terms of how we govern the company, we have a diverse and experienced Board of Directors that provides independent oversight. Our Board constantly looks for ways to ensure its diversity and strength, and monitors corporate governance best practices to adapt and improve when necessary. In fulfilling the Board’s oversight responsibilities, our independent directors appointed a Lead Independent Director with responsibilities that exceed what governance experts 10 Through our Simplify and Improve work, we are harnessing ideas from our employees to make it easier for customers to do business with us, operate more efficiently and free up resources to continue to invest in our future. Our directors are seasoned leaders with diverse experiences, possessing sound judgment and the necessary skills that allow them to effectively oversee our company. Our directors are elected annually, and we have adopted a majority vote standard in uncontested elections. A substantial majority of our directors are independent. Grow in a Sustainable Manner Our diverse and inclusive workplace reflects our corporate values and the communities where we do business: More than 50% of our global workforce is female and more than 40% of our U.S.-based workforce are people of diverse races and ethnic backgrounds. Extended more than $235MM in loans to CDFIs supporting affordable housing, small businesses, energy efficiency and neighborhood stabilization. Continued to deliver local economic growth and development through more than $2 billion in spending with diverse suppliers. Named to the 2015 Dow Jones Sustainability Index (DJSI) for our environmental, social and governance (ESG) performance – recognized on both the World and North American indexes. Since 2014, we have hired 4,000+ military service members toward our hiring goal of 10,000 veterans, guard and reservists. Increased our environmental business initiative to $125 billion, including our $10 billion Catalytic Finance Initiative to stimulate new investments in clean energy projects. Continued to support financial empowerment for all through Better Money Habits®, a free program created in partnership with Khan Academy. 8 out of 10 customers using Better Money Habits felt more confident about achieving their financial goals.1 Provided more than $180MM in global philanthropic investments, and our employees donated 2 million volunteer hours in their communities. Completed a $10 million commitment to (RED)®, with all funds going toward the Global Fund to Fight Aids, Tuberculosis and Malaria and reaffirmed our support with another $10 million over five years. Partnered with Special Olympics on the first-ever Unified Relay Across America – spreading a message of diversity and inclusion with a torch run across 50 states. Information as of December 31, 2015 unless otherwise noted. 1 Source: Bank of America customer advisory panel study. 11 In 2015, we extended more than $235 million in loans to Community Development Financial Institutions (CDFIs), supporting affordable housing, small businesses, energy efficiency and neighborhood stabilization. Bank of America Merrill Lynch Community Development Banking provided a record- setting $4.5 billion in lending and investment in 2015, the most in a single year since we began this effort 30 years ago. As part of our commitment to support strong communities, we created more than 14,400 housing units, including more than 13,400 units of affordable housing, for individuals, families, veterans, seniors and the previously homeless across the United States. have identified as the best practices for that position. You can review the proxy for more information about Board governance. Another way we think about sustainability is the work we do to strengthen our local economies, invest in our communities and be a great place to work for our employees. In 2015, this included increasing our environmental business initiative to $125 billion — one of the largest commitments to finance new energy — through lending, investing, capital raising and developing financial solutions for clients. Our company continues to support the U.S. military through home donations, job skills training and hiring. Last year, we hired more than 2,000 veterans as part of our commitment to hire 10,000 veterans. And, in a tribute to their service, of the 5,700 homes we have donated, nearly 2,000 were donated to help returning veterans and their families. What makes this special is the volunteer work our teammates put in to cleaning up and getting the homes ready for the new families. To support our communities, we also invested more than $180 million in philanthropic investments, and our employees donated nearly 2 million hours of volunteer service to the causes they care about around the world. Sustainability gives us the opportunity to apply the size and scale we have to do big things, and as a global company, we have a role in finding sustainable solutions to some of society’s biggest challenges. One example is the work our team has done with (RED)™ to help end mother-to-child transmission of AIDS in Africa. We partnered with (RED) because we saw an opportunity to use our size and scale to tackle the challenge. And, we’ve been able to do so by giving our employees and customers an opportunity to get involved, which is something they tell us is important to them. Finally, and most importantly, being a sustainable company means we value our people and give all employees the support they need to build a career, achieve their goals, and have the resources they need to improve their lives and the lives of their families. All that we are and all that we achieve is because of our employees, and I want to thank them for all they do. We have a diverse and inclusive workforce that reflects the diversity of the customers, clients and communities we serve in more than 35 countries around the world. To help employees develop in their careers, we provide resources and strategies, no matter where they are in their career. Through our recruitment programs and partnerships, we are investing in the future by bringing the best and brightest to work at Bank of America. Our campus recruiting has increased over the last 12 Our health care benefit premiums are progressive, based on how much an employee earns. In 2011, for employees making less than $50,000, we reduced their premiums by 50 percent, and we’ve kept costs down, giving these employees the ability to keep their premiums flat for the last four years. several years, and last year’s recruiting class was more than 50 percent diverse. We’ve also made changes to our benefits, increasing our wellness offerings and other family support programs to reflect the needs of our workforce. As we think about all the ways we pursue sustainability, our size and scale give us tremendous resources to bring to a task — whether supporting the economy, partnering in the fight against AIDS, protecting the financial infrastructure, or building a great place to work. Our focus is to use our size and scale in ways that contribute positively to our communities, create opportunity for our customers and grow our company responsibly. Conclusion As we take stock of where Bank of America stands today, we can see the tangible results of hard work as we’ve simplified, strengthened and transformed our company. We have a strong foundation, we have a strategy focused on the customers we serve, and all the capabilities we possess have come together as an engine for responsible growth that is producing stronger financial results and momentum. All of this is made possible by more than 200,000 teammates who come to work every day to serve clients and improve our communities. Together, we will continue to take the company forward and deliver more value to those we serve and to our shareholders. Thank you for your continued investment in Bank of America. Brian Moynihan Chairman and Chief Executive Officer March 7, 2016 13 Welcome to Bank of America Our financial centers are core to our strategy of connecting all of our capabilities and financial solutions to the millions of retail, preferred and small business clients we serve every day. We’re making the financial lives of our clients better by delivering what they need in an integrated, client- focused way. MAIN LOBBY We’ve enhanced digital banking so it’s easier than ever for our clients to manage their finances and get things done. Our Digital Ambassadors are trained to help clients get familiar with the tools and features on our award- winning mobile and online banking platforms. Our financial centers are staffed with specialists who can help clients with a range of needs including mortgage, home equity, and small business financing through Bank of America; as well as retirement and other investing goals through a Merrill Edge Financial Solutions Advisor or our investing platform for self- directed clients. 14 Clients are greeted by a relationship manager who helps identify their needs and guides their visit. Our employees work as one team to bring the full capabilities and expertise of our company to our clients. Our network of more than 16,000 ATMs includes more than 900 ATMs with Teller Assist®, giving clients the ability to bank on their schedule, including cashing checks, making deposits and working directly with a teller through live video technology. The Merrill Lynch Wealth Management team is innovating by putting our clients’ life priorities at the center of their strategic investment advice. Through the investment insights of Merrill Lynch and access to the banking capabilities of Bank of America, clients are offered extensive experience and resources, and more of our financial centers are being designed with Merrill Lynch offices onsite for added convenience. UPSTAIRS Getting advice has never been easier. Our new mobile app allows clients to book an appointment in advance with one of our financial specialists for personalized service in a professional setting at a convenient time. NOT PICTURED: U.S. Trust offers high-net worth clients a highly- personalized, team-based approach to wealth management and access to credit and lending solutions from Bank of America. In select markets, some of our financial centers have dedicated space for U.S. Trust advisors. 15 Bank of America Corporation — Financial Highlights Bank of America Corporation (NYSE: BAC) is headquartered in Charlotte, North Carolina. As of December 31, 2015, we operated in all 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico and more than 35 countries. Through our banking and various nonbank subsidiaries throughout the United States and in international markets, we provide a diversified range of banking and nonbank financial services and products through five business segments: Consumer Banking, Global Wealth and Investment Management, Global Banking, Global Markets, and Legacy Assets and Servicing. Financial Highlights (in millions, except per share information) For the year 2015 2014 Revenue, net of interest expense (fully taxable-equivalent basis) 1 Net income Earnings per common share Diluted earnings per common share Dividends paid per common share Return on average assets Return on average tangible shareholders’ equity 1 Efficiency ratio (fully taxable-equivalent basis) 1 Average diluted common shares issued and outstanding $ 83,416 15,888 1.38 1.31 0.20 0.74% 8.83 68.56 11,214 $ 85,116 4,833 0.36 0.36 0.12 0.23% 2.92 88.25 10,585 2013 $ 89,801 11,431 0.94 0.90 0.04 0.53% 7.13 77.07 11,491 At year-end Total loans and leases Total assets Total deposits Total shareholders’ equity Book value per common share Tangible book value per common share 1 Market price per common share Common shares issued and outstanding Tangible common equity ratio 1 2015 2014 2013 $ 903,001 2,144,316 1,197,259 256,205 22.54 15.62 16.83 10,380 7.8 $ 881,391 2,104,534 1,118,936 243,471 21.32 14.43 17.89 10,517 7.5 $ 928,233 2,102,273 1,119,271 232,685 20.71 13.79 15.57 10,592 7.2 1 Represents a non-GAAP financial measure. For more information on these measures and ratios, and a corresponding reconciliation to GAAP financial measures, see Supplemental Financial Data on page 28 and Statistical Table XIII on page 121 of the 2015 Financial Review section. Total Cumulative Shareholder Return2 BAC Five-Year Stock Performance $200 $150 $100 $50 $0 2010 2011 2012 2013 2014 2015 December 31 2010 2011 2012 2013 2014 2015 Bank of America Corporation S & P 500 COMP KBW Bank Sector Index $100 100 100 $42 102 77 $88 $118 $137 $130 118 181 102 155 178 154 157 141 2 This graph compares the yearly change in the Corporation’s total cumulative shareholder return on its common stock with (i) the Standard & Poor’s 500 Index and (ii) the KBW Bank Index for the years ended December 31, 2010 through 2015. The graph assumes an initial investment of $100 at the end of 2010 and the reinvestment of all dividends during the years indicated. 16 $20 $15 $10 $5 $0 2011 2012 2013 2014 2015 HIGH $15.25 4.99 LOW 5.56 CLOSE $11.61 5.80 11.61 $15.88 11.03 15.57 $18.13 14.51 17.89 $18.45 15.15 16.83 Tangible Book Value 9 0 . 0 2 $ 5 9 . 2 1 $ 4 2 . 0 2 $ 6 3 . 3 1 $ 1 7 . 0 2 $ . 9 7 3 1 $ . 2 3 1 2 $ 3 4 . 4 1 $ 4 5 . 2 2 $ 2 6 . 5 1 $ 2011 2012 2013 2014 2015 Book Value Per Share Tangible Book Value Per Share3 3 Tangible book value per share is a non-GAAP financial measure. 2015 Financial Review Financial Review Table of Contents Executive Summary Recent Events Financial Highlights Balance Sheet Overview Supplemental Financial Data Business Segment Operations Consumer Banking Global Wealth & Investment Management Global Banking Global Markets Legacy Assets & Servicing All Other Off-Balance Sheet Arrangements and Contractual Obligations Managing Risk Strategic Risk Management Capital Management Liquidity Risk Credit Risk Management Consumer Portfolio Credit Risk Management Commercial Portfolio Credit Risk Management Non-U.S. Portfolio Provision for Credit Losses Allowance for Credit Losses Market Risk Management Trading Risk Management Interest Rate Risk Management for Non-trading Activities Mortgage Banking Risk Management Compliance Risk Management Operational Risk Management Reputational Risk Management Complex Accounting Estimates 2014 Compared to 2013 Overview Business Segment Operations Statistical Tables Glossary Management’s Discussion and Analysis of Financial Condition and Results of Operations This report, the documents that it incorporates by reference and proceedings, including the possibility that amounts may be in excess the documents into which it may be incorporated by reference may of the Corporation’s recorded liability and estimated range of contain, and from time to time Bank of America Corporation possible losses for litigation exposures; the possible outcome of (collectively with its subsidiaries, the Corporation) and its LIBOR, other reference rate and foreign exchange inquiries and management may make certain statements that constitute forward- investigations; uncertainties about the financial stability and growth looking statements within the meaning of the Private Securities rates of non-U.S. jurisdictions, the risk that those jurisdictions may Litigation Reform Act of 1995. These statements can be identified face difficulties servicing their sovereign debt, and related stresses by the fact that they do not relate strictly to historical or current on financial markets, currencies and trade, and the Corporation’s facts. Forward-looking statements often use words such as exposures to such risks, including direct, indirect and operational; “anticipates,” “targets,” “expects,” “hopes,” “estimates,” “intends,” the impact of U.S. and global interest rates, currency exchange rates “plans,” “goals,” “believes,” “continue,” "suggests" and other similar and economic conditions; the possibility that future credit losses expressions or future or conditional verbs such as “will,” “may,” may be higher than currently expected due to changes in economic “might,” “should,” “would” and “could.” Forward-looking statements assumptions, customer behavior and other uncertainties; the represent the Corporation’s current expectations, plans or forecasts impact on the Corporation’s business, financial condition and of its future results and revenues, and future business and economic results of operations of a potential higher interest rate environment; conditions more generally, and other future matters. These the impact on the Corporation’s business, financial condition and statements are not guarantees of future results or performance and results of operations from a protracted period of lower oil prices; involve certain known and unknown risks, uncertainties and adverse changes to the Corporation’s credit ratings from the major assumptions that are difficult to predict and are often beyond the credit rating agencies; estimates of the fair value of certain of the Corporation’s control. Actual outcomes and results may differ Corporation’s assets and liabilities; uncertainty regarding the materially from those expressed in, or implied by, any of these content, timing and impact of regulatory capital and liquidity forward-looking statements. requirements, including the potential adoption of total loss- You should not place undue reliance on any forward-looking absorbing capacity requirements; the potential for payment statement and should consider the following uncertainties and risks, protection insurance exposure to increase as a result of Financial as well as the risks and uncertainties more fully discussed elsewhere Conduct Authority actions; the possible impact of Federal Reserve in this report, including under Item 1A. Risk Factors of our 2015 actions on the Corporation’s capital plans; the impact of Annual Report on Form 10-K and in any of the Corporation’s implementation and compliance with new and evolving U.S. and subsequent Securities and Exchange Commission filings: the international regulations, including, but not limited to, recovery and Corporation’s ability to resolve representations and warranties resolution planning requirements, the Volcker Rule, and derivatives repurchase and related claims, including claims brought by investors regulations; a failure in or breach of the Corporation’s operational or trustees seeking to distinguish certain aspects of the ACE or security systems or infrastructure, or those of third parties, Securities Corp. v. DB Structured Products, Inc. (ACE) decision or to including as a result of cyber attacks and other similar matters. assert other claims seeking to avoid the impact of the ACE decision; Forward-looking statements speak only as of the date they are the possibility that the Corporation could face servicing, securities, made, and the Corporation undertakes no obligation to update any fraud, indemnity, contribution or other claims from one or more forward-looking statement to reflect the impact of circumstances or counterparties, including trustees, purchasers of loans, events that arise after the date the forward-looking statement was underwriters, issuers, other parties involved in securitizations, made. monolines or private-label and other investors; the possibility that Notes to the Consolidated Financial Statements referred to in future representations and warranties losses may occur in excess the Management’s Discussion and Analysis of Financial Condition of the Corporation’s recorded liability and estimated range of and Results of Operations (MD&A) are incorporated by reference possible loss for its representations and warranties exposures; the into the MD&A. Certain prior-year amounts have been reclassified possibility that the Corporation may not collect mortgage insurance to conform to current-year presentation. Throughout the MD&A, claims; potential claims, damages, penalties, fines and reputational the Corporation uses certain acronyms and abbreviations which damage resulting from pending or future litigation and regulatory are defined in the Glossary. Page 20 20 22 25 28 30 31 34 36 38 40 43 44 47 51 51 58 63 64 75 84 86 86 90 91 95 97 97 97 98 98 103 103 104 106 124 18 Bank of America 2015 Bank of America 2015 19 Financial Review Table of Contents Global Wealth & Investment Management Off-Balance Sheet Arrangements and Contractual Obligations Consumer Portfolio Credit Risk Management Commercial Portfolio Credit Risk Management Interest Rate Risk Management for Non-trading Activities Mortgage Banking Risk Management Executive Summary Recent Events Financial Highlights Balance Sheet Overview Supplemental Financial Data Business Segment Operations Consumer Banking Global Banking Global Markets Legacy Assets & Servicing All Other Managing Risk Strategic Risk Management Capital Management Liquidity Risk Credit Risk Management Non-U.S. Portfolio Provision for Credit Losses Allowance for Credit Losses Market Risk Management Trading Risk Management Compliance Risk Management Operational Risk Management Reputational Risk Management Complex Accounting Estimates 2014 Compared to 2013 Overview Business Segment Operations Statistical Tables Glossary Page 20 20 22 25 28 30 31 34 36 38 40 43 44 47 51 51 58 63 64 75 84 86 86 90 91 95 97 97 97 98 98 103 103 104 106 124 Management’s Discussion and Analysis of Financial Condition and Results of Operations This report, the documents that it incorporates by reference and the documents into which it may be incorporated by reference may contain, and from time to time Bank of America Corporation (collectively with its subsidiaries, the Corporation) and its management may make certain statements that constitute forward- looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “anticipates,” “targets,” “expects,” “hopes,” “estimates,” “intends,” “plans,” “goals,” “believes,” “continue,” "suggests" and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.” Forward-looking statements represent the Corporation’s current expectations, plans or forecasts of its future results and revenues, and future business and economic conditions more generally, and other future matters. These statements are not guarantees of future results or performance and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict and are often beyond the Corporation’s control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements. You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties more fully discussed elsewhere in this report, including under Item 1A. Risk Factors of our 2015 Annual Report on Form 10-K and in any of the Corporation’s subsequent Securities and Exchange Commission filings: the Corporation’s ability to resolve representations and warranties repurchase and related claims, including claims brought by investors or trustees seeking to distinguish certain aspects of the ACE Securities Corp. v. DB Structured Products, Inc. (ACE) decision or to assert other claims seeking to avoid the impact of the ACE decision; the possibility that the Corporation could face servicing, securities, fraud, indemnity, contribution or other claims from one or more counterparties, loans, underwriters, issuers, other parties involved in securitizations, monolines or private-label and other investors; the possibility that future representations and warranties losses may occur in excess of the Corporation’s recorded liability and estimated range of possible loss for its representations and warranties exposures; the possibility that the Corporation may not collect mortgage insurance claims; potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory trustees, purchasers of including proceedings, including the possibility that amounts may be in excess of the Corporation’s recorded liability and estimated range of possible losses for litigation exposures; the possible outcome of LIBOR, other reference rate and foreign exchange inquiries and investigations; uncertainties about the financial stability and growth rates of non-U.S. jurisdictions, the risk that those jurisdictions may face difficulties servicing their sovereign debt, and related stresses on financial markets, currencies and trade, and the Corporation’s exposures to such risks, including direct, indirect and operational; the impact of U.S. and global interest rates, currency exchange rates and economic conditions; the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions, customer behavior and other uncertainties; the impact on the Corporation’s business, financial condition and results of operations of a potential higher interest rate environment; the impact on the Corporation’s business, financial condition and results of operations from a protracted period of lower oil prices; adverse changes to the Corporation’s credit ratings from the major credit rating agencies; estimates of the fair value of certain of the Corporation’s assets and liabilities; uncertainty regarding the content, timing and impact of regulatory capital and liquidity requirements, including the potential adoption of total loss- absorbing capacity requirements; the potential for payment protection insurance exposure to increase as a result of Financial Conduct Authority actions; the possible impact of Federal Reserve actions on the Corporation’s capital plans; the impact of implementation and compliance with new and evolving U.S. and international regulations, including, but not limited to, recovery and resolution planning requirements, the Volcker Rule, and derivatives regulations; a failure in or breach of the Corporation’s operational or security systems or infrastructure, or those of third parties, including as a result of cyber attacks and other similar matters. Forward-looking statements speak only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made. Notes to the Consolidated Financial Statements referred to in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) are incorporated by reference into the MD&A. Certain prior-year amounts have been reclassified to conform to current-year presentation. Throughout the MD&A, the Corporation uses certain acronyms and abbreviations which are defined in the Glossary. 18 Bank of America 2015 Bank of America 2015 19 Executive Summary Business Overview The Corporation is a Delaware corporation, a bank holding company (BHC) and a financial holding company. When used in this report, “the Corporation” 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. Our principal executive offices are located in Charlotte, North Carolina. Through our banking and various nonbank subsidiaries throughout the U.S. and in international markets, we provide a diversified range of banking and nonbank financial services and products through five business segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking, Global Markets and Legacy Assets & Servicing (LAS), with the remaining operations recorded in All Other. We operate our banking activities primarily under the Bank of America, National Association (Bank of America, N.A. or BANA) charter. At December 31, 2015, the Corporation had approximately $2.1 trillion in assets and approximately 213,000 full-time equivalent employees. retail banking As of December 31, 2015, we operated in all 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico and more than 35 countries. Our footprint covers approximately 80 percent of the U.S. population, and we serve approximately 47 million consumer and small business relationships with approximately 4,700 retail financial centers, approximately 16,000 ATMs, nationwide call centers, and leading online and mobile banking platforms (www.bankofamerica.com). We offer industry-leading support to approximately three million small business owners. Our wealth management businesses, with client balances of nearly $2.5 trillion, provide tailored solutions to meet client needs through a full set of investment management, brokerage, banking, trust and retirement products. We are a global leader in corporate and investment banking and trading across a broad range of asset classes serving corporations, governments, institutions and individuals around the world. 2015 Economic and Business Environment In the U.S., the economy grew in 2015 for the seventh consecutive year. Following a soft start to the year partly reflecting severe winter weather and other temporary factors, economic growth picked up mid-year before a mild deceleration near year end. While economic growth struggled to reach two percent in the year, the labor market continued to improve. Payroll gains were solid, while the unemployment rate fell to five percent late in the year. With steady employment gains and continued low oil prices, consumer spending increased at a strong pace for most of the year and residential construction gained momentum. Core inflation (which excludes certain items which may be subject to frequent volatile price changes, like food and energy) remained relatively unchanged in 2015, more than half a percentage point below the Board of Governors of the Federal Reserve System’s (Federal Reserve) longer-term target of two percent. Inflation was suppressed by falling energy costs. U.S. household net worth rose for a seventh consecutive year, but at a slower pace in 2015. After a modest first half of the year, home prices rebounded in the second half of 2015 and rose more than five percent in 2015, while equity markets registered little net change. With energy costs continuing to decline in 2015, the consumer spending outlook remained positive, although the negative impacts on energy-related investments hurt the manufacturing economy and continued to impact financial markets. With the sharp U.S. Dollar appreciation in late 2014 and 2015, export gains slowed, further weakening manufacturing, while import growth was steady, resulting in a decline in net exports and a negative impact on 2015 gross domestic product growth. U.S. Treasury yields were unstable, but rose modestly over the course of the year, as a rate hike from the Federal Reserve neared. At its final meeting of the year, the Federal Open Market Committee (FOMC) raised its target range for the Federal funds rate by 25 basis points (bps), its first rate increase in over nine years. At the same time, the Federal Reserve repeated its expectation that policy would be normalized gradually, and would remain accommodative for the foreseeable future. Amid the contrast between U.S. tightening of monetary policy versus the easing of monetary policy in much of the world, the U.S. Dollar appreciated significantly over the year, especially against emerging market and commodity-oriented currencies. Internationally, the eurozone continued to grow modestly in 2015, as the European Central Bank (ECB) began a program of significant purchases of sovereign debt, helping to keep bond yields low and to maintain stability in southern European markets. Core inflation in the eurozone stabilized early and then edged higher over the year. The Euro/U.S. Dollar exchange rate continued to decline early in the year driven by the differing directions of U.S. and eurozone monetary policies, further boosting European competitiveness. However, the eurozone remains vulnerable to economic slowing in emerging markets. Late in the year, the ECB extended its horizon for bond purchases, but failed to increase their size. Economic growth was slow and uncertain in Japan, while the 2014 gains in core inflation were reversed. Declining energy costs continued to hurt Russia’s economy, which remained in recession for 2015. Brazil’s recession also continued, aggravated by extreme policy uncertainty. Amid continued gradual economic moderation, China eased monetary policy during the year, but continued its focus on longer-run issues including increasing its focus on rebalancing the economy and encouraging consumer spending. Recent Events Settlement with Bank of New York Mellon The final conditions of the settlement with the Bank of New York Mellon (BNY Mellon) have been satisfied and, accordingly, the Corporation made the settlement payment of $8.5 billion in February 2016. The settlement payment was previously fully reserved. Pursuant to the settlement agreement, allocation and distribution of the $8.5 billion settlement payment is the responsibility of the residential mortgage-backed securities (RMBS) trustee, BNY Mellon. On February 5, 2016, BNY Mellon filed an Article 77 proceeding in the New York County Supreme Court asking the court for instruction with respect to certain issues concerning the distribution of each trust’s allocable share of the settlement payment and asking that the settlement payment be ordered to be held in escrow pending the outcome of this Article 77 proceeding. The Corporation is not a party to this proceeding. For additional information, see Off-Balance Sheet Arrangements and Contractual Obligations on page 44. 20 Bank of America 2015 Executive Summary Business Overview consumer spending outlook remained positive, although the negative impacts on energy-related investments hurt the manufacturing economy and continued to impact financial The Corporation is a Delaware corporation, a bank holding company markets. With the sharp U.S. Dollar appreciation in late 2014 and (BHC) and a financial holding company. When used in this report, 2015, export gains slowed, further weakening manufacturing, “the Corporation” may refer to Bank of America Corporation while import growth was steady, resulting in a decline in net exports individually, Bank of America Corporation and its subsidiaries, or and a negative impact on 2015 gross domestic product growth. certain of Bank of America Corporation’s subsidiaries or affiliates. U.S. Treasury yields were unstable, but rose modestly over the Our principal executive offices are located in Charlotte, North course of the year, as a rate hike from the Federal Reserve neared. Carolina. Through our banking and various nonbank subsidiaries At its final meeting of the year, the Federal Open Market Committee throughout the U.S. and in international markets, we provide a (FOMC) raised its target range for the Federal funds rate by 25 diversified range of banking and nonbank financial services and basis points (bps), its first rate increase in over nine years. At the products through five business segments: Consumer Banking, same time, the Federal Reserve repeated its expectation that Global Wealth & Investment Management (GWIM), Global Banking, policy would be normalized gradually, and would remain Global Markets and Legacy Assets & Servicing (LAS), with the accommodative for the foreseeable future. Amid the contrast remaining operations recorded in All Other. We operate our banking between U.S. tightening of monetary policy versus the easing of activities primarily under the Bank of America, National Association monetary policy in much of the world, the U.S. Dollar appreciated (Bank of America, N.A. or BANA) charter. At December 31, 2015, significantly over the year, especially against emerging market and the Corporation had approximately $2.1 trillion in assets and commodity-oriented currencies. approximately 213,000 full-time equivalent employees. Internationally, the eurozone continued to grow modestly in As of December 31, 2015, we operated in all 50 states, the 2015, as the European Central Bank (ECB) began a program of District of Columbia, the U.S. Virgin Islands, Puerto Rico and more significant purchases of sovereign debt, helping to keep bond than 35 countries. Our retail banking footprint covers yields low and to maintain stability in southern European markets. approximately 80 percent of the U.S. population, and we serve Core inflation in the eurozone stabilized early and then edged approximately 47 million consumer and small business higher over the year. The Euro/U.S. Dollar exchange rate continued relationships with approximately 4,700 retail financial centers, to decline early in the year driven by the differing directions of U.S. approximately 16,000 ATMs, nationwide call centers, and leading and eurozone monetary policies, further boosting European online and mobile banking platforms (www.bankofamerica.com). competitiveness. However, the eurozone remains vulnerable to We offer industry-leading support to approximately three million economic slowing in emerging markets. Late in the year, the ECB small business owners. Our wealth management businesses, with extended its horizon for bond purchases, but failed to increase client balances of nearly $2.5 trillion, provide tailored solutions to their size. meet client needs through a full set of investment management, Economic growth was slow and uncertain in Japan, while the brokerage, banking, trust and retirement products. We are a global 2014 gains in core inflation were reversed. Declining energy costs leader in corporate and investment banking and trading across a continued to hurt Russia’s economy, which remained in recession broad range of asset classes serving corporations, governments, for 2015. Brazil’s recession also continued, aggravated by extreme institutions and individuals around the world. 2015 Economic and Business Environment In the U.S., the economy grew in 2015 for the seventh consecutive year. Following a soft start to the year partly reflecting severe winter weather and other temporary factors, economic growth picked up mid-year before a mild deceleration near year end. While economic growth struggled to reach two percent in the year, the labor market continued to improve. Payroll gains were solid, while the unemployment rate fell to five percent late in the year. With steady employment gains and continued low oil prices, consumer spending increased at a strong pace for most of the year and residential construction gained momentum. Core inflation (which excludes certain items which may be subject to frequent volatile price changes, like food and energy) remained relatively unchanged in 2015, more than half a percentage point below the Board of Governors of the Federal Reserve System’s (Federal Reserve) longer-term target of two percent. Inflation was suppressed by falling energy costs. U.S. household net worth rose for a seventh consecutive year, but at a slower pace in 2015. After a modest first half of the year, home prices rebounded in the second half of 2015 and rose more than five percent in 2015, while equity markets registered little net change. With energy costs continuing to decline in 2015, the policy uncertainty. Amid continued gradual economic moderation, China eased monetary policy during the year, but continued its focus on longer-run issues including increasing its focus on rebalancing the economy and encouraging consumer spending. Recent Events Settlement with Bank of New York Mellon The final conditions of the settlement with the Bank of New York Mellon (BNY Mellon) have been satisfied and, accordingly, the Corporation made the settlement payment of $8.5 billion in February 2016. The settlement payment was previously fully reserved. Pursuant to the settlement agreement, allocation and distribution of the $8.5 billion settlement payment is the responsibility of the residential mortgage-backed securities (RMBS) trustee, BNY Mellon. On February 5, 2016, BNY Mellon filed an Article 77 proceeding in the New York County Supreme Court asking the court for instruction with respect to certain issues concerning the distribution of each trust’s allocable share of the settlement payment and asking that the settlement payment be ordered to be held in escrow pending the outcome of this Article 77 proceeding. The Corporation is not a party to this proceeding. For additional information, see Off-Balance Sheet Arrangements and Contractual Obligations on page 44. Capital Management During 2015, we repurchased approximately $2.4 billion of common stock, with an average price of $16.92 per share, in connection with our 2015 Comprehensive Capital Analysis and Review (CCAR) capital plan, which included a request to repurchase $4.0 billion of common stock over five quarters beginning in the second quarter of 2015, and to maintain the quarterly common stock dividend at the current rate of $0.05 per share. Based on the conditional non-objection we received from the Federal Reserve on our 2015 CCAR submission, we were required to resubmit our CCAR capital plan by September 30, 2015 and address certain weaknesses the Federal Reserve identified in our capital planning process. We have established plans and taken actions which addressed the identified weaknesses, and we resubmitted our CCAR capital plan on September 30, 2015. The Federal Reserve announced that it did not object to our resubmitted CCAR capital plan on December 10, 2015. As an Advanced approaches institution, under Basel 3, we were required to complete a qualification period (parallel run) to demonstrate compliance with the Basel 3 Advanced approaches capital framework to the satisfaction of U.S. banking regulators. We received approval to begin using the Advanced approaches capital framework to determine risk-based capital requirements beginning in the fourth quarter of 2015. As previously disclosed, with the approval to exit parallel run, U.S. banking regulators requested modifications to certain internal analytical models including the wholesale (e.g., commercial) credit models. All requested modifications were incorporated, which increased our risk-weighted assets, and are reflected in the risk-based ratios in the fourth quarter of 2015. Having exited parallel run on October 1, 2015, we are required to report regulatory risk-based capital ratios and risk-weighted assets under both the Standardized and Advanced approaches. The approach that yields the lower ratio is used to assess capital adequacy including under the Prompt Corrective Action (PCA) framework and was the Advanced approaches in the fourth quarter of 2015. For additional information, see Capital Management on page 51. Trust Preferred Securities On December 29, 2015, the Corporation provided notice of the redemption on January 29, 2016 of all trust preferred securities of Merrill Lynch Preferred Capital Trust III, Merrill Lynch Preferred Capital Trust IV and Merrill Lynch Preferred Capital Trust V (the Trust Preferred Securities). In connection with the Corporation’s acquisition of Merrill Lynch & Co., Inc. in 2009, the Corporation recorded a discount to par value as purchase accounting adjustments associated with the Trust Preferred Securities. The Corporation recorded a $612 million charge to net interest income related to the discount on these securities. New Accounting Guidance on Recognition and Measurement of Financial Instruments In January 2016, the Financial Accounting Standards Board (FASB) issued new accounting guidance on recognition and measurement of financial instruments. The Corporation has early adopted, retrospective to January 1, 2015, the provision that requires the Corporation to present unrealized gains and losses resulting from changes in the Corporation’s own credit spreads on liabilities accounted for under the fair value option (referred to as debit valuation adjustments, or DVA) in accumulated other comprehensive income (OCI). The impact of the adoption was to reclassify, as of January 1, 2015, unrealized DVA losses of $2.0 billion pretax ($1.2 billion after tax) from retained earnings to accumulated OCI. Further, pretax unrealized DVA gains of $301 million, $301 million and $420 million were reclassified from other income to accumulated OCI for the third, second and first quarters of 2015, respectively. This had the effect of reducing net income as previously reported for the aforementioned quarters by $187 million, $186 million and $260 million, or approximately $0.02 per share in each quarter. This change is reflected in consolidated results and the Global Markets segment results. Results for 2014 were not subject to restatement under the provisions of the new accounting guidance. Selected Financial Data Table 1 provides selected consolidated financial data for 2015 and 2014. Table 1 Selected Financial Data (Dollars in millions, except per share information) Income statement Revenue, net of interest expense (FTE basis) (1) Net income Diluted earnings per common share Dividends paid per common share Performance ratios Return on average assets Return on average tangible common shareholders’ equity (1) Efficiency ratio (FTE basis) (1) Balance sheet at year end Total loans and leases Total assets Total deposits Total common shareholders’ equity Total shareholders’ equity 2015 2014 $ 83,416 15,888 1.31 0.20 $ 85,116 4,833 0.36 0.12 0.74% 9.11 68.56 0.23% 2.52 88.25 $ 903,001 2,144,316 1,197,259 233,932 256,205 $ 881,391 2,104,534 1,118,936 224,162 243,471 20 Bank of America 2015 Bank of America 2015 21 (1) Fully taxable-equivalent (FTE) basis, return on average tangible common shareholders’ equity and the efficiency ratio are non-GAAP financial measures. Other companies may define or calculate these measures differently. For additional information, see Supplemental Financial Data on page 28, and for corresponding reconciliations to GAAP financial measures, see Statistical Table XIII. Financial Highlights Net income was $15.9 billion, or $1.31 per diluted share in 2015 compared to $4.8 billion, or $0.36 per diluted share in 2014. The results for 2015 compared to 2014 were primarily driven by a decrease of $15.2 billion in litigation expense, as well as decreases in all other noninterest expense categories, partially offset by a decline in net interest income on a fully taxable- equivalent (FTE) basis, higher provision for credit losses and lower revenue. Included in net interest income on an FTE basis was a charge related to the discount on certain trust preferred securities of $612 million in 2015, as well as a negative market-related adjustment on debt securities of $296 million compared to a negative market-related adjustment of $1.1 billion in 2014. Total assets increased $39.8 billion from December 31, 2014 to $2.1 trillion at December 31, 2015 primarily driven by an increase in debt securities due to the deployment of deposit inflows, an increase in loans driven by strong demand for commercial loans outpacing consumer loan sales and run-off, and higher cash and cash equivalents from strong deposit inflows. Total liabilities increased $27.0 billion from December 31, 2014 to $1.9 trillion at December 31, 2015 primarily driven by an increase in deposits, partially offset by declines in securities loaned or sold under agreements to repurchase, trading account liabilities and long-term debt. During 2015, we returned $5.9 billion in capital to shareholders through common and preferred stock dividends and share repurchases. For more information on the balance sheet, see Executive Summary – Balance Sheet Overview on page 25. From a capital management perspective, during 2015, we maintained our strong capital position with Common equity tier 1 capital of $163.0 billion, risk-weighted assets of $1,602 billion and a Common equity tier 1 capital ratio of 10.2 percent at December 31, 2015 as measured under the Basel 3 Advanced – Transition. On September 3, 2015, we received approval to exit parallel run and begin using the Basel 3 Advanced approaches capital framework to determine risk-based capital requirements in the fourth quarter of 2015. The Corporation’s transitional supplementary leverage ratio (SLR) was 6.6 percent and 6.2 percent at December 31, 2015 and 2014, both above the 5.0 percent required minimum. Our Global Excess Liquidity Sources were $504 billion with time-to-required funding at 39 months at December 31, 2015 compared to $439 billion and 39 months at December 31, 2014. For additional information, see Capital Management on page 51 and Liquidity Risk on page 58. Table 2 Summary Income Statement (Dollars in millions) Net interest income (FTE basis) (1) Noninterest income Total revenue, net of interest expense (FTE basis) (1) Provision for credit losses Noninterest expense Income before income taxes (FTE basis) (1) Income tax expense (FTE basis) (1) Net income Preferred stock dividends Net income applicable to common shareholders Per common share information Earnings Diluted earnings 2015 $ 40,160 43,256 83,416 3,161 57,192 23,063 7,175 15,888 1,483 $ 14,405 2014 $ 40,821 44,295 85,116 2,275 75,117 7,724 2,891 4,833 1,044 3,789 $ $ $ 1.38 1.31 0.36 0.36 (1) FTE basis is a non-GAAP financial measure. For more information on this measure, see Supplemental Financial Data on page 28, and for a corresponding reconciliation to GAAP financial measures, see Statistical Table XIII. Net Interest Income Net interest income on an FTE basis decreased $661 million to $40.2 billion in 2015 compared to 2014. The net interest yield on an FTE basis decreased five bps to 2.20 percent for 2015. These declines were primarily driven by lower loan yields and consumer loan balances, as well as a charge of $612 million in 2015 related to the discount on certain trust preferred securities, partially offset by a $785 million improvement in market-related adjustments on debt securities, lower funding costs, higher trading- related net interest income, lower rates paid on deposits and commercial loan growth. Market-related adjustments on debt securities resulted in an expense of $296 million in 2015 compared to an expense of $1.1 billion in 2014. Negative market- related adjustments on debt securities were primarily due to the acceleration of premium amortization on debt securities as the decline in long-term interest rates shortened the estimated lives of mortgage-related debt securities. Also included in market- related adjustments is hedge ineffectiveness that impacted net interest income. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. 22 Bank of America 2015 2015 2014 $ 40,160 $ 40,821 43,256 83,416 3,161 57,192 23,063 7,175 15,888 1,483 44,295 85,116 2,275 75,117 7,724 2,891 4,833 1,044 3,789 $ $ 1.38 1.31 0.36 0.36 Financial Highlights Net income was $15.9 billion, or $1.31 per diluted share in 2015 compared to $4.8 billion, or $0.36 per diluted share in 2014. The results for 2015 compared to 2014 were primarily driven by a decrease of $15.2 billion in litigation expense, as well as decreases in all other noninterest expense categories, partially offset by a decline in net interest income on a fully taxable- equivalent (FTE) basis, higher provision for credit losses and lower revenue. Included in net interest income on an FTE basis was a charge related to the discount on certain trust preferred securities Table 2 Summary Income Statement (Dollars in millions) Net interest income (FTE basis) (1) Noninterest income Total revenue, net of interest expense (FTE basis) (1) Provision for credit losses Noninterest expense Income before income taxes (FTE basis) (1) Income tax expense (FTE basis) (1) of $612 million in 2015, as well as a negative market-related Net income adjustment on debt securities of $296 million compared to a Preferred stock dividends negative market-related adjustment of $1.1 billion in 2014. Total assets increased $39.8 billion from December 31, 2014 to $2.1 trillion at December 31, 2015 primarily driven by an increase in debt securities due to the deployment of deposit inflows, an increase in loans driven by strong demand for commercial loans outpacing consumer loan sales and run-off, and higher cash and cash equivalents from strong deposit inflows. Total liabilities increased $27.0 billion from December 31, 2014 to $1.9 trillion at December 31, 2015 primarily driven by an increase in deposits, partially offset by declines in securities loaned or sold under agreements to repurchase, trading account liabilities and long-term debt. During 2015, we returned $5.9 billion in capital to shareholders through common and preferred stock dividends and share repurchases. For more information on the balance sheet, see Executive Summary – Balance Sheet Overview on page 25. From a capital management perspective, during 2015, we maintained our strong capital position with Common equity tier 1 capital of $163.0 billion, risk-weighted assets of $1,602 billion and a Common equity tier 1 capital ratio of 10.2 percent at December 31, 2015 as measured under the Basel 3 Advanced – Transition. On September 3, 2015, we received approval to exit parallel run and begin using the Basel 3 Advanced approaches capital framework to determine risk-based capital requirements in the fourth quarter of 2015. The Corporation’s transitional supplementary leverage ratio (SLR) was 6.6 percent and 6.2 percent at December 31, 2015 and 2014, both above the 5.0 percent required minimum. Our Global Excess Liquidity Sources were $504 billion with time-to-required funding at 39 months at December 31, 2015 compared to $439 billion and 39 months at December 31, 2014. For additional information, see Capital Management on page 51 and Liquidity Risk on page 58. Net income applicable to common shareholders $ 14,405 $ Per common share information Earnings Diluted earnings (1) FTE basis is a non-GAAP financial measure. For more information on this measure, see Supplemental Financial Data on page 28, and for a corresponding reconciliation to GAAP financial measures, see Statistical Table XIII. Net Interest Income Net interest income on an FTE basis decreased $661 million to $40.2 billion in 2015 compared to 2014. The net interest yield on an FTE basis decreased five bps to 2.20 percent for 2015. These declines were primarily driven by lower loan yields and consumer loan balances, as well as a charge of $612 million in 2015 related to the discount on certain trust preferred securities, partially offset by a $785 million improvement in market-related adjustments on debt securities, lower funding costs, higher trading- related net interest income, lower rates paid on deposits and commercial loan growth. Market-related adjustments on debt securities resulted in an expense of $296 million in 2015 compared to an expense of $1.1 billion in 2014. Negative market- related adjustments on debt securities were primarily due to the acceleration of premium amortization on debt securities as the decline in long-term interest rates shortened the estimated lives of mortgage-related debt securities. Also included in market- related adjustments is hedge ineffectiveness that impacted net interest income. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. Noninterest Income Provision for Credit Losses Table 3 Noninterest Income Table 4 Credit Quality Data 2015 2014 (Dollars in millions) 2015 2014 (Dollars in millions) Card income Service charges Investment and brokerage services Investment banking income Equity investment income Trading account profits Mortgage banking income Gains on sales of debt securities Other income Total noninterest income $ 5,959 7,381 13,337 5,572 261 6,473 2,364 1,091 818 $ 43,256 $ 5,944 7,443 13,284 6,065 1,130 6,309 1,563 1,354 1,203 $ 44,295 Noninterest income decreased $1.0 billion to $43.3 billion for 2015 compared to 2014. The following highlights the significant changes. Investment banking income decreased $493 million driven by lower debt and equity issuance fees, partially offset by higher advisory fees. Equity investment income decreased $869 million as 2014 included a gain on the sale of a portion of an equity investment and gains from an initial public offering (IPO) of an equity investment in Global Markets. Trading account profits increased $164 million. Excluding DVA, trading account profits decreased $330 million driven by declines in credit-related products reflecting lower client activity, partially offset by strong performance in equity derivatives, increased client activity in equities in the Asia-Pacific region, improvement in currencies on higher client flows and increased volatility. For more information on trading account profits, see Global Markets on page 38. Mortgage banking income increased $801 million primarily due to lower provision for representations and warranties in 2015 compared to 2014, and to a lesser extent, improved mortgage servicing rights (MSR) net-of-hedge performance and an increase in core production revenue, partially offset by a decline in servicing fees. Other income decreased $385 million primarily due to DVA gains of $407 million in 2014 compared to DVA losses of $633 million in 2015, partially offset by higher gains on asset sales and lower U.K. consumer payment protection insurance (PPI) costs in 2015. For more information on the accounting change related to DVA, see Executive Summary – Recent Events on page 20. Provision for credit losses Consumer Commercial Total provision for credit losses $ $ 2,208 953 3,161 $ 1,482 793 $ 2,275 Net charge-offs (1) Net charge-off ratio (2) (1) Net charge-offs exclude write-offs in the purchased credit-impaired loan portfolio. (2) Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans $ 4,383 0.49% 0.50% 4,338 $ and leases excluding loans accounted for under the fair value option. The provision for credit losses increased $886 million to $3.2 billion for 2015 compared to 2014. The provision for credit losses was $1.2 billion lower than net charge-offs for 2015, resulting in a reduction in the allowance for credit losses. The provision for credit losses in 2014 included $400 million of additional costs associated with the consumer relief portion of the settlement with the U.S. Department of Justice (DoJ). Excluding these additional costs, the provision for credit losses in the consumer portfolio increased $1.1 billion compared to 2014 due to a slower pace of portfolio improvement than in 2014, and also due to a lower level of recoveries on nonperforming loan sales and other recoveries in 2015. The provision for credit losses for the commercial portfolio increased $160 million in 2015 compared to 2014 driven by energy sector exposure and higher unfunded balances. The decrease in net charge-offs was primarily due to credit quality improvement in the consumer portfolio, partially offset by higher net charge-offs in the commercial portfolio primarily due to lower net recoveries in commercial real estate and higher energy-related net charge-offs. As we look at 2016, reserve releases are expected to decrease from 2015 levels. All else equal, this would result in increased provision expense, assuming sustained stability in underlying asset quality. For more information on the provision for credit losses, see Provision for Credit Losses on page 86. 22 Bank of America 2015 Bank of America 2015 23 Noninterest Expense Income Tax Expense Table 5 Noninterest Expense Table 6 Income Tax Expense (Dollars in millions) Personnel Occupancy Equipment Marketing Professional fees Amortization of intangibles Data processing Telecommunications Other general operating Total noninterest expense 2015 $ 32,868 4,093 2,039 1,811 2,264 834 3,115 823 9,345 $ 57,192 2014 $ 33,787 4,260 2,125 1,829 2,472 936 3,144 1,259 25,305 $ 75,117 Noninterest expense decreased $17.9 billion to $57.2 billion for 2015 compared to 2014. The following highlights the significant changes. Personnel expense decreased $919 million as we continue to streamline processes, reduce headcount and achieve cost savings. Occupancy decreased $167 million primarily due to our focus on reducing our rental footprint. Professional fees decreased $208 million due to lower default- related servicing expenses and legal fees. Telecommunications expense decreased $436 million due to efficiencies gained as we have simplified our operating model, including in-sourcing certain functions. Other general operating expense decreased $16.0 billion primarily due to a decrease of $15.2 billion in litigation expense which was primarily related to previously disclosed legacy mortgage-related matters and other litigation charges in 2014. (Dollars in millions) Income before income taxes Income tax expense Effective tax rate 2015 $ 22,154 6,266 2014 $ 6,855 2,022 28.3% 29.5% The effective tax rate for 2015 was driven by our recurring tax preference benefits and tax benefits related to certain non-U.S. restructurings, partially offset by a charge for the impact of the U.K. tax law changes discussed below. The effective tax rate for 2014 was driven by our recurring tax preference benefits, the resolution of several tax examinations and tax benefits from non- U.S. restructurings, partially offset by the non-deductible treatment of certain litigation charges. We expect an effective tax rate in the low 30 percent range, absent unusual items, for 2016. On November 18, 2015, the U.K. Finance (No. 2) Act 2015 (the Act) was enacted, reducing the U.K. corporate income tax rate by two percent to 18 percent. The first one percent reduction will be effective on April 1, 2017 and the second on April 1, 2020. The Act also included a tax surcharge on banking companies of eight percent, effective on January 1, 2016, and provided that existing net operating loss carryforwards may not reduce the additional eight percent income tax liability. Lastly, the Act provided that expenses for certain compensation payments, such as PPI, are not deductible to the extent attributable to July 8, 2015 or later. These provisions resulted in a charge of approximately $290 million in 2015, primarily from remeasuring our U.K. deferred tax assets. 24 Bank of America 2015 Noninterest Expense Income Tax Expense Balance Sheet Overview Table 5 Noninterest Expense Table 6 Income Tax Expense Table 7 Selected Balance Sheet Data 2015 2014 (Dollars in millions) $ 32,868 $ 33,787 Income before income taxes Income tax expense Effective tax rate 2015 2014 $ 22,154 $ 6,855 6,266 28.3% 2,022 29.5% (Dollars in millions) Personnel Occupancy Equipment Marketing Professional fees Amortization of intangibles Data processing Telecommunications Other general operating Total noninterest expense 4,093 2,039 1,811 2,264 834 3,115 823 9,345 4,260 2,125 1,829 2,472 936 3,144 1,259 25,305 Noninterest expense decreased $17.9 billion to $57.2 billion for 2015 compared to 2014. The following highlights the significant changes. Personnel expense decreased $919 million as we continue to streamline processes, reduce headcount and achieve cost savings. Occupancy decreased $167 million primarily due to our focus on reducing our rental footprint. Professional fees decreased $208 million due to lower default- related servicing expenses and legal fees. Telecommunications expense decreased $436 million due to efficiencies gained as we have simplified our operating model, including in-sourcing certain functions. Other general operating expense decreased $16.0 billion primarily due to a decrease of $15.2 billion in litigation expense which was primarily related to previously disclosed legacy mortgage-related matters and other litigation charges in 2014. $ 57,192 $ 75,117 2014 was driven by our recurring tax preference benefits, the The effective tax rate for 2015 was driven by our recurring tax preference benefits and tax benefits related to certain non-U.S. restructurings, partially offset by a charge for the impact of the U.K. tax law changes discussed below. The effective tax rate for resolution of several tax examinations and tax benefits from non- U.S. restructurings, partially offset by the non-deductible treatment of certain litigation charges. We expect an effective tax rate in the low 30 percent range, absent unusual items, for 2016. On November 18, 2015, the U.K. Finance (No. 2) Act 2015 (the Act) was enacted, reducing the U.K. corporate income tax rate by two percent to 18 percent. The first one percent reduction will be effective on April 1, 2017 and the second on April 1, 2020. The Act also included a tax surcharge on banking companies of eight percent, effective on January 1, 2016, and provided that existing net operating loss carryforwards may not reduce the additional eight percent income tax liability. Lastly, the Act provided that expenses for certain compensation payments, such as PPI, are not deductible to the extent attributable to July 8, 2015 or later. These provisions resulted in a charge of approximately $290 million in 2015, primarily from remeasuring our U.K. deferred tax assets. (Dollars in millions) Assets Cash and cash equivalents Federal funds sold and securities borrowed or purchased under agreements to resell Trading account assets Debt securities Loans and leases Allowance for loan and lease losses All other assets Total assets Liabilities Deposits Federal funds purchased and securities loaned or sold under agreements to repurchase Trading account liabilities Short-term borrowings Long-term debt All other liabilities Total liabilities Shareholders’ equity Total liabilities and shareholders’ equity December 31 2015 2014 % Change $ 159,353 192,482 176,527 407,005 903,001 (12,234) 318,182 $ 2,144,316 $ 138,589 191,823 191,785 380,461 881,391 (14,419) 334,904 $ 2,104,534 $ 1,197,259 174,291 66,963 28,098 236,764 184,736 1,888,111 256,205 $ 2,144,316 $ 1,118,936 201,277 74,192 31,172 243,139 192,347 1,861,063 243,471 $ 2,104,534 15% — (8) 7 2 (15) (5) 2 7 (13) (10) (10) (3) (4) 1 5 2 Assets At December 31, 2015, total assets were approximately $2.1 trillion, up $39.8 billion from December 31, 2014. The increase in assets was primarily driven by an increase in debt securities due to the deployment of deposit inflows, an increase in loans and leases driven by strong demand for commercial loans outpacing consumer loan sales and run-off, and higher cash and cash equivalents from strong deposit inflows. These increases were partially offset by a decrease in trading account assets due to repositioning activity on the balance sheet, and a decrease in all other assets. The Corporation took certain actions in 2015 to further strengthen liquidity in response to the Basel 3 Liquidity Coverage Ratio (LCR) requirements. Most notably, we exchanged residential mortgage loans supported by long-term standby agreements with Fannie Mae (FNMA) and Freddie Mac (FHLMC) into debt securities guaranteed by FNMA and FHLMC, which further improved liquidity in the asset and liability management (ALM) portfolio. Cash and Cash Equivalents Cash and cash equivalents increased $20.8 billion primarily due to strong deposit inflows driven by growth in customer and client activity, partially offset by commercial loan growth. Federal Funds Sold and Securities Borrowed or Purchased Under Agreements to Resell Federal funds transactions involve lending reserve balances on a short-term basis. Securities borrowed or purchased under agreements to resell are collateralized lending transactions utilized to accommodate customer transactions, earn interest rate spreads, and obtain securities for settlement and for collateral. Federal funds sold and securities borrowed or purchased under agreements to resell remained relatively unchanged compared to December 31, 2014, as an increase in securities borrowed of $3.3 billion was offset by a decrease in reverse repurchase agreements of $2.6 billion. Trading Account Assets Trading account assets consist primarily of long positions in equity and fixed-income securities including U.S. government and agency securities, corporate securities and non-U.S. sovereign debt. Trading account assets decreased $15.3 billion primarily due to balance sheet repositioning activity driven by client demand within Global Markets. Debt Securities Debt securities primarily include U.S. Treasury and agency securities, mortgage-backed securities (MBS), principally agency MBS, non-U.S. bonds, corporate bonds and municipal debt. We use the debt securities portfolio primarily to manage interest rate and liquidity risk and to take advantage of market conditions that create economically attractive returns on these investments. Debt securities increased $26.5 billion primarily driven by the deployment of deposit inflows and the exchange of certain loans into debt securities. For more information on debt securities, see Note 3 – Securities to the Consolidated Financial Statements. Loans and Leases Loans and leases increased $21.6 billion driven by strong demand for commercial loans, outpacing consumer loan sales and run-off. For more information on the loan portfolio, see Credit Risk Management on page 63. Allowance for Loan and Lease Losses Allowance for loan and lease losses decreased $2.2 billion primarily due to the impact of improvements in credit quality from the improving economy. For additional information, see Allowance for Credit Losses on page 86. 24 Bank of America 2015 Bank of America 2015 25 All Other Assets All other assets decreased $16.7 billion driven by a decrease in other noninterest receivables, loans held-for-sale (LHFS) and derivative assets. borrowings decreased $3.1 billion due to planned reductions in FHLB borrowings. For more information on short-term borrowings, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings the Consolidated Financial Statements. to Liabilities At December 31, 2015, total liabilities were approximately $1.9 trillion, up $27.0 billion from December 31, 2014, primarily driven by an increase in deposits, partially offset by declines in securities loaned or sold under agreements to repurchase, trading account liabilities and long-term debt. Deposits Deposits increased $78.3 billion due to an increase in retail deposits. Long-term Debt Long-term debt decreased $6.4 billion primarily due to the impact of revaluation of non-U.S. Dollar debt and changes in fair value for debt accounted for under the fair value option. These impacts were substantially offset through derivative hedge transactions. Excluding these two factors, total long-term debt remained relatively unchanged in 2015. For more information on long-term debt, see Note 11 – Long-term Debt to the Consolidated Financial Statements. Federal Funds Purchased and Securities Loaned or Sold Under Agreements to Repurchase Federal funds transactions involve borrowing reserve balances on a short-term basis. Securities loaned or sold under agreements to repurchase are collateralized borrowing transactions utilized to accommodate customer transactions, earn interest rate spreads and finance assets on the balance sheet. Federal funds purchased and securities loaned or sold under agreements to repurchase decreased $27.0 billion due to a decrease in repurchase agreements. Trading Account Liabilities Trading account liabilities consist primarily of short positions in equity and fixed-income securities including U.S. Treasury and agency securities, corporate securities, and non-U.S. sovereign debt. Trading account liabilities decreased $7.2 billion primarily due to lower levels of short U.S. Treasury positions due to balance sheet repositioning activity driven by client demand within Global Markets. Short-term Borrowings Short-term borrowings provide an additional funding source and primarily consist of Federal Home Loan Bank (FHLB) short-term borrowings, notes payable and various other borrowings that generally have maturities of one year or less. Short-term All Other Liabilities All other liabilities decreased $7.6 billion due to a decrease in derivative liabilities. Shareholders’ Equity Shareholders’ equity increased $12.7 billion driven by earnings and preferred stock issuances, partially offset by returns of capital to shareholders of $5.9 billion through common and preferred stock dividends and share repurchases, as well as a decrease in accumulated OCI due primarily to an increase in unrealized losses on available-for-sale (AFS) debt securities as a result of the increase in interest rates. Cash Flows Overview The Corporation’s operating assets and liabilities support our global markets and lending activities. We believe that cash flows from operations, available cash balances and our ability to generate cash through short- and long-term debt are sufficient to fund our operating liquidity needs. Our investing activities primarily include the debt securities portfolio and loans and leases. Our financing activities reflect cash flows primarily related to customer deposits, securities financing agreements and long-term debt. For additional information on liquidity, see Liquidity Risk on page 58. 26 Bank of America 2015 All other assets decreased $16.7 billion driven by a decrease in other noninterest receivables, loans held-for-sale (LHFS) and All Other Assets derivative assets. Liabilities At December 31, 2015, total liabilities were approximately $1.9 trillion, up $27.0 billion from December 31, 2014, primarily driven by an increase in deposits, partially offset by declines in securities loaned or sold under agreements to repurchase, trading account liabilities and long-term debt. Deposits deposits. Deposits increased $78.3 billion due to an increase in retail borrowings decreased $3.1 billion due to planned reductions in FHLB borrowings. For more information on short-term borrowings, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings to the Consolidated Financial Statements. Long-term Debt Long-term debt decreased $6.4 billion primarily due to the impact of revaluation of non-U.S. Dollar debt and changes in fair value for debt accounted for under the fair value option. These impacts were substantially offset through derivative hedge transactions. Excluding these two factors, total long-term debt remained relatively unchanged in 2015. For more information on long-term debt, see Note 11 – Long-term Debt to the Consolidated Financial Statements. Federal Funds Purchased and Securities Loaned or Sold All Other Liabilities Under Agreements to Repurchase All other liabilities decreased $7.6 billion due to a decrease in Federal funds transactions involve borrowing reserve balances on derivative liabilities. a short-term basis. Securities loaned or sold under agreements to repurchase are collateralized borrowing transactions utilized to accommodate customer transactions, earn interest rate spreads and finance assets on the balance sheet. Federal funds purchased and securities loaned or sold under agreements to repurchase decreased $27.0 billion due to a decrease in repurchase agreements. Trading Account Liabilities Trading account liabilities consist primarily of short positions in equity and fixed-income securities including U.S. Treasury and agency securities, corporate securities, and non-U.S. sovereign debt. Trading account liabilities decreased $7.2 billion primarily due to lower levels of short U.S. Treasury positions due to balance sheet repositioning activity driven by client demand within Global Markets. Short-term Borrowings Short-term borrowings provide an additional funding source and primarily consist of Federal Home Loan Bank (FHLB) short-term borrowings, notes payable and various other borrowings that generally have maturities of one year or less. Short-term Shareholders’ Equity Shareholders’ equity increased $12.7 billion driven by earnings and preferred stock issuances, partially offset by returns of capital to shareholders of $5.9 billion through common and preferred stock dividends and share repurchases, as well as a decrease in accumulated OCI due primarily to an increase in unrealized losses on available-for-sale (AFS) debt securities as a result of the increase in interest rates. Cash Flows Overview The Corporation’s operating assets and liabilities support our global markets and lending activities. We believe that cash flows from operations, available cash balances and our ability to generate cash through short- and long-term debt are sufficient to fund our operating liquidity needs. Our investing activities primarily include the debt securities portfolio and loans and leases. Our financing activities reflect cash flows primarily related to customer deposits, securities financing agreements and long-term debt. For additional information on liquidity, see Liquidity Risk on page 58. Table 8 Five-year Summary of Selected Financial Data (1) (In millions, except per share information) Income statement Net interest income Noninterest income Total revenue, net of interest expense Provision for credit losses Goodwill impairment Merger and restructuring charges All other noninterest expense Income (loss) before income taxes Income tax expense (benefit) Net income Net income applicable to common shareholders Average common shares issued and outstanding Average diluted common shares issued and outstanding Performance ratios Return on average assets Return on average common shareholders’ equity Return on average tangible common shareholders’ equity (2) Return on average tangible shareholders’ equity (2) Total ending equity to total ending assets Total average equity to total average assets Dividend payout Per common share data Earnings Diluted earnings Dividends paid Book value Tangible book value (2) Market price per share of common stock Closing High closing Low closing 2015 2014 2013 2012 2011 $ $ $ $ 39,251 43,256 82,507 3,161 — — 57,192 22,154 6,266 15,888 14,405 10,462 11,214 0.74% 6.26 9.11 8.83 11.95 11.67 14.51 1.38 1.31 0.20 22.54 15.62 $ $ 39,952 44,295 84,247 2,275 — — 75,117 6,855 2,022 4,833 3,789 10,528 10,585 0.23% 1.70 2.52 2.92 11.57 11.11 33.31 0.36 0.36 0.12 21.32 14.43 $ $ 42,265 46,677 88,942 3,556 — — 69,214 16,172 4,741 11,431 10,082 10,731 11,491 0.53% 4.62 6.97 7.13 11.07 10.81 4.25 0.94 0.90 0.04 20.71 13.79 40,656 42,678 83,334 8,169 — — 72,093 3,072 (1,116) 4,188 2,760 10,746 10,841 0.19% 1.27 1.94 2.60 10.72 10.75 15.86 0.26 0.25 0.04 20.24 13.36 $ 16.83 18.45 15.15 $ 174,700 $ 17.89 18.13 14.51 $ 188,141 $ 15.57 15.88 11.03 $ 164,914 $ 11.61 11.61 5.80 $ 125,136 $ $ $ 44,616 48,838 93,454 13,410 3,184 638 76,452 (230) (1,676) 1,446 85 10,143 10,255 0.06% 0.04 0.06 0.96 10.81 9.98 n/m 0.01 0.01 0.04 20.09 12.95 5.56 15.25 4.99 58,580 Market capitalization (1) The results for 2015 were impacted by the early adoption of new accounting guidance on recognition and measurement of financial instruments. For additional information, see Executive Summary $ – Recent Events on page 20. (2) Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. Other companies may define or calculate these measures differently. For more information on these ratios, see Supplemental Financial Data on page 28, and for corresponding reconciliations to GAAP financial measures, see Statistical Table XIII on page 121. (3) For more information on the impact of the purchased credit-impaired (PCI) loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 64. (4) Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments. (5) Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 73 and corresponding Table 35, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 80 and corresponding Table 44. (6) Primarily includes amounts allocated to the U.S. credit card and unsecured consumer lending portfolios in Consumer Banking, PCI loans and the non-U.S. credit card portfolio in All Other. (7) Net charge-offs exclude $808 million, $810 million and $2.3 billion of write-offs in the PCI loan portfolio for 2015, 2014 and 2013, respectively. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 71. (8) There were no write-offs of PCI loans in 2011. (9) Capital ratios reported under Advanced approaches at December 31, 2015. Prior to 2015, we were required to report regulatory capital ratios under the Standardized approach only. For additional information, see Capital Management on page 51. n/a = not applicable n/m = not meaningful 26 Bank of America 2015 Bank of America 2015 27 Table 8 Five-year Summary of Selected Financial Data (1) (continued) (Dollars in millions) Average balance sheet Total loans and leases Total assets Total deposits Long-term debt Common shareholders’ equity Total shareholders’ equity Asset quality (3) Allowance for credit losses (4) Nonperforming loans, leases and foreclosed properties (5) Allowance for loan and lease losses as a percentage of total loans and leases outstanding (5) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio (5) Amounts included in allowance for loan and lease losses for loans and leases that are 2015 2014 2013 2012 2011 $ 882,183 2,160,141 1,155,860 240,059 230,182 251,990 $ 903,901 2,145,590 1,124,207 253,607 223,072 238,482 $ 918,641 2,163,513 1,089,735 263,417 218,468 233,951 $ 898,768 2,191,356 1,047,782 316,393 216,996 235,677 $ 938,096 2,296,322 1,035,802 421,229 211,709 229,095 $ 12,880 9,836 $ 14,947 12,629 $ 17,912 17,772 $ 24,692 23,555 $ 34,497 27,708 1.37% 1.65% 1.90% 2.69% 3.68% 130 122 121 107 102 87 107 82 135 101 excluded from nonperforming loans and leases (6) $ 4,518 $ 5,944 $ 7,680 $ 12,021 $ 17,490 Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases (5, 6) Net charge-offs (7) Net charge-offs as a percentage of average loans and leases outstanding (5, 7) Net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (5) Net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (5, 8) Nonperforming loans and leases as a percentage of total loans and leases outstanding (5) Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (5) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (7) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs, excluding the PCI loan portfolio Ratio of the allowance for loan and lease losses at December 31 to net charge-offs and PCI write-offs (8) Capital ratios at year end (9) Risk-based capital: Common equity tier 1 capital Tier 1 common capital Tier 1 capital Total capital Tier 1 leverage Tangible equity (2) Tangible common equity (2) For footnotes see page 27. 82% 71% 57% 54% 65% $ 4,338 $ 4,383 $ 7,897 $ 14,908 $ 20,833 0.50% 0.49% 0.87% 1.67% 2.24% 0.51 0.59 1.05 1.10 2.82 2.64 2.38 10.2% n/a 11.3 13.2 8.6 8.9 7.8 0.50 0.58 1.37 1.45 3.29 2.91 2.78 12.3% n/a 13.4 16.5 8.2 8.4 7.5 0.90 1.13 1.87 1.93 2.21 1.89 1.70 n/a 10.9% 12.2 15.1 7.7 7.9 7.2 1.73 1.99 2.52 2.62 1.62 1.25 1.36 n/a 10.8% 12.7 16.1 7.2 7.6 6.7 2.32 2.24 2.74 3.01 1.62 1.22 1.62 n/a 9.7% 12.2 16.6 7.4 7.5 6.6 Supplemental Financial Data We view net interest income and related ratios and analyses on an FTE basis, which when presented on a consolidated basis, are non-GAAP financial measures. We believe managing the business with net interest income on an FTE basis provides a more accurate picture of the interest margin for comparative purposes. To derive the FTE basis, net interest income is adjusted to reflect tax-exempt income on an equivalent before-tax basis with a corresponding increase in income tax expense. For purposes of this calculation, we use the federal statutory tax rate of 35 percent. This measure ensures comparability of net interest income arising from taxable and tax-exempt sources. Certain performance measures including the efficiency ratio and net interest yield utilize net interest income (and thus total revenue) on an FTE basis. The efficiency ratio measures the costs expended to generate a dollar of revenue, and net interest yield measures the bps we earn over the cost of funds. We also evaluate our business based on certain ratios that utilize tangible equity, a non-GAAP financial measure. Tangible equity represents an adjusted shareholders’ equity or common shareholders’ equity amount which has been reduced by goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities. These measures are used to evaluate our use of equity. In addition, profitability, relationship and investment models use both return on average tangible common shareholders’ equity and return on average tangible shareholders’ equity as key 28 Bank of America 2015 measures to support our overall growth goals. These ratios are as follows: Return on average tangible common shareholders’ equity measures our earnings contribution as a percentage of adjusted common shareholders’ equity. The tangible common equity ratio represents adjusted ending common shareholders’ equity divided by total assets less goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities. Return on average tangible shareholders’ equity measures our earnings contribution as a percentage of adjusted average total shareholders’ equity. The tangible equity ratio represents adjusted ending shareholders’ equity divided by total assets less goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities. Tangible book value per common share represents adjusted ending common shareholders’ equity divided by ending common shares outstanding. Table 9 Five-year Supplemental Financial Data The aforementioned supplemental data and performance measures are presented in Table 8 and Statistical Table X. We evaluate our business segment results based on measures that utilize average allocated capital. Return on average allocated capital is calculated as net income adjusted for cost of funds and earnings credits and certain expenses related to intangibles, divided by average allocated capital. Allocated capital and the related return both represent non-GAAP financial measures. Statistical Tables XIII, XIV and XV on pages 121, 122 and 123 provide reconciliations of these non-GAAP financial measures to GAAP financial measures. We believe the use of these non-GAAP financial measures provides additional clarity in assessing the results of the Corporation and our segments. Other companies may define or calculate these measures and ratios differently. (Dollars in millions, except per share information) Fully taxable-equivalent basis data Net interest income Total revenue, net of interest expense (1) Net interest yield Efficiency ratio (1) 2015 2014 2013 2012 2011 $ 40,160 83,416 $ 40,821 85,116 $ 43,124 89,801 $ 41,557 84,235 $ 45,588 94,426 2.20% 68.56 2.25% 88.25 2.37% 77.07 2.24% 85.59 2.38% 85.01 Net charge-offs and PCI write-offs as a percentage of average loans and leases – Recent Events on page 20. (1) The results for 2015 were impacted by the early adoption of new accounting guidance on recognition and measurement of financial instruments. For additional information, see Executive Summary Net interest income excluding trading-related net interest income decreased $979 million to $36.2 billion for 2015 compared to 2014. The decline was primarily driven by lower loan yields and consumer loan balances, as well as a charge of $612 million in 2015 related to the discount on certain trust preferred securities. This was partially offset by a $785 million improvement in market-related adjustments on debt securities, lower funding costs, lower rates paid on deposits and commercial loan growth. Market-related adjustments on debt securities resulted in an expense of $296 million in 2015 compared to an expense of $1.1 billion in 2014. For more information on market-related and other adjustments, see Executive Summary – Financial Highlights on page 22. For more information on the impact of interest rates, see Interest Rate Risk Management for Non-trading Activities on page 95. Average earning assets excluding trading-related earning assets increased $45.5 billion to $1,414.7 billion for 2015 compared to 2014. The increase was primarily in debt securities, commercial loans and cash held at central banks, partially offset by a decline in consumer loans. Net interest yield on earning assets excluding trading-related activities decreased 16 bps to 2.56 percent for 2015 compared to 2014 due to the same factors as described above. Net Interest Income Excluding Trading-related Net Interest Income We manage net interest income on an FTE basis and excluding the impact of trading-related activities. We evaluate our sales and trading results and strategies on a total market-based revenue approach by combining net interest income and noninterest income for Global Markets. An analysis of net interest income, average earning assets and net interest yield on earning assets, all of which adjust for the impact of trading-related net interest income from reported net interest income on an FTE basis, is shown below. We believe the use of this non-GAAP presentation in Table 10 provides additional clarity in assessing our results. Table 10 Net Interest Income Excluding Trading-related Net Interest Income (Dollars in millions) 2015 2014 Net interest income (FTE basis) As reported Impact of trading-related net interest income Net interest income excluding trading-related $ 40,160 (3,928) $ 40,821 (3,610) net interest income (FTE basis) (1) $ 36,232 $ 37,211 Average earning assets As reported Impact of trading-related earning assets Average earning assets excluding trading- $ 1,830,342 (415,658) $1,814,930 (445,760) related earning assets (1) $ 1,414,684 $1,369,170 Net interest yield contribution (FTE basis) As reported Impact of trading-related activities Net interest yield on earning assets excluding trading-related activities (FTE basis) (1) (1) Represents a non-GAAP financial measure. 2.20% 0.36 2.25% 0.47 2.56% 2.72% Table 8 Five-year Summary of Selected Financial Data (1) (continued) (Dollars in millions) Average balance sheet Total loans and leases Total assets Total deposits Long-term debt Common shareholders’ equity Total shareholders’ equity Asset quality (3) Allowance for credit losses (4) outstanding (5) leases (5) 2015 2014 2013 2012 2011 $ 882,183 $ 903,901 $ 918,641 $ 898,768 $ 938,096 2,160,141 1,155,860 240,059 230,182 251,990 2,145,590 2,163,513 2,191,356 2,296,322 1,124,207 1,089,735 1,047,782 1,035,802 253,607 223,072 238,482 263,417 218,468 233,951 316,393 216,996 235,677 421,229 211,709 229,095 $ 12,880 $ 14,947 $ 17,912 $ 24,692 $ 34,497 9,836 12,629 17,772 23,555 27,708 1.37% 1.65% 1.90% 2.69% 3.68% 130 122 121 107 102 87 107 82 135 101 Nonperforming loans, leases and foreclosed properties (5) Allowance for loan and lease losses as a percentage of total loans and leases Allowance for loan and lease losses as a percentage of total nonperforming loans and Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio (5) Amounts included in allowance for loan and lease losses for loans and leases that are Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases (6) $ 4,518 $ 5,944 $ 7,680 $ 12,021 $ 17,490 excluded from nonperforming loans and leases (5, 6) 82% 71% 57% 54% 65% Net charge-offs (7) $ 4,338 $ 4,383 $ 7,897 $ 14,908 $ 20,833 Net charge-offs as a percentage of average loans and leases outstanding (5, 7) 0.50% 0.49% 0.87% 1.67% 2.24% Net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (5) outstanding (5, 8) outstanding (5) Nonperforming loans and leases as a percentage of total loans and leases Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (5) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (7) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs, excluding the PCI loan portfolio Ratio of the allowance for loan and lease losses at December 31 to net charge-offs and PCI write-offs (8) Capital ratios at year end (9) Risk-based capital: Common equity tier 1 capital Tier 1 common capital Tier 1 capital Total capital Tier 1 leverage Tangible equity (2) Tangible common equity (2) For footnotes see page 27. 0.51 0.59 1.05 1.10 2.82 2.64 2.38 10.2% n/a 11.3 13.2 8.6 8.9 7.8 0.50 0.58 1.37 1.45 3.29 2.91 2.78 12.3% n/a 13.4 16.5 8.2 8.4 7.5 0.90 1.13 1.87 1.93 2.21 1.89 1.70 n/a 10.9% 12.2 15.1 7.7 7.9 7.2 1.73 1.99 2.52 2.62 1.62 1.25 1.36 n/a 10.8% 12.7 16.1 7.2 7.6 6.7 2.32 2.24 2.74 3.01 1.62 1.22 1.62 n/a 9.7% 12.2 16.6 7.4 7.5 6.6 Supplemental Financial Data We view net interest income and related ratios and analyses on an FTE basis, which when presented on a consolidated basis, are non-GAAP financial measures. We believe managing the business with net interest income on an FTE basis provides a more accurate picture of the interest margin for comparative purposes. To derive the FTE basis, net interest income is adjusted to reflect tax-exempt income on an equivalent before-tax basis with a corresponding increase in income tax expense. For purposes of this calculation, we use the federal statutory tax rate of 35 percent. This measure ensures comparability of net interest income arising from taxable and tax-exempt sources. Certain performance measures including the efficiency ratio and net interest yield utilize net interest income (and thus total revenue) on an FTE basis. The efficiency ratio measures the costs expended to generate a dollar of revenue, and net interest yield measures the bps we earn over the cost of funds. We also evaluate our business based on certain ratios that utilize tangible equity, a non-GAAP financial measure. Tangible equity represents an adjusted shareholders’ equity or common shareholders’ equity amount which has been reduced by goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities. These measures are used to evaluate our use of equity. In addition, profitability, relationship and investment models use both return on average tangible common shareholders’ equity and return on average tangible shareholders’ equity as key 28 Bank of America 2015 Bank of America 2015 29 Business Segment Operations Segment Description and Basis of Presentation We report our results of operations through the following five business segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking, Global Markets and Legacy Assets & Servicing (LAS), with the remaining operations recorded in All Other. The primary activities, products and businesses of the business segments and All Other are shown below. Bank of America Corporation Consumer Banking Global Wealth & Investment Management Global Banking Global Markets Legacy Assets & Servicing All Other • Merrill Lynch Global Wealth Management • U.S. Trust, Bank of America Private Wealth Management • Investment Banking • Global Corporate Banking • Global Commercial Banking • Business Banking • Fixed Income Markets • Mortgage Servicing • Equity Markets • Owned Legacy Home Equity Loan Portfolio • Legacy Mortgage Exposures • ALM Activities • Equity Investments • International Consumer Card • Merchant Services Joint Venture • Liquidating Businesses • Residual Expense Allocations • Eliminations Deposits • Consumer Deposits • Merrill Edge • Small Business Client Management Consumer Lending • Consumer and Small Business Credit Card • Debit Card • Consumer Vehicle Lending • Home Loans The Corporation periodically reviews capital allocated to its businesses and allocates capital annually during the strategic and capital planning processes. We utilize a methodology that considers the effect of regulatory capital requirements in addition to internal risk-based capital models. The Corporation’s internal risk-based capital models use a risk-adjusted methodology incorporating each segment’s credit, market, interest rate, business and operational risk components. For more information on the nature of these risks, see Managing Risk on page 47. The capital allocated to the business segments is referred to as allocated capital, which represents a non-GAAP financial measure. For purposes of goodwill impairment testing, the Corporation utilizes allocated equity as a proxy for the carrying value of its reporting units. Allocated equity in the reporting units is comprised of allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the reporting unit. For additional information, see Note 8 – Goodwill and Intangible Assets to the Consolidated Financial Statements. During 2015, we made refinements to the amount of capital allocated to each of our businesses based on multiple considerations that included, but were not limited to, risk-weighted assets measured under Basel 3 Standardized and Advanced approaches, business segment exposures and risk profile, and strategic plans. As a result of this process, effective January 1, 2015, we adjusted the amount of capital being allocated to our business segments, primarily LAS. For more information on Basel 3 risk-weighted assets measured under the Standardized and Advanced approaches, see Capital Management on page 51. For more information on the basis of presentation for business segments, including the allocation of market-related adjustments to net interest income, and reconciliations to consolidated total revenue, net income and year-end total assets, see Note 24 – Business Segment Information to the Consolidated Financial Statements. 30 Bank of America 2015 Business Segment Operations Segment Description and Basis of Presentation We report our results of operations through the following five business segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking, Global Markets and Legacy Assets & Servicing (LAS), with the remaining operations recorded in All Other. The primary activities, products and businesses of the business segments and All Other are shown below. Bank of America Corporation Consumer Banking Global Wealth & Investment Management Global Banking Global Markets Legacy Assets & Servicing All Other • Merrill Lynch Global Wealth Management • U.S. Trust, Bank of America Private Wealth Management • Investment Banking • Global Corporate Banking • Global Commercial Banking • Business Banking • Fixed Income Markets • Mortgage Servicing • Equity Markets • Owned Legacy Home Equity Loan Portfolio • Legacy Mortgage Exposures • ALM Activities • Equity Investments • International Consumer Card • Merchant Services Joint Venture • Liquidating Businesses • Residual Expense Allocations • Eliminations Deposits • Consumer Deposits • Merrill Edge • Small Business Client Management Consumer Lending • Consumer and Small Business Credit Card • Debit Card • Consumer Vehicle Lending • Home Loans The Corporation periodically reviews capital allocated to its During 2015, we made refinements to the amount of capital businesses and allocates capital annually during the strategic and allocated to each of our businesses based on multiple capital planning processes. We utilize a methodology that considerations that included, but were not limited to, risk-weighted considers the effect of regulatory capital requirements in addition assets measured under Basel 3 Standardized and Advanced to internal risk-based capital models. The Corporation’s internal approaches, business segment exposures and risk profile, and risk-based capital models use a risk-adjusted methodology strategic plans. As a result of this process, effective January 1, incorporating each segment’s credit, market, interest rate, 2015, we adjusted the amount of capital being allocated to our business and operational risk components. For more information business segments, primarily LAS. For more information on Basel on the nature of these risks, see Managing Risk on page 47. The 3 risk-weighted assets measured under the Standardized and capital allocated to the business segments is referred to as Advanced approaches, see Capital Management on page 51. allocated capital, which represents a non-GAAP financial measure. For more information on the basis of presentation for business For purposes of goodwill impairment testing, the Corporation segments, including the allocation of market-related adjustments utilizes allocated equity as a proxy for the carrying value of its to net interest income, and reconciliations to consolidated total reporting units. Allocated equity in the reporting units is comprised revenue, net income and year-end total assets, see Note 24 – of allocated capital plus capital for the portion of goodwill and Business Segment Information to the Consolidated Financial intangibles specifically assigned to the reporting unit. For Statements. additional information, see Note 8 – Goodwill and Intangible Assets to the Consolidated Financial Statements. Consumer Banking (Dollars in millions) Net interest income (FTE basis) Noninterest income: Card income Service charges Mortgage banking income All other income Total noninterest income Total revenue, net of interest expense (FTE basis) Provision for credit losses Noninterest expense Income before income taxes (FTE basis) Income tax expense (FTE basis) Net income Net interest yield (FTE basis) Return on average allocated capital Efficiency ratio (FTE basis) Balance Sheet Average Total loans and leases Total earning assets (1) Total assets (1) Total deposits Allocated capital Year end Total loans and leases Total earning assets (1) Total assets (1) Total deposits (1) Deposits Consumer Lending Total Consumer Banking 2015 2014 $ 9,624 $ 9,436 2015 $ 10,220 2014 $ 10,741 2015 $ 19,844 2014 $ 20,177 % Change (2)% 11 4,100 — 482 4,593 14,217 199 9,792 4,226 1,541 2,685 10 4,159 — 418 4,587 14,023 268 9,905 3,850 1,435 2,415 $ $ 4,923 1 883 374 6,181 16,401 2,325 7,693 6,383 2,329 4,054 4,834 1 813 397 6,045 16,786 2,412 7,960 6,414 2,393 4,021 $ $ 4,934 4,101 883 856 10,774 30,618 2,524 17,485 10,609 3,870 6,739 4,844 4,160 813 815 10,632 30,809 2,680 17,865 10,264 3,828 6,436 $ $ 1.75% 22 68.87 1.83% 22 70.63 5.08% 24 46.91 5.54% 21 47.42 3.46% 23 57.11 3.73% 21 57.99 $ 5,829 549,686 576,653 544,685 12,000 $ 6,059 516,014 542,748 511,925 11,000 $ 198,894 201,190 210,461 n/m 17,000 $191,056 193,923 203,330 n/m 19,000 $ 204,723 573,072 609,310 545,839 29,000 $197,115 541,097 577,238 512,820 30,000 $ 5,927 576,241 603,580 571,467 $ 5,951 526,849 554,173 523,350 $ 208,478 210,208 219,702 n/m $196,049 199,097 208,729 n/m $ 214,405 599,631 636,464 572,739 $202,000 551,922 588,878 524,415 2 (1) 9 5 1 (1) (6) (2) 3 1 5 4 6 6 6 (3) 6 9 8 9 In segments and businesses where the total of liabilities and equity exceeds assets, we allocate assets from All Other to match the segments’ and businesses’ liabilities and allocated shareholders’ equity. As a result, total earning assets and total assets of the businesses may not equal total Consumer Banking. n/m = not meaningful Consumer Banking, which is comprised of Deposits and Consumer Lending, offers a diversified range of credit, banking and investment products and services to consumers and small businesses. Our customers and clients have access to a franchise network that stretches coast to coast through 33 states and the District of Columbia. The franchise network includes approximately 4,700 financial centers, 16,000 ATMs, nationwide call centers, and online and mobile platforms. Consumer Banking Results Net income for Consumer Banking increased $303 million to $6.7 billion in 2015 compared to 2014 primarily driven by lower noninterest expense, lower provision for credit losses and higher noninterest income, partially offset by lower net interest income. Net interest income decreased $333 million to $19.8 billion as the beneficial impact of an increase in investable assets as a result of higher deposits, and higher residential mortgage balances were more than offset by the impact of the allocation of ALM activities, higher funding costs, lower card yields and lower average card loan balances. Noninterest income increased $142 million to $10.8 billion driven by higher card income and higher mortgage banking income from improved production margins, partially offset by lower service charges. The provision for credit losses decreased $156 million to $2.5 billion in 2015 driven by continued improvement in credit quality primarily related to our small business and credit card portfolios. Noninterest expense decreased $380 million to $17.5 billion primarily driven by lower personnel and operating expenses, partially offset by higher fraud costs in advance of Europay, MasterCard and Visa (EMV) chip implementation. The return on average allocated capital was 23 percent, up from 21 percent, reflecting higher net income and a decrease in allocated capital. For more information on capital allocations, see Business Segment Operations on page 30. 30 Bank of America 2015 Bank of America 2015 31 Deposits Deposits includes the results of consumer deposit activities which consist of a comprehensive range of products provided to consumers and small businesses. Our deposit products include traditional savings accounts, money market savings accounts, CDs and IRAs, noninterest- and interest-bearing checking accounts, as well as investment accounts and products. The revenue is allocated to the deposit products using our funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Deposits generates fees such as account service fees, non-sufficient funds fees, overdraft charges and ATM fees, as well as investment and brokerage fees from Merrill Edge accounts. Merrill Edge is an integrated investing and banking service targeted at customers with less than $250,000 in investable assets. Merrill Edge provides investment advice and guidance, client brokerage asset services, a self-directed online investing platform and key banking capabilities including access to the Corporation’s network of financial centers and ATMs. Deposits includes the net impact of migrating customers and their related deposit and brokerage asset balances between Deposits and GWIM as well as other client-managed businesses. For more information on the migration of customer balances to or from GWIM, see GWIM on page 34. Net income for Deposits increased $270 million to $2.7 billion in 2015 driven by higher net interest income, and lower noninterest expense and provision for credit losses. Net interest income increased $188 million to $9.6 billion primarily due to the beneficial impact of an increase in investable assets as a result of higher deposits, partially offset by the impact of the allocation of ALM activities. Noninterest income of $4.6 billion remained relatively unchanged. The provision for credit losses decreased $69 million to $199 million driven by continued improvement in credit quality. Noninterest expense decreased $113 million to $9.8 billion due to lower operating expenses. Average deposits increased $32.8 billion to $544.7 billion in 2015 driven by a continuing customer shift to more liquid products in the low rate environment. Growth in checking, traditional savings and money market savings of $43.5 billion was partially offset by a decline in time deposits of $10.7 billion. As a result of our continued pricing discipline and the shift in the mix of deposits, the rate paid on average deposits declined by one bp to five bps. Key Statistics – Deposits Total deposit spreads (excludes noninterest costs) 1.63% 1.60% 2015 2014 Year end Client brokerage assets (in millions) Online banking active accounts (units in thousands) Mobile banking active users (units in thousands) Financial centers ATMs $ 122,721 31,674 18,705 4,726 16,038 $ 113,763 30,904 16,539 4,855 15,834 Client brokerage assets increased $9.0 billion in 2015 driven by strong account flows, partially offset by lower market valuations. Mobile banking active users increased 2.2 million reflecting 32 Bank of America 2015 continuing changes in our customers’ banking preferences. The number of financial centers declined 129 driven by changes in customer preferences to self-service options and as we continue to optimize our consumer banking network and improve our cost- to-serve. Consumer Lending Consumer Lending offers products to consumers and small businesses across the U.S. The products offered include credit and debit cards, residential mortgages and home equity loans, and direct and indirect loans such as automotive, marine, aircraft, recreational vehicle and consumer personal loans. In addition to earning net interest spread revenue on its lending activities, Consumer Lending generates interchange revenue from credit and debit card transactions, late fees, cash advance fees, annual credit card fees, mortgage banking fee income and other miscellaneous fees. Consumer Lending products are available to our customers through our retail network, direct telephone, and online and mobile channels. Consumer Lending includes the net impact of migrating customers and their related loan balances between Consumer Lending and GWIM. For more information on the migration of customer balances to or from GWIM, see GWIM on page 34. Net income for Consumer Lending remained relatively unchanged at $4.1 billion in 2015 as lower noninterest expense, higher noninterest income and lower provision for credit losses largely offset the decline in net interest income. Net interest income decreased $521 million to $10.2 billion driven by higher funding costs, lower card yields and average card loan balances, and the impact of the allocation of ALM activities, partially offset by higher residential mortgage balances. Noninterest income increased $136 million to $6.2 billion due to higher card income as well as mortgage banking income from improved production margins. The provision for credit losses decreased $87 million to $2.3 billion in 2015 driven by continued credit quality improvement within the small business and credit card portfolios. Noninterest expense decreased $267 million to $7.7 billion primarily driven by lower personnel expense, partially offset by higher fraud costs in advance of EMV chip implementation. Average loans increased $7.8 billion to $198.9 billion in 2015 primarily driven by increases in residential mortgages and consumer vehicle loans, partially offset by lower home equity loans and continued run-off of non-core portfolios. Beginning with new originations in 2014, we retain certain residential mortgages in Consumer Banking, consistent with where the overall relationship is managed; previously such mortgages were in All Other. Key Statistics – Consumer Lending (Dollars in millions) Total U.S. credit card (1) Gross interest yield Risk-adjusted margin New accounts (in thousands) Purchase volumes 2015 2014 9.16% 9.33 4,973 $ 221,378 $ 277,695 9.34% 9.44 4,541 $212,088 $272,576 Debit card purchase volumes (1) In addition to the U.S. credit card portfolio in Consumer Banking, the remaining U.S. credit card portfolio is in GWIM. During 2015, the total U.S. credit card risk-adjusted margin decreased 11 bps due to a decrease in net interest margin and the net impact of gains on asset sales, partially offset by an improvement in credit quality in the U.S. Card portfolio. Total U.S. credit card purchase volumes increased $9.3 billion to $221.4 billion and debit card purchase volumes increased $5.1 billion to $277.7 billion, reflecting higher levels of consumer spending. Mortgage Banking Income Mortgage banking income is earned primarily in Consumer Banking and LAS. Mortgage banking income in Consumer Lending consists mainly of core production income, which is comprised primarily of revenue from the fair value gains and losses recognized on our interest rate lock commitments (IRLCs) and LHFS, the related secondary market execution, and costs related to representations and warranties in the sales transactions along with other obligations incurred in the sales of mortgage loans. The table below summarizes the components of mortgage banking income. Mortgage Banking Income (Dollars in millions) Consumer Lending: Core production revenue Representations and warranties provision Other consumer mortgage banking income (1) Total Consumer Lending mortgage banking income LAS mortgage banking income (2) Eliminations (3) Total consolidated mortgage banking income 2015 2014 $ 942 11 (70) 883 1,658 (177) $ 2,364 $ 875 10 (72) 813 1,045 (295) $ 1,563 (1) Primarily intercompany charges for loan servicing activities provided by LAS. (2) Amounts for LAS are included in this Consumer Banking table to show the components of (3) consolidated mortgage banking income. Includes the effect of transfers of mortgage loans from Consumer Banking to the ALM portfolio included in All Other, intercompany charges for loan servicing and net gains or losses on intercompany trades related to mortgage servicing rights risk management. Core production revenue increased $67 million to $942 million in 2015 primarily due to an increase in margins. Key Statistics (Dollars in millions) Loan production (1): Total (2): First mortgage Home equity Consumer Banking: First mortgage Home equity 2015 2014 $ 56,930 13,060 $ 43,290 11,233 $ 40,878 11,988 $ 32,339 10,286 (1) The above loan production amounts represent the unpaid principal balance of loans and in the (2) case of home equity, the principal amount of the total line of credit. In addition to loan production in Consumer Banking, there is also first mortgage and home equity loan production in GWIM. First mortgage loan originations in Consumer Banking and for the total Corporation increased in 2015 compared to 2014 reflecting growth in the overall mortgage market as lower interest rates beginning in late 2014 drove an increase in refinances. During 2015, 63 percent of the total Corporation first mortgage production volume was for refinance originations and 37 percent was for purchase originations compared to 60 percent and 40 percent in 2014. Home Affordable Refinance Program (HARP) originations were two percent of all refinance originations compared to six percent in 2014. Making Home Affordable non- HARP originations were eight percent of all refinance originations compared to 17 percent in 2014. The remaining 90 percent of refinance originations were conventional refinances compared to 77 percent in 2014. Home equity production for the total Corporation was $13.1 billion for 2015 compared to $11.2 billion for 2014, with the increase due to a higher demand in the market based on improving housing trends, and increased market share driven by improved financial center engagement with customers and more competitive pricing. Deposits Deposits includes the results of consumer deposit activities which consist of a comprehensive range of products provided to consumers and small businesses. Our deposit products include traditional savings accounts, money market savings accounts, CDs to-serve. continuing changes in our customers’ banking preferences. The number of financial centers declined 129 driven by changes in customer preferences to self-service options and as we continue to optimize our consumer banking network and improve our cost- and IRAs, noninterest- and interest-bearing checking accounts, as well as investment accounts and products. The revenue is allocated to the deposit products using our funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Deposits generates fees such as account service fees, non-sufficient funds fees, overdraft charges and ATM fees, as well as investment and brokerage fees from Merrill Edge accounts. Merrill Edge is an integrated investing and banking service targeted at customers with less than $250,000 in investable assets. Merrill Edge provides investment advice and guidance, client brokerage asset services, a self-directed online investing platform and key banking capabilities including access to the Corporation’s network of financial centers and ATMs. Deposits includes the net impact of migrating customers and their related deposit and brokerage asset balances between Deposits and GWIM as well as other client-managed businesses. For more information on the migration of customer balances to or from GWIM, see GWIM on page 34. Net income for Deposits increased $270 million to $2.7 billion in 2015 driven by higher net interest income, and lower noninterest expense and provision for credit losses. Net interest income increased $188 million to $9.6 billion primarily due to the beneficial impact of an increase in investable assets as a result of higher deposits, partially offset by the impact of the allocation of ALM activities. Noninterest income of $4.6 billion remained relatively unchanged. The provision for credit losses decreased $69 million to $199 million driven by continued improvement in credit quality. Noninterest expense decreased $113 million to $9.8 billion due margins. to lower operating expenses. Average deposits increased $32.8 billion to $544.7 billion in 2015 driven by a continuing customer shift to more liquid products in the low rate environment. Growth in checking, traditional savings and money market savings of $43.5 billion was partially offset by a decline in time deposits of $10.7 billion. As a result of our continued pricing discipline and the shift in the mix of deposits, the rate paid on average deposits declined by one bp to five bps. Key Statistics – Deposits Total deposit spreads (excludes noninterest costs) 1.63% 1.60% Year end Financial centers ATMs Client brokerage assets (in millions) $ 122,721 $ 113,763 Online banking active accounts (units in thousands) Mobile banking active users (units in thousands) 31,674 18,705 4,726 16,038 30,904 16,539 4,855 15,834 Consumer Lending Consumer Lending offers products to consumers and small businesses across the U.S. The products offered include credit and debit cards, residential mortgages and home equity loans, and direct and indirect loans such as automotive, marine, aircraft, recreational vehicle and consumer personal loans. In addition to earning net interest spread revenue on its lending activities, Consumer Lending generates interchange revenue from credit and debit card transactions, late fees, cash advance fees, annual credit card fees, mortgage banking fee income and other miscellaneous fees. Consumer Lending products are available to our customers through our retail network, direct telephone, and online and mobile channels. Consumer Lending includes the net impact of migrating customers and their related loan balances between Consumer Lending and GWIM. For more information on the migration of customer balances to or from GWIM, see GWIM on page 34. Net income for Consumer Lending remained relatively unchanged at $4.1 billion in 2015 as lower noninterest expense, higher noninterest income and lower provision for credit losses largely offset the decline in net interest income. Net interest income decreased $521 million to $10.2 billion driven by higher funding costs, lower card yields and average card loan balances, and the impact of the allocation of ALM activities, partially offset by higher residential mortgage balances. Noninterest income increased $136 million to $6.2 billion due to higher card income as well as mortgage banking income from improved production The provision for credit losses decreased $87 million to $2.3 billion in 2015 driven by continued credit quality improvement within the small business and credit card portfolios. Noninterest expense decreased $267 million to $7.7 billion primarily driven by lower personnel expense, partially offset by higher fraud costs in advance of EMV chip implementation. Average loans increased $7.8 billion to $198.9 billion in 2015 primarily driven by increases in residential mortgages and consumer vehicle loans, partially offset by lower home equity loans and continued run-off of non-core portfolios. Beginning with new originations in 2014, we retain certain residential mortgages in Consumer Banking, consistent with where the overall relationship Key Statistics – Consumer Lending (Dollars in millions) Total U.S. credit card (1) Gross interest yield Risk-adjusted margin New accounts (in thousands) Purchase volumes 2015 2014 9.16% 9.34% 9.33 4,973 9.44 4,541 $ 221,378 $ 277,695 $212,088 $272,576 Client brokerage assets increased $9.0 billion in 2015 driven Debit card purchase volumes by strong account flows, partially offset by lower market valuations. Mobile banking active users increased 2.2 million reflecting portfolio is in GWIM. (1) In addition to the U.S. credit card portfolio in Consumer Banking, the remaining U.S. credit card 2015 2014 is managed; previously such mortgages were in All Other. 32 Bank of America 2015 Bank of America 2015 33 Global Wealth & Investment Management (Dollars in millions) Net interest income (FTE basis) Noninterest income: Investment and brokerage services All other income Total noninterest income Total revenue, net of interest expense (FTE basis) Provision for credit losses Noninterest expense Income before income taxes (FTE basis) Income tax expense (FTE basis) Net income Net interest yield (FTE basis) Return on average allocated capital Efficiency ratio (FTE basis) Balance Sheet Average Total loans and leases Total earning assets Total assets Total deposits Allocated capital Year end Total loans and leases Total earning assets Total assets Total deposits n/m = not meaningful 2015 2014 % Change $ 5,499 $ 5,836 (6)% 10,792 1,710 12,502 18,001 51 13,843 4,107 1,498 2,609 10,722 1,846 12,568 18,404 14 13,654 4,736 1,767 2,969 $ $ 2.12% 22 76.90 2.34% 25 74.19 $ 131,383 258,935 275,866 244,725 12,000 $ 119,775 248,979 267,511 240,242 12,000 $ 137,847 279,465 296,139 260,893 $ 125,431 256,519 274,887 245,391 1 (7) (1) (2) n/m 1 (13) (15) (12) 10 4 3 2 — 10 9 8 6 GWIM consists of two primary businesses: Merrill Lynch Global Wealth Management (MLGWM) and U.S. Trust, Bank of America Private Wealth Management (U.S. Trust). MLGWM’s advisory business provides a high-touch client experience through a network of financial advisors focused on clients with over $250,000 in total investable assets. MLGWM provides tailored solutions to meet our clients’ needs through a full set of investment management, brokerage, banking and retirement products. U.S. Trust, together with MLGWM’s Private Banking & Investments Group, provides comprehensive wealth management solutions targeted to high net worth and ultra high net worth clients, as well as customized solutions to meet clients’ wealth structuring, investment management, trust and banking needs, including specialty asset management services. Client assets managed under advisory and/or discretion of GWIM are assets under management (AUM) and are typically held in diversified portfolios. The majority of client AUM have an investment strategy with a duration of greater than one year and are, therefore, considered long-term AUM. Fees earned on long- term AUM are calculated as a percentage of total AUM. The asset management fees charged to clients are dependent on various factors, but are generally driven by the breadth of the client’s relationship and generally range from 50 to 150 bps on their total AUM. The net client long-term AUM flows represent the net change in clients’ long-term AUM balances over a specified period of time, excluding market adjustments. appreciation/depreciation and other Client assets under advisory and discretion of GWIM in which the investment strategy seeks current income, while maintaining liquidity and capital preservation, are considered liquidity AUM. The duration of these strategies is primarily less than one year. The change in AUM balances from the prior year is primarily the net client flows for liquidity AUM. Net income for GWIM decreased $360 million to $2.6 billion in 2015 compared to 2014 driven by a decrease in revenue and increases in noninterest expense and the provision for credit losses. Net interest income decreased $337 million to $5.5 billion due to the impact of the allocation of ALM activities, partially offset by the impact of loan and deposit growth. Noninterest income, which primarily includes investment and brokerage services income, decreased $66 million to $12.5 billion driven by lower transactional revenue, partially offset by increased asset management fees due to the impact of long-term AUM flows and higher average market levels. Noninterest expense increased $189 million to $13.8 billion primarily due to higher amortization of previously issued stock awards and investments in client-facing professionals, partially offset by lower revenue-related incentives. Return on average allocated capital was 22 percent, down from 25 percent due to a decrease in net income. 34 Bank of America 2015 Global Wealth & Investment Management (Dollars in millions) Net interest income (FTE basis) Noninterest income: Investment and brokerage services All other income Total noninterest income Total revenue, net of interest expense (FTE basis) Provision for credit losses Noninterest expense Income before income taxes (FTE basis) Income tax expense (FTE basis) Net income Net interest yield (FTE basis) Return on average allocated capital Efficiency ratio (FTE basis) Balance Sheet Average Total loans and leases Total earning assets Total assets Total deposits Allocated capital Year end Total loans and leases Total earning assets Total assets Total deposits n/m = not meaningful 2015 2014 % Change $ 5,499 $ 5,836 (6)% 10,792 1,710 12,502 18,001 51 13,843 4,107 1,498 2,609 10,722 1,846 12,568 18,404 14 13,654 4,736 1,767 2,969 $ $ 2.12% 22 76.90 2.34% 25 74.19 $ 131,383 $ 119,775 258,935 275,866 244,725 12,000 248,979 267,511 240,242 12,000 $ 137,847 $ 125,431 279,465 296,139 260,893 256,519 274,887 245,391 1 (7) (1) (2) n/m 1 (13) (15) (12) 10 4 3 2 — 10 9 8 6 Key Indicators and Metrics (Dollars in millions, except as noted) Revenue by Business Merrill Lynch Global Wealth Management U.S. Trust Other (1) Total revenue, net of interest expense (FTE basis) Client Balances by Business, at year end Merrill Lynch Global Wealth Management U.S. Trust Other (1) Total client balances Client Balances by Type, at year end Long-term assets under management Liquidity assets under management Assets under management Brokerage assets Assets in custody Deposits Loans and leases (2) Total client balances Assets Under Management Rollforward Assets under management, beginning of year Net long-term client flows Net liquidity client flows Market valuation/other Total assets under management, end of year Associates, at year end (3) Number of financial advisors Total wealth advisors Total client-facing professionals Merrill Lynch Global Wealth Management Metric Financial advisor productivity (4) (in thousands) 2015 2014 $ $ 14,898 3,027 76 18,001 $ $ 15,256 3,084 64 18,404 $ 1,985,309 388,604 82,929 $ 2,456,842 $ 2,033,801 387,491 76,705 $ 2,497,997 $ 817,938 82,925 900,863 1,040,937 113,239 260,893 140,910 $ 2,456,842 $ 826,171 76,701 902,872 1,081,434 139,555 245,391 128,745 $ 2,497,997 $ $ 902,872 34,441 6,133 (42,583) 900,863 $ 821,449 49,800 3,361 28,262 $ 902,872 16,724 18,167 20,632 16,035 17,231 19,750 $ 1,019 $ 1,065 GWIM consists of two primary businesses: Merrill Lynch Global excluding market appreciation/depreciation and other Wealth Management (MLGWM) and U.S. Trust, Bank of America adjustments. Private Wealth Management (U.S. Trust). Client assets under advisory and discretion of GWIM in which MLGWM’s advisory business provides a high-touch client the investment strategy seeks current income, while maintaining experience through a network of financial advisors focused on liquidity and capital preservation, are considered liquidity AUM. clients with over $250,000 in total investable assets. MLGWM The duration of these strategies is primarily less than one year. provides tailored solutions to meet our clients’ needs through a The change in AUM balances from the prior year is primarily the full set of investment management, brokerage, banking and net client flows for liquidity AUM. retirement products. Net income for GWIM decreased $360 million to $2.6 billion U.S. Trust, together with MLGWM’s Private Banking & in 2015 compared to 2014 driven by a decrease in revenue and Investments Group, provides comprehensive wealth management increases in noninterest expense and the provision for credit solutions targeted to high net worth and ultra high net worth clients, losses. as well as customized solutions to meet clients’ wealth structuring, Net interest income decreased $337 million to $5.5 billion due investment management, trust and banking needs, including to the impact of the allocation of ALM activities, partially offset by specialty asset management services. the impact of loan and deposit growth. Noninterest income, which Client assets managed under advisory and/or discretion of primarily includes investment and brokerage services income, GWIM are assets under management (AUM) and are typically held decreased $66 million to $12.5 billion driven by lower in diversified portfolios. The majority of client AUM have an transactional revenue, partially offset by increased asset investment strategy with a duration of greater than one year and management fees due to the impact of long-term AUM flows and are, therefore, considered long-term AUM. Fees earned on long- higher average market levels. Noninterest expense increased term AUM are calculated as a percentage of total AUM. The asset $189 million to $13.8 billion primarily due to higher amortization management fees charged to clients are dependent on various of previously issued stock awards and investments in client-facing factors, but are generally driven by the breadth of the client’s professionals, partially offset by lower revenue-related incentives. relationship and generally range from 50 to 150 bps on their total Return on average allocated capital was 22 percent, down from AUM. The net client long-term AUM flows represent the net change 25 percent due to a decrease in net income. in clients’ long-term AUM balances over a specified period of time, (excluding financial advisors in the Consumer Banking segment). Client balances decreased $41.2 billion, or two percent, to nearly $2.5 trillion driven by market declines, partially offset by client balance flows. The number of wealth advisors increased five percent, due to continued investment in the advisor development programs, improved competitive recruiting and near historically low advisor attrition levels. In 2015, revenue from MLGWM of $14.9 billion and U.S. Trust of $3.0 billion were each down two percent primarily driven by lower net interest income due to the impact of the allocation of ALM activities. Additionally, noninterest income was down in MLGWM driven by lower transactional revenue, partially offset by the impact of long-term AUM flows. Net Migration Summary GWIM results are impacted by the net migration of clients and their corresponding deposit, loan and brokerage balances primarily to or from Consumer Banking, as presented in the table below. Migrations result from the movement of clients between business segments to better align with client needs. Net Migration Summary (1) (Dollars in millions) Total deposits, net – to (from) GWIM Total loans, net – to (from) GWIM Total brokerage, net – to (from) GWIM (1) Migration occurs primarily between GWIM and Consumer Banking. $ 2015 2014 (218) $ (97) (2,416) 1,350 (61) (2,710) 34 Bank of America 2015 Bank of America 2015 35 U.S. Trust Metric, at year end Client-facing professionals (1) Includes the results of BofA Global Capital Management, the cash management division of Bank of America, and certain administrative items. (2) Includes margin receivables which are classified in customer and other receivables on the Consolidated Balance Sheet. (3) Includes financial advisors in the Consumer Banking segment of 2,191 and 1,950 at December 31, 2015 and 2014. (4) Financial advisor productivity is defined as Merrill Lynch Global Wealth Management total revenue, excluding the allocation of certain ALM activities, divided by the total number of financial advisors 2,155 2,181 Global Banking (Dollars in millions) Net interest income (FTE basis) Noninterest income: Service charges Investment banking fees All other income Total noninterest income Total revenue, net of interest expense (FTE basis) Provision for credit losses Noninterest expense Income before income taxes (FTE basis) Income tax expense (FTE basis) Net income Net interest yield (FTE basis) Return on average allocated capital Efficiency ratio (FTE basis) Balance Sheet Average Total loans and leases Total earning assets Total assets Total deposits Allocated capital Year end Total loans and leases Total earning assets Total assets Total deposits 2015 2014 % Change $ 9,254 $ 9,810 (6)% 2,914 3,110 1,641 7,665 16,919 685 7,888 8,346 3,073 5,273 2,901 3,213 1,683 7,797 17,607 322 8,170 9,115 3,346 5,769 $ $ 2.85% 15 46.62 3.10% 17 46.40 $ 305,220 324,402 369,001 294,733 35,000 $ 286,484 316,880 362,273 288,010 33,500 $ 325,677 336,755 382,043 296,162 $ 288,905 308,419 353,637 279,792 — (3) (2) (2) (4) 113 (3) (8) (8) (9) 7 2 2 2 4 13 9 8 6 Global Banking, which includes Global Corporate Banking, Global Commercial Banking, Business Banking and Global Investment Banking, provides a wide range of lending-related products and services, integrated working capital management and treasury solutions to clients, and underwriting and advisory services through our network of offices and client relationship teams. Our lending products and services include commercial loans, leases, commitment facilities, trade finance, real estate lending and asset-based lending. Our treasury solutions business includes treasury management, foreign exchange and short-term investing options. We also provide investment banking products to our clients such as debt and equity underwriting and distribution, and merger-related and other advisory services. Underwriting debt and equity issuances, fixed-income and equity research, and certain market-based activities are executed through our global broker-dealer affiliates which are our primary dealers in several countries. Within Global Banking, Global Commercial Banking clients generally include middle-market companies, commercial real estate firms, auto dealerships and not-for-profit companies. Global Corporate Banking clients generally include large global corporations, financial institutions and leasing clients. Business Banking clients include mid-sized U.S.-based businesses requiring customized and integrated financial advice and solutions. Net income for Global Banking decreased $496 million to $5.3 billion in 2015 compared to 2014 primarily driven by lower revenue and higher provision for credit losses, partially offset by lower noninterest expense. Revenue decreased $688 million to $16.9 billion in 2015 primarily due to lower net interest income. The decline in net interest income reflects the impact of the allocation of ALM activities, including liquidity costs as well as loan spread compression, partially offset by loan growth. Noninterest income of $7.7 billion remained relatively unchanged in 2015. The provision for credit losses increased $363 million to $685 million in 2015 primarily driven by energy exposure and loan growth. For additional information, see Commercial Portfolio Credit Risk Management – Industry Concentrations on page 81. Noninterest expense decreased $282 million to $7.9 billion in 2015 primarily due to lower litigation expense and technology initiative costs. The return on average allocated capital was 15 percent in 2015, down from 17 percent in 2014, due to increased capital allocations and lower net income. For more information on capital allocated to the business segments, see Business Segment Operations on page 30. 36 Bank of America 2015 Total revenue, net of interest expense (FTE basis) 16,919 17,607 Global Banking (Dollars in millions) Net interest income (FTE basis) Noninterest income: Service charges Investment banking fees All other income Total noninterest income Provision for credit losses Noninterest expense Income before income taxes (FTE basis) Income tax expense (FTE basis) Net income Net interest yield (FTE basis) Return on average allocated capital Efficiency ratio (FTE basis) Balance Sheet Average Total loans and leases Total earning assets Total assets Total deposits Allocated capital Year end Total loans and leases Total earning assets Total assets Total deposits 2015 2014 % Change $ 9,254 $ 9,810 (6)% 2,914 3,110 1,641 7,665 685 7,888 8,346 3,073 5,273 2,901 3,213 1,683 7,797 322 8,170 9,115 3,346 5,769 $ $ 2.85% 15 46.62 3.10% 17 46.40 $ 305,220 $ 286,484 324,402 369,001 294,733 35,000 316,880 362,273 288,010 33,500 $ 325,677 $ 288,905 336,755 382,043 296,162 308,419 353,637 279,792 — (3) (2) (2) (4) 113 (3) (8) (8) (9) 7 2 2 2 4 13 9 8 6 Global Banking, which includes Global Corporate Banking, Net income for Global Banking decreased $496 million to $5.3 Global Commercial Banking, Business Banking and Global billion in 2015 compared to 2014 primarily driven by lower revenue Investment Banking, provides a wide range of lending-related and higher provision for credit losses, partially offset by lower products and services, integrated working capital management noninterest expense. and treasury solutions to clients, and underwriting and advisory Revenue decreased $688 million to $16.9 billion in 2015 services through our network of offices and client relationship primarily due to lower net interest income. The decline in net teams. Our lending products and services include commercial interest income reflects the impact of the allocation of ALM loans, leases, commitment facilities, trade finance, real estate activities, including liquidity costs as well as loan spread lending and asset-based lending. Our treasury solutions business compression, partially offset by loan growth. Noninterest income includes treasury management, foreign exchange and short-term of $7.7 billion remained relatively unchanged in 2015. investing options. We also provide investment banking products The provision for credit losses increased $363 million to $685 to our clients such as debt and equity underwriting and distribution, million in 2015 primarily driven by energy exposure and loan and merger-related and other advisory services. Underwriting debt growth. For additional information, see Commercial Portfolio Credit and equity issuances, fixed-income and equity research, and Risk Management – Industry Concentrations on page 81. certain market-based activities are executed through our global Noninterest expense decreased $282 million to $7.9 billion in broker-dealer affiliates which are our primary dealers in several 2015 primarily due to lower litigation expense and technology countries. Within Global Banking, Global Commercial Banking initiative costs. clients generally include middle-market companies, commercial The return on average allocated capital was 15 percent in 2015, real estate firms, auto dealerships and not-for-profit companies. down from 17 percent in 2014, due to increased capital allocations Global Corporate Banking clients generally include large global and lower net income. For more information on capital allocated corporations, financial institutions and leasing clients. Business to the business segments, see Business Segment Operations on Banking clients include mid-sized U.S.-based businesses requiring page 30. customized and integrated financial advice and solutions. Global Corporate, Global Commercial and Business Banking Global Corporate, Global Commercial and Business Banking each include Business Lending and Global Transaction Services activities. Business Lending includes various lending-related products and services, and related hedging activities, including commercial loans, leases, commitment facilities, trade finance, real estate lending and asset-based lending. Global Transaction Services includes deposits, treasury management, credit card, foreign exchange and short-term investment products. The table below presents a summary of the results, which exclude certain capital markets activity in Global Banking. Global Corporate, Global Commercial and Business Banking (Dollars in millions) Revenue Business Lending Global Transaction Services Total revenue, net of interest expense Balance Sheet Average Total loans and leases Total deposits Year end Total loans and leases Total deposits Global Corporate Banking Global Commercial Banking Business Banking Total 2015 2014 2015 2014 2015 2014 2015 2014 $ $ 3,291 2,802 6,093 $ $ 3,420 2,992 6,412 $ $ 3,974 2,633 6,607 $ $ 3,942 2,854 6,796 $ $ 342 702 1,044 $ $ 363 715 1,078 $ 7,607 6,137 $ 13,744 $ 7,725 6,561 $ 14,286 $ 139,337 139,042 $129,601 141,386 $ 149,217 122,149 $140,539 116,570 $ 16,589 33,545 $ 16,329 30,055 $ 305,143 294,736 $286,469 288,011 $ 148,714 134,714 $131,019 128,730 $ 160,302 127,731 $141,555 119,215 $ 16,662 33,722 $ 16,333 31,847 $ 325,678 296,167 $288,907 279,792 Business Lending revenue of $7.6 billion remained relatively unchanged in 2015 compared to 2014 as loan spread compression was offset by the benefit of loan growth. Global Transaction Services revenue decreased $424 million in 2015 primarily due to lower net interest income as a result of the impact of the allocation of ALM activities, including liquidity costs. Average loans and leases increased seven percent in 2015 compared to 2014 due to strong origination volumes and increased revolver utilization. Average deposits remained relatively unchanged in 2015. Global Investment Banking Client teams and product specialists underwrite and distribute debt, equity and loan products, and provide advisory services and tailored risk management solutions. The economics of most investment banking and underwriting activities are shared primarily between Global Banking and Global Markets based on the activities performed by each segment. To provide a complete discussion of our consolidated investment banking fees, the following table presents total Corporation investment banking fees and the portion attributable to Global Banking. Investment Banking Fees (Dollars in millions) Products $ Advisory Debt issuance Equity issuance Gross investment banking fees Self-led deals Total investment banking fees Global Banking 2015 2014 Total Corporation 2015 2014 $ $ 1,354 1,296 460 3,110 (57) $ 1,098 1,532 583 3,213 (91) 1,503 3,033 1,236 5,772 (200) 1,205 3,583 1,490 6,278 (213) $ 3,053 $ 3,122 $ 5,572 $ 6,065 Total Corporation investment banking fees of $5.6 billion, excluding self-led deals, included within Global Banking and Global Markets, decreased eight percent in 2015 compared to 2014 driven by lower debt and equity issuance fees, partially offset by higher advisory fees. Underwriting fees for debt products declined primarily as a result of lower debt issuance volumes mainly in leveraged finance transactions. 36 Bank of America 2015 Bank of America 2015 37 Global Markets (Dollars in millions) Net interest income (FTE basis) Noninterest income: Investment and brokerage services Investment banking fees Trading account profits All other income Total noninterest income Total revenue, net of interest expense (FTE basis) Provision for credit losses Noninterest expense Income before income taxes (FTE basis) Income tax expense (FTE basis) Net income Return on average allocated capital Efficiency ratio (FTE basis) Balance Sheet Average Trading-related assets: Trading account securities Reverse repurchases Securities borrowed Derivative assets Total trading-related assets (1) Total loans and leases Total earning assets (1) Total assets Total deposits Allocated capital Year end Total trading-related assets (1) Total loans and leases Total earning assets (1) Total assets Total deposits (1) Trading-related assets include derivative assets, which are considered non-earning assets. 2015 2014 % Change $ 4,338 $ 4,004 8% 2,221 2,401 6,070 37 10,729 15,067 99 11,310 3,658 1,162 2,496 2,205 2,743 5,997 1,239 12,184 16,188 110 11,862 4,216 1,511 2,705 $ $ 7% 75.06 8% 73.28 $ 195,731 103,690 79,494 54,520 433,435 63,572 433,372 596,849 38,470 35,000 $ 201,956 116,085 85,098 46,676 449,815 62,073 461,189 607,623 40,813 34,000 $ 374,081 73,208 386,857 551,587 37,276 $ 418,860 59,388 421,799 579,594 40,746 1 (12) 1 (97) (12) (7) (10) (5) (13) (23) (8) (3) (11) (7) 17 (4) 2 (6) (2) (6) 3 (11) 23 (8) (5) (9) Global Markets offers sales and trading services, including research, to institutional clients across fixed-income, credit, currency, commodity and equity businesses. Global Markets product coverage includes securities and derivative products in both the primary and secondary markets. Global Markets provides market-making, financing, securities clearing, settlement and custody services globally to our institutional investor clients in support of their investing and trading activities. We also work with our commercial and corporate clients to provide risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income and mortgage-related products. As a result of our market-making activities in these products, we may be required to manage risk in a broad range of financial products including government securities, equity and equity-linked securities, high-grade and high-yield corporate debt securities, syndicated loans, MBS, commodities and asset-backed securities (ABS). The economics of most investment banking and underwriting activities are shared primarily between Global Markets and Global Banking based on the activities performed by each segment. Global Banking originates certain deal-related transactions with our corporate and commercial clients that are executed and distributed by Global Markets. For information on investment banking fees on a consolidated basis, see page 37. Retrospective to January 1, 2015, we early adopted new accounting guidance that requires the Corporation to present unrealized DVA gains and losses on certain liabilities accounted for under the fair value option in accumulated OCI. This change, which is reflected entirely in Global Markets, resulted in a reclassification of pretax unrealized DVA gains of $1.0 billion from other income to accumulated OCI for 2015. Results for 2014 were not subject to restatement under the provisions of the new accounting guidance. Net DVA on derivatives is still reported in Global Markets segment results. For additional information, see Executive Summary – Recent Events on page 20. In 2014, we implemented a funding valuation adjustment (FVA) into our valuation estimates primarily to include funding costs on uncollateralized derivatives and derivatives where we are not permitted to use the collateral we receive. This change in estimate resulted in a net FVA pretax charge of $497 million in 2014, which is included in net DVA. 38 Bank of America 2015 Global Markets (Dollars in millions) Net interest income (FTE basis) Noninterest income: Investment and brokerage services Investment banking fees Trading account profits All other income Total noninterest income Total revenue, net of interest expense (FTE basis) Provision for credit losses Noninterest expense Income before income taxes (FTE basis) Income tax expense (FTE basis) Net income Return on average allocated capital Efficiency ratio (FTE basis) Balance Sheet Average Trading-related assets: Trading account securities Reverse repurchases Securities borrowed Derivative assets Total trading-related assets (1) Total loans and leases Total earning assets (1) Total assets Total deposits Allocated capital Year end Total trading-related assets (1) Total loans and leases Total earning assets (1) Total assets Total deposits 2015 2014 % Change $ 4,338 $ 4,004 8% 2,221 2,401 6,070 37 10,729 15,067 99 11,310 3,658 1,162 2,496 2,205 2,743 5,997 1,239 12,184 16,188 110 11,862 4,216 1,511 2,705 $ $ 7% 75.06 8% 73.28 $ 195,731 $ 201,956 103,690 79,494 54,520 433,435 63,572 433,372 596,849 38,470 35,000 116,085 85,098 46,676 449,815 62,073 461,189 607,623 40,813 34,000 $ 374,081 $ 418,860 73,208 386,857 551,587 37,276 59,388 421,799 579,594 40,746 (12) 1 1 (97) (12) (7) (10) (5) (13) (23) (8) (3) (11) (7) 17 (4) 2 (6) (2) (6) 3 (11) 23 (8) (5) (9) Net income for Global Markets decreased $209 million to $2.5 billion in 2015 compared to 2014. Excluding net DVA, net income increased $128 million to $3.0 billion in 2015 compared to 2014, primarily driven by lower noninterest expense and lower tax expense, partially offset by lower revenue. Revenue, excluding net DVA, decreased due to lower trading account profits due to declines in credit-related businesses, lower investment banking fees and lower equity investment gains (not included in sales and trading revenue) as 2014 included gains related to the IPO of an equity investment, partially offset by an increase in net interest income. Net DVA losses were $786 million compared to losses of $240 million in 2014. Sales and trading revenue, excluding net DVA, decreased $142 million due to lower fixed-income, currencies and commodities (FICC) revenue, partially offset by increased Equities revenue. Noninterest expense decreased $552 million to $11.3 billion largely due to lower litigation expense and, to a lesser extent, lower revenue-related incentive compensation and support costs. The effective tax rate for 2014 reflected the impact of non- deductible litigation expense. Average earning assets decreased $27.8 billion to $433.4 billion in 2015 largely driven by a decrease in reverse repurchases, securities borrowed and trading securities primarily due to a reduction in client financing activity and continuing balance sheet optimization efforts across Global Markets. Year-end loans and leases increased $13.8 billion in 2015 primarily due to growth in mortgage and securitization finance. The return on average allocated capital was seven percent, down from eight percent, reflecting a decrease in net income and an increase in allocated capital. Sales and Trading Revenue Sales and trading revenue includes unrealized and realized gains and losses on trading and other assets, net interest income, and fees primarily from commissions on equity securities. Sales and trading revenue is segregated into fixed-income (government debt obligations, investment and non-investment grade corporate debt loan obligations, commercial MBS, RMBS, collateralized obligations (CLOs), interest rate and credit derivative contracts), (1) Trading-related assets include derivative assets, which are considered non-earning assets. Global Markets offers sales and trading services, including transactions with our corporate and commercial clients that are research, to institutional clients across fixed-income, credit, executed and distributed by Global Markets. For information on currency, commodity and equity businesses. Global Markets investment banking fees on a consolidated basis, see page 37. product coverage includes securities and derivative products in Retrospective to January 1, 2015, we early adopted new both the primary and secondary markets. Global Markets provides accounting guidance that requires the Corporation to present market-making, financing, securities clearing, settlement and unrealized DVA gains and losses on certain liabilities accounted custody services globally to our institutional investor clients in for under the fair value option in accumulated OCI. This change, support of their investing and trading activities. We also work with which is reflected entirely in Global Markets, resulted in a our commercial and corporate clients to provide risk management reclassification of pretax unrealized DVA gains of $1.0 billion from products using interest rate, equity, credit, currency and commodity other income to accumulated OCI for 2015. Results for 2014 were derivatives, foreign exchange, fixed-income and mortgage-related not subject to restatement under the provisions of the new products. As a result of our market-making activities in these accounting guidance. Net DVA on derivatives is still reported in products, we may be required to manage risk in a broad range of Global Markets segment results. For additional information, see financial products including government securities, equity and Executive Summary – Recent Events on page 20. In 2014, we equity-linked securities, high-grade and high-yield corporate debt implemented a funding valuation adjustment (FVA) into our securities, syndicated loans, MBS, commodities and asset-backed valuation estimates primarily to include funding costs on securities (ABS). The economics of most investment banking and uncollateralized derivatives and derivatives where we are not underwriting activities are shared primarily between Global Markets permitted to use the collateral we receive. This change in estimate and Global Banking based on the activities performed by each resulted in a net FVA pretax charge of $497 million in 2014, which segment. Global Banking originates certain deal-related is included in net DVA. currencies (interest rate and foreign exchange contracts), commodities (primarily futures, forwards, swaps and options) and equities (equity-linked derivatives and cash equity activity). The following table and related discussion present sales and trading revenue, substantially all of which is in Global Markets, with the remainder in Global Banking. In addition, the following table and related discussion present sales and trading revenue excluding the impact of net DVA, which is a non-GAAP financial measure. We believe the use of this non-GAAP financial measure provides clarity in assessing the underlying performance of these businesses. Sales and Trading Revenue (1, 2) (Dollars in millions) Sales and trading revenue 2015 2014 Fixed-income, currencies and commodities Equities Total sales and trading revenue $ 7,923 4,335 $ 12,258 $ 8,752 4,194 $ 12,946 Sales and trading revenue, excluding net DVA (3) Fixed-income, currencies and commodities Equities 8,686 4,358 Total sales and trading revenue, excluding net DVA $ 13,044 $ $ 9,060 4,126 $ 13,186 (1) (2) Includes FTE adjustments of $182 million and $181 million for 2015 and 2014. For more information on sales and trading revenue, see Note 2 – Derivatives to the Consolidated Financial Statements. Includes Global Banking sales and trading revenue of $422 million and $382 million for 2015 and 2014. (3) FICC and Equities sales and trading revenue, excluding the impact of net DVA, is a non-GAAP financial measure. FICC net DVA losses were $763 million for 2015 compared to net DVA losses of $308 million in 2014. Equities net DVA losses were $23 million for 2015 compared to net DVA gains of $68 million in 2014. FICC revenue, excluding net DVA, decreased $374 million to $8.7 billion primarily driven by declines in credit-related businesses due to lower client activity, partially offset by stronger results in rates, currencies and commodities products. Equities revenue, excluding net DVA, increased $232 million to $4.4 billion primarily driven by strong performance in derivatives and increased client activity in the Asia-Pacific region. 38 Bank of America 2015 Bank of America 2015 39 Legacy Assets & Servicing (Dollars in millions) Net interest income (FTE basis) Noninterest income: Mortgage banking income All other income Total noninterest income Total revenue, net of interest expense (FTE basis) Provision for credit losses Noninterest expense Loss before income taxes (FTE basis) Income tax benefit (FTE basis) Net loss Net interest yield (FTE basis) Balance Sheet Average Total loans and leases Total earning assets Total assets Allocated capital Year end Total loans and leases Total earning assets Total assets LAS is responsible for our mortgage servicing activities related to residential first mortgage and home equity loans serviced for others and loans held by the Corporation, including loans that have been designated as the LAS Portfolios. The LAS Portfolios (both owned and serviced), herein referred to as the Legacy Owned and Legacy Serviced Portfolios, respectively (together, the Legacy Portfolios), and as further defined below, include those loans originated prior to January 1, 2011 that would not have been originated under our established underwriting standards as of December 31, 2010. For more information on our Legacy Portfolios, see page 41. In addition, LAS is responsible for to mortgage managing certain origination, sales and servicing activities litigation, representations and warranties). LAS also includes the financial results of the home equity portfolio selected as part of the Legacy Owned Portfolio and the results of MSR activities, including net hedge results. legacy exposures related (e.g., LAS includes certain revenues and expenses on loans serviced for others, including owned loans serviced for Consumer Banking, GWIM and All Other. The net loss for LAS decreased $12.4 billion to $740 million for 2015 compared to 2014 primarily driven by significantly lower litigation expense, which is included in noninterest expense. Also contributing to the decrease in the net loss was higher revenue, primarily mortgage banking income, partially offset by higher provision for credit losses. Mortgage banking income increased $613 million primarily due to a lower representations and warranties provision compared to 2014 and improved MSR net- of-hedge performance, partially offset by lower servicing fees due to a smaller servicing portfolio. The provision for credit losses increased $17 million as the portfolio begins to stabilize. Also, the provision for credit losses in 2014 included $400 million of 40 Bank of America 2015 2015 2014 % Change $ 1,573 $ 1,520 3% 1,658 199 1,857 3,430 144 4,451 (1,165) (425) (740) 1,045 111 1,156 2,676 127 20,633 (18,084) (4,974) $ (13,110) 3.82% 4.04% 29,885 41,160 51,222 24,000 26,521 37,783 47,292 $ $ 35,941 37,593 52,133 17,000 33,055 33,923 45,957 $ $ $ 59 79 61 28 13 (78) (94) (91) (94) (17) 9 (2) 41 (20) 11 3 additional costs associated with the consumer relief portion of the settlement with the DoJ. Noninterest expense decreased $16.2 billion primarily due to a $14.4 billion decrease in litigation expense. Excluding litigation, noninterest expense decreased $1.8 billion to $3.6 billion due to lower default-related staffing and other default-related servicing expenses. The increase in allocated capital for LAS reflects higher Basel 3 Advanced approaches operational risk capital than in 2014. For more information on capital allocated to the business segments, see Business Segment Operations on page 30. Servicing LAS is responsible for all of our in-house servicing activities related to the residential mortgage and home equity loan portfolios, including owned loans and loans serviced for others (collectively, the mortgage serviced portfolio). A portion of this portfolio has been designated as the Legacy Serviced Portfolio, which represented 25 percent, 26 percent and 30 percent of the total mortgage serviced portfolio, as measured by unpaid principal balance, at December 31, 2015, 2014 and 2013, respectively. In addition, LAS is responsible for contracting with and overseeing subservicing vendors who service loans on our behalf. Servicing activities include collecting cash for principal, interest and escrow payments from borrowers, disbursing customer draws for lines of credit, accounting for and remitting principal and interest payments to investors and escrow payments to third parties, and responding to customer inquiries. Our home retention efforts, including single point of contact resources, are also part of our servicing activities, along with supervision of foreclosures and property dispositions. Prior to foreclosure, LAS evaluates various workout options in an effort to help our customers avoid foreclosure. Legacy Assets & Servicing (Dollars in millions) Net interest income (FTE basis) Noninterest income: Mortgage banking income All other income Total noninterest income Total revenue, net of interest expense (FTE basis) Provision for credit losses Noninterest expense Loss before income taxes (FTE basis) Income tax benefit (FTE basis) Net loss Net interest yield (FTE basis) Balance Sheet Average Total loans and leases Total earning assets Total assets Allocated capital Year end Total loans and leases Total earning assets Total assets LAS is responsible for our mortgage servicing activities related additional costs associated with the consumer relief portion of to residential first mortgage and home equity loans serviced for the settlement with the DoJ. Noninterest expense decreased others and loans held by the Corporation, including loans that have $16.2 billion primarily due to a $14.4 billion decrease in litigation been designated as the LAS Portfolios. The LAS Portfolios (both expense. Excluding litigation, noninterest expense decreased $1.8 owned and serviced), herein referred to as the Legacy Owned and billion to $3.6 billion due to lower default-related staffing and other Legacy Serviced Portfolios, respectively (together, the Legacy default-related servicing expenses. Portfolios), and as further defined below, include those loans The increase in allocated capital for LAS reflects higher Basel originated prior to January 1, 2011 that would not have been 3 Advanced approaches operational risk capital than in 2014. For originated under our established underwriting standards as of more information on capital allocated to the business segments, December 31, 2010. For more information on our Legacy see Business Segment Operations on page 30. Portfolios, see page 41. In addition, LAS is responsible for managing certain legacy exposures related to mortgage origination, sales and servicing activities (e.g., litigation, representations and warranties). LAS also includes the financial results of the home equity portfolio selected as part of the Legacy Owned Portfolio and the results of MSR activities, including net hedge results. LAS includes certain revenues and expenses on loans serviced for others, including owned loans serviced for Consumer Banking, GWIM and All Other. The net loss for LAS decreased $12.4 billion to $740 million for 2015 compared to 2014 primarily driven by significantly lower litigation expense, which is included in noninterest expense. Also contributing to the decrease in the net loss was higher revenue, primarily mortgage banking income, partially offset by higher provision for credit losses. Mortgage banking income increased $613 million primarily due to a lower representations and warranties provision compared to 2014 and improved MSR net- of-hedge performance, partially offset by lower servicing fees due to a smaller servicing portfolio. The provision for credit losses increased $17 million as the portfolio begins to stabilize. Also, the provision for credit losses in 2014 included $400 million of 40 Bank of America 2015 Servicing LAS is responsible for all of our in-house servicing activities related to the residential mortgage and home equity loan portfolios, including owned loans and loans serviced for others (collectively, the mortgage serviced portfolio). A portion of this portfolio has been designated as the Legacy Serviced Portfolio, which represented 25 percent, 26 percent and 30 percent of the total mortgage serviced portfolio, as measured by unpaid principal balance, at December 31, 2015, 2014 and 2013, respectively. In addition, LAS is responsible for contracting with and overseeing subservicing vendors who service loans on our behalf. Servicing activities include collecting cash for principal, interest and escrow payments from borrowers, disbursing customer draws for lines of credit, accounting for and remitting principal and interest payments to investors and escrow payments to third parties, and responding to customer inquiries. Our home retention efforts, including single point of contact resources, are also part of our servicing activities, along with supervision of foreclosures and property dispositions. Prior to foreclosure, LAS evaluates various workout options in an effort to help our customers avoid foreclosure. 2015 2014 % Change $ 1,573 $ 1,520 3% 1,658 199 1,857 3,430 144 4,451 (1,165) (425) (740) 1,045 111 1,156 2,676 127 20,633 (18,084) (4,974) $ $ (13,110) 3.82% 4.04% $ 29,885 $ 35,941 41,160 51,222 24,000 37,593 52,133 17,000 $ 26,521 $ 33,055 37,783 47,292 33,923 45,957 59 79 61 28 13 (78) (94) (91) (94) (17) 9 (2) 41 (20) 11 3 Legacy Portfolios The Legacy Portfolios (both owned and serviced) include those loans originated prior to January 1, 2011 that would not have been originated under our established underwriting standards in place as of December 31, 2010. The purchased credit-impaired (PCI) loan portfolio, as well as certain loans that met a pre-defined delinquency status or probability of default threshold as of January 1, 2011, are also included in the Legacy Portfolios. Since determining the pool of loans to be included in the Legacy Portfolios as of January 1, 2011, the criteria have not changed for these portfolios, but will continue to be evaluated over time. Legacy Owned Portfolio The Legacy Owned Portfolio includes those loans that met the criteria as described above and are on the balance sheet of the Corporation. Home equity loans in this portfolio are held on the balance sheet of LAS, and residential mortgage loans in this portfolio are included as part of All Other. The financial results of the on-balance sheet loans are reported in the segment that owns the loans or in All Other. Total loans in the Legacy Owned Portfolio decreased $18.3 billion in 2015 to $71.6 billion at December 31, 2015, of which $26.5 billion was held on the LAS balance sheet and the remainder was included in All Other. The decrease was largely due to payoffs and paydowns, as well as loan sales. Legacy Serviced Portfolio The Legacy Serviced Portfolio includes loans serviced by LAS in both the Legacy Owned Portfolio and those loans serviced for outside investors that met the criteria as described above. The table below summarizes the balances of the residential mortgage loans included in the Legacy Serviced Portfolio (the Legacy Residential Mortgage Serviced Portfolio) representing 24 percent, 24 percent and 28 percent of the total residential mortgage serviced portfolio of $491 billion, $609 billion and $719 billion, as measured by unpaid principal balance, at December 31, 2015, 2014 and 2013, respectively. The decline in the Legacy Residential Mortgage Serviced Portfolio was due to paydowns and payoffs, and MSR and loan sales. Legacy Residential Mortgage Serviced Portfolio, a subset of the Residential Mortgage Serviced Portfolio (1) (Dollars in billions) Unpaid principal balance Residential mortgage loans Total 60 days or more past due Number of loans serviced (in thousands) Residential mortgage loans Total 60 days or more past due December 31 2014 2013 2015 $ $ 116 13 $ 148 25 203 49 632 72 794 135 1,083 258 (1) Excludes $28 billion, $34 billion and $39 billion of home equity loans and HELOCs at December 31, 2015, 2014 and 2013, respectively. Non-Legacy Portfolio As previously discussed, LAS is responsible for all of our servicing activities. The table below summarizes the balances of the residential mortgage loans that are not included in the Legacy Serviced Portfolio (the Non-Legacy Residential Mortgage Serviced Portfolio) representing 76 percent, 76 percent and 72 percent of the total residential mortgage serviced portfolio, as measured by unpaid principal balance, at December 31, 2015, 2014 and 2013, respectively. The decline in the Non-Legacy Residential Mortgage Serviced Portfolio was primarily due to paydowns and payoffs, partially offset by new originations. Non-Legacy Residential Mortgage Serviced Portfolio, a subset of the Residential Mortgage Serviced Portfolio (1) (Dollars in billions) Unpaid principal balance Residential mortgage loans Total 60 days or more past due December 31 2014 2013 2015 $ $ 375 5 $ 461 9 516 12 Number of loans serviced (in thousands) Residential mortgage loans Total 60 days or more past due 2,376 31 2,951 54 3,267 67 (1) Excludes $46 billion, $50 billion and $52 billion of home equity loans and HELOCs at December 31, 2015, 2014 and 2013, respectively. Bank of America 2015 41 LAS Mortgage Banking Income LAS mortgage banking income includes income earned in connection with servicing activities and MSR valuation adjustments, net of results from risk management activities used to hedge certain market risks of the MSRs. The costs associated with our servicing activities are included in noninterest expense. LAS mortgage banking income also includes the cost of legacy representations and warranties exposures and revenue from the sales of loans that had returned to performing status. The table below summarizes LAS mortgage banking income. LAS Mortgage Banking Income (Dollars in millions) 2015 2014 Servicing income: Servicing fees Amortization of expected cash flows (1) Fair value changes of MSRs, net of risk management activities used to hedge certain market risks (2) Total net servicing income Representations and warranties (provision) benefit Other mortgage banking income (3) Total LAS mortgage banking income $ 1,520 (738) $ 1,957 (818) 516 294 1,298 28 332 $ 1,658 1,433 (693) 305 $ 1,045 (1) Represents the net change in fair value of the MSR asset due to the recognition of modeled cash flows. Includes gains (losses) on sales of MSRs. (2) (3) Consists primarily of revenue from sales of repurchased loans that had returned to performing status. In 2015, LAS mortgage banking income increased $613 million to $1.7 billion primarily driven by a lower representations and warranties provision and improved MSR net-of-hedge performance, partially offset by lower servicing fees due to a smaller servicing portfolio. Servicing fees declined 22 percent to $1.5 billion in 2015 as the size of the servicing portfolio continued to decline driven by loan prepayment activity, which exceeded new originations, as well as strategic sales of MSRs in 2014. The $28 million benefit in the provision for representations and warranties for 2015 compared to a provision of $693 million in 2014 was primarily driven by the impact of the ACE Securities Corp. v. DB Structured Products, Inc. (ACE) decision, as time-barred claims are now treated as resolved. For more information on the ACE decision, see Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 44. Key Statistics (Dollars in millions, except as noted) Mortgage serviced portfolio (in billions) (1, 2) Mortgage loans serviced for investors (in billions) (1) Mortgage servicing rights: Balance (3) Capitalized mortgage servicing rights (% of loans serviced for investors) December 31 2015 565 $ 2014 693 $ 378 474 2,680 3,271 71 bps 69 bps (1) The servicing portfolio and mortgage loans serviced for investors represent the unpaid principal balance of loans. At both December 31, 2015 and 2014, the balance excludes $16 billion of non-U.S. consumer mortgage loans serviced for investors. (2) Servicing of residential mortgage loans, HELOCs and home equity loans by LAS. (3) At December 31, 2015 and 2014, excludes $407 million and $259 million of certain non-U.S. residential mortgage MSR balances that are recorded in Global Markets. Mortgage Servicing Rights At December 31, 2015, the balance of consumer MSRs managed within LAS, which excludes $407 million of certain non-U.S. residential mortgage MSRs recorded in Global Markets, was $2.7 billion compared to $3.3 billion at December 31, 2014. The decrease was primarily driven by the recognition of modeled cash flows and sales of MSRs, partially offset by new loan originations. For more information on MSRs, see Note 23 – Mortgage Servicing Rights to the Consolidated Financial Statements. 42 Bank of America 2015 LAS Mortgage Banking Income LAS mortgage banking income includes income earned in connection with servicing activities and MSR valuation adjustments, net of results from risk management activities used to hedge certain market risks of the MSRs. The costs associated with our servicing activities are included in noninterest expense. LAS mortgage banking income also includes the cost of legacy representations and warranties exposures and revenue from the sales of loans that had returned to performing status. The table below summarizes LAS mortgage banking income. originations, as well as strategic sales of MSRs in 2014. The $28 million benefit in the provision for representations and warranties for 2015 compared to a provision of $693 million in 2014 was primarily driven by the impact of the ACE Securities Corp. v. DB Structured Products, Inc. (ACE) decision, as time-barred claims are now treated as resolved. For more information on the ACE decision, see Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 44. LAS Mortgage Banking Income (Dollars in millions) Servicing income: Servicing fees Key Statistics (Dollars in millions, except as noted) December 31 2015 2014 Mortgage serviced portfolio (in billions) (1, 2) $ 565 $ 693 2015 2014 Mortgage loans serviced for investors (in billions) (1) 378 474 $ 1,520 $ 1,957 Mortgage servicing rights: Amortization of expected cash flows (1) (738) (818) Balance (3) 2,680 3,271 Fair value changes of MSRs, net of risk management activities used to hedge certain market risks (2) Total net servicing income Representations and warranties (provision) benefit Other mortgage banking income (3) 516 1,298 28 332 294 1,433 (693) 305 Total LAS mortgage banking income $ 1,658 $ 1,045 (1) Represents the net change in fair value of the MSR asset due to the recognition of modeled Capitalized mortgage servicing rights (% of loans serviced for investors) 71 bps 69 bps (1) The servicing portfolio and mortgage loans serviced for investors represent the unpaid principal balance of loans. At both December 31, 2015 and 2014, the balance excludes $16 billion of non-U.S. consumer mortgage loans serviced for investors. (2) Servicing of residential mortgage loans, HELOCs and home equity loans by LAS. (3) At December 31, 2015 and 2014, excludes $407 million and $259 million of certain non-U.S. residential mortgage MSR balances that are recorded in Global Markets. (2) Includes gains (losses) on sales of MSRs. (3) Consists primarily of revenue from sales of repurchased loans that had returned to performing Mortgage Servicing Rights cash flows. status. In 2015, LAS mortgage banking income increased $613 million to $1.7 billion primarily driven by a lower representations and warranties provision and improved MSR net-of-hedge performance, partially offset by lower servicing fees due to a smaller servicing portfolio. Servicing fees declined 22 percent to $1.5 billion in 2015 as the size of the servicing portfolio continued to decline driven by loan prepayment activity, which exceeded new At December 31, 2015, the balance of consumer MSRs managed within LAS, which excludes $407 million of certain non-U.S. residential mortgage MSRs recorded in Global Markets, was $2.7 billion compared to $3.3 billion at December 31, 2014. The decrease was primarily driven by the recognition of modeled cash flows and sales of MSRs, partially offset by new loan originations. For more information on MSRs, see Note 23 – Mortgage Servicing Rights to the Consolidated Financial Statements. All Other (Dollars in millions) Net interest income (FTE basis) Noninterest income: Card income Equity investment income Gains on sales of debt securities All other loss Total noninterest income Total revenue, net of interest expense (FTE basis) Provision for credit losses Noninterest expense Loss before income taxes (FTE basis) Income tax benefit (FTE basis) Net income (loss) Balance Sheet Average Loans and leases: Residential mortgage Non-U.S. credit card Other Total loans and leases Total assets (1) Total deposits Year end Loans and leases: Residential mortgage Non-U.S. credit card Other Total loans and leases Total equity investments Total assets (1) Total deposits (1) 2015 2014 % Change $ (348) $ (526) (34)% 263 — 1,079 (1,613) (271) (619) (342) 2,215 (2,492) (2,003) $ (489) $ 356 727 1,310 (2,435) (42) (568) (978) 2,933 (2,523) (2,587) 64 $ $ 130,893 10,104 6,403 147,400 257,893 21,862 $ 180,249 11,511 10,753 202,513 278,812 30,834 109,030 9,975 6,338 125,343 4,297 230,791 22,898 $ 155,595 10,465 6,552 172,612 4,871 261,581 19,240 (26) (100) (18) (34) n/m 9 (65) (24) (1) (23) n/m (27) (12) (40) (27) (8) (29) (30) (5) (3) (27) (12) (12) 19 In segments where the total of liabilities and equity exceeds assets, which are generally deposit-taking segments, we allocate assets from All Other to those segments to match liabilities (i.e., deposits) and allocated shareholders’ equity. Such allocated assets were $499.4 billion and $480.3 billion for 2015 and 2014, and $518.8 billion and $474.6 billion at December 31, 2015 and 2014. n/m = not meaningful All Other consists of ALM activities, equity investments, the international consumer card business, liquidating businesses, residual expense allocations and other. ALM activities encompass certain residential mortgages, debt 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. The results of certain ALM activities are allocated to our business segments. Beginning with new originations in 2014, we retain certain residential mortgages in Consumer Banking, consistent with where the overall relationship is managed; previously such mortgages were in All Other. Additionally, certain residential mortgage loans that are managed by LAS are held in All Other. For more information on our ALM activities, see Interest Rate Risk Management for Non- trading Activities on page 95 and Note 24 – Business Segment Information to the Consolidated Financial Statements. Equity investments include our merchant services joint venture as well as Global Principal Investments (GPI) which is comprised of a portfolio of equity, real estate and other alternative investments. For more information on our merchant services joint venture, see Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. Net income for All Other decreased $553 million to a loss of $489 million in 2015 primarily due to a decrease in equity investment income, a decrease in the benefit in the provision for credit losses and lower gains on sales of debt securities, partially offset by higher net interest income, an increase in gains on sales of consumer real estate loans, lower U.K. PPI costs and a decrease in noninterest expense. Net interest income increased $178 million primarily driven by a lower impact from negative market-related adjustments on debt securities, partially offset by a $612 million charge in 2015 related to the discount on certain trust preferred securities. Negative market-related adjustments on debt securities were $296 million compared to $1.1 billion in 2014. Equity investment income decreased $727 million as the prior year included a gain on the sale of a portion of an equity investment. Gains on the sales of loans, including nonperforming and other delinquent loans, net of hedges, were $1.0 billion compared to gains of $672 million in 2014. Also included in all other loss were U.K. PPI costs of $319 million compared to $621 million, and negative FTE adjustments of $1.6 billion compared to $1.3 billion to eliminate the FTE treatment of certain tax credits recorded in Global Banking. Bank of America 2015 43 42 Bank of America 2015 The benefit in the provision for credit losses decreased $636 million to a benefit of $342 million in 2015 primarily driven by lower recoveries, including those recorded in connection with residential mortgage loan sales. Noninterest expense decreased $718 million to $2.2 billion reflecting a decrease in litigation expense and lower personnel, infrastructure and support costs, partially offset by higher professional fees related in part to our CCAR resubmission. The income tax benefit was $2.0 billion on a pretax loss of $2.5 billion in 2015 compared to a benefit of $2.6 billion on a pretax loss of $2.5 billion in 2014, as 2014 included tax benefits attributable to the resolution of several tax examinations, and 2015 included the charge of approximately $290 million related to the U.K tax law change. In addition, both periods include income tax benefit adjustments to eliminate the FTE treatment of certain tax credits recorded in Global Banking. Off-Balance Sheet Arrangements and Contractual Obligations We have contractual obligations to make future payments on debt and lease agreements. Additionally, in the normal course of business, we enter into contractual arrangements whereby we commit to future purchases of products or services from unaffiliated parties. Purchase obligations are defined as obligations that are legally binding agreements whereby we agree to purchase products or services with a specific minimum quantity at a fixed, minimum or variable price over a specified period of time. Included in purchase obligations are vendor contracts, the most significant of which include communication services, processing services and software contracts. Other long-term liabilities include our contractual funding obligations related to the Qualified Pension Plans, Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans (collectively, the Plans). Obligations to the Plans are based on the current and projected obligations of the Plans, performance of the Plans’ assets and any participant contributions, if applicable. During 2015 and 2014, we contributed $234 million each year to the Plans, and we expect to make $261 million of contributions during 2016. The Plans are more fully discussed in Note 17 – Employee Benefit Plans to the Consolidated Financial Statements. Debt, lease, equity and other obligations are more fully discussed in Note 11 – Long-term Debt and Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. We enter into commitments to extend credit such as loan commitments, standby letters of credit (SBLCs) and commercial letters of credit to meet the financing needs of our customers. For a summary of the total unfunded, or off-balance sheet, credit extension commitment amounts by expiration date, see Credit Extension Commitments in Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. Table 11 includes certain contractual obligations at December 31, 2015 and 2014. Table 11 Contractual Obligations (Dollars in millions) Long-term debt Operating lease obligations Purchase obligations Time deposits Other long-term liabilities December 31, 2015 Due After One Year Through Three Years Due After Three Years Through Five Years Due in One Year or Less December 31 2014 Due After Five Years Total Total $ 43,334 $ 75,377 $ 36,513 $ 81,540 $ 236,764 $ 243,139 2,456 2,007 65,567 1,663 3,846 1,905 5,207 870 2,798 629 2,517 668 4,581 809 683 1,110 13,681 5,350 73,974 4,311 14,406 5,544 84,843 4,232 Estimated interest expense on long-term debt and time deposits (1) 4,753 7,124 5,064 26,957 43,898 45,462 Total contractual obligations $ 119,780 $ 94,329 $ 48,189 $ 115,680 $ 377,978 $ 397,626 (1) Represents forecasted net interest expense on long-term debt and time deposits based on interest rates at December 31, 2015. Forecasts are based on the contractual maturity dates of each liability, and are net of derivative hedges, where applicable. Representations and Warranties We securitize first-lien residential mortgage loans generally in the form of RMBS guaranteed by the government-sponsored enterprises (GSEs), which include FHLMC and FNMA, or by the Government National Mortgage Association (GNMA) in the case of Federal Housing Administration (FHA)-insured, U.S. Department of Veterans Affairs (VA)-guaranteed and Rural Housing Service- guaranteed mortgage loans, and sell pools of first-lien residential mortgage loans in the form of whole loans. In addition, in prior years, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations (in certain of these securitizations, monoline insurers or other financial guarantee providers insured all or some of the securities) or in the form of whole loans. In connection with these transactions, we or certain of our subsidiaries or legacy companies made various representations and warranties. Breaches of these representations and warranties have resulted in and may continue to result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies to the GSEs, U.S. Department of Housing and Urban Development with respect to FHA-insured loans, VA, whole- loan investors, securitization trusts, monoline insurers or other financial guarantors as applicable (collectively, repurchases). In all such cases, subsequent to repurchasing the loan, we would be exposed to any credit loss on the repurchased mortgage loans after accounting for any mortgage insurance (MI) or mortgage guarantee payments that we may receive. We have vigorously contested any request for repurchase where we have concluded that a valid basis for repurchase does not exist and will continue to do so in the future. However, in an effort to 44 Bank of America 2015 The benefit in the provision for credit losses decreased $636 at a fixed, minimum or variable price over a specified period of million to a benefit of $342 million in 2015 primarily driven by time. Included in purchase obligations are vendor contracts, the lower recoveries, including those recorded in connection with most significant of which include communication services, residential mortgage loan sales. processing services and software contracts. Other long-term Noninterest expense decreased $718 million to $2.2 billion liabilities include our contractual funding obligations related to the reflecting a decrease in litigation expense and lower personnel, Qualified Pension Plans, Non-U.S. Pension Plans, Nonqualified and infrastructure and support costs, partially offset by higher Other Pension Plans, and Postretirement Health and Life Plans professional fees related in part to our CCAR resubmission. (collectively, the Plans). Obligations to the Plans are based on the The income tax benefit was $2.0 billion on a pretax loss of current and projected obligations of the Plans, performance of the $2.5 billion in 2015 compared to a benefit of $2.6 billion on a Plans’ assets and any participant contributions, if applicable. pretax loss of $2.5 billion in 2014, as 2014 included tax benefits During 2015 and 2014, we contributed $234 million each year to attributable to the resolution of several tax examinations, and the Plans, and we expect to make $261 million of contributions 2015 included the charge of approximately $290 million related during 2016. The Plans are more fully discussed in Note 17 – to the U.K tax law change. In addition, both periods include income Employee Benefit Plans to the Consolidated Financial Statements. tax benefit adjustments to eliminate the FTE treatment of certain Debt, lease, equity and other obligations are more fully tax credits recorded in Global Banking. Off-Balance Sheet Arrangements and Contractual Obligations We have contractual obligations to make future payments on debt and lease agreements. Additionally, in the normal course of business, we enter into contractual arrangements whereby we commit to future purchases of products or services from unaffiliated parties. Purchase obligations are defined as obligations that are legally binding agreements whereby we agree to purchase products or services with a specific minimum quantity Table 11 Contractual Obligations discussed in Note 11 – Long-term Debt and Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. We enter into commitments to extend credit such as loan commitments, standby letters of credit (SBLCs) and commercial letters of credit to meet the financing needs of our customers. For a summary of the total unfunded, or off-balance sheet, credit extension commitment amounts by expiration date, see Credit Extension Commitments in Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. Table 11 includes certain contractual obligations at December 31, 2015 and 2014. (Dollars in millions) Long-term debt Operating lease obligations Purchase obligations Time deposits Other long-term liabilities December 31, 2015 Due After One Year Through Three Years Due After Three Years Through Five Years Due in One Year or Less Due After Five Years Total Total December 31 2014 $ 43,334 $ 75,377 $ 36,513 $ 81,540 $ 236,764 $ 243,139 2,456 2,007 65,567 1,663 3,846 1,905 5,207 870 2,798 629 2,517 668 4,581 809 683 1,110 13,681 5,350 73,974 4,311 14,406 5,544 84,843 4,232 Estimated interest expense on long-term debt and time deposits (1) 4,753 7,124 5,064 26,957 43,898 45,462 Total contractual obligations $ 119,780 $ 94,329 $ 48,189 $ 115,680 $ 377,978 $ 397,626 (1) Represents forecasted net interest expense on long-term debt and time deposits based on interest rates at December 31, 2015. Forecasts are based on the contractual maturity dates of each liability, and are net of derivative hedges, where applicable. Representations and Warranties We securitize first-lien residential mortgage loans generally in the form of RMBS guaranteed by the government-sponsored enterprises (GSEs), which include FHLMC and FNMA, or by the Government National Mortgage Association (GNMA) in the case of Federal Housing Administration (FHA)-insured, U.S. Department of Veterans Affairs (VA)-guaranteed and Rural Housing Service- guaranteed mortgage loans, and sell pools of first-lien residential mortgage loans in the form of whole loans. In addition, in prior years, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations (in certain of these securitizations, monoline insurers or other financial guarantee providers insured all or some of the securities) or in the form of whole loans. In connection with these transactions, we or certain of our subsidiaries or legacy companies made various representations and warranties. Breaches of these representations and warranties have resulted in and may continue to result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies to the GSEs, U.S. Department of Housing and Urban Development with respect to FHA-insured loans, VA, whole- loan investors, securitization trusts, monoline insurers or other financial guarantors as applicable (collectively, repurchases). In all such cases, subsequent to repurchasing the loan, we would be exposed to any credit loss on the repurchased mortgage loans after accounting for any mortgage insurance (MI) or mortgage guarantee payments that we may receive. We have vigorously contested any request for repurchase where we have concluded that a valid basis for repurchase does not exist and will continue to do so in the future. However, in an effort to resolve legacy mortgage-related issues, we have reached settlements, certain of which have been for significant amounts, in lieu of a loan-by-loan review process, including with the GSEs, four monoline insurers and BNY Mellon, as trustee for certain securitization trusts. For more information on accounting for representations and warranties, repurchase claims and exposures, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees and Note 12 – Commitments and Contingencies to the Consolidated Financial Statements and Item 1A. Risk Factors of our 2015 Annual Report on Form 10-K. Settlement with the Bank of New York Mellon, as Trustee On April 22, 2015, the New York County Supreme Court entered final judgment approving the BNY Mellon Settlement. In October 2015, BNY Mellon obtained certain state tax opinions and an IRS private letter ruling confirming that the settlement will not impact the real estate mortgage investment conduit tax status of the trusts. The final conditions of the settlement have been satisfied and, accordingly, the Corporation made the settlement payment to BNY Mellon of $8.5 billion in February 2016. Pursuant to the settlement agreement, allocation and distribution of the $8.5 billion settlement payment is the responsibility of the RMBS trustee, BNY Mellon. On February 5, 2016, BNY Mellon filed an Article 77 proceeding in the New York County Supreme Court asking the court for instruction with respect to certain issues concerning the distribution of each trust’s allocable share of the settlement payment and asking that the settlement payment be ordered to be held in escrow pending the outcome of this Article 77 proceeding. The Corporation is not a party to this proceeding. New York Court Decision on Statute of Limitations On June 11, 2015, the New York Court of Appeals, New York’s highest appellate court, issued its opinion on the statute of limitations applicable to representations and warranties claims in ACE Securities Corp. v. DB Structured Products, Inc. (ACE). The Court of Appeals held that, under New York law, a claim for breach of contractual representations and warranties begins to run at the time the representations and warranties are made, and rejected the argument that the six-year statute of limitations does not begin to run until the time repurchase is refused. The Court of Appeals also held that compliance with the contractual notice and cure period was a pre-condition to filing suit, and claims that did not comply with such contractual requirements prior to the expiration of the statute of limitations period were invalid. While no entity affiliated with the Corporation was a party to this litigation, the vast majority of the private-label RMBS trusts into which entities affiliated with loans and made representations and warranties are governed by New York law. While the Corporation treats claims where the statute of limitations has expired, as determined in accordance with the ACE decision, as time-barred and therefore resolved and no longer outstanding, investors or trustees have sought to distinguish certain aspects of the ACE decision or to assert other claims against RMBS counterparties seeking to avoid or circumvent the impact of the ACE decision. For example, a recent ruling by a New York intermediate appellate court allowed a counterparty to pursue litigation on loans in the entire trust even though only some of the loans complied with the condition precedent of timely pre-suit notice and opportunity to cure or repurchase. The potential impact on the Corporation, if any, of judicial limitations on the ACE decision, the Corporation sold or claims seeking to distinguish or avoid the ACE decision is unclear at this time. For additional information, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements. Unresolved Repurchase Claims Unresolved representations and warranties repurchase claims represent the notional amount of repurchase claims made by counterparties, typically the outstanding principal balance or the unpaid principal balance at the time of default. In the case of first- lien mortgages, the claim amount is often significantly greater than the expected loss amount due to the benefit of collateral and, in some cases, MI or mortgage guarantee payments. Claims received from a counterparty remain outstanding until the underlying loan is repurchased, the claim is rescinded by the counterparty, we determine that the applicable statute of limitations has expired, or representations and warranties claims with respect to the applicable trust are settled, and fully and finally released. When a claim is denied and we do not receive a response from the counterparty, the claim remains in the unresolved repurchase claims balance until resolution in one of the ways described above. At December 31, 2015, we had $18.4 billion of unresolved repurchase claims, net of duplicate claims, compared to $22.8 billion at December 31, 2014. These repurchase claims primarily relate to private-label securitizations and exclude claims in the amount of $7.4 billion at December 31, 2015 where the statute of limitations has expired without litigation being commenced. At December 31, 2014, time-barred claims of $5.2 billion were included in unresolved repurchase claims. The notional amount of unresolved repurchase claims at both December 31, 2015 and 2014 includes $3.5 billion of claims related to loans in specific private-label securitization groups or tranches where we own substantially all of the outstanding securities. For additional information, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements. The overall decrease in the notional amount of outstanding unresolved repurchase claims in 2015 is primarily due to the impact of time-barred claims under the ACE decision, partially offset by new claims from private-label securitization trustees. Outstanding repurchase claims remain unresolved primarily due to (1) the level of detail, support and analysis accompanying such claims, which impact overall claim quality and, therefore, claims resolution and (2) the lack of an established process to resolve disputes related to these claims. all and outstanding substantially As a result of various bulk settlements with the GSEs, we have potential resolved representations and warranties repurchase claims on whole loans sold by legacy Bank of America and Countrywide Financial Corporation (Countrywide) to FNMA and FHLMC through June 30, 2012 and December 31, 2009, respectively. At December 31, 2015, the notional amount of unresolved repurchase claims submitted by the GSEs was $14 million for loans originated prior to 2009. For more information on the monolines and experience with the GSEs, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements. During 2015 and 2014, we had loan-level representations and warranties repurchase claims experience with the monoline insurers due to bulk settlements in prior years and ongoing litigation with a single monoline insurer. For additional limited 44 Bank of America 2015 Bank of America 2015 45 information, see Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. In addition to unresolved repurchase claims, we have received notifications from sponsors of third-party securitizations with whom we engaged in whole-loan transactions indicating that we may have indemnity obligations with respect to loans for which we have not received a repurchase request. These outstanding notifications totaled $1.4 billion and $2.0 billion at December 31, 2015 and 2014. We also from time to time receive correspondence purporting to raise representations and warranties breach issues from entities that do not have contractual standing or ability to bring such claims. We believe such communications to be procedurally and/or substantively invalid, and generally do not respond. The presence of repurchase claims on a given trust, receipt of notices of indemnification obligations and receipt of other communications, as discussed above, are all factors that inform our for representations and warranties and the corresponding estimated range of possible loss. liability Representations and Warranties Liability The liability for representations and warranties and corporate guarantees is included in accrued expenses and other liabilities on the Consolidated Balance Sheet and the related provision is included in mortgage banking income in the Consolidated Statement of Income. For more information on the representations and warranties liability and the corresponding estimated range of loss, see Off-Balance Sheet Arrangements and possible Contractual Obligations – Estimated Range of Possible Loss on page 47 and Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements. the liability At December 31, 2015 and 2014, for representations and warranties was $11.3 billion and $12.1 billion, which included $8.5 billion related to the BNY Mellon Settlement. The representations and warranties benefit was $39 million for 2015 compared to a provision of $683 million for 2014. The benefit in the provision for representations and warranties for 2015 compared to a provision in 2014 was primarily driven by the impact of the ACE decision. Our liability for representations and warranties is necessarily dependent on, and limited by, a number of factors including for private-label securitizations the implied repurchase experience based on the BNY Mellon Settlement, as well as certain other assumptions and judgmental factors. Where relevant, we also consider more recent experience, such as claim activity, notification of potential indemnification obligations, our experience with various counterparties, the ACE decision, other recent court decisions related to the statute of limitations, and other facts and circumstances, such as bulk settlements, as we believe appropriate. Accordingly, future provisions associated with obligations under representations and warranties may be materially impacted if future experiences are different from historical experience or our understandings, interpretations or assumptions. 46 Bank of America 2015 Experience with Investors Other than Government- sponsored Enterprises Prior to 2009, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations or in the form of whole loans to investors other than the GSEs (although the GSEs are investors in certain private-label securitizations). The majority of the loans sold were included in private-label securitizations, including third- party sponsored transactions. We provided representations and warranties to the whole-loan investors and these investors may retain those rights even when the whole loans were aggregated with other collateral into private-label securitizations sponsored by the whole-loan investors. Such loans originated from 2004 through 2008 had an original principal balance of $970 billion, including $786 billion sold to private-label and whole-loan investors without monoline insurance. Taking into account settlements and the application of the statute of limitations for repurchase claims for these trusts, we believe the remaining open exposure for repurchase claims exists on loans with an original principal balance of $102 billion. Of the $102 billion, $45 billion has been paid in full and $42 billion has defaulted or was severely delinquent at December 31, 2015. At least 25 payments have been made on approximately 62 percent of these defaulted and severely delinquent loans. These remaining loans with open exposure predominantly relate to legacy Countrywide and First Franklin Financial Corporation originations of pay option and subprime first mortgages. As it relates to private-label securitizations, a contractual liability to repurchase mortgage loans generally arises if there is a breach of representations and warranties that materially and adversely affects the interest of the investor or all the investors in a securitization trust or of the monoline insurer or other financial guarantor (as applicable). We have received approximately $32.7 billion of representations and warranties repurchase claims related to loans originated between 2004 and 2008 including $23.7 billion from private-label securitization trustees and a financial guarantee provider, $8.2 billion from whole-loan investors and $816 million from one private-label securitization counterparty. New private- label claims are primarily related to repurchase requests received from trustees for private-label securitization transactions not included in the BNY Mellon Settlement. Of the $32.7 billion in claims, we have resolved $16.0 billion of these claims with losses of $1.9 billion. Approximately $3.6 billion of these claims were resolved through repurchase or indemnification, $4.7 billion were rescinded by the investor, $325 million were resolved through settlements and $7.4 billion are time-barred under the applicable statute of limitations and are therefore considered resolved. At December 31, 2015, for these vintages, the notional amount of unresolved repurchase claims submitted by private-label securitization trustees, whole-loan investors, including third-party securitization sponsors and others was $16.7 billion. We have performed an initial review with respect to substantially all of these claims and although we do not believe a valid basis for repurchase has been established by the claimant, we consider such claims activity in the computation of our liability for representations and warranties. Until we receive a repurchase claim, we generally do not review loan files related to private-label securitizations and believe we are not required by the governing documents to do so, unless particular facts suggest we should review an individual loan file. information, see Note 12 – Commitments and Contingencies to the Experience with Investors Other than Government- Consolidated Financial Statements. In addition to unresolved repurchase claims, we have received notifications from sponsors of third-party securitizations with whom we engaged in whole-loan transactions indicating that we may have indemnity obligations with respect to loans for which we have not received a repurchase request. These outstanding notifications totaled $1.4 billion and $2.0 billion at December 31, 2015 and 2014. We also from time to time receive correspondence purporting to raise representations and warranties breach issues from entities that do not have contractual standing or ability to bring such claims. We believe such communications to be procedurally and/or substantively invalid, and generally do not respond. The presence of repurchase claims on a given trust, receipt of notices of indemnification obligations and receipt of other communications, as discussed above, are all factors that inform our liability for representations and warranties and the corresponding estimated range of possible loss. Representations and Warranties Liability The liability for representations and warranties and corporate guarantees is included in accrued expenses and other liabilities on the Consolidated Balance Sheet and the related provision is included in mortgage banking income in the Consolidated Statement of Income. For more information on the representations and warranties liability and the corresponding estimated range of possible loss, see Off-Balance Sheet Arrangements and Contractual Obligations – Estimated Range of Possible Loss on page 47 and Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements. At December 31, 2015 and 2014, the liability for representations and warranties was $11.3 billion and $12.1 billion, which included $8.5 billion related to the BNY Mellon Settlement. The representations and warranties benefit was $39 million for 2015 compared to a provision of $683 million for 2014. The benefit in the provision for representations and warranties for 2015 compared to a provision in 2014 was primarily driven by the impact of the ACE decision. Our liability for representations and warranties is necessarily dependent on, and limited by, a number of factors including for private-label securitizations the implied repurchase experience based on the BNY Mellon Settlement, as well as certain other assumptions and judgmental factors. Where relevant, we also consider more recent experience, such as claim activity, notification of potential indemnification obligations, our experience with various counterparties, the ACE decision, other recent court decisions related to the statute of limitations, and other facts and circumstances, such as bulk settlements, as we believe appropriate. Accordingly, future provisions associated with obligations under representations and warranties may be materially impacted if future experiences are different from historical experience or our understandings, interpretations or assumptions. 46 Bank of America 2015 sponsored Enterprises Prior to 2009, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations or in the form of whole loans to investors other than the GSEs (although the GSEs are investors in certain private-label securitizations). The majority of the loans sold were included in private-label securitizations, including third- party sponsored transactions. We provided representations and warranties to the whole-loan investors and these investors may retain those rights even when the whole loans were aggregated with other collateral into private-label securitizations sponsored by the whole-loan investors. Such loans originated from 2004 through 2008 had an original principal balance of $970 billion, including $786 billion sold to private-label and whole-loan investors without monoline insurance. Taking into account settlements and the application of the statute of limitations for repurchase claims for these trusts, we believe the remaining open exposure for repurchase claims exists on loans with an original principal balance of $102 billion. Of the $102 billion, $45 billion has been paid in full and $42 billion has defaulted or was severely delinquent at December 31, 2015. At least 25 payments have been made on approximately 62 percent of these defaulted and severely delinquent loans. These remaining loans with open exposure predominantly relate to legacy Countrywide and First Franklin Financial Corporation originations of pay option and subprime first mortgages. As it relates to private-label securitizations, a contractual liability to repurchase mortgage loans generally arises if there is a breach of representations and warranties that materially and adversely affects the interest of the investor or all the investors in a securitization trust or of the monoline insurer or other financial guarantor (as applicable). We have received approximately $32.7 billion of representations and warranties repurchase claims related to loans originated between 2004 and 2008 including $23.7 billion from private-label securitization trustees and a financial guarantee provider, $8.2 billion from whole-loan investors and $816 million from one private-label securitization counterparty. New private- label claims are primarily related to repurchase requests received from trustees for private-label securitization transactions not included in the BNY Mellon Settlement. Of the $32.7 billion in claims, we have resolved $16.0 billion of these claims with losses of $1.9 billion. Approximately $3.6 billion of these claims were resolved through repurchase or indemnification, $4.7 billion were rescinded by the investor, $325 million were resolved through settlements and $7.4 billion are time-barred under the applicable statute of limitations and are therefore considered resolved. At December 31, 2015, for these vintages, the notional amount of unresolved repurchase claims submitted by private-label securitization trustees, whole-loan investors, including third-party securitization sponsors and others was $16.7 billion. We have performed an initial review with respect to substantially all of these claims and although we do not believe a valid basis for repurchase has been established by the claimant, we consider such claims activity in the computation of our liability for representations and warranties. Until we receive a repurchase claim, we generally do not review loan files related to private-label securitizations and believe we are not required by the governing documents to do so, unless particular facts suggest we should review an individual loan file. Estimated Range of Possible Loss We currently estimate that the range of possible loss for representations and warranties exposures could be up to $2 billion over existing accruals at December 31, 2015. We treat claims that are time-barred as resolved and do not consider such claims in the estimated range of possible loss. The estimated range of possible loss reflects principally exposures related to loans in private-label securitization trusts. It represents a reasonably possible loss, but does not represent a probable loss, and is based on currently available information, significant judgment and a number of assumptions that are subject to change. For more information on the methodology used to estimate the representations and warranties liability, the corresponding estimated range of possible loss and the types of losses not considered in such estimates, see Item 1A. Risk Factors of our 2015 Annual Report on Form 10-K and Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements and, for more information related to the sensitivity of the assumptions used to estimate our liability for representations and warranties, see Complex Accounting Estimates – Representations and Warranties Liability on page 102. Department of Justice Settlement On August 20, 2014, we reached a comprehensive settlement with the DoJ and certain federal and state agencies (DoJ Settlement). As part of the DoJ Settlement, we paid civil monetary penalties and compensatory remediation payments in 2014. In 2014 and 2015, we provided creditable consumer relief activities primarily in the form of mortgage modifications, including first-lien principal forgiveness and forbearance modifications and second- and junior- lien extinguishments, to moderate-income mortgage originations, and community reinvestment and neighborhood stabilization efforts, with initiatives focused on communities experiencing, or at risk of, blight. Also, we have provided support for the expansion of available affordable rental housing. Our actions are well ahead of the DoJ agreement calling for us to complete delivery of the consumer relief by no later than August 31, 2018. The consumer relief requirements are subject to oversight by an independent monitor. low- Other Mortgage-related Matters We continue to be subject to additional borrower and non-borrower litigation and governmental and regulatory scrutiny and investigations related to our past and current origination, servicing, transfer of servicing and servicing rights, servicing compliance obligations, foreclosure activities, and MI and captive reinsurance practices with mortgage insurers. The ongoing environment of additional regulation, increased regulatory compliance obligations, and enhanced regulatory enforcement, combined with ongoing uncertainty related to the continuing evolution of the regulatory environment, has increased operational and in compliance costs and may limit our ability to continue providing certain products and services. For more information on management’s estimate of the aggregate range of possible loss and on regulatory investigations, see Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. resulted Managing Risk Overview Risk is inherent in all our business activities. Sound risk management enables us to serve our customers and deliver for our shareholders. If not managed well, risks can result in financial loss, regulatory sanctions and penalties, and damage to our reputation, each of which may adversely impact our ability to execute our business strategies. The Corporation takes a comprehensive approach to risk management with a defined Risk Framework and an articulated Risk Appetite Statement which are approved annually by the Enterprise Risk Committee (ERC) and the Corporation’s Board of Directors (the Board). The seven types of risk faced by the Corporation are strategic, credit, market, liquidity, compliance, operational and reputational risks. Strategic risk is the risk resulting from incorrect assumptions about external or internal factors, inappropriate business plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic or competitive environments. Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its obligations. Market risk is the risk that changes in market conditions may adversely impact the value of assets or liabilities, or otherwise negatively impact earnings. Liquidity risk is the potential inability to meet expected or unexpected cash flow and collateral needs while continuing to support our business and customer needs under a range of economic conditions. Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to the reputation of the Corporation arising from the failure of the Corporation to comply with the requirements of applicable laws, rules, regulations and related self-regulatory organizations’ standards and codes of conduct. Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Reputational risk is the risk that negative perceptions of the Corporation’s conduct or business practices will adversely affect its profitability or operations through an inability to establish or maintain existing customer/client relationships. The following sections address in more detail the specific procedures, measures and analyses of the major categories of risk. This discussion of managing risk focuses on the 2016 Risk Framework (Risk Framework) that, as part of its annual review process, was approved by the ERC and the Board in December 2015. The key enhancements from the 2015 Risk Framework include further increasing the focus on our strong risk culture and emphasizing our risk identification practices and the involvement and input of Front Line Units (FLUs) and control functions. It continues to recognize the same seven key risk types as discussed above and our risk management approach as outlined below. A strong risk culture is fundamental to our values and operating principles. It requires us to focus on risk in all activities and encourages the necessary mindset and behavior to enable effective risk management, and promotes sound risk-taking within our risk appetite. Sustaining a strong risk culture throughout the organization is critical to the success of the Corporation and is a clear expectation of our executive management team and the Board. Bank of America 2015 47 Our Risk Framework is the foundation for comprehensive management of the risks facing the Corporation. The Risk Framework sets responsibilities and accountability for the management of risk and provides a blueprint for how the Board, through delegation of authority to committees and executive officers, establishes risk appetite and associated limits for our activities. forth clear roles, Executive management assesses, with Board oversight, the risk-adjusted returns of each business. Management reviews and approves the strategic and financial operating plans, as well as the capital plan and risk appetite statement, and recommends them annually to the Board for approval. Our strategic plan takes into consideration return objectives and financial resources, which must align with risk capacity and risk appetite. Management sets financial objectives for each business by allocating capital and setting a target for return on capital for each business. Capital allocations and operating limits are regularly evaluated as part of our overall governance processes as the businesses and the economic environment in which we operate continue to evolve. For more information regarding capital allocations, see Business Segment Operations on page 30. Our Risk Appetite Statement is intended to ensure that the Corporation maintains an acceptable risk profile by providing a common framework and a comparable set of measures for senior management and the Board to clearly indicate the level of risk the Corporation is willing to accept. Risk appetite is set at least annually in conjunction with the strategic, capital and financial operating plans to align risk appetite with the Corporation’s strategy and financial resources. Our line of business strategies and risk appetite are also similarly aligned. For a more detailed discussion of our risk management activities, see the discussion below and pages 51 through 98. Our overall capacity to take risk is limited; therefore, we prioritize the risks we take in order to maintain a strong and flexible financial position so we can withstand challenging economic conditions and take advantage of organic growth opportunities. Therefore, we set objectives and targets for capital and liquidity that are intended to permit the Corporation to continue to operate in a safe and sound manner at all times, including during periods of stress. Our lines of business operate with risk limits (which may include credit, market and/or operational limits, as applicable) that are based on the amount of capital, earnings or liquidity we are willing to put at risk to achieve our strategic objectives and business plans. Executive management is responsible for tracking and reporting performance measurements as well as any exceptions to guidelines or limits. The Board, and its committees when appropriate, oversees financial performance, execution of the strategic and financial operating plans, adherence to risk appetite limits and the adequacy of internal controls. Risk Management Governance The Risk Framework describes delegations of authority whereby the Board and its committees may delegate authority to management-level committees or executive officers. Such delegations may authorize certain decision-making and approval functions, which may be evidenced in, for example, committee charters, job descriptions, meeting minutes and resolutions. The chart below illustrates the inter-relationship among the Board, Board committees and management committees that have the majority of risk oversight responsibilities for the Corporation. This chart reflects the current Risk Framework as approved by the Board in December 2015. (1) This presentation does not include committees for other legal entities. (2) Reports to the CEO and CFO with oversight by the Audit Committee. Board of Directors and Board Committees The Board, which consists of a substantial majority of independent directors, authorizes management to maintain an effective Risk Framework, and oversees compliance with safe and sound banking practices. In addition, the Board or its committees conduct appropriate inquiries of, and receive reports from management on risk-related matters to determine whether there are scope or resource limitations that impede the ability of independent risk its management and/or Corporate Audit to execute responsibilities. The following Board committees have the principal responsibility for enterprise-wide oversight of our risk management activities. These committees and other Board committees, as applicable, regularly report to the Board on risk-related matters. Through these activities, the Board and applicable committees are provided with thorough information on the Corporation’s risk profile, and challenge executive management to appropriately address key risks facing the Corporation. Other Board committees as described below provide additional oversight of specific risks. 48 Bank of America 2015 Our Risk Framework is the foundation for comprehensive Our overall capacity to take risk is limited; therefore, we prioritize management of the risks facing the Corporation. The Risk the risks we take in order to maintain a strong and flexible financial Framework sets forth clear roles, responsibilities and position so we can withstand challenging economic conditions and accountability for the management of risk and provides a blueprint take advantage of organic growth opportunities. Therefore, we set for how the Board, through delegation of authority to committees objectives and targets for capital and liquidity that are intended and executive officers, establishes risk appetite and associated to permit the Corporation to continue to operate in a safe and limits for our activities. sound manner at all times, including during periods of stress. Executive management assesses, with Board oversight, the Our lines of business operate with risk limits (which may include risk-adjusted returns of each business. Management reviews and credit, market and/or operational limits, as applicable) that are approves the strategic and financial operating plans, as well as based on the amount of capital, earnings or liquidity we are willing the capital plan and risk appetite statement, and recommends to put at risk to achieve our strategic objectives and business them annually to the Board for approval. Our strategic plan takes plans. Executive management is responsible for tracking and into consideration return objectives and financial resources, which reporting performance measurements as well as any exceptions must align with risk capacity and risk appetite. Management sets to guidelines or limits. The Board, and its committees when financial objectives for each business by allocating capital and appropriate, oversees financial performance, execution of the setting a target for return on capital for each business. Capital strategic and financial operating plans, adherence to risk appetite allocations and operating limits are regularly evaluated as part of limits and the adequacy of internal controls. our overall governance processes as the businesses and the economic environment in which we operate continue to evolve. For more information regarding capital allocations, see Business Segment Operations on page 30. Our Risk Appetite Statement is intended to ensure that the Corporation maintains an acceptable risk profile by providing a common framework and a comparable set of measures for senior management and the Board to clearly indicate the level of risk the Corporation is willing to accept. Risk appetite is set at least annually in conjunction with the strategic, capital and financial operating plans to align risk appetite with the Corporation’s strategy and financial resources. Our line of business strategies and risk appetite are also similarly aligned. For a more detailed discussion of our risk management activities, see the discussion below and pages 51 through 98. Risk Management Governance The Risk Framework describes delegations of authority whereby the Board and its committees may delegate authority to management-level committees or executive officers. Such delegations may authorize certain decision-making and approval functions, which may be evidenced in, for example, committee charters, job descriptions, meeting minutes and resolutions. The chart below illustrates the inter-relationship among the Board, Board committees and management committees that have the majority of risk oversight responsibilities for the Corporation. This chart reflects the current Risk Framework as approved by the Board in December 2015. Each of the committees shown on the above chart regularly reports to the Board on risk-related matters within the committee’s responsibilities, which is intended to collectively provide the Board with integrated, thorough insight about our management of enterprise-wide risks. Enterprise Risk Committee The Enterprise Risk Committee (ERC) has primary responsibility for oversight of the Risk Framework and material risks facing the Corporation. It approves the Risk Framework and the Risk Appetite Statement and further recommends these documents to the Board for approval. The ERC oversees senior management’s responsibilities for the identification, measurement, monitoring and control of all key risks facing the Corporation. The ERC may consult with other Board committees on risk-related matters. Audit Committee The Audit Committee oversees the qualifications, performance and independence of the Independent Registered Public Accounting Firm, the performance of the Corporation’s corporate audit function, the integrity of the Corporation’s consolidated financial statements, compliance by the Corporation with legal and regulatory requirements, and makes inquiries of management or the Corporate General Auditor (CGA) to determine whether there are scope or resource limitations that impede the ability of Corporate Audit to execute its responsibilities. The Audit Committee is also responsible for overseeing compliance risk pursuant to the New York Stock Exchange listing standards. responsibilities Credit Committee The Credit Committee provides additional oversight of senior identification and management’s management of Corporation-wide credit exposures. Our Credit Committee oversees, among other things, the identification and management of our credit exposures on an enterprise-wide basis, our responses to trends affecting those exposures, the adequacy of the allowance for credit losses and our credit-related policies. the for (1) This presentation does not include committees for other legal entities. (2) Reports to the CEO and CFO with oversight by the Audit Committee. Board of Directors and Board Committees The Board, which consists of a substantial majority of independent directors, authorizes management to maintain an effective Risk Framework, and oversees compliance with safe and sound banking practices. In addition, the Board or its committees conduct appropriate inquiries of, and receive reports from management on risk-related matters to determine whether there are scope or resource limitations that impede the ability of independent risk management and/or Corporate Audit to execute its responsibilities. The following Board committees have the principal responsibility for enterprise-wide oversight of our risk management activities. These committees and other Board committees, as applicable, regularly report to the Board on risk-related matters. Through these activities, the Board and applicable committees are provided with thorough information on the Corporation’s risk profile, and challenge executive management to appropriately address key risks facing the Corporation. Other Board committees as described below provide additional oversight of specific risks. Other Board Committees Our Corporate Governance Committee oversees our Board’s governance processes, identifies and reviews the qualifications of potential Board members, recommends nominees for election to our Board, recommends committee appointments for Board approval and reviews our stockholder engagement activities. Our Compensation and Benefits Committee oversees establishing, maintaining and administering our compensation programs and employee benefit plans, including approving and recommending our Chief Executive Officer’s (CEO) compensation to our Board for further approval by all independent directors, and reviewing and approving all of our executive officers’ compensation. Management Committees Management committees may receive their authority from the Board, a Board committee, another management committee or from one or more executive officers. The primary management- level risk committee for the Corporation is the Management Risk Committee (MRC). Subject to Board oversight, the MRC is responsible for management oversight of all key risks facing the Corporation. The MRC provides management oversight of the Corporation’s compliance and operational risk programs, balance sheet and capital management, funding activities and other liquidity activities, stress testing, trading activities, recovery and resolution planning, model risk, subsidiary governance and activities between member banks and their nonbank affiliates pursuant to Federal Reserve rules and regulations. The MRC is responsible for holistic risk management, including an integrated evaluation of risk, earnings, capital and liquidity, and it reports on these matters to the Board or Board committees. Lines of Defense In addition to the role of Executive Officers in managing risk, we have clear ownership and accountability across the three lines of defense: FLUs, independent risk management and Corporate Audit. The Corporation also has control functions outside of FLUs and independent risk management (e.g., Legal and Global Human Resources). The three lines of defense are integrated into our management-level governance structure. Each of these is described in more detail below. Executive Officers Executive officers lead various functions representing the functional roles. Authority for functional roles may be delegated to executive officers from the Board, Board committees or management-level committees. Executive officers, in turn, may further delegate responsibilities, as appropriate, to management- level committees, management routines or individuals. Executive officers review the Corporation’s activities for consistency with our Risk Framework, Risk Appetite Statement, and applicable strategic, capital and financial operating plans, as well as applicable policies, standards, procedures and processes. Executive officers and other employees make decisions individually on a day-to-day basis, consistent with the authority they have been delegated. Executive officers and other employees may also serve on committees and participate in committee decisions. Front Line Units FLUs include the lines of business and an organizational unit, the Global Technology and Operations Group. FLUs are held accountable by the CEO and the Board for appropriately assessing and effectively managing all of the risks associated with their activities. Three organizational units that include FLU and control function activities, but are not part of independent risk management are the Chief Financial Officer (CFO) Group, Global Marketing and Corporate Affairs (GM&CA) and the Chief Administrative Officer (CAO) Group. Independent Risk Management Independent risk management (IRM) is part of our control functions and includes Global Risk Management and Global Compliance. We have other control functions that are not part of IRM (other control functions may also provide oversight to FLU activities), including Legal, Global Human Resources and certain activities within the CFO Group, GM&CA and the CAO Group. IRM, led by the Chief Risk Officer (CRO), is responsible for independently assessing and overseeing risks within FLUs and other control functions. IRM establishes written enterprise policies and procedures limits where include concentration appropriate. Such policies and procedures outline how aggregate risks are identified, measured, monitored and controlled. that risk 48 Bank of America 2015 Bank of America 2015 49 The CRO has the authority and independence to develop and implement a meaningful risk management framework. The CRO has unrestricted access to the Board and reports directly to both the ERC and to the CEO. Global Risk Management is organized into enterprise risk teams and FLU risk teams that work collaboratively in executing their respective duties. Within IRM, Global Compliance independently assesses compliance risk, and evaluates adherence to applicable laws, rules and regulations, including identifying compliance issues and risks, performing monitoring and testing, and reporting on the state of compliance activities across the Corporation. Additionally, Global Compliance works with FLUs and control functions so that day-to- day activities operate in a compliant manner. Corporate Audit Corporate Audit and the CGA maintain their independence from the FLUs, IRM and other control functions by reporting directly to the Audit Committee or the Board. The CGA administratively reports to the CEO. Corporate Audit provides independent assessment and validation through testing of key processes and controls across the Corporation. Corporate Audit includes Credit Review which periodically tests and examines credit portfolios and processes. Risk Management Processes The Risk Framework requires that strong risk management practices are integrated in key strategic, capital and financial planning processes and day-to-day business processes across the Corporation, with a goal of ensuring risks are appropriately considered, evaluated and responded to in a timely manner. We employ a risk management process, referred to as Identify, Measure, Monitor and Control (IMMC) as part of our daily activities. Identify – To be effectively managed, risks must be clearly defined and proactively identified. Proper risk identification focuses on recognizing and understanding all key risks inherent in our business activities or key risks that may arise from external factors. Each employee is expected to identify and escalate risks promptly. Risk identification is an ongoing process, incorporating input from FLUs and control functions, designed to be forward looking and capture relevant risk factors across all of our lines of business. Measure – Once a risk is identified, it must be prioritized and accurately measured through a systematic risk quantification process including quantitative and qualitative components. Risk is measured at various levels including, but not limited to, risk type, FLU, legal entity and on an aggregate basis. This risk quantification process helps to capture changes in our risk profile due to changes in strategic direction, concentrations, portfolio quality and the overall economic environment. Senior management considers how risk exposures might evolve under a variety of stress scenarios. Monitor – We monitor risk levels regularly to track adherence to risk appetite, policies, standards, procedures and processes. We also regularly update risk assessments and review risk exposures. Through our monitoring, we can determine our level of risk relative to limits and can take action in a timely manner. We also can determine when risk limits are breached and have processes to appropriately report and escalate exceptions. This includes immediate requests for approval to managers and alerts to executive management, management-level 50 Bank of America 2015 committees or the Board (directly or through an appropriate committee). Control – We establish and communicate risk limits and controls through policies, standards, procedures and processes that define the responsibilities and authority for risk-taking. The limits and controls can be adjusted by the Board or management when conditions or risk tolerances warrant. These limits may be absolute (e.g., loan amount, trading volume) or relative (e.g., percentage of loan book in higher-risk categories). Our lines of business are held accountable to perform within the established limits. Among the key tools in the risk management process are the Risk and Control Self Assessments (RCSAs). The RCSA process, consistent with IMMC, is one of our primary methods for capturing the identification and assessment of operational risk exposures, including inherent and residual operational risk ratings, and control effectiveness ratings. The end-to-end RCSA process incorporates risk identification and assessment of the control environment; monitoring, reporting and escalating risk; quality assurance and data validation; and integration with the risk appetite. This results in a comprehensive risk management view that enables understanding of and action on operational risks and controls for our processes, products, activities and systems. The formal processes used to manage risk represent a part of our overall risk management process. Corporate culture and the actions of our employees are also critical to effective risk management. Through our Code of Conduct, we set a high standard for our employees. The Code of Conduct provides a framework for all of our employees to conduct themselves with the highest integrity. We instill a strong and comprehensive risk management culture through communications, training, policies, procedures, and organizational roles and responsibilities. Additionally, we continue to strengthen the link between the employee performance management process and individual compensation to encourage employees to work toward enterprise-wide risk goals. Corporation-wide Stress Testing Integral to the Corporation’s Capital Planning, Financial Planning and Strategic Planning processes is stress testing, which the Corporation conducts on a periodic basis to better understand balance sheet, earnings, capital and liquidity sensitivities to certain economic and business scenarios, including economic and market conditions that are more severe than anticipated. These stress tests provide an understanding of the potential impacts from the Corporation’s risk profile on the balance sheet, earnings, capital and liquidity, and serve as a key component of the Corporation’s capital and risk management. The intent of stress testing is to develop a comprehensive understanding of potential impacts of on- and off-balance sheet risks at the Corporation and how they impact financial resiliency. Contingency Planning Routines We have developed and maintain contingency plans that are designed to prepare us in advance to respond in the event of potential adverse outcomes and scenarios. These contingency planning routines include capital contingency planning, liquidity contingency funding plans, recovery planning and enterprise resiliency, and provide monitoring, escalation routines and response plans. Contingency response plans are designed to enable us to increase capital, access funding sources and reduce The CRO has the authority and independence to develop and committees or the Board (directly or through an appropriate implement a meaningful risk management framework. The CRO committee). has unrestricted access to the Board and reports directly to both Control – We establish and communicate risk limits and controls the ERC and to the CEO. Global Risk Management is organized through policies, standards, procedures and processes that into enterprise risk teams and FLU risk teams that work define the responsibilities and authority for risk-taking. The collaboratively in executing their respective duties. limits and controls can be adjusted by the Board or Within IRM, Global Compliance independently assesses management when conditions or risk tolerances warrant. compliance risk, and evaluates adherence to applicable laws, rules These limits may be absolute (e.g., loan amount, trading and regulations, including identifying compliance issues and risks, volume) or relative (e.g., percentage of loan book in higher-risk performing monitoring and testing, and reporting on the state of categories). Our lines of business are held accountable to compliance activities across the Corporation. Additionally, Global perform within the established limits. Compliance works with FLUs and control functions so that day-to- day activities operate in a compliant manner. Corporate Audit Corporate Audit and the CGA maintain their independence from the FLUs, IRM and other control functions by reporting directly to the Audit Committee or the Board. The CGA administratively reports to the CEO. Corporate Audit provides independent assessment and validation through testing of key processes and controls across the Corporation. Corporate Audit includes Credit Review which periodically tests and examines credit portfolios and processes. Risk Management Processes The Risk Framework requires that strong risk management practices are integrated in key strategic, capital and financial planning processes and day-to-day business processes across the Corporation, with a goal of ensuring risks are appropriately considered, evaluated and responded to in a timely manner. We employ a risk management process, referred to as Identify, Measure, Monitor and Control (IMMC) as part of our daily activities. Identify – To be effectively managed, risks must be clearly defined and proactively identified. Proper risk identification focuses on recognizing and understanding all key risks inherent in our business activities or key risks that may arise from external factors. Each employee is expected to identify and escalate risks promptly. Risk identification is an ongoing process, incorporating input from FLUs and control functions, designed to be forward looking and capture relevant risk factors across all of our lines of business. Measure – Once a risk is identified, it must be prioritized and accurately measured through a systematic risk quantification process including quantitative and qualitative components. Risk is measured at various levels including, but not limited to, risk type, FLU, legal entity and on an aggregate basis. This risk quantification process helps to capture changes in our risk profile due to changes in strategic direction, concentrations, portfolio quality and the overall economic environment. Senior management considers how risk exposures might evolve under a variety of stress scenarios. Among the key tools in the risk management process are the Risk and Control Self Assessments (RCSAs). The RCSA process, consistent with IMMC, is one of our primary methods for capturing the identification and assessment of operational risk exposures, including inherent and residual operational risk ratings, and control effectiveness ratings. The end-to-end RCSA process incorporates risk identification and assessment of the control environment; monitoring, reporting and escalating risk; quality assurance and data validation; and integration with the risk appetite. This results in a comprehensive risk management view that enables understanding of and action on operational risks and controls for our processes, products, activities and systems. The formal processes used to manage risk represent a part of our overall risk management process. Corporate culture and the actions of our employees are also critical to effective risk management. Through our Code of Conduct, we set a high standard for our employees. The Code of Conduct provides a framework for all of our employees to conduct themselves with the highest integrity. We instill a strong and comprehensive risk management culture through communications, training, policies, procedures, and organizational roles and responsibilities. Additionally, we continue to strengthen the link between the employee performance management process and individual compensation to encourage employees to work toward enterprise-wide risk goals. Corporation-wide Stress Testing Integral to the Corporation’s Capital Planning, Financial Planning and Strategic Planning processes is stress testing, which the Corporation conducts on a periodic basis to better understand balance sheet, earnings, capital and liquidity sensitivities to certain economic and business scenarios, including economic and market conditions that are more severe than anticipated. These stress tests provide an understanding of the potential impacts from the Corporation’s risk profile on the balance sheet, earnings, capital and liquidity, and serve as a key component of the Corporation’s capital and risk management. The intent of stress testing is to develop a comprehensive understanding of potential impacts of on- and off-balance sheet risks at the Corporation and how they impact financial resiliency. Monitor – We monitor risk levels regularly to track adherence to Contingency Planning Routines risk appetite, policies, standards, procedures and processes. We also regularly update risk assessments and review risk exposures. Through our monitoring, we can determine our level of risk relative to limits and can take action in a timely manner. We also can determine when risk limits are breached and have processes to appropriately report and escalate exceptions. This includes immediate requests for approval to managers and alerts to executive management, management-level We have developed and maintain contingency plans that are designed to prepare us in advance to respond in the event of potential adverse outcomes and scenarios. These contingency planning routines include capital contingency planning, liquidity contingency funding plans, recovery planning and enterprise resiliency, and provide monitoring, escalation routines and response plans. Contingency response plans are designed to enable us to increase capital, access funding sources and reduce 50 Bank of America 2015 risk through consideration of potential actions that include asset sales, business sales, capital or debt issuances, and other de- risking strategies. We also maintain contingency plans as part of our resolution plan to limit adverse systemic impacts that could be associated with a potential resolution. Strategic Risk Management Strategic risk is embedded in every business and is one of the major risk categories along with credit, market, liquidity, compliance, operational and reputational risks. It is the risk that results from incorrect assumptions, inappropriate business plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic or competitive environments, in the geographic locations in which we operate, such as competitor actions, changing customer preferences, product obsolescence and technology developments. Our strategic plan is consistent with our risk appetite and specifically addresses strategic risks. The strategic plan is reviewed and approved annually by the Board, as is the capital plan, financial operating plan and risk appetite statement. With oversight by the Board, executive management ensures that consistency is applied while executing the Corporation’s strategic plan, core operating principles and risk appetite. The executive management team continuously monitors business performance throughout the year to assess strategic risk and find early warning signals so that risks can be proactively managed. Executive management regularly reviews performance versus the plan, updates the Board via quarterly reporting routines (and more frequently as relevant) and implements changes as deemed appropriate. The following are assessed in the regular executive reviews: forecasted earnings and returns on capital, the current risk profile, current capital and liquidity requirements, staffing levels and changes required to support the plan, stress testing results, and other qualitative factors such as market growth rates and peer analysis. Significant strategic actions, such as capital actions, material acquisitions or divestitures, and recovery and resolution plans are reviewed and approved by the Board as required. At the business level, as we introduce new products, we monitor their performance relative to expectations (e.g., for earnings and returns on capital). With oversight by the Board and the ERC, executive management performs similar analyses throughout the year, and evaluates changes to the financial forecast or the risk, capital or liquidity positions as deemed appropriate to balance and optimize achieving the targeted risk appetite, shareholder returns and maintaining the targeted financial strength. We use proprietary models to measure the capital requirements for credit, country, market, operational and strategic risks. The allocated capital assigned to each business is based on its unique risk exposures. With oversight by the Board, executive management assesses the risk-adjusted returns of each business in approving strategic and financial operating plans. The businesses use allocated capital to define business strategies, and price products and transactions. For more information on how this measure is calculated, see Supplemental Financial Data on page 28. Capital Management The Corporation manages its capital position to maintain sufficient capital to support its business activities and to maintain capital, risk and risk appetite commensurate with one another. Additionally, we seek to maintain safety and soundness at all times, even under adverse scenarios, take advantage of organic growth opportunities, maintain ready access to financial markets, continue to serve as a credit intermediary, remain a source of strength for our subsidiaries, and satisfy current and future regulatory capital requirements. Capital management is integrated into our risk and governance processes, as capital is a key consideration in the development of our strategic plan, risk appetite and risk limits. We conduct an Internal Capital Adequacy Assessment Process (ICAAP) on a periodic basis. The ICAAP is a forward-looking assessment of our projected capital needs and resources, incorporating earnings, balance sheet and risk forecasts under baseline and adverse economic and market conditions. We utilize periodic stress tests to assess the potential impacts to our balance sheet, earnings, regulatory capital and liquidity under a variety of stress scenarios. We perform qualitative risk assessments to identify and assess material risks not fully captured in our forecasts or stress tests. We assess the potential capital impacts of proposed changes to regulatory capital requirements. Management assesses ICAAP results and provides documented quarterly assessments of the adequacy of our capital guidelines and capital position to the Board or its committees. The Corporation periodically reviews capital allocated to its businesses and allocates capital annually during the strategic and capital planning processes. For additional information, see Business Segment Operations on page 30. CCAR and Capital Planning The Federal Reserve requires BHCs to submit a capital plan and requests for capital actions on an annual basis, consistent with the rules governing the CCAR capital plan. In January 2015, we submitted our 2015 CCAR capital plan and related supervisory stress tests. The requested capital actions included a request to repurchase $4.0 billion of common stock over five quarters beginning in the second quarter of 2015, and to maintain the quarterly common stock dividend at the current rate of $0.05 per share. On March 11, 2015, the Federal Reserve advised that it did not object to our 2015 capital plan but gave a conditional non-objection under which we were required to resubmit our CCAR capital plan and address certain weaknesses the Federal Reserve identified in our capital planning process. We have established plans and taken actions which addressed the identified weaknesses, and we resubmitted our CCAR capital plan on September 30, 2015. The Federal Reserve announced on December 10, 2015 that it did not object to our resubmitted CCAR capital plan. As of December 31, 2015, in connection with our 2015 CCAR capital plan, we have repurchased approximately $2.4 billion of common stock. The timing and amount of additional common stock repurchases and common stock dividends will continue to be consistent with our 2015 CCAR capital plan. In addition, the timing and amount of common stock repurchases will be subject to various factors, including the Corporation’s capital position, liquidity, financial performance and alternative uses of capital, stock trading price, and general market conditions, and may be suspended at any time. The common stock repurchases may be Bank of America 2015 51 effected through open market purchases or privately negotiated transactions, including repurchase plans that satisfy the conditions of Rule 10b5-1 of the Securities Exchange Act of 1934. Regulatory Capital As a financial services holding company, we are subject to regulatory capital rules issued by U.S. banking regulators. On January 1, 2014, we became subject to Basel 3, which includes certain transition provisions through January 1, 2019. The Corporation and its primary affiliated banking entity, BANA, are Advanced approaches institutions under Basel 3. Basel 3 Overview Basel 3 updated the composition of capital and established a Common equity tier 1 capital ratio. Common equity tier 1 capital primarily includes common stock, retained earnings and accumulated OCI. Basel 3 revised minimum capital ratios and buffer requirements, added a SLR, and addressed the adequately capitalized minimum requirements under the PCA framework. Finally, Basel 3 established two methods of calculating risk- weighted assets, the Standardized approach and the Advanced approaches. For additional information, see Capital Management – Standardized Approach and Capital Management – Advanced Approaches on page 53. As an Advanced approaches institution, under Basel 3, we were required to complete a qualification period (parallel run) to demonstrate compliance with the Basel 3 Advanced approaches to the satisfaction of U.S. banking regulators. We received approval to begin using the Advanced approaches capital framework to determine risk-based capital requirements in the fourth quarter of 2015. As previously disclosed, with the approval to exit parallel run, U.S. banking regulators requested modifications to certain including the wholesale (e.g., internal analytical models commercial) credit models. All requested modifications were incorporated, which increased our risk-weighted assets, and are reflected in the risk-based ratios in the fourth quarter of 2015. Having exited parallel run on October 1, 2015, we are required to report regulatory risk-based capital ratios and risk-weighted assets under both the Standardized and Advanced approaches. The approach that yields the lower ratio is used to assess capital adequacy including under the PCA framework, and was the Advanced approaches in the fourth quarter of 2015. Prior to the fourth quarter of 2015, we were required to report our capital adequacy under the Standardized approach only. Regulatory Capital Composition Basel 3 requires certain deductions from and adjustments to capital, which are primarily those related to MSRs, deferred tax assets and defined benefit pension assets. Also, any assets that are a direct deduction from the computation of capital are excluded from risk-weighted assets and adjusted average total assets. Basel 3 also provides for the inclusion in capital of net unrealized gains and losses on AFS debt and certain marketable equity securities recorded in accumulated OCI. These changes are impacted by, among other factors, fluctuations in interest rates, earnings performance and corporate actions. Under Basel 3 regulatory capital the composition of regulatory capital are generally recognized in 20 percent annual increments, and will be fully recognized as of January 1, 2018. transition provisions, changes to Table 12 summarizes how certain regulatory capital deductions and adjustments have been or will be transitioned from 2014 through 2018 for Common equity tier 1 and Tier 1 capital. Table 12 Summary of Certain Basel 3 Regulatory Capital Transition Provisions Beginning on January 1 of each year Common equity tier 1 capital 2014 2015 2016 2017 2018 Percent of total amount deducted from Common equity tier 1 capital includes: 20% 40% 60% 80% 100% Deferred tax assets arising from net operating loss and tax credit carryforwards; intangibles, other than mortgage servicing rights and goodwill; defined benefit pension fund net assets; net unrealized cumulative gains (losses) related to changes in own credit risk on liabilities, including derivatives, measured at fair value; direct and indirect investments in our own Common equity tier 1 capital instruments; certain amounts exceeding the threshold by 10 percent individually and 15 percent in aggregate Percent of total amount used to adjust Common equity tier 1 capital includes (1): 80% 60% 40% 20% 0% Net unrealized gains (losses) on AFS debt and certain marketable equity securities recorded in accumulated OCI; employee benefit plan adjustments recorded in accumulated OCI Tier 1 capital Percent of total amount deducted from Tier 1 capital includes: 80% 60% 40% 20% 0% Deferred tax assets arising from net operating loss and tax credit carryforwards; defined benefit pension fund net assets; net unrealized cumulative gains (losses) related to changes in own credit risk on liabilities, including derivatives, measured at fair value (1) Represents the phase-out percentage of the exclusion by year (e.g., 40 percent of net unrealized gains (losses) on AFS debt and certain marketable equity securities recorded in accumulated OCI was included in 2015). Additionally, Basel 3 revised the regulatory capital treatment for Trust Securities, requiring them to be transitioned from Tier 1 capital into Tier 2 capital in 2014 and 2015, until fully excluded from Tier 1 capital in 2016, and transitioned from Tier 2 capital beginning in 2016 with the full exclusion in 2022. As of December 31, 2015, our qualifying Trust Securities were $1.4 billion, approximately nine bps of the Tier 1 capital ratio. Minimum Capital Requirements Minimum capital requirements and related buffers are being phased in from January 1, 2014 through January 1, 2019. Effective January 1, 2015, the PCA framework was also amended to reflect the requirements of Basel 3. The PCA framework establishes categories of capitalization, including “well capitalized,” based on regulatory ratio requirements. U.S. banking regulators are required to take certain mandatory actions depending on the category of capitalization, with no mandatory actions required for “well- capitalized” banking organizations, which included BANA at 52 Bank of America 2015 effected through open market purchases or privately negotiated internal analytical models including the wholesale (e.g., transactions, including repurchase plans that satisfy the commercial) credit models. All requested modifications were conditions of Rule 10b5-1 of the Securities Exchange Act of 1934. incorporated, which increased our risk-weighted assets, and are Regulatory Capital As a financial services holding company, we are subject to regulatory capital rules issued by U.S. banking regulators. On January 1, 2014, we became subject to Basel 3, which includes certain transition provisions through January 1, 2019. The Corporation and its primary affiliated banking entity, BANA, are Advanced approaches institutions under Basel 3. Basel 3 Overview Basel 3 updated the composition of capital and established a Common equity tier 1 capital ratio. Common equity tier 1 capital primarily includes common stock, retained earnings and accumulated OCI. Basel 3 revised minimum capital ratios and buffer requirements, added a SLR, and addressed the adequately capitalized minimum requirements under the PCA framework. Finally, Basel 3 established two methods of calculating risk- weighted assets, the Standardized approach and the Advanced approaches. For additional information, see Capital Management – Standardized Approach and Capital Management – Advanced Approaches on page 53. As an Advanced approaches institution, under Basel 3, we were required to complete a qualification period (parallel run) to demonstrate compliance with the Basel 3 Advanced approaches to the satisfaction of U.S. banking regulators. We received approval to begin using the Advanced approaches capital framework to determine risk-based capital requirements in the fourth quarter of 2015. As previously disclosed, with the approval to exit parallel run, U.S. banking regulators requested modifications to certain reflected in the risk-based ratios in the fourth quarter of 2015. Having exited parallel run on October 1, 2015, we are required to report regulatory risk-based capital ratios and risk-weighted assets under both the Standardized and Advanced approaches. The approach that yields the lower ratio is used to assess capital adequacy including under the PCA framework, and was the Advanced approaches in the fourth quarter of 2015. Prior to the fourth quarter of 2015, we were required to report our capital adequacy under the Standardized approach only. Regulatory Capital Composition Basel 3 requires certain deductions from and adjustments to capital, which are primarily those related to MSRs, deferred tax assets and defined benefit pension assets. Also, any assets that are a direct deduction from the computation of capital are excluded from risk-weighted assets and adjusted average total assets. Basel 3 also provides for the inclusion in capital of net unrealized gains and losses on AFS debt and certain marketable equity securities recorded in accumulated OCI. These changes are impacted by, among other factors, fluctuations in interest rates, earnings performance and corporate actions. Under Basel 3 regulatory capital transition provisions, changes to the composition of regulatory capital are generally recognized in 20 percent annual increments, and will be fully recognized as of January 1, 2018. Table 12 summarizes how certain regulatory capital deductions and adjustments have been or will be transitioned from 2014 through 2018 for Common equity tier 1 and Tier 1 capital. Table 12 Summary of Certain Basel 3 Regulatory Capital Transition Provisions Beginning on January 1 of each year Common equity tier 1 capital 2014 2015 2016 2017 2018 Percent of total amount deducted from Common equity tier 1 capital includes: 20% 40% 60% 80% 100% Deferred tax assets arising from net operating loss and tax credit carryforwards; intangibles, other than mortgage servicing rights and goodwill; defined benefit pension fund net assets; net unrealized cumulative gains (losses) related to changes in own credit risk on liabilities, including derivatives, measured at fair value; direct and indirect investments in our own Common equity tier 1 capital instruments; certain amounts exceeding the threshold by 10 percent individually and 15 percent in Percent of total amount used to adjust Common equity tier 1 capital includes (1): 80% 60% 40% 20% 0% Net unrealized gains (losses) on AFS debt and certain marketable equity securities recorded in accumulated OCI; employee benefit plan adjustments recorded in Percent of total amount deducted from Tier 1 capital includes: 80% 60% 40% 20% 0% Deferred tax assets arising from net operating loss and tax credit carryforwards; defined benefit pension fund net assets; net unrealized cumulative gains (losses) related to changes in own credit risk on liabilities, including derivatives, measured at fair value (1) Represents the phase-out percentage of the exclusion by year (e.g., 40 percent of net unrealized gains (losses) on AFS debt and certain marketable equity securities recorded in accumulated OCI aggregate accumulated OCI Tier 1 capital was included in 2015). Additionally, Basel 3 revised the regulatory capital treatment Minimum Capital Requirements for Trust Securities, requiring them to be transitioned from Tier 1 capital into Tier 2 capital in 2014 and 2015, until fully excluded from Tier 1 capital in 2016, and transitioned from Tier 2 capital beginning in 2016 with the full exclusion in 2022. As of December 31, 2015, our qualifying Trust Securities were $1.4 billion, approximately nine bps of the Tier 1 capital ratio. Minimum capital requirements and related buffers are being phased in from January 1, 2014 through January 1, 2019. Effective January 1, 2015, the PCA framework was also amended to reflect the requirements of Basel 3. The PCA framework establishes categories of capitalization, including “well capitalized,” based on regulatory ratio requirements. U.S. banking regulators are required to take certain mandatory actions depending on the category of capitalization, with no mandatory actions required for “well- capitalized” banking organizations, which included BANA at December 31, 2015. Also effective January 1, 2015, Common equity tier 1 capital is included in the measurement of “well- capitalized” for depository institutions. Beginning January 1, 2016, we are subject to a capital conservation buffer, a countercyclical capital buffer and a global systemically important bank (G-SIB) surcharge which will be phased in over a three-year period ending January 1, 2019. Once fully phased in, the Corporation’s risk-based capital ratio requirements will include a capital conservation buffer greater than 2.5 percent, plus any applicable countercyclical capital buffer and G-SIB surcharge in order to avoid certain restrictions on capital distributions and discretionary bonus payments. The buffers and surcharge must be composed solely of Common equity tier 1 capital. The countercyclical capital buffer is currently set at zero. U.S. banking regulators must jointly decide on any increase in the countercyclical buffer, after which time institutions will have up to one year for implementation. Based on the Federal Reserve final rule published in July 2015, we estimate that our G-SIB surcharge will increase our risk-based capital ratio requirements by 3.0 percent once fully phased in. The G-SIB surcharge is calculated annually and may differ from this estimate over time. For more information on our G-SIB surcharge, see Capital Management – Regulatory Developments on page 57. Standardized Approach Total risk-weighted assets under the Basel 3 Standardized approach consist of credit risk and market risk measures. Credit risk-weighted assets are measured by applying fixed risk weights to on- and off-balance sheet exposures (excluding securitizations), determined based on the characteristics of the exposure, such as type of obligor, Organization for Economic Cooperation and Development country risk code and maturity, among others. Off- balance sheet exposures primarily include financial guarantees, unfunded lending commitments, letters of credit and potential future derivative exposures. Market risk applies to covered positions which include trading assets and liabilities, foreign exchange exposures and commodity exposures. Market risk capital is modeled for general market risk and specific risk for products where specific risk regulatory approval has been granted; in the absence of specific risk model approval, standard specific risk charges apply. For securitization exposures, risk-weighted assets are determined using the Simplified Supervisory Formula Approach (SSFA). Under the Standardized approach, no distinction is made for variations in credit quality for corporate exposures, and the economic benefit of collateral is restricted to a limited list of eligible securities and cash. capital measurements are consistent with the Standardized approach, except for securitization exposures. For both trading and non-trading securitization exposures, institutions are permitted to use the Supervisory Formula Approach (SFA) and would use the SSFA if the SFA is unavailable for a particular exposure. Non- securitization credit risk exposures are measured using internal ratings-based models to determine the applicable risk weight by estimating the probability of default, loss given default (LGD) and, in certain instances, EAD. The internal analytical models primarily rely on internal historical default and loss experience. Operational risk is measured using internal analytical models which rely on both internal and external operational loss experience and data. The calculations require management to make estimates, assumptions and interpretations, including with respect to the probability of future events based on historical experience. Actual results could differ from those estimates and assumptions. Under the Federal Reserve’s reservation of authority, they may require us to hold an amount of capital greater than otherwise required under the capital rules if they determine that our risk-based capital requirement using our is not commensurate with our credit, market, operational or other risks. internal analytical models Supplementary Leverage Ratio Basel 3 also requires Advanced approaches institutions to disclose a SLR. The numerator of the SLR is quarter-end Basel 3 Tier 1 capital reflective of Basel 3 numerator transition provisions. The denominator is total leverage exposure based on the daily average of the sum of on-balance sheet exposures less permitted Tier 1 deductions, as well as the simple average of certain off- balance sheet exposures, as of the end of each month in a quarter. Off-balance sheet exposures primarily include undrawn lending commitments, letters of credit, potential future derivative exposures and repo-style transactions. Total leverage exposure includes the effective notional principal amount of credit derivatives and similar instruments through which credit protection is sold. The credit conversion factors (CCFs) applied to certain off- balance sheet exposures conform to the graduated CCF utilized under the Basel 3 Standardized approach, but are subject to a minimum 10 percent CCF. Effective January 1, 2018, the Corporation will be required to maintain a minimum SLR of 3.0 percent, plus a supplementary leverage buffer of 2.0 percent, in order to avoid certain restrictions on capital distributions and discretionary bonuses. Insured depository institution subsidiaries of BHCs, including BANA, will be required to maintain a minimum 6.0 percent SLR to be considered “well capitalized” under the PCA framework. Advanced Approaches In addition to the credit risk and market risk measures, Basel 3 Advanced approaches include measures of operational risk and risks related to the credit valuation adjustment (CVA) for over-the- counter (OTC) derivative exposures. The Advanced approaches rely on internal analytical models to measure risk weights for credit risk exposures and allow the use of models to estimate the exposure at default (EAD) for certain exposure types. Market risk Capital Composition and Ratios Table 13 presents Bank of America Corporation’s transition and fully phased-in capital ratios and related information in accordance with Basel 3 Standardized and Advanced approaches as measured at December 31, 2015 and 2014. As of December 31, 2015 and 2014, the Corporation meets the definition of “well capitalized” under current regulatory requirements. 52 Bank of America 2015 Bank of America 2015 53 Table 13 Bank of America Corporation Regulatory Capital under Basel 3 (1) (Dollars in millions) Risk-based capital metrics: Common equity tier 1 capital Tier 1 capital Total capital (5) Risk-weighted assets (in billions) Common equity tier 1 capital ratio Tier 1 capital ratio Total capital ratio December 31, 2015 Transition Fully Phased-in Standardized Approach Advanced Approaches Regulatory Minimum Well- capitalized (2) Standardized Approach Advanced Approaches (3) Regulatory Minimum (4) $ 163,026 180,778 220,676 1,403 $ 163,026 180,778 210,912 1,602 $ 154,084 175,814 211,167 1,427 $ 154,084 175,814 201,403 1,575 11.6% 12.9 15.7 10.2% 11.3 13.2 4.5% 6.0 8.0 n/a 6.0% 10.0 10.8% 12.3 14.8 9.8% 11.2 12.8 10.0% 11.5 13.5 Leverage-based metrics: Adjusted quarterly average assets (in billions) (6) Tier 1 leverage ratio $ 2,103 $ 2,103 $ 2,102 $ 2,102 8.6% 8.6% 4.0 n/a 8.4% 8.4% 4.0 SLR leverage exposure (in billions) SLR $ 2,728 $ 2,728 $ 2,727 $ 2,727 6.6% 6.6% 5.0 n/a 6.4% 6.4% 5.0 Risk-based capital metrics: Common equity tier 1 capital Tier 1 capital Total capital (5) Risk-weighted assets (in billions) (7) Common equity tier 1 capital ratio Tier 1 capital ratio Total capital ratio $ 155,361 168,973 208,670 1,262 12.3% 13.4 16.5 n/a n/a n/a n/a n/a n/a n/a December 31, 2014 $ 141,217 160,480 196,115 1,415 $ 141,217 160,480 185,986 1,465 4.0% 5.5 8.0 n/a 6.0% 10.0 10.0% 11.3 13.9 9.6% 11.0 12.7 10.0% 11.5 13.5 Leverage-based metrics: Adjusted quarterly average assets (in billions) (6) Tier 1 leverage ratio $ 2,060 $ 2,060 $ 2,057 $ 2,057 8.2% 8.2% 4.0 n/a 7.8% 7.8% 4.0 SLR leverage exposure (in billions) SLR $ 2,732 $ 2,732 $ 2,728 $ 2,728 6.2% 6.2% 5.0 n/a 5.9% 5.9% 5.0 (1) We received approval to begin using the Advanced approaches capital framework to determine risk-based capital requirements in the fourth quarter of 2015. With the approval to exit parallel run, we are required to report regulatory capital risk-weighted assets and ratios under both the Standardized and Advanced approaches. The approach that yields the lower ratio is to be used to assess capital adequacy and was the Advanced approaches at December 31, 2015. Prior to exiting parallel run, we were required to report regulatory capital risk-weighted assets and ratios under the Standardized approach only. As previously disclosed, with the approval to exit parallel run, U.S. banking regulators requested modifications to certain internal analytical models including the wholesale (e.g., commercial) credit models which increased our risk-weighted assets in the fourth quarter of 2015. (2) To be “well capitalized” under the current U.S. banking regulatory agency definitions, a bank holding company must maintain these or higher ratios and not be subject to a Federal Reserve order or directive to maintain higher capital levels. (3) Basel 3 fully phased-in Advanced approaches estimates assume approval by U.S. banking regulators of our internal analytical models, including approval of the internal models methodology (IMM). As of December 31, 2015, we had not received IMM approval. (4) Fully phased-in regulatory minimums assume a capital conservation buffer of 2.5 percent and estimated G-SIB surcharge of 3.0 percent. The estimated fully phased-in countercyclical capital buffer is zero. We will be subject to fully phased-in regulatory minimums on January 1, 2019. (5) Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses. (6) Reflects adjusted average total assets for the three months ended December 31, 2015 and 2014. (7) On a pro-forma basis, under Basel 3 Standardized – Transition as measured at January 1, 2015, the December 31, 2014 risk-weighted assets would have been $1,392 billion. n/a = not applicable Common equity tier 1 capital under Basel 3 Advanced – Transition was $163.0 billion at December 31, 2015, an increase of $7.7 billion compared to December 31, 2014 driven by earnings, partially offset by dividends, common stock repurchases and the impact of certain transition provisions under Basel 3 rules. For more information on Basel 3 transition provisions, see Table 12. During 2015, Total capital increased $2.2 billion primarily driven by the same factors that drove the increase in Common equity tier 1 capital as well as issuances of preferred stock and subordinated debt, partially offset by lower eligible credit reserves included in additional Tier 2 capital. The decrease in eligible credit reserves included in additional Tier 2 capital is due to the change in the calculation of eligible credit reserves under the Advanced approaches. The Corporation began using the Advanced approaches capital framework to determine risk-based capital requirements in the fourth quarter of 2015. For additional information, see Table 14. Risk-weighted assets increased $341 billion during 2015 to $1,602 billion primarily due to the change in the calculation of risk-weighted assets from the general risk-based approach at December 31, 2014 to the Basel 3 Advanced approaches. 54 Bank of America 2015 (Dollars in millions) Risk-based capital metrics: Common equity tier 1 capital Tier 1 capital Total capital (5) Risk-weighted assets (in billions) Common equity tier 1 capital ratio Tier 1 capital ratio Total capital ratio Leverage-based metrics: Tier 1 leverage ratio Risk-based capital metrics: Common equity tier 1 capital Tier 1 capital Total capital (5) Risk-weighted assets (in billions) (7) Common equity tier 1 capital ratio Tier 1 capital ratio Total capital ratio Leverage-based metrics: Tier 1 leverage ratio Table 13 Bank of America Corporation Regulatory Capital under Basel 3 (1) Table 14 presents the capital composition as measured under Basel 3 – Transition at December 31, 2015 and 2014. December 31, 2015 Transition Fully Phased-in Table 14 Capital Composition under Basel 3 – Transition (1) Standardized Approach Advanced Approaches Regulatory Minimum Well- capitalized (2) Standardized Approach Advanced Approaches (3) Regulatory Minimum (4) (Dollars in millions) $ 163,026 $ 163,026 $ 154,084 $ 154,084 180,778 220,676 1,403 11.6% 12.9 15.7 180,778 210,912 1,602 10.2% 11.3 13.2 175,814 211,167 1,427 10.8% 12.3 14.8 175,814 201,403 1,575 9.8% 11.2 12.8 10.0% 11.5 13.5 4.5% 6.0 8.0 n/a 6.0% 10.0 Adjusted quarterly average assets (in billions) (6) $ 2,103 $ 2,103 $ 2,102 $ 2,102 8.6% 8.6% 4.0 n/a 8.4% 8.4% 4.0 SLR leverage exposure (in billions) $ 2,728 $ 2,728 $ 2,727 $ 2,727 SLR 6.6% 6.6% 5.0 n/a 6.4% 6.4% 5.0 Total common shareholders’ equity Goodwill Deferred tax assets arising from net operating loss and tax credit carryforwards Unamortized net periodic benefit costs recorded in accumulated OCI, net-of-tax Net unrealized (gains) losses on AFS debt and equity securities and net (gains) losses on derivatives recorded in accumulated OCI, net-of-tax Intangibles, other than mortgage servicing rights and goodwill DVA related to liabilities and derivatives Other Common equity tier 1 capital Qualifying preferred stock, net of issuance cost Deferred tax assets arising from net operating loss and tax credit carryforwards Trust preferred securities Defined benefit pension fund assets DVA related to liabilities and derivatives under transition Other December 31, 2014 Total Tier 1 capital $ 155,361 168,973 208,670 1,262 12.3% 13.4 16.5 n/a n/a n/a n/a n/a n/a n/a $ 141,217 $ 141,217 160,480 196,115 1,415 10.0% 11.3 13.9 160,480 185,986 1,465 9.6% 11.0 12.7 4.0% 5.5 8.0 n/a 6.0% 10.0 Long-term debt qualifying as Tier 2 capital Allowance for loan and lease losses included in Tier 2 capital Eligible credit reserves included in Tier 2 capital Nonqualifying capital instruments subject to phase out from Tier 2 capital Other 10.0% 11.5 13.5 Total Basel 3 Capital (1) See Table 13, footnote 1. n/a = not applicable December 31 2015 2014 233,932 (69,215) (3,434) 1,774 1,220 (1,039) 204 (416) 163,026 22,273 (5,151) 1,430 (568) 307 (539) 180,778 22,579 n/a 3,116 4,448 (9) 210,912 $ $ 224,162 (69,234) (2,226) 2,680 573 (639) 231 (186) 155,361 19,308 (8,905) 2,893 (599) 925 (10) 168,973 21,186 14,634 n/a 3,881 (4) 208,670 $ $ Adjusted quarterly average assets (in billions) (6) $ 2,060 $ 2,060 $ 2,057 $ 2,057 8.2% 8.2% 4.0 n/a 7.8% 7.8% 4.0 SLR leverage exposure (in billions) $ 2,732 $ 2,732 $ 2,728 $ 2,728 SLR 6.2% 6.2% 5.0 n/a 5.9% 5.9% 5.0 (1) We received approval to begin using the Advanced approaches capital framework to determine risk-based capital requirements in the fourth quarter of 2015. With the approval to exit parallel run, we are required to report regulatory capital risk-weighted assets and ratios under both the Standardized and Advanced approaches. The approach that yields the lower ratio is to be used to assess capital adequacy and was the Advanced approaches at December 31, 2015. Prior to exiting parallel run, we were required to report regulatory capital risk-weighted assets and ratios under the Standardized approach only. As previously disclosed, with the approval to exit parallel run, U.S. banking regulators requested modifications to certain internal analytical models including the wholesale (e.g., commercial) credit models which increased our risk-weighted assets in the fourth quarter of 2015. (2) To be “well capitalized” under the current U.S. banking regulatory agency definitions, a bank holding company must maintain these or higher ratios and not be subject to a Federal Reserve order or (3) Basel 3 fully phased-in Advanced approaches estimates assume approval by U.S. banking regulators of our internal analytical models, including approval of the internal models methodology (IMM). directive to maintain higher capital levels. As of December 31, 2015, we had not received IMM approval. (4) Fully phased-in regulatory minimums assume a capital conservation buffer of 2.5 percent and estimated G-SIB surcharge of 3.0 percent. The estimated fully phased-in countercyclical capital buffer is zero. We will be subject to fully phased-in regulatory minimums on January 1, 2019. (5) Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses. (6) Reflects adjusted average total assets for the three months ended December 31, 2015 and 2014. (7) On a pro-forma basis, under Basel 3 Standardized – Transition as measured at January 1, 2015, the December 31, 2014 risk-weighted assets would have been $1,392 billion. n/a = not applicable Common equity tier 1 capital under Basel 3 Advanced – reserves included in additional Tier 2 capital is due to the change Transition was $163.0 billion at December 31, 2015, an increase in the calculation of eligible credit reserves under the Advanced of $7.7 billion compared to December 31, 2014 driven by approaches. The Corporation began using the Advanced earnings, partially offset by dividends, common stock repurchases approaches capital framework to determine risk-based capital and the impact of certain transition provisions under Basel 3 rules. requirements in the fourth quarter of 2015. For additional For more information on Basel 3 transition provisions, see Table information, see Table 14. 12. During 2015, Total capital increased $2.2 billion primarily Risk-weighted assets increased $341 billion during 2015 to driven by the same factors that drove the increase in Common $1,602 billion primarily due to the change in the calculation of equity tier 1 capital as well as issuances of preferred stock and risk-weighted assets from the general risk-based approach at subordinated debt, partially offset by lower eligible credit reserves December 31, 2014 to the Basel 3 Advanced approaches. included in additional Tier 2 capital. The decrease in eligible credit Table 15 presents the components of our risk-weighted assets as measured under Basel 3 – Transition at December 31, 2015 and 2014. Table 15 Risk-weighted assets under Basel 3 – Transition (Dollars in billions) Credit risk Market risk Operational risk Risks related to CVA Total risk-weighted assets n/a = not applicable December 31 2015 2014 Standardized Approach Advanced Approaches Standardized Approach Advanced Approaches $ $ 1,314 89 n/a n/a 1,403 $ $ 940 86 500 76 1,602 $ $ 1,169 93 n/a n/a 1,262 n/a n/a n/a n/a n/a 54 Bank of America 2015 Bank of America 2015 55 Table 16 presents a reconciliation of regulatory capital in accordance with Basel 3 Standardized – Transition to the Basel 3 Standardized approach fully phased-in estimates and Basel 3 Advanced approaches fully phased-in estimates at December 31, 2015 and 2014. Table 16 Regulatory Capital Reconciliations between Basel 3 Transition to Fully Phased-in (1) (Dollars in millions) Common equity tier 1 capital (transition) Deferred tax assets arising from net operating loss and tax credit carryforwards phased in during transition Accumulated OCI phased in during transition Intangibles phased in during transition Defined benefit pension fund assets phased in during transition DVA related to liabilities and derivatives phased in during transition Other adjustments and deductions phased in during transition Common equity tier 1 capital (fully phased-in) Additional Tier 1 capital (transition) Deferred tax assets arising from net operating loss and tax credit carryforwards phased out during transition Trust preferred securities phased out during transition Defined benefit pension fund assets phased out during transition DVA related to liabilities and derivatives phased out during transition Other transition adjustments to additional Tier 1 capital Additional Tier 1 capital (fully phased-in) Tier 1 capital (fully phased-in) Tier 2 capital (transition) Nonqualifying capital instruments phased out during transition Changes in Tier 2 qualifying allowance for credit losses and others Tier 2 capital (fully phased-in) Basel 3 Standardized approach Total capital (fully phased-in) Change in Tier 2 qualifying allowance for credit losses Basel 3 Advanced approaches Total capital (fully phased-in) Risk-weighted assets – As reported to Basel 3 (fully phased-in) Basel 3 Standardized approach risk-weighted assets as reported Changes in risk-weighted assets from reported to fully phased-in Basel 3 Standardized approach risk-weighted assets (fully phased-in) Basel 3 Advanced approaches risk-weighted assets as reported $ $ $ $ $ December 31 2015 2014 163,026 (5,151) (1,917) (1,559) (568) 307 (54) 154,084 17,752 5,151 (1,430) 568 (307) (4) 21,730 175,814 30,134 (4,448) 9,667 35,353 211,167 (9,764) 201,403 $ $ 155,361 (8,905) (1,592) (2,556) (599) 925 (1,417) 141,217 13,612 8,905 (2,893) 599 (925) (35) 19,263 160,480 39,697 (3,881) (181) 35,635 196,115 (10,129) 185,986 1,403,293 24,089 1,427,382 $ 1,261,544 153,722 $ 1,415,266 1,602,373 (27,690) 1,574,683 n/a n/a $ 1,465,479 Changes in risk-weighted assets from reported to fully phased-in Basel 3 Advanced approaches risk-weighted assets (fully phased-in) (2) (1) See Table 13, footnote 1. (2) Basel 3 fully phased-in Advanced approaches estimates assume approval by U.S. banking regulators of our internal analytical models, including approval of the internal models methodology (IMM). $ As of December 31, 2015, we had not received IMM approval. n/a = not applicable 56 Bank of America 2015 13.1% $ 145,150 145,150 13.1 161,623 14.6 145,150 9.6 Common equity tier 1 capital Tier 1 capital Total capital Tier 1 leverage (1) Percent required to meet guidelines to be considered “well capitalized” under the Prompt Corrective Action framework, except for the December 31, 2014 Common equity tier 1 capital which reflects Table 16 presents a reconciliation of regulatory capital in accordance with Basel 3 Standardized – Transition to the Basel 3 Standardized approach fully phased-in estimates and Basel 3 Advanced approaches fully phased-in estimates at December 31, 2015 and 2014. Bank of America, N.A. Regulatory Capital Table 17 presents transition regulatory information for BANA in accordance with Basel 3 Standardized and Advanced Approaches as measured at December 31, 2015 and 2014. Table 16 Regulatory Capital Reconciliations between Basel 3 Transition to Fully Phased-in (1) Table 17 Bank of America, N.A. Regulatory Capital under Basel 3 (Dollars in millions) Common equity tier 1 capital Tier 1 capital Total capital Tier 1 leverage December 31, 2015 Standardized Approach Advanced Approaches Ratio Amount 12.2% $ 144,869 12.2 144,869 13.5 159,871 144,869 9.2 Minimum Required (1) 6.5% 8.0 10.0 5.0 Ratio Amount 13.1% $ 144,869 13.1 144,869 13.6 150,624 144,869 9.2 Minimum Required (1) 6.5% 8.0 10.0 5.0 December 31, 2014 Deferred tax assets arising from net operating loss and tax credit carryforwards phased in during transition Deferred tax assets arising from net operating loss and tax credit carryforwards phased out during transition (Dollars in millions) Common equity tier 1 capital (transition) Accumulated OCI phased in during transition Intangibles phased in during transition Defined benefit pension fund assets phased in during transition DVA related to liabilities and derivatives phased in during transition Other adjustments and deductions phased in during transition Common equity tier 1 capital (fully phased-in) Additional Tier 1 capital (transition) Trust preferred securities phased out during transition Defined benefit pension fund assets phased out during transition DVA related to liabilities and derivatives phased out during transition Other transition adjustments to additional Tier 1 capital Additional Tier 1 capital (fully phased-in) Tier 1 capital (fully phased-in) Tier 2 capital (transition) Nonqualifying capital instruments phased out during transition Changes in Tier 2 qualifying allowance for credit losses and others Tier 2 capital (fully phased-in) Basel 3 Standardized approach Total capital (fully phased-in) Change in Tier 2 qualifying allowance for credit losses Basel 3 Advanced approaches Total capital (fully phased-in) Risk-weighted assets – As reported to Basel 3 (fully phased-in) Basel 3 Standardized approach risk-weighted assets as reported Changes in risk-weighted assets from reported to fully phased-in Basel 3 Standardized approach risk-weighted assets (fully phased-in) Basel 3 Advanced approaches risk-weighted assets as reported Changes in risk-weighted assets from reported to fully phased-in Basel 3 Advanced approaches risk-weighted assets (fully phased-in) (2) (1) See Table 13, footnote 1. As of December 31, 2015, we had not received IMM approval. n/a = not applicable December 31 2015 2014 $ 163,026 $ 155,361 (5,151) (1,917) (1,559) (568) 307 (54) 154,084 17,752 5,151 (1,430) 568 (307) (4) 21,730 175,814 30,134 (4,448) 9,667 35,353 211,167 (9,764) (8,905) (1,592) (2,556) (599) 925 (1,417) 141,217 13,612 8,905 (2,893) 599 (925) (35) 19,263 160,480 39,697 (3,881) (181) 35,635 196,115 (10,129) $ $ $ $ $ 201,403 $ 185,986 1,403,293 $ 1,261,544 24,089 153,722 1,427,382 $ 1,415,266 1,602,373 (27,690) n/a n/a 1,574,683 $ 1,465,479 (2) Basel 3 fully phased-in Advanced approaches estimates assume approval by U.S. banking regulators of our internal analytical models, including approval of the internal models methodology (IMM). capital adequacy minimum requirements as an Advanced approaches bank under Basel 3 during a transition period that ended in 2014. n/a = not applicable Regulatory Developments Global Systemically Important Bank Surcharge We have been designated as a G-SIB and as such, are subject to a risk-based capital surcharge (G-SIB surcharge) that must be satisfied with Common equity tier 1 capital. The surcharge assessment methodology published by the Basel Committee on Banking Supervision (Basel Committee) relies on an indicator- based measurement approach (e.g., size, complexity, cross- jurisdictional activity, inter-connectedness and substitutability/ financial institution infrastructure) to determine a score relative to the global banking industry. Institutions with the highest scores are designated as G-SIBs and are assigned to one of four loss absorbency buckets from 1.0 percent to 2.5 percent, in 0.5 percent increments based on each institution’s relative score and supervisory judgment. A fifth loss absorbency bucket of 3.5 percent serves to discourage banks from becoming more systemically important. In July 2015, the Federal Reserve finalized a regulation that will implement G-SIB surcharge requirements for the largest U.S. BHCs. Under the final rule, assignment to loss absorbency buckets will be determined by the higher score as calculated according to two methods. Method 1 is consistent with the Basel Committee’s methodology, whereas method 2 replaces the substitutability/ financial institution infrastructure indicator with a measure of short-term wholesale funding and then determines the overall score by applying a fixed multiplier for each of the other systemic indicators. Under the final U.S. rules, the G-SIB surcharge is being phased in beginning on January 1, 2016, becoming fully effective on January 1, 2019. Once fully phased in, we estimate that our G- SIB surcharge will increase our risk-based capital ratio requirements by 3.0 percent under method 2 and 1.5 percent under method 1. For more information on regulatory capital, see Note 16 – Regulatory Requirements and Restrictions to the Consolidated Financial Statements. Minimum Total Loss-Absorbing Capacity On October 30, 2015, the Federal Reserve issued a notice of proposed rulemaking to establish external total loss-absorbing capacity (TLAC) requirements to improve the resolvability and resiliency of large, interconnected BHCs. Under the proposal, U.S. G-SIBs would be required to maintain a minimum external TLAC of the greater of (1) 16 percent of risk-weighted assets in 2019, increasing to 18 percent of risk-weighted assets in 2022 (plus additional TLAC equal to enough Common equity tier 1 capital as a percentage of risk-weighted assets to cover the capital conservation buffer, any applicable countercyclical capital buffer plus the applicable method 1 G-SIB surcharge), or (2) 9.5 percent of the denominator of the SLR. In addition, U.S. G-SIBs must meet a minimum long-term debt requirement equal to the greater of (1) 6.0 percent of risk-weighted assets plus the applicable method 2 G-SIB surcharge, or (2) 4.5 percent of the denominator of the SLR. Revisions to Approaches for Measuring Risk-Weighted Assets The Basel Committee has several open proposals to revise key methodologies for measuring risk-weighted assets. The proposals include a standardized approach for credit risk, standardized approaches for operational risk, revisions to the securitization framework and revisions to the CVA risk framework. In January 2016, the Basel Committee finalized its fundamental review of the trading book, which updates both modeled and standardized approaches for market risk measurement. A revised standardized model for counterparty credit risk has also previously been finalized. These revisions would be coupled with a proposed capital floor framework to limit the extent to which banks can reduce risk-weighted asset levels through the use of internal models. The Basel Committee expects to finalize the outstanding proposals by the end of 2016. Once the proposals are finalized, U.S. banking regulators may update the U.S. Basel 3 rules to incorporate the Basel Committee revisions. 56 Bank of America 2015 Bank of America 2015 57 4.0% 6.0 10.0 5.0 4.0% 6.0 10.0 5.0 n/a n/a n/a n/a n/a n/a n/a n/a Broker-dealer Regulatory Capital and Securities Regulation The Corporation’s principal U.S. broker-dealer subsidiaries are Merrill Lynch, Pierce, Fenner & Smith (MLPF&S) and Merrill Lynch Professional Clearing Corp (MLPCC). MLPCC is a fully-guaranteed subsidiary of MLPF&S and provides clearing and settlement services. Both entities are subject to the net capital requirements of SEC Rule 15c3-1. Both entities are also registered as futures commission merchants and are subject to the Commodity Futures Trading Commission Regulation 1.17. MLPF&S has elected to compute the minimum capital requirement in accordance with the Alternative Net Capital Requirement as permitted by SEC Rule 15c3-1. At December 31, 2015, MLPF&S’s regulatory net capital as defined by Rule 15c3-1 was $11.4 billion and exceeded the minimum requirement of $1.5 billion by $9.9 billion. MLPCC’s net capital of $3.3 billion exceeded the minimum requirement of $473 million by $2.8 billion. In accordance with the Alternative Net Capital Requirements, MLPF&S is required to maintain tentative net capital in excess of $1.0 billion, net capital in excess of $500 million and notify the SEC in the event its tentative net capital is less than $5.0 billion. At December 31, 2015, MLPF&S had tentative net capital and net capital in excess of the minimum and notification requirements. Merrill Lynch International (MLI), a U.K. investment firm, is regulated by the Prudential Regulation Authority and the Financial Conduct Authority, and is subject to certain regulatory capital requirements. At December 31, 2015, MLI’s capital resources were $34.4 billion which exceeded the minimum requirement of $16.6 billion. Common Stock Dividends For a summary of our declared quarterly cash dividends on common stock during 2015 and through February 24, 2016, see Note 13 – Shareholders’ Equity to the Consolidated Financial Statements. Liquidity Risk Funding and Liquidity Risk Management Liquidity risk is the potential inability to meet expected or unexpected cash flow and collateral needs while continuing to support our business and customer needs under a range of economic conditions. Our primary liquidity risk management objective is to meet all contractual and contingent financial obligations at all times, including during periods of stress. To achieve that objective, we analyze and monitor our liquidity risk under expected and stressed conditions, maintain excess liquidity and access to diverse funding sources, including our stable deposit base, and seek to align liquidity-related incentives and risks. We define excess liquidity as readily available assets, limited to cash and high-quality, liquid, unencumbered securities that we can use to meet our contractual and contingent financial obligations as those obligations arise. We manage our liquidity position through line of business and ALM activities, as well as through our legal entity funding strategy, on both a forward and current (including intraday) basis under both expected and stressed conditions. We believe that a centralized approach to funding and liquidity risk management within Corporate Treasury enhances our ability to monitor liquidity requirements, maximizes access to funding sources, minimizes borrowing costs and facilitates timely responses to liquidity events. The Board approves the Corporation’s liquidity policy and the ERC approves the contingency funding plan, including establishing liquidity risk tolerance levels. The MRC monitors our liquidity position and reviews the impact of strategic decisions on our liquidity. The MRC is responsible for overseeing liquidity risks and maintaining exposures within the established tolerance levels. MRC reviews and monitors our liquidity position, cash flow forecasts, stress testing scenarios and results, and implements our liquidity limits and guidelines. For additional information, see Managing Risk on page 47. Under this governance framework, we have developed certain funding and liquidity risk management practices which include: maintaining excess liquidity at the parent company and selected subsidiaries, including our bank subsidiaries and other regulated entities; determining what amounts of excess liquidity are appropriate for these entities based on analysis of debt maturities and other potential cash outflows, including those that we may experience during stressed market conditions; diversifying funding sources, considering our asset profile and legal entity structure; and performing contingency planning. Global Excess Liquidity Sources and Other Unencumbered Assets We maintain excess liquidity available to Bank of America Corporation, including the parent company and selected subsidiaries, in the form of cash and high-quality, liquid, unencumbered securities. Our liquidity buffer, or Global Excess Liquidity Sources (GELS), is comprised of assets that are readily available to the parent company and selected subsidiaries, including bank and broker-dealer subsidiaries, even during stressed market conditions. Our cash is primarily on deposit with the Federal Reserve and, to a lesser extent, central banks outside of the U.S. We limit the composition of high-quality, liquid, unencumbered securities to U.S. government securities, U.S. agency securities, U.S. agency MBS and a select group of non- U.S. government and supranational securities. We believe we can quickly obtain cash for these securities, even in stressed conditions, through repurchase agreements or outright sales. We hold our GELS in legal entities that allow us to meet the liquidity requirements of our global businesses, and we consider the impact of potential regulatory, tax, legal and other restrictions that could limit the transferability of funds among entities. Our GELS are substantially the same in composition to what qualifies as High Quality Liquid Assets (HQLA) under the final U.S. LCR rules. For more information on the final rules, see Liquidity Risk – Basel 3 Liquidity Standards on page 60. 58 Bank of America 2015 Broker-dealer Regulatory Capital and Securities Regulation The Corporation’s principal U.S. broker-dealer subsidiaries are Merrill Lynch, Pierce, Fenner & Smith (MLPF&S) and Merrill Lynch Professional Clearing Corp (MLPCC). MLPCC is a fully-guaranteed subsidiary of MLPF&S and provides clearing and settlement services. Both entities are subject to the net capital requirements of SEC Rule 15c3-1. Both entities are also registered as futures commission merchants and are subject to the Commodity Futures Trading Commission Regulation 1.17. MLPF&S has elected to compute the minimum capital requirement in accordance with the Alternative Net Capital Requirement as permitted by SEC Rule 15c3-1. At December 31, 2015, MLPF&S’s regulatory net capital as defined by Rule 15c3-1 was $11.4 billion and exceeded the minimum requirement of $1.5 billion by $9.9 billion. MLPCC’s net capital of $3.3 billion exceeded the minimum requirement of $473 million by $2.8 billion. In accordance with the Alternative Net Capital Requirements, MLPF&S is required to maintain tentative net capital in excess of $1.0 billion, net capital in excess of $500 million and notify the SEC in the event its tentative net capital is less than $5.0 billion. At December 31, 2015, MLPF&S had tentative net capital and net capital in excess of the minimum and notification requirements. Merrill Lynch International (MLI), a U.K. investment firm, is regulated by the Prudential Regulation Authority and the Financial Conduct Authority, and is subject to certain regulatory capital requirements. At December 31, 2015, MLI’s capital resources were $34.4 billion which exceeded the minimum requirement of $16.6 billion. Common Stock Dividends For a summary of our declared quarterly cash dividends on common stock during 2015 and through February 24, 2016, see Note 13 – Shareholders’ Equity to the Consolidated Financial Statements. Liquidity Risk Funding and Liquidity Risk Management Liquidity risk is the potential inability to meet expected or unexpected cash flow and collateral needs while continuing to support our business and customer needs under a range of economic conditions. Our primary liquidity risk management objective is to meet all contractual and contingent financial obligations at all times, including during periods of stress. To achieve that objective, we analyze and monitor our liquidity risk under expected and stressed conditions, maintain excess liquidity and access to diverse funding sources, including our stable deposit base, and seek to align liquidity-related incentives and risks. We define excess liquidity as readily available assets, limited to cash and high-quality, liquid, unencumbered securities that we can use to meet our contractual and contingent financial obligations as those obligations arise. We manage our liquidity position through line of business and ALM activities, as well as through our legal entity funding strategy, on both a forward and current (including intraday) basis under both expected and stressed conditions. We believe that a centralized approach to funding and liquidity risk management within Corporate Treasury enhances our ability to monitor liquidity requirements, maximizes access to funding sources, minimizes borrowing costs and facilitates timely responses to liquidity events. The Board approves the Corporation’s liquidity policy and the ERC approves the contingency funding plan, including establishing liquidity risk tolerance levels. The MRC monitors our liquidity position and reviews the impact of strategic decisions on our liquidity. The MRC is responsible for overseeing liquidity risks and maintaining exposures within the established tolerance levels. MRC reviews and monitors our liquidity position, cash flow forecasts, stress testing scenarios and results, and implements our liquidity limits and guidelines. For additional information, see Managing Risk on page 47. Under this governance framework, we have developed certain funding and liquidity risk management practices which include: maintaining excess liquidity at the parent company and selected subsidiaries, including our bank subsidiaries and other regulated entities; determining what amounts of excess liquidity are appropriate for these entities based on analysis of debt maturities and other potential cash outflows, including those that we may experience during stressed market conditions; diversifying funding sources, considering our asset profile and legal entity structure; and performing contingency planning. Global Excess Liquidity Sources and Other Unencumbered Assets We maintain excess liquidity available to Bank of America Corporation, including the parent company and selected subsidiaries, in the form of cash and high-quality, liquid, unencumbered securities. Our liquidity buffer, or Global Excess Liquidity Sources (GELS), is comprised of assets that are readily available to the parent company and selected subsidiaries, including bank and broker-dealer subsidiaries, even during stressed market conditions. Our cash is primarily on deposit with the Federal Reserve and, to a lesser extent, central banks outside of the U.S. We limit the composition of high-quality, liquid, unencumbered securities to U.S. government securities, U.S. agency securities, U.S. agency MBS and a select group of non- U.S. government and supranational securities. We believe we can quickly obtain cash for these securities, even in stressed conditions, through repurchase agreements or outright sales. We hold our GELS in legal entities that allow us to meet the liquidity requirements of our global businesses, and we consider the impact of potential regulatory, tax, legal and other restrictions that could limit the transferability of funds among entities. Our GELS are substantially the same in composition to what qualifies as High Quality Liquid Assets (HQLA) under the final U.S. LCR rules. For more information on the final rules, see Liquidity Risk – Basel 3 Liquidity Standards on page 60. Our GELS were $504 billion and $439 billion at December 31, 2015 and 2014, and were maintained as presented in Table 18. Table 19 presents the composition of GELS at December 31, 2015 and 2014. Table 18 Global Excess Liquidity Sources Table 19 Global Excess Liquidity Sources Composition (Dollars in billions) Parent company Bank subsidiaries Other regulated entities $ Total Global Excess Liquidity Sources $ Average for Three Months Ended December 31 2015 December 31 2015 2014 96 361 47 504 $ $ 98 $ 306 35 439 $ 96 369 45 510 As shown in Table 18, parent company GELS totaled $96 billion and $98 billion at December 31, 2015 and 2014. The decrease in parent company liquidity was primarily due to derivative cash collateral outflows, common stock buy-backs and dividends, partially offset by net subsidiary inflows. Typically, parent company excess liquidity is in the form of cash deposited with BANA. GELS available to our bank subsidiaries totaled $361 billion and $306 billion at December 31, 2015 and 2014. The increase in bank subsidiaries’ liquidity was primarily due to deposit inflows, partially offset by loan growth. GELS at bank subsidiaries exclude the cash deposited by the parent company. Our bank subsidiaries can also generate incremental liquidity by pledging a range of other unencumbered loans and securities to certain Federal Home Loan Banks (FHLBs) and the Federal Reserve Discount Window. The cash we could have obtained by borrowing against this pool of specifically-identified eligible assets was $252 billion and $214 billion at December 31, 2015 and 2014. We have established operational procedures to enable us to borrow against these assets, including regularly monitoring our total pool of eligible loans and securities collateral. Eligibility is defined in guidelines from the FHLBs and the Federal Reserve and is subject to change at their discretion. Due to regulatory restrictions, liquidity generated by the bank subsidiaries can generally be used only to fund obligations within the bank subsidiaries and can only be transferred to the parent company or nonbank subsidiaries with prior regulatory approval. GELS available to our other regulated entities, comprised primarily of broker-dealer subsidiaries, totaled $47 billion and $35 billion at December 31, 2015 and 2014. The increase in liquidity in other regulated entities is largely driven by parent company liquidity contributions to the Corporation’s primary U.S. broker- dealer. Our other regulated entities also held other unencumbered investment-grade securities and equities that we believe could be used to generate additional liquidity. Liquidity held in an other regulated entity is primarily available to meet the obligations of that entity and transfers to the parent company or to any other subsidiary may be subject to prior regulatory approval due to regulatory restrictions and minimum requirements. (Dollars in billions) Cash on deposit U.S. Treasury securities U.S. agency securities and mortgage-backed securities Non-U.S. government and supranational securities Total Global Excess Liquidity Sources December 31 2015 2014 $ $ 119 38 327 20 504 $ $ 97 74 252 16 439 Time-to-required Funding and Stress Modeling We use a variety of metrics to determine the appropriate amounts of excess liquidity to maintain at the parent company, our bank subsidiaries and other regulated entities. One metric we use to evaluate the appropriate level of excess liquidity at the parent company is “time-to-required funding.” This debt coverage measure indicates the number of months that the parent company can continue to meet its unsecured contractual obligations as they come due using only the parent company’s liquidity sources without issuing any new debt or accessing any additional liquidity sources. We define unsecured contractual obligations for purposes of this metric as maturities of senior or subordinated debt issued or guaranteed by Bank of America Corporation. These include certain unsecured debt instruments, primarily structured liabilities, which we may be required to settle for cash prior to maturity. Our time- to-required funding was 39 months at December 31, 2015. For purposes of calculating time-to-required funding, at December 31, 2015, we have included in the amount of unsecured contractual obligations $8.5 billion related to the BNY Mellon Settlement. The final conditions of the settlement have been satisfied and, accordingly, the Corporation made the settlement payment in February 2016. For more information on the BNY Mellon Settlement, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements. We also utilize liquidity stress analysis to assist us in determining the appropriate amounts of excess liquidity to maintain at the parent company, our bank subsidiaries and other regulated entities. The liquidity stress testing process is an integral part of analyzing our potential contractual and contingent cash outflows beyond the outflows considered in the time-to-required funding analysis. We evaluate the liquidity requirements under a range of scenarios with varying levels of severity and time horizons. The scenarios we consider and utilize incorporate market-wide and Corporation-specific events, including potential credit rating downgrades for the parent company and our subsidiaries, and are based on historical experience, regulatory guidance, and both expected and unexpected future events. 58 Bank of America 2015 Bank of America 2015 59 The types of potential contractual and contingent cash outflows we consider in our scenarios may include, but are not limited to, upcoming contractual maturities of unsecured debt and reductions in new debt issuance; diminished access to secured financing markets; potential deposit withdrawals; increased draws on loan commitments, liquidity facilities and letters of credit; additional collateral that counterparties could call if our credit ratings were downgraded; collateral and margin requirements arising from market value changes; and potential liquidity required to maintain businesses and finance customer activities. Changes in certain market factors, including, but not limited to, credit rating downgrades, could negatively impact potential contractual and contingent outflows and the related financial instruments, and in some cases these impacts could be material to our financial results. We consider all sources of funds that we could access during each stress scenario and focus particularly on matching available sources with corresponding liquidity requirements by legal entity. We also use the stress modeling results to manage our asset- liability profile and establish limits and guidelines on certain funding sources and businesses. Basel 3 Liquidity Standards The Basel Committee has issued two liquidity risk-related standards that are considered part of the Basel 3 liquidity standards: the LCR and the Net Stable Funding Ratio (NSFR). In 2014, U.S. banking regulators finalized LCR requirements for the largest U.S. financial institutions on a consolidated basis and for their subsidiary depository institutions with total assets greater than $10 billion. The LCR is calculated as the amount of a financial institution’s unencumbered HQLA relative to the estimated net cash outflows the institution could encounter over a 30-day period of significant liquidity stress, expressed as a percentage. Under the final rule, an initial minimum LCR of 80 percent was required as of January 2015, increased to 90 percent as of January 2016 and will increase to 100 percent in January 2017. These minimum requirements are applicable to the Corporation on a consolidated basis and to our insured depository institutions. As of December 31, 2015, we estimate that the consolidated Corporation was above the 2017 LCR requirements. The Corporation’s LCR may fluctuate from period to period due to normal business flows from customer activity. In 2014, the Basel Committee issued a final standard for the NSFR, the standard that is intended to reduce funding risk over a longer time horizon. The NSFR is designed to ensure an appropriate amount of stable funding, generally capital and liabilities maturing beyond one year, given the mix of assets and off-balance sheet items. The final standard aligns the NSFR to the LCR and gives more credit to a wider range of funding. The final standard also includes adjustments to the stable funding required for certain types of assets, some of which reduce the stable funding requirement and some of which increase it. Basel Committee standards generally do not apply directly to U.S. financial institutions, but require adoption by U.S. banking regulators. U.S. banking regulators are expected to propose a similar NSFR regulation applicable to U.S. financial institutions in the near future. We expect to meet the NSFR requirement within the regulatory timeline. 60 Bank of America 2015 Diversified Funding Sources We fund our assets primarily with a mix of deposits and secured and unsecured through a centralized, globally coordinated funding strategy. We diversify our funding globally across products, programs, markets, currencies and investor groups. liabilities The primary benefits of our centralized funding strategy include greater control, reduced funding costs, wider name recognition by investors and greater flexibility to meet the variable funding requirements of subsidiaries. Where regulations, time zone differences or other business considerations make parent company funding impractical, certain other subsidiaries may issue their own debt. We fund a substantial portion of our lending activities through our deposits, which were $1.20 trillion and $1.12 trillion at December 31, 2015 and 2014. Deposits are primarily generated by our Consumer Banking, GWIM and Global Banking segments. These deposits are diversified by clients, product type and geography, and the majority of our U.S. deposits are insured by the Federal Deposit Insurance Corporation (FDIC). We consider a substantial portion of our deposits to be a stable, low-cost and consistent source of funding. We believe this deposit funding is generally less sensitive to interest rate changes, market volatility or changes in our credit ratings than wholesale funding sources. Our lending activities may also be financed through secured borrowings, and securitizations with GSEs, the FHA and private-label investors, as well as FHLBs loans. securitizations including credit card Our trading activities in other regulated entities are primarily funded on a secured basis through securities lending and repurchase agreements and these amounts will vary based on customer activity and market conditions. We believe funding these activities in the secured financing markets is more cost-efficient and less sensitive to changes in our credit ratings than unsecured financing. Repurchase agreements are generally short-term and often overnight. Disruptions in secured financing markets for financial institutions have occurred in prior market cycles which resulted in adverse changes in terms or significant reductions in the availability of such financing. We manage the liquidity risks arising from secured funding by sourcing funding globally from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate. For more information on secured financing agreements, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings to the Consolidated Financial Statements. We issue long-term unsecured debt in a variety of maturities and currencies to achieve cost-efficient funding and to maintain an appropriate maturity profile. While the cost and availability of unsecured funding may be negatively impacted by general market conditions or by matters specific to the financial services industry or the Corporation, we seek to mitigate refinancing risk by actively managing the amount of our borrowings that we anticipate will mature within any month or quarter. During 2015, we issued $43.7 billion of long-term debt, consisting of $26.4 billion for Bank of America Corporation, $10.0 billion for Bank of America, N.A. and $7.3 billion of other debt. The types of potential contractual and contingent cash outflows Diversified Funding Sources we consider in our scenarios may include, but are not limited to, upcoming contractual maturities of unsecured debt and reductions in new debt issuance; diminished access to secured financing markets; potential deposit withdrawals; increased draws on loan We fund our assets primarily with a mix of deposits and secured and unsecured liabilities through a centralized, globally coordinated funding strategy. We diversify our funding globally across products, programs, markets, currencies and investor commitments, liquidity facilities and letters of credit; additional groups. collateral that counterparties could call if our credit ratings were downgraded; collateral and margin requirements arising from market value changes; and potential liquidity required to maintain businesses and finance customer activities. Changes in certain market factors, including, but not limited to, credit rating downgrades, could negatively impact potential contractual and The primary benefits of our centralized funding strategy include greater control, reduced funding costs, wider name recognition by investors and greater flexibility to meet the variable funding requirements of subsidiaries. Where regulations, time zone differences or other business considerations make parent company funding impractical, certain other subsidiaries may issue contingent outflows and the related financial instruments, and in their own debt. some cases these impacts could be material to our financial results. We consider all sources of funds that we could access during each stress scenario and focus particularly on matching available sources with corresponding liquidity requirements by legal entity. We also use the stress modeling results to manage our asset- liability profile and establish limits and guidelines on certain funding sources and businesses. Basel 3 Liquidity Standards The Basel Committee has issued two liquidity risk-related standards that are considered part of the Basel 3 liquidity standards: the LCR and the Net Stable Funding Ratio (NSFR). In 2014, U.S. banking regulators finalized LCR requirements for the largest U.S. financial institutions on a consolidated basis and for their subsidiary depository institutions with total assets greater than $10 billion. The LCR is calculated as the amount of a financial institution’s unencumbered HQLA relative to the estimated net cash outflows the institution could encounter over a 30-day period of significant liquidity stress, expressed as a percentage. Under the final rule, an initial minimum LCR of 80 percent was required as of January 2015, increased to 90 percent as of January 2016 and will increase to 100 percent in January 2017. These minimum requirements are applicable to the Corporation on a consolidated basis and to our insured depository institutions. As of December 31, 2015, we estimate that the consolidated Corporation was above the 2017 LCR requirements. The Corporation’s LCR may fluctuate from period to period due to normal business flows from customer activity. In 2014, the Basel Committee issued a final standard for the NSFR, the standard that is intended to reduce funding risk over a longer time horizon. The NSFR is designed to ensure an appropriate amount of stable funding, generally capital and liabilities maturing beyond one year, given the mix of assets and off-balance sheet items. The final standard aligns the NSFR to the LCR and gives more credit to a wider range of funding. The final standard also includes adjustments to the stable funding required for certain types of assets, some of which reduce the stable funding requirement and some of which increase it. Basel Committee standards generally do not apply directly to U.S. financial institutions, but require adoption by U.S. banking regulators. U.S. banking regulators are expected to propose a similar NSFR regulation applicable to U.S. financial institutions in the near future. We expect to meet the NSFR requirement within the regulatory timeline. We fund a substantial portion of our lending activities through our deposits, which were $1.20 trillion and $1.12 trillion at December 31, 2015 and 2014. Deposits are primarily generated by our Consumer Banking, GWIM and Global Banking segments. These deposits are diversified by clients, product type and geography, and the majority of our U.S. deposits are insured by the Federal Deposit Insurance Corporation (FDIC). We consider a substantial portion of our deposits to be a stable, low-cost and consistent source of funding. We believe this deposit funding is generally less sensitive to interest rate changes, market volatility or changes in our credit ratings than wholesale funding sources. Our lending activities may also be financed through secured borrowings, including credit card securitizations and securitizations with GSEs, the FHA and private-label investors, as well as FHLBs loans. Our trading activities in other regulated entities are primarily funded on a secured basis through securities lending and repurchase agreements and these amounts will vary based on customer activity and market conditions. We believe funding these activities in the secured financing markets is more cost-efficient and less sensitive to changes in our credit ratings than unsecured financing. Repurchase agreements are generally short-term and often overnight. Disruptions in secured financing markets for financial institutions have occurred in prior market cycles which resulted in adverse changes in terms or significant reductions in the availability of such financing. We manage the liquidity risks arising from secured funding by sourcing funding globally from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate. For more information on secured financing agreements, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings to the Consolidated Financial Statements. We issue long-term unsecured debt in a variety of maturities and currencies to achieve cost-efficient funding and to maintain an appropriate maturity profile. While the cost and availability of unsecured funding may be negatively impacted by general market conditions or by matters specific to the financial services industry or the Corporation, we seek to mitigate refinancing risk by actively managing the amount of our borrowings that we anticipate will mature within any month or quarter. During 2015, we issued $43.7 billion of long-term debt, consisting of $26.4 billion for Bank of America Corporation, $10.0 billion for Bank of America, N.A. and $7.3 billion of other debt. 60 Bank of America 2015 Table 20 presents our long-term debt by major currency at December 31, 2015 and 2014. Table 20 Long-term Debt by Major Currency (Dollars in millions) U.S. Dollar Euro British Pound Japanese Yen Australian Dollar Canadian Dollar Swiss Franc Other Total long-term debt December 31 2015 $ 190,381 29,797 7,080 3,099 2,534 1,428 872 1,573 $ 236,764 2014 $ 191,264 30,687 7,881 6,058 2,135 1,779 897 2,438 $ 243,139 Total long-term debt decreased $6.4 billion, or three percent, in 2015, primarily due to the impact of revaluation of non-U.S. Dollar debt and changes in fair value for debt accounted for under the fair value option. These impacts were substantially offset through derivative hedge transactions. Excluding these two factors, total long-term debt remained relatively unchanged in 2015. We may, from time to time, purchase outstanding debt instruments in various transactions, depending on prevailing market conditions, liquidity and other factors. In addition, our other regulated entities may make markets in our debt instruments to provide liquidity for investors. For more information on long-term debt funding, see Note 11 – Long-term Debt to the Consolidated Financial Statements. We use derivative transactions to manage the duration, interest rate and currency risks of our borrowings, considering the characteristics of the assets they are funding. For further details on our ALM activities, see Interest Rate Risk Management for Non- trading Activities on page 95. We may also issue unsecured debt in the form of structured notes for client purposes. During 2015, we issued $7.2 billion of structured notes, a majority of which was issued by Bank of America Corporation. Structured notes are debt obligations that pay investors returns linked to other debt or equity securities, indices, currencies or commodities. We typically hedge the returns we are obligated to pay on these liabilities with derivatives and/or investments in the underlying instruments, so that from a funding perspective, the cost is similar to our other unsecured long-term debt. We could be required to settle certain structured liability obligations for cash or other securities prior to maturity under certain circumstances, which we consider for liquidity planning purposes. We believe, however, that a portion of such borrowings will remain outstanding beyond the earliest put or redemption date. We had outstanding structured liabilities with a carrying value of $32.6 billion and $38.8 billion at December 31, 2015 and 2014. Substantially all of our senior and subordinated debt obligations contain no provisions that could trigger a requirement for an early repayment, require additional collateral support, result in changes to terms, accelerate maturity or create additional financial obligations upon an adverse change in our credit ratings, financial ratios, earnings, cash flows or stock price. Contingency Planning We maintain contingency funding plans that outline our potential responses to liquidity stress events at various levels of severity. These policies and plans are based on stress scenarios and include potential funding strategies and communication and notification procedures that we would implement in the event we experienced stressed liquidity conditions. We periodically review and test the contingency funding plans to validate efficacy and assess readiness. Our U.S. bank subsidiaries can access contingency funding through the Federal Reserve Discount Window. Certain non-U.S. subsidiaries have access to central bank facilities in the jurisdictions in which they operate. While we do not rely on these sources in our liquidity modeling, we maintain the policies, procedures and governance processes that would enable us to access these sources if necessary. Credit Ratings Our borrowing costs and ability to raise funds are impacted by our credit ratings. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including OTC derivatives. Thus, it is our objective to maintain high-quality credit ratings, and management maintains an active dialogue with the major rating agencies. Credit ratings and outlooks are opinions expressed by rating agencies on our creditworthiness and that of our obligations or securities, including long-term debt, short-term borrowings, preferred stock and other securities, including asset securitizations. Our credit ratings are subject to ongoing review by the rating agencies and they consider a number of factors, including our own financial strength, performance, prospects and operations as well as factors not under our control. The rating agencies could make adjustments to our ratings at any time and they provide no assurances that they will maintain our ratings at current levels. Other factors that influence our credit ratings include changes to the rating agencies’ methodologies for our industry or certain security types; the rating agencies’ assessment of the general operating environment for financial services companies; our relative positions in the markets in which we compete; our various risk exposures and risk management policies and activities; pending litigation and other contingencies or potential tail risks; our reputation; our liquidity position, diversity of funding sources and funding costs; the current and expected level and volatility of our earnings; our capital position and capital management practices; our corporate governance; the sovereign credit ratings of the U.S. government; current or future regulatory and legislative initiatives; and the agencies’ views on whether the U.S. government would provide meaningful support to the Corporation or its subsidiaries in a crisis. On December 8, 2015, Fitch Ratings (Fitch) completed its latest semi-annual review of 12 large, complex securities trading and universal banks, including Bank of America. The agency affirmed all of our ratings and maintained the outlooks it established upon completion of its prior review on May 19, 2015. Following that review, Fitch revised the support rating floors for the U.S. G-SIBs to No Floor from A, effectively removing the implied government support uplift from those institutions’ ratings. The rating agency also upgraded Bank of America Corporation’s stand-alone rating, or Viability Rating, to ‘a’ from ‘a-’, while affirming its long-term and short-term senior debt ratings at A and F1. Fitch concurrently upgraded Bank of America, N.A.’s long-term senior debt rating to A+ from A, and its long-term deposit rating to AA- from A+. Fitch set the outlook on those ratings at stable. Fitch also revised the Bank of America 2015 61 outlook to positive on the ratings of Bank of America’s material international operating subsidiaries, including MLI. On December 2, 2015, Standard & Poor’s Ratings Services (S&P) concluded its review of the ratings of eight U.S. G-SIBs, including Bank of America. Consistent with prior guidance, S&P downgraded our holding company long-term senior debt rating to BBB+ from A- due to the removal of the remaining notch of uplift for U.S. government support and revised the outlook to Stable from CreditWatch Negative. The Corporation’s short-term ratings were not affected. This action reflected S&P’s view that extraordinary U.S. government support of the banking system is less likely under the current U.S. resolution framework. S&P concurrently left the long-term and short-term senior debt ratings of Bank of America’s core rated operating subsidiaries, including Bank of America, N.A., MLPF&S, MLI, and Bank of America Merrill Lynch International Limited, unchanged at A and A-1, respectively. S&P eliminated the remaining notch of uplift for potential government support from those entities’ senior long-term debt ratings, but the agency subsequently added a notch of uplift upon implementing its new framework for incorporating loss-absorbing holding company debt and equity capital buffers into operating subsidiary credit ratings. Those ratings remain on CreditWatch positive pending further clarity on what debt instruments will count toward TLAC requirements. Additionally, S&P concluded its CreditWatch Developing on the subordinated debt rating of Bank of America, N.A., which the agency downgraded to BBB+ from A-. On May 28, 2015, Moody’s Investors Service, Inc. (Moody’s) concluded its previously announced review of several global investment banking groups, including Bank of America, which followed the publication of the agency’s new bank rating methodology. Moody’s upgraded Bank of America Corporation’s long-term senior debt rating to Baa1 from Baa2, and the preferred stock rating to Ba2 from Ba3. Moody’s also upgraded the long- term senior debt and long-term deposit ratings of Bank of America, N.A. to A1 from A2. Moody’s affirmed the short-term ratings at P-2 for Bank of America Corporation and P-1 for Bank of America, N.A. Moody’s now has a stable outlook on all of our ratings. Table 21 presents the Corporation’s current long-term/short- term senior debt ratings and outlooks expressed by the rating agencies. Table 21 Senior Debt Ratings Moody’s Investors Service Standard & Poor’s Bank of America Corporation Bank of America, N.A. Merrill Lynch, Pierce, Fenner & Smith Merrill Lynch International Long-term Baa1 Short-term P-2 A1 NR NR P-1 NR NR Outlook Stable Stable NR NR Long-term Short-term (1) BBB+ A A A A-2 A-1 A-1 A-1 Outlook Stable CreditWatch Positive CreditWatch Positive CreditWatch Positive Long-term A Fitch Ratings Short-term F1 A+ A+ A F1 F1 F1 Outlook Stable Stable Stable Positive (1) S&P short-term ratings are not on CreditWatch. NR = not rated A reduction in certain of our credit ratings or the ratings of certain asset-backed securitizations may have a material adverse effect on our liquidity, potential loss of access to credit markets, the related cost of funds, our businesses and on certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical. In addition, under the terms of certain OTC derivative contracts and other trading agreements, in the event of downgrades of our or our rated subsidiaries’ credit ratings, the counterparties to those agreements may require us to provide additional collateral, or to terminate these contracts or agreements, which could cause us to sustain losses and/or adversely impact our liquidity. If the short-term credit ratings of our parent company, bank or broker-dealer subsidiaries were downgraded by one or more levels, the potential loss of access to short-term funding sources such as repo financing and the effect on our incremental cost of funds could be material. While certain potential impacts are contractual and quantifiable, the full scope of the consequences of a credit rating downgrade to a financial institution is inherently uncertain, as it depends upon numerous dynamic, complex and inter-related factors and assumptions, including whether any downgrade of a company’s long-term credit ratings precipitates downgrades to its short-term credit ratings, and assumptions about the potential behaviors of various customers, investors and counterparties. For more information on potential impacts of credit rating downgrades, see Liquidity Risk – Time-to-required Funding and Stress Modeling on page 59. For more information on the additional collateral and termination payments that could be required in connection with certain OTC derivative contracts and other trading agreements as a result of such a credit rating downgrade, see Note 2 – Derivatives to the Consolidated Financial Statements. 62 Bank of America 2015 outlook to positive on the ratings of Bank of America’s material holding company debt and equity capital buffers into operating international operating subsidiaries, including MLI. subsidiary credit ratings. Those ratings remain on CreditWatch On December 2, 2015, Standard & Poor’s Ratings Services positive pending further clarity on what debt instruments will count (S&P) concluded its review of the ratings of eight U.S. G-SIBs, toward TLAC requirements. Additionally, S&P concluded its including Bank of America. Consistent with prior guidance, S&P CreditWatch Developing on the subordinated debt rating of Bank downgraded our holding company long-term senior debt rating to of America, N.A., which the agency downgraded to BBB+ from A-. BBB+ from A- due to the removal of the remaining notch of uplift On May 28, 2015, Moody’s Investors Service, Inc. (Moody’s) for U.S. government support and revised the outlook to Stable concluded its previously announced review of several global from CreditWatch Negative. The Corporation’s short-term ratings investment banking groups, including Bank of America, which were not affected. This action reflected S&P’s view that followed the publication of the agency’s new bank rating extraordinary U.S. government support of the banking system is methodology. Moody’s upgraded Bank of America Corporation’s less likely under the current U.S. resolution framework. S&P long-term senior debt rating to Baa1 from Baa2, and the preferred concurrently left the long-term and short-term senior debt ratings stock rating to Ba2 from Ba3. Moody’s also upgraded the long- of Bank of America’s core rated operating subsidiaries, including term senior debt and long-term deposit ratings of Bank of America, Bank of America, N.A., MLPF&S, MLI, and Bank of America Merrill N.A. to A1 from A2. Moody’s affirmed the short-term ratings at P-2 Lynch International Limited, unchanged at A and A-1, respectively. for Bank of America Corporation and P-1 for Bank of America, N.A. S&P eliminated the remaining notch of uplift for potential Moody’s now has a stable outlook on all of our ratings. government support from those entities’ senior long-term debt Table 21 presents the Corporation’s current long-term/short- ratings, but the agency subsequently added a notch of uplift upon term senior debt ratings and outlooks expressed by the rating implementing its new framework for incorporating loss-absorbing agencies. Table 21 Senior Debt Ratings Bank of America Corporation Baa1 Bank of America, N.A. Merrill Lynch, Pierce, Fenner & Smith Merrill Lynch International (1) S&P short-term ratings are not on CreditWatch. NR = not rated A1 NR NR Moody’s Investors Service Standard & Poor’s Fitch Ratings Long-term Short-term Long-term Short-term (1) Long-term Short-term P-2 P-1 NR NR Outlook Stable Stable NR NR BBB+ A A A A-2 A-1 A-1 A-1 Outlook Stable CreditWatch Positive CreditWatch Positive CreditWatch Positive A A+ A+ A F1 F1 F1 F1 Outlook Stable Stable Stable Positive A reduction in certain of our credit ratings or the ratings of While certain potential impacts are contractual and certain asset-backed securitizations may have a material adverse quantifiable, the full scope of the consequences of a credit rating effect on our liquidity, potential loss of access to credit markets, downgrade to a financial institution is inherently uncertain, as it the related cost of funds, our businesses and on certain trading depends upon numerous dynamic, complex and inter-related revenues, particularly in those businesses where counterparty factors and assumptions, including whether any downgrade of a creditworthiness is critical. In addition, under the terms of certain company’s long-term credit ratings precipitates downgrades to its OTC derivative contracts and other trading agreements, in the short-term credit ratings, and assumptions about the potential event of downgrades of our or our rated subsidiaries’ credit ratings, behaviors of various customers, investors and counterparties. For the counterparties to those agreements may require us to provide more information on potential impacts of credit rating downgrades, additional collateral, or to terminate these contracts or see Liquidity Risk – Time-to-required Funding and Stress Modeling agreements, which could cause us to sustain losses and/or on page 59. adversely impact our liquidity. If the short-term credit ratings of For more information on the additional collateral and our parent company, bank or broker-dealer subsidiaries were termination payments that could be required in connection with downgraded by one or more levels, the potential loss of access to certain OTC derivative contracts and other trading agreements as short-term funding sources such as repo financing and the effect a result of such a credit rating downgrade, see Note 2 – Derivatives on our incremental cost of funds could be material. to the Consolidated Financial Statements. Credit Risk Management Credit quality remained stable during 2015 driven by lower U.S. unemployment and improving home prices as well as our proactive credit risk management activities positively impacting our credit portfolio as nonperforming loans and delinquencies continued to improve. For additional information, see Executive Summary – 2015 Economic and Business Environment on page 20. Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its obligations. Credit risk can also arise from operational failures that result in an erroneous advance, commitment or investment of funds. We define the credit exposure to a borrower or counterparty as the loss potential arising from all product classifications including loans and leases, deposit overdrafts, derivatives, assets held-for-sale and unfunded lending commitments which include loan commitments, letters of credit and financial guarantees. Derivative positions are recorded at fair value and assets held-for-sale are recorded at either fair value or the lower of cost or fair value. Certain loans and unfunded commitments are accounted for under the fair value option. Credit risk for categories of assets carried at fair value is not accounted for as part of the allowance for credit losses but as part of the fair value adjustments recorded in earnings. For derivative positions, our credit risk is measured as the net cost in the event the counterparties with contracts in which we are in a gain position fail to perform under the terms of those contracts. We use the current fair value to represent credit exposure without giving consideration to future mark-to-market changes. The credit risk amounts take into consideration the effects of legally enforceable master netting agreements and cash collateral. Our consumer and commercial credit extension and review procedures encompass funded and unfunded credit exposures. For more information on derivatives and credit extension commitments, see Note 2 – Derivatives and Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. We manage credit risk based on the risk profile of the borrower or counterparty, repayment sources, the nature of underlying collateral, and other support given current events, conditions and expectations. We classify our portfolios as either consumer or commercial and monitor credit risk in each as discussed below. We refine our underwriting and credit risk management practices as well as credit standards to meet the changing economic environment. To mitigate losses and enhance customer support in our consumer businesses, we have in place collection programs and loan modification and customer assistance infrastructures. We utilize a number of actions to mitigate losses in the commercial businesses including increasing the frequency and intensity of portfolio monitoring, hedging activity and our practice of transferring management of deteriorating commercial exposures to independent special asset officers as credits enter criticized categories. We have non-U.S. exposure largely in Europe and Asia Pacific. For more information on our exposures and related risks in non- U.S. countries, see Non-U.S. Portfolio on page 84 and Item 1A. Risk Factors of our 2015 Annual Report on Form 10-K. Utilized energy exposure represents approximately two percent of total loans and leases. For more information on our exposures and related risks in the energy industry, see Commercial Portfolio Credit Risk Management – Industry Concentrations on page 81 and Table 46. For more information on our credit risk management activities, see Consumer Portfolio Credit Risk Management on page 64, Commercial Portfolio Credit Risk Management on page 75, Non- U.S. Portfolio on page 84, Provision for Credit Losses on page 86 and Allowance for Credit Losses on page 86, Note 1 – Summary of Significant Accounting Principles, Note 4 – Outstanding Loans and Leases and Note 5 – Allowance for Credit Losses to the Consolidated Financial Statements. 62 Bank of America 2015 Bank of America 2015 63 Consumer Portfolio Credit Risk Management Credit risk management for the consumer portfolio begins with initial underwriting and continues throughout a borrower’s credit cycle. Statistical techniques in conjunction with experiential judgment are used in all aspects of portfolio management including underwriting, product pricing, risk appetite, setting credit limits, and establishing operating processes and metrics to quantify and balance risks and returns. Statistical models are built using detailed behavioral information from external sources such as credit bureaus and/or internal historical experience. These models are a component of our consumer credit risk management process and are used in part to assist in making both new and ongoing credit decisions, as well as portfolio management strategies, including authorizations and line management, collection practices and strategies, and determination of the allowance for loan and lease losses and allocated capital for credit risk. During 2015, we completed approximately 51,300 customer loan modifications with a total unpaid principal balance of $8.4 billion, including approximately 21,200 permanent modifications, under the U.S. government’s Making Home Affordable Program. Of the loan modifications completed in 2015, in terms of both the volume of modifications and the unpaid principal balance associated with the underlying loans, more than half were in the Corporation’s held-for-investment (HFI) portfolio. For modified loans on our balance sheet, these modification types are generally considered troubled debt restructurings (TDR). For more information on TDRs and portfolio impacts, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 73 and Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements. Consumer Credit Portfolio Improvement in the U.S. unemployment rate and home prices continued during 2015 resulting in improved credit quality and lower credit losses across most major consumer portfolios compared to 2014. Nearly all consumer loan portfolios 30 and 90 days or more past due declined during 2015 as a result of improved delinquency trends. Improved credit quality, continued loan balance run-off and sales across the consumer portfolio drove a $2.6 billion decrease in the consumer allowance for loan and lease losses in 2015 to $7.4 billion at December 31, 2015. For additional information, see Allowance for Credit Losses on page 86. For more information on our accounting policies regarding delinquencies, nonperforming status, charge-offs and TDRs for the consumer portfolio, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. For more information on representations and warranties related to our residential mortgage and home equity portfolios, see Off- Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 44 and Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements. Table 22 presents our outstanding consumer loans and leases, and the PCI loan portfolio. In addition to being included in the “Outstandings” columns in Table 22, PCI loans are also shown separately in the “Purchased Credit-impaired Loan Portfolio” columns. The impact of the PCI loan portfolio on certain credit statistics is reported where appropriate. For more information on PCI loans, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 71 and Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements. Table 22 Consumer Loans and Leases (Dollars in millions) Residential mortgage (1) Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer (2) Other consumer (3) Consumer loans excluding loans accounted for under the fair value option Loans accounted for under the fair value option (4) Total consumer loans and leases December 31 Outstandings 2015 187,911 75,948 89,602 9,975 88,795 2,067 454,298 1,871 456,169 $ $ 2014 216,197 85,725 91,879 10,465 80,381 1,846 486,493 2,077 488,570 $ $ $ $ Purchased Credit-impaired Loan Portfolio 2015 2014 12,066 4,619 n/a n/a n/a n/a 16,685 n/a 16,685 $ $ 15,152 5,617 n/a n/a n/a n/a 20,769 n/a 20,769 (1) Outstandings include pay option loans of $2.3 billion and $3.2 billion at December 31, 2015 and 2014. We no longer originate pay option loans. (2) Outstandings include auto and specialty lending loans of $42.6 billion and $37.7 billion, unsecured consumer lending loans of $886 million and $1.5 billion, U.S. securities-based lending loans of $39.8 billion and $35.8 billion, non-U.S. consumer loans of $3.9 billion and $4.0 billion, student loans of $564 million and $632 million and other consumer loans of $1.0 billion and $761 million at December 31, 2015 and 2014. (3) Outstandings include consumer finance loans of $564 million and $676 million, consumer leases of $1.4 billion and $1.0 billion and consumer overdrafts of $146 million and $162 million at December 31, 2015 and 2014. (4) Consumer loans accounted for under the fair value option include residential mortgage loans of $1.6 billion and $1.9 billion and home equity loans of $250 million and $196 million at December 31, 2015 and 2014. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements. n/a = not applicable 64 Bank of America 2015 Consumer Portfolio Credit Risk Management Credit risk management for the consumer portfolio begins with initial underwriting and continues throughout a borrower’s credit cycle. Statistical techniques in conjunction with experiential judgment are used in all aspects of portfolio management including underwriting, product pricing, risk appetite, setting credit Consumer Credit Portfolio Improvement in the U.S. unemployment rate and home prices continued during 2015 resulting in improved credit quality and lower credit losses across most major consumer portfolios compared to 2014. Nearly all consumer loan portfolios 30 and 90 days or more past due declined during 2015 as a result of improved limits, and establishing operating processes and metrics to delinquency trends. quantify and balance risks and returns. Statistical models are built using detailed behavioral information from external sources such as credit bureaus and/or internal historical experience. These models are a component of our consumer credit risk management Improved credit quality, continued loan balance run-off and sales across the consumer portfolio drove a $2.6 billion decrease in the consumer allowance for loan and lease losses in 2015 to $7.4 billion at December 31, 2015. For additional information, process and are used in part to assist in making both new and see Allowance for Credit Losses on page 86. ongoing credit decisions, as well as portfolio management strategies, including authorizations and line management, collection practices and strategies, and determination of the allowance for loan and lease losses and allocated capital for credit risk. During 2015, we completed approximately 51,300 customer loan modifications with a total unpaid principal balance of $8.4 billion, including approximately 21,200 permanent modifications, under the U.S. government’s Making Home Affordable Program. Of the loan modifications completed in 2015, in terms of both the volume of modifications and the unpaid principal balance associated with the underlying loans, more than half were in the Corporation’s held-for-investment (HFI) portfolio. For modified loans on our balance sheet, these modification types are generally considered troubled debt restructurings (TDR). For more information on TDRs and portfolio impacts, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 73 and Note 4 – Outstanding Loans and Leases to the Consolidated Financial For more information on our accounting policies regarding delinquencies, nonperforming status, charge-offs and TDRs for the consumer portfolio, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. For more information on representations and warranties related to our residential mortgage and home equity portfolios, see Off- Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 44 and Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements. Table 22 presents our outstanding consumer loans and leases, and the PCI loan portfolio. In addition to being included in the “Outstandings” columns in Table 22, PCI loans are also shown separately in the “Purchased Credit-impaired Loan Portfolio” columns. The impact of the PCI loan portfolio on certain credit statistics is reported where appropriate. For more information on PCI loans, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 71 and Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements. Statements. Table 22 Consumer Loans and Leases (Dollars in millions) Residential mortgage (1) Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer (2) Other consumer (3) Loans accounted for under the fair value option (4) Total consumer loans and leases December 31 Outstandings Purchased Credit-impaired Loan Portfolio 2015 2014 2015 2014 $ 187,911 $ 216,197 $ 12,066 $ 15,152 4,619 5,617 75,948 89,602 9,975 88,795 2,067 454,298 1,871 85,725 91,879 10,465 80,381 1,846 486,493 2,077 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a $ 456,169 $ 488,570 $ 16,685 $ 20,769 Consumer loans excluding loans accounted for under the fair value option 16,685 20,769 (1) Outstandings include pay option loans of $2.3 billion and $3.2 billion at December 31, 2015 and 2014. We no longer originate pay option loans. (2) Outstandings include auto and specialty lending loans of $42.6 billion and $37.7 billion, unsecured consumer lending loans of $886 million and $1.5 billion, U.S. securities-based lending loans of $39.8 billion and $35.8 billion, non-U.S. consumer loans of $3.9 billion and $4.0 billion, student loans of $564 million and $632 million and other consumer loans of $1.0 billion and $761 million (3) Outstandings include consumer finance loans of $564 million and $676 million, consumer leases of $1.4 billion and $1.0 billion and consumer overdrafts of $146 million and $162 million at (4) Consumer loans accounted for under the fair value option include residential mortgage loans of $1.6 billion and $1.9 billion and home equity loans of $250 million and $196 million at December 31, 2015 and 2014. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements. at December 31, 2015 and 2014. December 31, 2015 and 2014. n/a = not applicable Table 23 presents consumer nonperforming loans and accruing consumer loans past due 90 days or more. Nonperforming loans do not include past due consumer credit card loans, other unsecured loans and in general, consumer non-real estate-secured loans (loans discharged in Chapter 7 bankruptcy are included) as these loans are typically charged off no later than the end of the month in which the loan becomes 180 days past due. Real estate- secured past due consumer loans that are insured by the FHA or individually insured under long-term standby agreements with FNMA and FHLMC (collectively, the fully-insured loan portfolio) are reported as accruing as opposed to nonperforming since the principal repayment is insured. Fully-insured loans included in accruing past due 90 days or more are primarily from our repurchases of delinquent FHA loans pursuant to our servicing agreements with GNMA. Additionally, nonperforming loans and accruing balances past due 90 days or more do not include the PCI loan portfolio or loans accounted for under the fair value option even though the customer may be contractually past due. Consumer Credit Quality (Dollars in millions) Residential mortgage (1) Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total (2) Consumer loans and leases as a percentage of outstanding consumer loans and leases (2) Consumer loans and leases as a percentage of outstanding loans and leases, excluding PCI and fully- December 31 Nonperforming Accruing Past Due 90 Days or More 2015 2014 2015 2014 $ $ 4,803 3,337 n/a n/a 24 1 8,165 $ $ 6,889 3,901 n/a n/a 28 1 10,819 $ $ 7,150 — 789 76 39 3 8,057 $ $ 11,407 — 866 95 64 1 12,433 1.80% 2.22% 1.77% 2.56% insured loan portfolios (2) 2.04 2.70 0.23 0.26 (1) Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At December 31, 2015 and 2014, residential mortgage included $4.3 billion and $7.3 billion of loans on which interest has been curtailed by the FHA, and therefore are no longer accruing interest, although principal is still insured, and $2.9 billion and $4.1 billion of loans on which interest was still accruing. (2) Balances exclude consumer loans accounted for under the fair value option. At December 31, 2015 and 2014, $293 million and $392 million of loans accounted for under the fair value option were past due 90 days or more and not accruing interest. n/a = not applicable Table 24 presents net charge-offs and related ratios for consumer loans and leases. Consumer Net Charge-offs and Related Ratios (Dollars in millions) Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total Net Charge-offs (1) Net Charge-off Ratios (1, 2) 2015 2014 2015 2014 $ $ 473 636 2,314 188 112 193 3,916 $ $ (114) 907 2,638 242 169 229 4,071 0.24% 0.79 2.62 1.86 0.13 9.96 0.84 (0.05)% 1.01 2.96 2.10 0.20 11.27 0.80 (1) Net charge-offs exclude write-offs in the PCI loan portfolio. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 71. (2) Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans and leases excluding loans accounted for under the fair value option. Net charge-off ratios, excluding the PCI and fully-insured loan portfolios, were 0.35 percent and (0.08) percent for residential mortgage, 0.84 percent and 1.09 percent for home equity and 0.54 percent and 1.00 percent for the total consumer portfolio for 2015 and 2014, respectively. These are the only product classifications that include PCI and fully-insured loans. Net charge-offs, as shown in Tables 24 and 25, exclude write- offs in the PCI loan portfolio of $634 million and $545 million in residential mortgage and $174 million and $265 million in home equity for 2015 and 2014. Net charge-off ratios including the PCI write-offs were 0.56 percent and 0.18 percent for residential mortgage and 1.00 percent and 1.31 percent for home equity in 2015 and 2014. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit- impaired Loan Portfolio on page 71. 64 Bank of America 2015 Bank of America 2015 65 Table 25 presents outstandings, nonperforming balances, net charge-offs, allowance for loan and lease losses and provision for loan and lease losses for the Core portfolio and the Legacy Assets & Servicing portfolio within the consumer real estate portfolio. For more information on the Legacy Assets & Servicing portfolio, see LAS on page 40. Table 25 Consumer Real Estate Portfolio (1) (Dollars in millions) Core portfolio Residential mortgage Home equity Total Core portfolio Legacy Assets & Servicing portfolio Residential mortgage Home equity Total Legacy Assets & Servicing portfolio Consumer real estate portfolio Residential mortgage Home equity Total consumer real estate portfolio Core portfolio Residential mortgage Home equity Total Core portfolio Legacy Assets & Servicing portfolio Residential mortgage Home equity Total Legacy Assets & Servicing portfolio Consumer real estate portfolio December 31 Outstandings Nonperforming Net Charge-offs (2) 2015 2014 2015 2014 2015 2014 $ 145,845 48,264 194,109 $ 162,220 51,887 214,107 $ 42,066 27,684 69,750 53,977 33,838 87,815 187,911 75,948 $ 263,859 216,197 85,725 $ 301,922 $ $ 1,845 1,354 3,199 2,958 1,983 4,941 4,803 3,337 8,140 $ $ 2,398 1,496 3,894 4,491 2,405 6,896 $ 128 219 347 345 417 762 6,889 3,901 10,790 $ $ 473 636 1,109 $ 140 275 415 (254) 632 378 (114) 907 793 December 31 Allowance for Loan and Lease Losses Provision for Loan and Lease Losses 2015 2014 2015 2014 $ 418 639 1,057 1,082 1,775 2,857 593 702 1,295 2,307 2,333 4,640 $ (47) $ 153 106 (247) 71 (176) (47) 3 (44) (696) (236) (932) Residential mortgage Home equity (743) (233) (976) (1) Outstandings and nonperforming loans exclude loans accounted for under the fair value option. Consumer loans accounted for under the fair value option include residential mortgage loans of $1.6 billion and $1.9 billion and home equity loans of $250 million and $196 million at December 31, 2015 and 2014. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements. Total consumer real estate portfolio (294) 224 (70) $ 2,900 3,035 5,935 1,500 2,414 3,914 $ $ $ (2) Net charge-offs exclude write-offs in the PCI loan portfolio. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 71. We believe that the presentation of information adjusted to exclude the impact of the PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the fair value option is more representative of the ongoing operations and credit quality of the business. As a result, in the following discussions of the residential mortgage and home equity portfolios, we provide information that excludes the impact of the PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the fair value option in certain credit quality statistics. We separately disclose information on the PCI loan portfolio on page 71. Residential Mortgage The residential mortgage portfolio makes up the largest percentage of our consumer loan portfolio at 41 percent of consumer loans and leases at December 31, 2015. Approximately 58 percent of the residential mortgage portfolio is in All Other and is comprised of originated loans, purchased loans used in our overall ALM activities, delinquent FHA loans repurchased pursuant to our servicing agreements with GNMA as well as loans repurchased related to our representations and warranties. Approximately 30 percent of the residential mortgage portfolio is 66 Bank of America 2015 in GWIM and represents residential mortgages originated for the home purchase and refinancing needs of our wealth management clients and the remaining portion of the portfolio is primarily in Consumer Banking. Outstanding balances in the residential mortgage portfolio, excluding loans accounted for under the fair value option, decreased $28.3 billion during 2015 due to loan sales of $24.2 billion and runoff outpacing the retention of new originations. Loan sales primarily included $16.4 billion of loans with standby insurance agreements, $3.1 billion of nonperforming and other delinquent loans and $4.5 billion of loans in consolidated agency residential mortgage securitization vehicles. At December 31, 2015 and 2014, the residential mortgage portfolio included $37.1 billion and $65.0 billion of outstanding fully-insured loans. On this portion of the residential mortgage portfolio, we are protected against principal loss as a result of either FHA insurance or long-term standby agreements that provide for the transfer of credit risk to FNMA and FHLMC. At December 31, 2015 and 2014, $33.4 billion and $47.8 billion had FHA insurance with the remainder protected by long-term standby agreements. At December 31, 2015 and 2014, $11.2 billion and Table 25 presents outstandings, nonperforming balances, net charge-offs, allowance for loan and lease losses and provision for loan and lease losses for the Core portfolio and the Legacy Assets & Servicing portfolio within the consumer real estate portfolio. For more information on the Legacy Assets & Servicing portfolio, see LAS on page 40. Table 25 Consumer Real Estate Portfolio (1) $15.9 billion of the FHA-insured loan population were repurchases of delinquent FHA loans pursuant to our servicing agreements with GNMA. Table 26 presents certain residential mortgage key credit statistics on both a reported basis excluding loans accounted for under the fair value option, and excluding the PCI loan portfolio, our fully-insured loan portfolio and loans accounted for under the fair value option. Additionally, in the “Reported Basis” columns in the table below, accruing balances past due and nonperforming loans do not include the PCI loan portfolio, in accordance with our accounting policies, even though the customer may be contractually past due. As such, the following discussion presents the residential mortgage portfolio excluding the PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the fair value option. For more information on the PCI loan portfolio, see page 71. Table 26 Residential Mortgage – Key Credit Statistics Total consumer real estate portfolio $ 263,859 $ 301,922 $ $ 10,790 $ 1,109 $ (Dollars in millions) Outstandings Accruing past due 30 days or more Accruing past due 90 days or more Nonperforming loans Percent of portfolio Refreshed LTV greater than 90 but less than or equal to 100 Refreshed LTV greater than 100 Refreshed FICO below 620 2006 and 2007 vintages (2) December 31 Excluding Purchased Credit-impaired and Fully-insured Loans Reported Basis (1) 2015 $ 187,911 11,423 7,150 4,803 2014 $ 216,197 16,485 11,407 6,889 2015 $ 138,768 1,568 — 4,803 2014 $ 136,075 1,868 — 6,889 7% 8 13 17 0.24 9% 12 16 19 (0.05) 5% 4 6 17 0.35 6% 7 8 22 (0.08) Net charge-off ratio (3) (1) Outstandings, accruing past due, nonperforming loans and percentages of portfolio exclude loans accounted for under the fair value option. (2) These vintages of loans account for $1.6 billion, or 34 percent, and $2.8 billion, or 41 percent, of nonperforming residential mortgage loans at December 31, 2015 and 2014. Additionally, these vintages accounted for net charge-offs of $136 million to residential mortgage net charge-offs in 2015 and net recoveries of $233 million to residential mortgage net recoveries in 2014. (3) Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans excluding loans accounted for under the fair value option. Nonperforming residential mortgage loans decreased $2.1 billion in 2015 including sales of $1.5 billion, partially offset by a $261 million net increase related to the DoJ Settlement for those loans that are no longer fully insured. Excluding these items, nonperforming residential mortgage loans decreased as outflows, including the transfers of certain qualifying borrowers discharged in a Chapter 7 bankruptcy to performing status, outpaced new inflows. Of the nonperforming residential mortgage loans at December 31, 2015, $1.6 billion, or 34 percent, were current on contractual payments. Nonperforming loans that are contractually current primarily consist of collateral-dependent TDRs, including those that have been discharged in Chapter 7 bankruptcy, as well as loans that have not yet demonstrated a sustained period of payment performance following a TDR. In addition, $2.0 billion, or 43 percent of nonperforming residential mortgage loans were 180 days or more past due and had been written down to the estimated fair value of the collateral, less costs to sell. Accruing loans that were 30 days or more past due decreased $300 million in 2015. Net charge-offs increased $587 million to $473 million in 2015, or 0.35 percent of total average residential mortgage loans, compared to a net recovery of $114 million, or (0.08) percent, in 2014. This increase in net charge-offs was primarily driven by $402 million of charge-offs during 2015 related to the consumer relief portion of the DoJ Settlement. In addition, net charge-offs included recoveries of $127 million related to nonperforming loan sales during 2015 compared to $407 million in 2014. Excluding these items, net charge-offs declined driven by favorable portfolio trends and decreased write-downs on loans greater than 180 days past due, which were written down to the estimated fair value of the collateral, less costs to sell, due in part to improvement in home prices and the U.S. economy. Residential mortgage loans with a greater than 90 percent but less than or equal to 100 percent refreshed loan-to-value (LTV) represented five percent and six percent of the residential mortgage portfolio at December 31, 2015 and 2014. Loans with a refreshed LTV greater than 100 percent represented four percent and seven percent of the residential mortgage loan portfolio at December 31, 2015 and 2014. Of the loans with a refreshed LTV greater than 100 percent, 98 percent and 96 percent were performing at December 31, 2015 and 2014. Loans with a refreshed LTV greater than 100 percent reflect loans where the outstanding carrying value of the loan is greater than the most recent valuation of the property securing the loan. The majority of these loans have a refreshed LTV greater than 100 percent primarily due to home price deterioration since 2006, partially offset by subsequent appreciation. Loans to borrowers with refreshed FICO scores below 620 represented six percent and eight percent of the residential mortgage portfolio at December 31, 2015 and 2014. Of the $138.8 billion in total residential mortgage loans outstanding at December 31, 2015, as shown in Table 27, 39 percent were originated as interest-only loans. The outstanding balance of interest-only residential mortgage loans that have entered the amortization period was $12.0 billion, or 22 percent at December 31, 2015. Residential mortgage loans that have entered the amortization period generally have experienced a higher rate of early stage delinquencies and nonperforming status compared to the residential mortgage portfolio as a whole. At December 31, 2015, $214 million, or two percent of outstanding interest-only residential mortgages that had entered the amortization period were accruing past due 30 days or more compared to $1.6 billion, or one percent for the entire residential mortgage portfolio. In addition, at December 31, 2015, $712 million, or six percent of outstanding interest-only residential mortgage loans that had entered the amortization period were nonperforming, of which $348 million were contractually current, Bank of America 2015 67 (Dollars in millions) Core portfolio Residential mortgage Home equity Total Core portfolio Residential mortgage Home equity Legacy Assets & Servicing portfolio Total Legacy Assets & Servicing portfolio Consumer real estate portfolio Residential mortgage Home equity Core portfolio Residential mortgage Home equity Total Core portfolio Residential mortgage Home equity Legacy Assets & Servicing portfolio Total Legacy Assets & Servicing portfolio Consumer real estate portfolio Residential mortgage Home equity Total consumer real estate portfolio the Consolidated Financial Statements. page 71. December 31 Outstandings Nonperforming Net Charge-offs (2) 2015 2014 2015 2014 2015 2014 $ 145,845 $ 162,220 $ $ $ $ 48,264 194,109 51,887 214,107 42,066 27,684 69,750 53,977 33,838 87,815 187,911 75,948 216,197 85,725 1,845 1,354 3,199 2,958 1,983 4,941 4,803 3,337 8,140 418 639 1,057 1,082 1,775 2,857 1,500 2,414 3,914 2,398 1,496 3,894 4,491 2,405 6,896 6,889 3,901 593 702 1,295 2,307 2,333 4,640 2,900 3,035 5,935 128 219 347 345 417 762 473 636 153 106 (247) 71 (176) (294) 224 140 275 415 (254) 632 378 (114) 907 793 (47) 3 (44) (696) (236) (932) (743) (233) (976) December 31 Allowance for Loan and Lease Losses Provision for Loan and Lease Losses 2015 2014 2015 2014 $ $ $ (47) $ (1) Outstandings and nonperforming loans exclude loans accounted for under the fair value option. Consumer loans accounted for under the fair value option include residential mortgage loans of $1.6 billion and $1.9 billion and home equity loans of $250 million and $196 million at December 31, 2015 and 2014. For more information on the fair value option, see Note 21 – Fair Value Option to $ $ $ (70) $ (2) Net charge-offs exclude write-offs in the PCI loan portfolio. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on We believe that the presentation of information adjusted to in GWIM and represents residential mortgages originated for the exclude the impact of the PCI loan portfolio, the fully-insured loan home purchase and refinancing needs of our wealth management portfolio and loans accounted for under the fair value option is clients and the remaining portion of the portfolio is primarily in more representative of the ongoing operations and credit quality Consumer Banking. of the business. As a result, in the following discussions of the Outstanding balances in the residential mortgage portfolio, residential mortgage and home equity portfolios, we provide excluding loans accounted for under the fair value option, information that excludes the impact of the PCI loan portfolio, the decreased $28.3 billion during 2015 due to loan sales of $24.2 fully-insured loan portfolio and loans accounted for under the fair billion and runoff outpacing the retention of new originations. Loan value option in certain credit quality statistics. We separately sales primarily included $16.4 billion of loans with standby disclose information on the PCI loan portfolio on page 71. insurance agreements, $3.1 billion of nonperforming and other Residential Mortgage The residential mortgage portfolio makes up the largest percentage of our consumer loan portfolio at 41 percent of consumer loans and leases at December 31, 2015. Approximately 58 percent of the residential mortgage portfolio is in All Other and is comprised of originated loans, purchased loans used in our overall ALM activities, delinquent FHA loans repurchased pursuant to our servicing agreements with GNMA as well as loans repurchased related to our representations and warranties. Approximately 30 percent of the residential mortgage portfolio is 66 Bank of America 2015 delinquent loans and $4.5 billion of loans in consolidated agency residential mortgage securitization vehicles. At December 31, 2015 and 2014, the residential mortgage portfolio included $37.1 billion and $65.0 billion of outstanding fully-insured loans. On this portion of the residential mortgage portfolio, we are protected against principal loss as a result of either FHA insurance or long-term standby agreements that provide for the transfer of credit risk to FNMA and FHLMC. At December 31, 2015 and 2014, $33.4 billion and $47.8 billion had FHA insurance with the remainder protected by long-term standby agreements. At December 31, 2015 and 2014, $11.2 billion and compared to $4.8 billion, or three percent for the entire residential mortgage portfolio, of which $1.6 billion were contractually current. Loans that have yet to enter the amortization period in our interest- only residential mortgage portfolio are primarily well-collateralized loans to our wealth management clients and have an interest-only period of three to ten years. Approximately 75 percent of these loans that have yet to enter the amortization period will not be required to make a fully-amortizing payment until 2019 or later. Table 27 presents outstandings, nonperforming loans and net charge-offs by certain state concentrations for the residential mortgage portfolio. The Los Angeles-Long Beach-Santa Ana Metropolitan Statistical Area (MSA) within California represented 14 percent and 13 percent of outstandings at December 31, 2015 and 2014. Loans within this MSA contributed net recoveries of $13 million and $81 million within the residential mortgage portfolio during 2015 and 2014. In the New York area, the New York-Northern New Jersey-Long Island MSA made up 11 percent of outstandings at both December 31, 2015 and 2014. Loans within this MSA contributed net charge-offs of $101 million and $27 million within the residential mortgage portfolio during 2015 and 2014. Table 27 Residential Mortgage State Concentrations (Dollars in millions) California New York (3) Florida (3) Texas Virginia Other U.S./Non-U.S. Residential mortgage loans (4) Fully-insured loan portfolio Purchased credit-impaired residential mortgage loan portfolio (5) Total residential mortgage loan portfolio December 31 Outstandings (1) Nonperforming (1) Net Charge-offs (2) 2015 2014 2015 2014 2015 2014 $ 48,865 12,696 10,001 6,208 4,097 56,901 $ 138,768 37,077 12,066 $ 187,911 $ 45,496 11,826 10,116 6,635 4,402 57,600 $ 136,075 64,970 15,152 $ 216,197 $ $ 977 399 534 185 164 2,544 4,803 $ $ 1,459 477 858 269 244 3,582 6,889 $ $ (49) $ 57 53 10 20 382 473 $ (280) 15 (43) 1 4 189 (114) (1) Outstandings and nonperforming loans exclude loans accounted for under the fair value option. (2) Net charge-offs exclude $634 million of write-offs in the residential mortgage PCI loan portfolio in 2015 compared to $545 million in 2014. For additional information, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 71. In these states, foreclosure requires a court order following a legal proceeding (judicial states). (3) (4) Amounts exclude the PCI residential mortgage and fully-insured loan portfolios. (5) Forty-seven percent and 45 percent of PCI residential mortgage loans were in California at December 31, 2015 and 2014. There were no other significant single state concentrations. The Community Reinvestment Act (CRA) encourages banks to meet the credit needs of their communities for housing and other purposes, particularly in neighborhoods with low or moderate incomes. Our CRA portfolio was $8.0 billion and $9.0 billion at December 31, 2015 and 2014, or six percent and seven percent of the residential mortgage portfolio. The CRA portfolio included $552 million and $986 million of nonperforming loans at December 31, 2015 and 2014, representing 11 percent and 14 percent of total nonperforming residential mortgage loans. In 2015, net charge-offs in the CRA portfolio were $85 million of the $473 million total net charge-offs for the residential mortgage portfolio. In 2014, net charge-offs in the CRA portfolio were $52 million compared to net recoveries of $114 million for the residential mortgage portfolio. Home Equity At December 31, 2015, the home equity portfolio made up 17 percent of the consumer portfolio and is comprised of home equity lines of credit (HELOCs), home equity loans and reverse mortgages. At December 31, 2015, our HELOC portfolio had an outstanding balance of $66.1 billion, or 87 percent of the total home equity portfolio compared to $74.2 billion, or 87 percent, at December 31, 2014. HELOCs generally have an initial draw period of 10 years and the borrowers typically are only required to pay the interest due on the loans on a monthly basis. After the initial draw period ends, the loans generally convert to 15-year amortizing loans. At December 31, 2015, our home equity loan portfolio had an outstanding balance of $7.9 billion, or 10 percent of the total home 68 Bank of America 2015 equity portfolio compared to $9.8 billion, or 11 percent, at December 31, 2014. Home equity loans are almost all fixed-rate loans with amortizing payment terms of 10 to 30 years and of the $7.9 billion at December 31, 2015, 54 percent have 25- to 30- year terms. At December 31, 2015, our reverse mortgage portfolio had an outstanding balance, excluding loans accounted for under the fair value option, of $2.0 billion, or three percent of the total home equity portfolio compared to $1.7 billion, or two percent, at December 31, 2014. We no longer originate reverse mortgages. At December 31, 2015, approximately 56 percent of the home equity portfolio was included in Consumer Banking, 34 percent was included in LAS and the remainder of the portfolio was primarily in GWIM. Outstanding balances in the home equity portfolio, excluding loans accounted for under the fair value option, decreased $9.8 billion in 2015 primarily due to paydowns and charge-offs outpacing new originations and draws on existing lines. Of the total home equity portfolio at December 31, 2015 and 2014, $20.3 billion and $20.6 billion, or 27 percent and 24 percent, were in first-lien positions (28 percent and 26 percent excluding the PCI home equity portfolio). At December 31, 2015, outstanding balances in the home equity portfolio that were in a second-lien or more junior-lien position and where we also held the first-lien loan totaled $12.9 billion, or 18 percent of our total home equity portfolio excluding the PCI loan portfolio. Unused HELOCs totaled $50.3 billion and $53.7 billion at December 31, 2015 and 2014. The decrease was primarily due to customers choosing to close accounts, as well as accounts reaching the end of their draw period, which automatically eliminates open line exposure. Both of these more than offset customer paydowns of principal balances and the impact of new compared to $4.8 billion, or three percent for the entire residential Metropolitan Statistical Area (MSA) within California represented mortgage portfolio, of which $1.6 billion were contractually current. 14 percent and 13 percent of outstandings at December 31, 2015 Loans that have yet to enter the amortization period in our interest- and 2014. Loans within this MSA contributed net recoveries of only residential mortgage portfolio are primarily well-collateralized $13 million and $81 million within the residential mortgage loans to our wealth management clients and have an interest-only portfolio during 2015 and 2014. In the New York area, the New period of three to ten years. Approximately 75 percent of these York-Northern New Jersey-Long Island MSA made up 11 percent loans that have yet to enter the amortization period will not be of outstandings at both December 31, 2015 and 2014. Loans required to make a fully-amortizing payment until 2019 or later. within this MSA contributed net charge-offs of $101 million and Table 27 presents outstandings, nonperforming loans and net $27 million within the residential mortgage portfolio during 2015 charge-offs by certain state concentrations for the residential and 2014. mortgage portfolio. The Los Angeles-Long Beach-Santa Ana Table 27 Residential Mortgage State Concentrations (Dollars in millions) California New York (3) Florida (3) Texas Virginia Other U.S./Non-U.S. Residential mortgage loans (4) Fully-insured loan portfolio December 31 Outstandings (1) Nonperforming (1) Net Charge-offs (2) 2015 2014 2015 2014 2015 2014 $ $ 45,496 $ $ 1,459 $ (49) $ 977 399 534 185 164 477 858 269 244 57 53 10 20 382 473 $ (280) 15 (43) 1 4 189 (114) $ 138,768 $ 136,075 $ 2,544 4,803 $ 3,582 6,889 $ 48,865 12,696 10,001 6,208 4,097 56,901 37,077 12,066 11,826 10,116 6,635 4,402 57,600 64,970 15,152 Purchased credit-impaired residential mortgage loan portfolio (5) Total residential mortgage loan portfolio $ 187,911 $ 216,197 (1) Outstandings and nonperforming loans exclude loans accounted for under the fair value option. Risk Management – Purchased Credit-impaired Loan Portfolio on page 71. (3) In these states, foreclosure requires a court order following a legal proceeding (judicial states). (4) Amounts exclude the PCI residential mortgage and fully-insured loan portfolios. (2) Net charge-offs exclude $634 million of write-offs in the residential mortgage PCI loan portfolio in 2015 compared to $545 million in 2014. For additional information, see Consumer Portfolio Credit (5) Forty-seven percent and 45 percent of PCI residential mortgage loans were in California at December 31, 2015 and 2014. There were no other significant single state concentrations. The Community Reinvestment Act (CRA) encourages banks to equity portfolio compared to $9.8 billion, or 11 percent, at meet the credit needs of their communities for housing and other December 31, 2014. Home equity loans are almost all fixed-rate purposes, particularly in neighborhoods with low or moderate loans with amortizing payment terms of 10 to 30 years and of the incomes. Our CRA portfolio was $8.0 billion and $9.0 billion at $7.9 billion at December 31, 2015, 54 percent have 25- to 30- December 31, 2015 and 2014, or six percent and seven percent year terms. At December 31, 2015, our reverse mortgage portfolio of the residential mortgage portfolio. The CRA portfolio included had an outstanding balance, excluding loans accounted for under $552 million and $986 million of nonperforming loans at the fair value option, of $2.0 billion, or three percent of the total December 31, 2015 and 2014, representing 11 percent and home equity portfolio compared to $1.7 billion, or two percent, at 14 percent of total nonperforming residential mortgage loans. In December 31, 2014. We no longer originate reverse mortgages. 2015, net charge-offs in the CRA portfolio were $85 million of the At December 31, 2015, approximately 56 percent of the home $473 million total net charge-offs for the residential mortgage equity portfolio was included in Consumer Banking, 34 percent portfolio. In 2014, net charge-offs in the CRA portfolio were $52 was included in LAS and the remainder of the portfolio was primarily million compared to net recoveries of $114 million for the in GWIM. Outstanding balances in the home equity portfolio, residential mortgage portfolio. Home Equity mortgages. At December 31, 2015, the home equity portfolio made up 17 percent of the consumer portfolio and is comprised of home equity lines of credit (HELOCs), home equity loans and reverse At December 31, 2015, our HELOC portfolio had an outstanding balance of $66.1 billion, or 87 percent of the total home equity portfolio compared to $74.2 billion, or 87 percent, at December 31, 2014. HELOCs generally have an initial draw period of 10 years and the borrowers typically are only required to pay the interest due on the loans on a monthly basis. After the initial draw period ends, the loans generally convert to 15-year amortizing loans. At December 31, 2015, our home equity loan portfolio had an outstanding balance of $7.9 billion, or 10 percent of the total home 68 Bank of America 2015 excluding loans accounted for under the fair value option, decreased $9.8 billion in 2015 primarily due to paydowns and charge-offs outpacing new originations and draws on existing lines. Of the total home equity portfolio at December 31, 2015 and 2014, $20.3 billion and $20.6 billion, or 27 percent and 24 percent, were in first-lien positions (28 percent and 26 percent excluding the PCI home equity portfolio). At December 31, 2015, outstanding balances in the home equity portfolio that were in a second-lien or more junior-lien position and where we also held the first-lien loan totaled $12.9 billion, or 18 percent of our total home equity portfolio excluding the PCI loan portfolio. Unused HELOCs totaled $50.3 billion and $53.7 billion at December 31, 2015 and 2014. The decrease was primarily due to customers choosing to close accounts, as well as accounts reaching the end of their draw period, which automatically eliminates open line exposure. Both of these more than offset customer paydowns of principal balances and the impact of new production. The HELOC utilization rate was 57 percent and 58 percent at December 31, 2015 and 2014. Table 28 presents certain home equity portfolio key credit statistics on both a reported basis excluding loans accounted for under the fair value option, and excluding the PCI loan portfolio and loans accounted for under the fair value option. Additionally, in the “Reported Basis” columns in the table below, accruing balances past due 30 days or more and nonperforming loans do not include the PCI loan portfolio, in accordance with our accounting policies, even though the customer may be contractually past due. As such, the following discussion presents the home equity portfolio excluding the PCI loan portfolio and loans accounted for under the fair value option. For more information on the PCI loan portfolio, see page 71. Table 28 Home Equity – Key Credit Statistics (Dollars in millions) Outstandings Accruing past due 30 days or more (2) Nonperforming loans (2) Percent of portfolio Refreshed CLTV greater than 90 but less than or equal to 100 Refreshed CLTV greater than 100 Refreshed FICO below 620 2006 and 2007 vintages (3) December 31 Reported Basis (1) Excluding Purchased Credit-impaired Loans 2015 2014 2015 2014 $ 75,948 613 3,337 $ 85,725 640 3,901 $ 71,329 613 3,337 $ 80,108 640 3,901 6% 8% 6% 7% 12 7 43 0.79 16 8 46 1.01 11 7 41 0.84 14 7 43 1.09 Net charge-off ratio (4) (1) Outstandings, accruing past due, nonperforming loans and percentages of the portfolio exclude loans accounted for under the fair value option. (2) Accruing past due 30 days or more includes $89 million and $98 million and nonperforming loans include $396 million and $505 million of loans where we serviced the underlying first-lien at December 31, 2015 and 2014. (3) These vintages of loans have higher refreshed combined LTV ratios and accounted for 45 percent and 47 percent of nonperforming home equity loans at December 31, 2015 and 2014, and 54 percent and 59 percent of net charge-offs in 2015 and 2014. (4) Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans excluding loans accounted for under the fair value option. Nonperforming outstanding balances in the home equity portfolio decreased $564 million in 2015 as outflows, including sales of $154 million and the transfer of certain qualifying borrowers discharged in a Chapter 7 bankruptcy to performing status, outpaced new inflows. Of the nonperforming home equity portfolio at December 31, 2015, $1.4 billion, or 42 percent, were current on contractual payments. Nonperforming loans that are contractually current primarily consist of collateral-dependent TDRs, including those that have been discharged in Chapter 7 bankruptcy, junior-lien loans where the underlying first-lien is 90 days or more past due, as well as loans that have not yet demonstrated a sustained period of payment performance following a TDR. In addition, $1.3 billion, or 38 percent of nonperforming home equity loans, were 180 days or more past due and had been written down to the estimated fair value of the collateral, less costs to sell. Accruing loans that were 30 days or more past due decreased $27 million in 2015. In some cases, the junior-lien home equity outstanding balance that we hold is performing, but the underlying first-lien is not. For outstanding balances in the home equity portfolio on which we service the first-lien loan, we are able to track whether the first- lien loan is in default. For loans where the first-lien is serviced by a third party, we utilize credit bureau data to estimate the delinquency status of the first-lien. Given that the credit bureau database we use does not include a property address for the mortgages, we are unable to identify with certainty whether a reported delinquent first-lien mortgage pertains to the same property for which we hold a junior-lien loan. For certain loans, we utilize a third-party vendor to combine credit bureau and public record data to better link a junior-lien loan with the underlying first- lien mortgage. At December 31, 2015, we estimate that $1.2 billion of current and $157 million of 30 to 89 days past due junior- lien loans were behind a delinquent first-lien loan. We service the first-lien loans on $193 million of these combined amounts, with the remaining $1.1 billion serviced by third parties. Of the $1.3 billion of current to 89 days past due junior-lien loans, based on available credit bureau data and our own internal servicing data, we estimate that $484 million had first-lien loans that were 90 days or more past due. Net charge-offs decreased $271 million to $636 million, or 0.84 percent of the total average home equity portfolio in 2015, compared to $907 million, or 1.09 percent, in 2014. The decrease in net charge-offs was primarily driven by favorable portfolio trends due in part to improvement in home prices and the U.S. economy, and lower charge-offs related to the consumer relief portion of the DoJ Settlement, partially offset by lower recoveries. Outstanding balances in the home equity portfolio with greater than 90 percent but less than or equal to 100 percent refreshed combined loan-to-value (CLTV) comprised six percent and seven percent of the home equity portfolio at December 31, 2015 and 2014. Outstanding balances with refreshed CLTV greater than 100 percent comprised 11 percent and 14 percent of the home equity portfolio at December 31, 2015 and 2014. Outstanding balances in the home equity portfolio with a refreshed CLTV greater than 100 percent reflect loans where our loan and available line of credit combined with any outstanding senior liens against the property are equal to or greater than the most recent valuation of the property securing the loan. Depending on the value of the property, there may be collateral in excess of the first-lien that is available to reduce the severity of loss on the second-lien. Of those outstanding balances with a refreshed CLTV greater than 100 percent, 96 percent of the customers were current on their home equity loan and 92 percent of second-lien loans with a refreshed CLTV greater than 100 percent were current on both their second-lien and underlying first-lien loans at December 31, 2015. Outstanding balances in the home equity portfolio to borrowers with a refreshed FICO score below 620 represented Bank of America 2015 69 seven percent of the home equity portfolio at both December 31, 2015 and 2014. Of the $71.3 billion in total home equity portfolio outstandings at December 31, 2015, as shown in Table 29, 66 percent were interest-only loans, almost all of which were HELOCs. The outstanding balance of HELOCs that have entered the amortization period was $9.7 billion, or 15 percent of total HELOCs at December 31, 2015. The HELOCs that have entered the amortization period have experienced a higher percentage of early stage delinquencies and nonperforming status when compared to the HELOC portfolio as a whole. At December 31, 2015, $226 million, or two percent of outstanding HELOCs that had entered the amortization period were accruing past due 30 days or more compared to $561 million, or one percent for the entire HELOC portfolio. In addition, at December 31, 2015, $1.3 billion, or 14 percent of outstanding HELOCs that had entered the amortization period were nonperforming, of which $507 million were contractually current, compared to $3.1 billion, or five percent for the entire HELOC portfolio, of which $1.2 billion were contractually current. Loans in our HELOC portfolio generally have an initial draw period of 10 years and 44 percent of these loans will enter the amortization period in 2016 and 2017 and will be required to make fully-amortizing payments. We communicate to contractually current customers more than a year prior to the end of their draw period to inform them of the potential change to the payment structure before entering the amortization period, and provide payment options to customers prior to the end of the draw period. Although we do not actively track how many of our home equity customers pay only the minimum amount due on their home equity loans and lines, we can infer some of this information through a review of our HELOC portfolio that we service and that is still in its revolving period (i.e., customers may draw on and repay their line of credit, but are generally only required to pay interest on a monthly basis). During 2015, approximately 39 percent of these customers with an outstanding balance did not pay any principal on their HELOCs. Table 29 presents outstandings, nonperforming balances and net charge-offs by certain state concentrations for the home equity portfolio. In the New York area, the New York-Northern New Jersey- Long Island MSA made up 13 percent and 12 percent of the outstanding home equity portfolio at December 31, 2015 and 2014. Loans within this MSA contributed 13 percent and 14 percent of net charge-offs in 2015 and 2014 within the home equity portfolio. The Los Angeles-Long Beach-Santa Ana MSA within California made up 12 percent of the outstanding home equity portfolio at both December 31, 2015 and 2014. Loans within this MSA contributed two percent and four percent of net charge-offs in 2015 and 2014 within the home equity portfolio. Table 29 Home Equity State Concentrations (Dollars in millions) California Florida (3) New Jersey (3) New York (3) Massachusetts Other U.S./Non-U.S. Home equity loans (4) Purchased credit-impaired home equity portfolio (5) $ $ December 31 Outstandings (1) Nonperforming (1) Net Charge-offs (2) 2015 2014 2015 2014 2015 2014 $ $ 20,356 8,474 5,570 5,249 3,378 28,302 71,329 4,619 75,948 23,250 9,633 5,883 5,671 3,655 32,016 80,108 5,617 85,725 $ $ 902 518 230 316 115 1,256 3,337 $ $ 1,012 574 299 387 148 1,481 3,901 $ $ 57 128 51 61 17 322 636 $ $ 118 170 68 81 30 440 907 Total home equity loan portfolio $ (1) Outstandings and nonperforming loans exclude loans accounted for under the fair value option. (2) Net charge-offs exclude $174 million of write-offs in the home equity PCI loan portfolio in 2015 compared to $265 million in 2014. For more information on PCI write-offs, see Consumer Portfolio $ Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 71. In these states, foreclosure requires a court order following a legal proceeding (judicial states). (3) (4) Amount excludes the PCI home equity portfolio. (5) Twenty-nine percent of PCI home equity loans were in California at both December 31, 2015 and 2014. There were no other significant single state concentrations. 70 Bank of America 2015 seven percent of the home equity portfolio at both December 31, period to inform them of the potential change to the payment 2015 and 2014. structure before entering the amortization period, and provide Of the $71.3 billion in total home equity portfolio outstandings payment options to customers prior to the end of the draw period. at December 31, 2015, as shown in Table 29, 66 percent were Although we do not actively track how many of our home equity interest-only loans, almost all of which were HELOCs. The customers pay only the minimum amount due on their home equity outstanding balance of HELOCs that have entered the amortization loans and lines, we can infer some of this information through a period was $9.7 billion, or 15 percent of total HELOCs at review of our HELOC portfolio that we service and that is still in December 31, 2015. The HELOCs that have entered the its revolving period (i.e., customers may draw on and repay their amortization period have experienced a higher percentage of early line of credit, but are generally only required to pay interest on a stage delinquencies and nonperforming status when compared to monthly basis). During 2015, approximately 39 percent of these the HELOC portfolio as a whole. At December 31, 2015, $226 customers with an outstanding balance did not pay any principal million, or two percent of outstanding HELOCs that had entered on their HELOCs. the amortization period were accruing past due 30 days or more Table 29 presents outstandings, nonperforming balances and compared to $561 million, or one percent for the entire HELOC net charge-offs by certain state concentrations for the home equity portfolio. In addition, at December 31, 2015, $1.3 billion, or 14 portfolio. In the New York area, the New York-Northern New Jersey- percent of outstanding HELOCs that had entered the amortization Long Island MSA made up 13 percent and 12 percent of the period were nonperforming, of which $507 million were outstanding home equity portfolio at December 31, 2015 and contractually current, compared to $3.1 billion, or five percent for 2014. Loans within this MSA contributed 13 percent and 14 the entire HELOC portfolio, of which $1.2 billion were contractually percent of net charge-offs in 2015 and 2014 within the home current. Loans in our HELOC portfolio generally have an initial draw equity portfolio. The Los Angeles-Long Beach-Santa Ana MSA period of 10 years and 44 percent of these loans will enter the within California made up 12 percent of the outstanding home amortization period in 2016 and 2017 and will be required to make equity portfolio at both December 31, 2015 and 2014. Loans fully-amortizing payments. We communicate to contractually within this MSA contributed two percent and four percent of net current customers more than a year prior to the end of their draw charge-offs in 2015 and 2014 within the home equity portfolio. Table 29 Home Equity State Concentrations (Dollars in millions) California Florida (3) New Jersey (3) New York (3) Massachusetts Other U.S./Non-U.S. Home equity loans (4) December 31 Outstandings (1) Nonperforming (1) Net Charge-offs (2) 2015 2014 2015 2014 2015 2014 $ 20,356 $ 23,250 $ $ 1,012 $ 902 518 230 316 115 574 299 387 148 57 128 51 61 17 322 636 $ $ 118 170 68 81 30 440 907 32,016 80,108 $ 1,256 3,337 $ 1,481 3,901 $ 8,474 5,570 5,249 3,378 28,302 71,329 4,619 75,948 $ $ 9,633 5,883 5,671 3,655 $ $ 5,617 85,725 (2) Net charge-offs exclude $174 million of write-offs in the home equity PCI loan portfolio in 2015 compared to $265 million in 2014. For more information on PCI write-offs, see Consumer Portfolio Purchased credit-impaired home equity portfolio (5) Total home equity loan portfolio (1) Outstandings and nonperforming loans exclude loans accounted for under the fair value option. Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 71. (3) In these states, foreclosure requires a court order following a legal proceeding (judicial states). (4) Amount excludes the PCI home equity portfolio. (5) Twenty-nine percent of PCI home equity loans were in California at both December 31, 2015 and 2014. There were no other significant single state concentrations. Purchased Credit-impaired Loan Portfolio Loans acquired with evidence of credit quality deterioration since origination and for which it is probable at purchase that we will be unable to collect all contractually required payments are accounted for under the accounting guidance for PCI loans, which addresses accounting for differences between contractual and expected cash flows to be collected from the purchaser’s initial investment in loans if those differences are attributable, at least in part, to credit quality. For more information on PCI loans, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. Table 30 presents the unpaid principal balance, carrying value, related valuation allowance and the net carrying value as a percentage of the unpaid principal balance for the PCI loan portfolio. Table 30 Purchased Credit-impaired Loan Portfolio (Dollars in millions) Residential mortgage Home equity Total purchased credit-impaired loan portfolio Residential mortgage Home equity Total purchased credit-impaired loan portfolio December 31, 2015 Unpaid Principal Balance Gross Carrying Value Related Valuation Allowance Carrying Value Net of Valuation Allowance Percent of Unpaid Principal Balance $ $ $ $ 12,350 4,650 17,000 15,726 5,605 21,331 $ $ $ $ 12,066 4,619 16,685 $ $ 338 466 804 $ $ 11,728 4,153 15,881 December 31, 2014 $ $ 880 772 1,652 $ $ 15,152 5,617 20,769 14,272 4,845 19,117 94.96% 89.31 93.42 90.75% 86.44 89.62 The total PCI unpaid principal balance decreased $4.3 billion, or 20 percent, in 2015 primarily driven by sales, payoffs, paydowns and write-offs. During 2015, we sold PCI loans with a carrying value of $1.4 billion compared to sales of $1.9 billion in 2014. Of the unpaid principal balance of $17.0 billion at December 31, 2015, $14.7 billion, or 86 percent, was current based on the contractual terms, $1.2 billion, or seven percent, was in early stage delinquency, and $800 million was 180 days or more past due, including $707 million of first-lien mortgages and $93 million of home equity loans. During 2015, we recorded a provision benefit of $40 million for the PCI loan portfolio which included an expense of $92 million for residential mortgage and a benefit of $132 million for home equity. This compared to a total provision benefit of $31 million in 2014. The provision benefit in 2015 was primarily driven by lower default estimates. The PCI valuation allowance declined $848 million during 2015 due to write-offs in the PCI loan portfolio of $634 million in residential mortgage and $174 million in home equity, combined with a provision benefit of $40 million. Purchased Credit-impaired Residential Mortgage Loan Portfolio The PCI residential mortgage loan portfolio represented 72 percent of the total PCI loan portfolio at December 31, 2015. Those loans to borrowers with a refreshed FICO score below 620 represented 31 percent of the PCI residential mortgage loan portfolio at December 31, 2015. Loans with a refreshed LTV greater than 90 percent, after consideration of purchase accounting adjustments and the related valuation allowance, represented 28 percent of the PCI residential mortgage loan portfolio and 33 percent based on the unpaid principal balance at December 31, 2015. Pay option adjustable-rate mortgages, which are included in the PCI residential mortgage portfolio, have interest rates that adjust monthly and minimum required payments that adjust annually. During an initial five- or ten-year period, minimum required payments may increase by no more than 7.5 percent. If payments are insufficient to pay all of the monthly interest charges, unpaid interest is added to the loan balance (i.e., negative amortization) until the loan balance increases to a specified limit, at which time a new monthly payment amount adequate to repay the loan over its remaining contractual life is established. At December 31, 2015, the unpaid principal balance of pay option loans was $2.4 billion, with a carrying value of $2.3 billion. The total unpaid principal balance of pay option loans with accumulated negative amortization was $503 million, including $28 million of negative amortization. We believe the majority of borrowers that are now making scheduled payments are able to do so primarily because the low rate environment has caused the fully indexed rates to be affordable to more borrowers. We continue to evaluate our exposure to payment resets on the acquired negative-amortizing loans and have taken into consideration several assumptions including prepayment and default rates. Of the loans in the pay option portfolio at December 31, 2015 that have not already experienced a payment reset, 54 percent are expected to reset in 2016 and 22 percent are expected to reset thereafter. In addition, four percent are expected to prepay and approximately 20 percent are expected to default prior to being reset, most of which were severely delinquent as of December 31, 2015. We no longer originate pay option loans. Purchased Credit-impaired Home Equity Loan Portfolio The PCI home equity portfolio represented 28 percent of the total PCI loan portfolio at December 31, 2015. Those loans with a refreshed FICO score below 620 represented 16 percent of the PCI home equity portfolio at December 31, 2015. Loans with a refreshed CLTV greater than 90 percent, after consideration of purchase accounting adjustments and the related valuation allowance, represented 57 percent of the PCI home equity portfolio and 60 percent based on the unpaid principal balance at December 31, 2015. 70 Bank of America 2015 Bank of America 2015 71 U.S. Credit Card At December 31, 2015, 97 percent of the U.S. credit card portfolio was managed in Consumer Banking with the remainder managed in GWIM. Outstandings in the U.S. credit card portfolio decreased $2.3 billion in 2015 due to portfolio divestitures. Net charge-offs decreased $324 million to $2.3 billion in 2015 due to improvements in delinquencies and bankruptcies as a result of an improved economic environment and the impact of higher credit quality originations. U.S. credit card loans 30 days or more past due and still accruing interest decreased $126 million while loans 90 days or more past due and still accruing interest decreased $77 million in 2015 as a result of the factors mentioned above that contributed to lower net charge-offs. Unused lines of credit for U.S. credit card totaled $312.5 billion and $305.9 billion at December 31, 2015 and 2014. The $6.6 billion increase was driven by account growth and line of credit increases. Table 32 U.S. Credit Card State Concentrations Table 31 presents certain key credit statistics for the U.S. credit card portfolio. Table 31 U.S. Credit Card – Key Credit Statistics (Dollars in millions) Outstandings Accruing past due 30 days or more Accruing past due 90 days or more December 31 2015 $ 89,602 1,575 789 2014 $ 91,879 1,701 866 2015 2014 Net charge-offs Net charge-off ratios (1) (1) Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans. 2.62% 2,638 2,314 2.96% $ $ Table 32 presents certain state concentrations for the U.S. credit card portfolio. (Dollars in millions) California Florida Texas New York Washington Other U.S. Total U.S. credit card portfolio December 31 Outstandings Accruing Past Due 90 Days or More Net Charge-offs 2015 2014 2015 2014 2015 2014 $ $ 13,658 7,420 6,620 5,547 3,907 52,450 89,602 $ $ 13,682 7,530 6,586 5,655 3,907 54,519 91,879 $ $ 115 81 58 57 19 459 789 $ $ 127 89 58 59 22 511 866 $ $ 358 244 157 162 59 1,334 2,314 $ $ 414 278 177 174 71 1,524 2,638 Non-U.S. Credit Card Outstandings in the non-U.S. credit card portfolio, which are recorded in All Other, decreased $490 million in 2015 due to a weakening of the British Pound against the U.S. Dollar. Net charge- offs decreased $54 million to $188 million in 2015 due to improvement in delinquencies as a result of higher credit quality originations and an improved economic environment. Unused lines of credit for non-U.S. credit card totaled $27.9 billion and $28.2 billion at December 31, 2015 and 2014. The $271 million decrease was driven by weakening of the British Pound against the U.S. Dollar, partially offset by account growth and lines of credit increases. Table 33 presents certain key credit statistics for the non-U.S. credit card portfolio. Table 33 Non-U.S. Credit Card – Key Credit Statistics (Dollars in millions) Outstandings Accruing past due 30 days or more Accruing past due 90 days or more December 31 $ 2015 9,975 146 76 2014 $ 10,465 183 95 2015 2014 Net charge-offs Net charge-off ratios (1) (1) Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans. 188 1.86% 242 2.10% $ $ 72 Bank of America 2015 U.S. Credit Card Table 31 presents certain key credit statistics for the U.S. credit At December 31, 2015, 97 percent of the U.S. credit card portfolio card portfolio. was managed in Consumer Banking with the remainder managed in GWIM. Outstandings in the U.S. credit card portfolio decreased $2.3 billion in 2015 due to portfolio divestitures. Net charge-offs decreased $324 million to $2.3 billion in 2015 due to improvements in delinquencies and bankruptcies as a result of an improved economic environment and the impact of higher credit quality originations. U.S. credit card loans 30 days or more past due and still accruing interest decreased $126 million while loans 90 days or more past due and still accruing interest decreased $77 million in 2015 as a result of the factors mentioned above that contributed to lower net charge-offs. Unused lines of credit for U.S. credit card totaled $312.5 billion and $305.9 billion at December 31, 2015 and 2014. The $6.6 billion increase was driven by account growth and line of credit increases. Table 32 U.S. Credit Card State Concentrations (Dollars in millions) California Florida Texas New York Washington Other U.S. Non-U.S. Credit Card Outstandings in the non-U.S. credit card portfolio, which are recorded in All Other, decreased $490 million in 2015 due to a weakening of the British Pound against the U.S. Dollar. Net charge- offs decreased $54 million to $188 million in 2015 due to improvement in delinquencies as a result of higher credit quality originations and an improved economic environment. Unused lines of credit for non-U.S. credit card totaled $27.9 billion and $28.2 billion at December 31, 2015 and 2014. The $271 million decrease was driven by weakening of the British Pound against the U.S. Dollar, partially offset by account growth and lines of credit increases. Table 31 U.S. Credit Card – Key Credit Statistics (Dollars in millions) Outstandings Accruing past due 30 days or more Accruing past due 90 days or more Net charge-offs Net charge-off ratios (1) December 31 2015 2014 $ 89,602 $ 91,879 1,575 789 1,701 866 2015 2014 $ 2,314 $ 2,638 2.62% 2.96% (1) Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans. Table 32 presents certain state concentrations for the U.S. credit card portfolio. December 31 Outstandings Net Charge-offs Accruing Past Due 90 Days or More 2015 2014 2015 2014 2015 2014 $ 13,658 $ 13,682 $ 115 $ 127 $ $ 7,420 6,620 5,547 3,907 52,450 89,602 $ 7,530 6,586 5,655 3,907 54,519 81 58 57 19 459 789 358 244 157 162 59 414 278 177 174 71 1,334 2,314 $ 1,524 2,638 $ 89 58 59 22 511 866 Table 33 presents certain key credit statistics for the non-U.S. credit card portfolio. Table 33 Non-U.S. Credit Card – Key Credit Statistics (Dollars in millions) Outstandings Accruing past due 30 days or more Accruing past due 90 days or more Net charge-offs Net charge-off ratios (1) December 31 2015 2014 $ 9,975 $ 10,465 146 76 183 95 2015 2014 $ 188 $ 1.86% 242 2.10% (1) Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans. Total U.S. credit card portfolio $ 91,879 $ $ Direct/Indirect Consumer At December 31, 2015, approximately 50 percent of the direct/ indirect portfolio was included in GWIM (principally securities- based lending loans), 49 percent was included in Consumer Banking (consumer auto and specialty lending – automotive, marine, aircraft, recreational vehicle loans and consumer personal loans) and the remainder was primarily student loans in All Other. Outstandings in the direct/indirect portfolio increased $8.4 billion in 2015 as growth in the consumer auto portfolio and growth in securities-based lending were partially offset by lower outstandings in the unsecured consumer lending portfolio. Net charge-offs decreased $57 million to $112 million in 2015, or 0.13 percent of total average direct/indirect loans, compared Table 34 Direct/Indirect State Concentrations to $169 million, or 0.20 percent, in 2014. This decrease in net charge-offs was primarily driven by improvements in delinquencies and bankruptcies in the unsecured consumer lending portfolio as a result of an improved economic environment as well as reduced outstandings in this portfolio. Direct/indirect loans that were past due 90 days or more and still accruing interest declined $25 million to $39 million in 2015 due to decreases in the unsecured consumer lending, and consumer auto and specialty lending portfolios. Table 34 presents certain state concentrations for the direct/ indirect consumer loan portfolio. (Dollars in millions) California Florida Texas New York Illinois Other U.S./Non-U.S. Total direct/indirect loan portfolio December 31 Outstandings Accruing Past Due 90 Days or More Net Charge-offs 2015 2014 2015 2014 2015 2014 $ $ 10,735 8,835 8,514 5,077 2,906 52,728 88,795 $ $ 9,770 7,930 7,741 4,458 2,550 47,932 80,381 $ $ 3 3 4 1 1 27 39 $ $ 5 5 5 2 2 45 64 $ $ 8 20 17 3 3 61 112 $ $ 18 27 19 9 5 91 169 Other Consumer At December 31, 2015, approximately 66 percent of the $2.1 billion other consumer portfolio was consumer auto leases included in Consumer Banking. The remainder is primarily associated with certain consumer finance businesses that we previously exited. Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity Table 35 presents nonperforming consumer loans, leases and foreclosed properties activity during 2015 and 2014. Nonperforming LHFS are excluded from nonperforming loans as they are recorded at either fair value or the lower of cost or fair value. Nonperforming loans do not include past due consumer credit card loans, other unsecured loans and in general, consumer non-real estate-secured loans (loans discharged in Chapter 7 bankruptcy are included) as these loans are typically charged off no later than the end of the month in which the loan becomes 180 days past due. The charge-offs on these loans have no impact on nonperforming activity and, accordingly, are excluded from this table. The fully-insured loan portfolio is not reported as nonperforming as principal repayment is insured. Additionally, nonperforming loans do not include the PCI loan portfolio or loans accounted for under the fair value option. For more information on nonperforming loans, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. During 2015, nonperforming consumer loans declined $2.7 billion to $8.2 billion and included the impact of sales of $1.7 billion, partially offset by a net increase of $186 million related to the impact of the consumer relief portion of the DoJ Settlement for those loans that are no longer fully insured. Excluding these, nonperforming loans declined as outflows, including the transfer of certain qualifying borrowers discharged in a Chapter 7 bankruptcy to performing status, outpaced new inflows. The outstanding balance of a real estate-secured loan that is in excess of the estimated property value less costs to sell is charged off no later than the end of the month in which the loan becomes 180 days past due unless repayment of the loan is fully insured. At December 31, 2015, $3.8 billion, or 44 percent of nonperforming consumer real estate loans and foreclosed properties had been written down to their estimated property value less costs to sell, including $3.3 billion of nonperforming loans 180 days or more past due and $444 million of foreclosed properties. In addition, at December 31, 2015, $3.0 billion, or 35 percent of nonperforming consumer loans were modified and are now current after successful trial periods, or are current loans classified as nonperforming loans in accordance with applicable policies. Foreclosed properties decreased $186 million in 2015 as liquidations outpaced additions. PCI loans are excluded from nonperforming loans as these loans were written down to fair value at the acquisition date; however, once the underlying real estate is acquired by the Corporation upon foreclosure of the delinquent PCI loan, it is included in foreclosed properties. PCI-related foreclosed properties increased $39 million in 2015. Not included in foreclosed properties at December 31, 2015 was $1.4 billion of real estate that was acquired upon foreclosure of certain delinquent government-guaranteed loans (principally FHA-insured loans). We exclude these amounts from our nonperforming loans and foreclosed properties activity as we expect we will be reimbursed once the property is conveyed to the guarantor for principal and, up to certain limits, costs incurred during the foreclosure process and interest incurred during the holding period. 72 Bank of America 2015 Bank of America 2015 73 Restructured Loans Nonperforming loans also include certain loans that have been modified in TDRs where economic concessions have been granted to borrowers experiencing financial difficulties. These concessions typically result from the Corporation’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructuring and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. Nonperforming TDRs, excluding those modified loans in the PCI loan portfolio, are included in Table 35. Table 35 Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity (1) (Dollars in millions) Nonperforming loans and leases, January 1 Additions to nonperforming loans and leases: New nonperforming loans and leases Reductions to nonperforming loans and leases: Paydowns and payoffs Sales Returns to performing status (2) Charge-offs Transfers to foreclosed properties (3) Transfers to loans held-for-sale Total net reductions to nonperforming loans and leases Total nonperforming loans and leases, December 31 (4) Foreclosed properties, January 1 Additions to foreclosed properties: New foreclosed properties (3) Reductions to foreclosed properties: Sales Write-downs Total net additions (reductions) to foreclosed properties Total foreclosed properties, December 31 (5) Nonperforming consumer loans, leases and foreclosed properties, December 31 Nonperforming consumer loans and leases as a percentage of outstanding consumer loans and leases (6) Nonperforming consumer loans, leases and foreclosed properties as a percentage of outstanding consumer loans, leases and foreclosed properties (6) 2015 2014 $ 10,819 $ 15,840 4,949 7,077 (1,018) (1,674) (2,710) (1,769) (432) — (2,654) 8,165 630 (1,625) (4,129) (3,277) (2,187) (672) (208) (5,021) 10,819 533 606 1,011 (686) (106) (186) 444 8,609 $ (829) (85) 97 630 11,449 1.80% 2.22% 1.89 2.35 $ (1) Balances do not include nonperforming LHFS of $5 million and $7 million and nonaccruing TDRs removed from the PCI loan portfolio prior to January 1, 2010 of $38 million and $102 million at December 31, 2015 and 2014 as well as loans accruing past due 90 days or more as presented in Table 23 and Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements. (2) Consumer loans may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection. (3) New foreclosed properties represents transfers of nonperforming loans to foreclosed properties net of charge-offs taken during the first 90 days after transfer of a loan to foreclosed properties. New foreclosed properties also includes properties obtained upon foreclosure of delinquent PCI loans, properties repurchased due to representations and warranties exposure and properties acquired with newly consolidated subsidiaries. (4) At December 31, 2015, 41 percent of nonperforming loans were 180 days or more past due. (5) Foreclosed property balances do not include properties insured by certain government-guaranteed loans, principally FHA-insured loans, of $1.4 billion and $1.1 billion at December 31, 2015 and 2014. (6) Outstanding consumer loans and leases exclude loans accounted for under the fair value option. Our policy is to record any losses in the value of foreclosed properties as a reduction in the allowance for loan and lease losses during the first 90 days after transfer of a loan to foreclosed properties. Thereafter, further losses in value as well as gains and losses on sale are recorded in noninterest expense. New foreclosed properties included in Table 35 are net of $162 million and $191 million of charge-offs and write-offs of PCI loans in 2015 and 2014, recorded during the first 90 days after transfer. We classify junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. At December 31, 2015 and 2014, $484 million and $800 million of such junior-lien home equity loans were included in nonperforming loans and leases. This decline was driven by overall portfolio improvement as well as $75 million of charge-offs related to the consumer relief portion of the DoJ Settlement. 74 Bank of America 2015 Restructured Loans forgiveness of principal, forbearance or other actions. Certain Table 36 presents TDRs for the consumer real estate portfolio. Performing TDR balances are excluded from nonperforming loans Nonperforming loans also include certain loans that have been TDRs are classified as nonperforming at the time of restructuring modified in TDRs where economic concessions have been granted and may only be returned to performing status after considering to borrowers experiencing financial difficulties. These concessions the borrower’s sustained repayment performance for a reasonable typically result from the Corporation’s loss mitigation activities and period, generally six months. Nonperforming TDRs, excluding those could include reductions in the interest rate, payment extensions, modified loans in the PCI loan portfolio, are included in Table 35. Table 35 Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity (1) (Dollars in millions) Nonperforming loans and leases, January 1 Additions to nonperforming loans and leases: New nonperforming loans and leases Reductions to nonperforming loans and leases: Paydowns and payoffs Sales Returns to performing status (2) Charge-offs Transfers to foreclosed properties (3) Transfers to loans held-for-sale Total net reductions to nonperforming loans and leases Total nonperforming loans and leases, December 31 (4) Foreclosed properties, January 1 Additions to foreclosed properties: New foreclosed properties (3) Reductions to foreclosed properties: Sales Write-downs Total net additions (reductions) to foreclosed properties Total foreclosed properties, December 31 (5) 2015 2014 $ 10,819 $ 15,840 4,949 7,077 (1,018) (1,674) (2,710) (1,769) (432) — (2,654) 8,165 630 (686) (106) (186) 444 (1,625) (4,129) (3,277) (2,187) (672) (208) (5,021) 10,819 533 (829) (85) 97 630 606 1,011 Nonperforming consumer loans, leases and foreclosed properties, December 31 Nonperforming consumer loans and leases as a percentage of outstanding consumer loans and leases (6) Nonperforming consumer loans, leases and foreclosed properties as a percentage of outstanding consumer loans, leases and foreclosed properties (6) $ 8,609 $ 11,449 1.80% 2.22% 1.89 2.35 (1) Balances do not include nonperforming LHFS of $5 million and $7 million and nonaccruing TDRs removed from the PCI loan portfolio prior to January 1, 2010 of $38 million and $102 million at December 31, 2015 and 2014 as well as loans accruing past due 90 days or more as presented in Table 23 and Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements. (2) Consumer loans may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection. (3) New foreclosed properties represents transfers of nonperforming loans to foreclosed properties net of charge-offs taken during the first 90 days after transfer of a loan to foreclosed properties. New foreclosed properties also includes properties obtained upon foreclosure of delinquent PCI loans, properties repurchased due to representations and warranties exposure and properties acquired with newly consolidated subsidiaries. (4) At December 31, 2015, 41 percent of nonperforming loans were 180 days or more past due. 2014. (6) Outstanding consumer loans and leases exclude loans accounted for under the fair value option. (5) Foreclosed property balances do not include properties insured by certain government-guaranteed loans, principally FHA-insured loans, of $1.4 billion and $1.1 billion at December 31, 2015 and Our policy is to record any losses in the value of foreclosed We classify junior-lien home equity loans as nonperforming properties as a reduction in the allowance for loan and lease losses when the first-lien loan becomes 90 days past due even if the during the first 90 days after transfer of a loan to foreclosed junior-lien loan is performing. At December 31, 2015 and 2014, properties. Thereafter, further losses in value as well as gains and $484 million and $800 million of such junior-lien home equity losses on sale are recorded in noninterest expense. New loans were included in nonperforming loans and leases. This foreclosed properties included in Table 35 are net of $162 million decline was driven by overall portfolio improvement as well as $75 and $191 million of charge-offs and write-offs of PCI loans in 2015 million of charge-offs related to the consumer relief portion of the and 2014, recorded during the first 90 days after transfer. DoJ Settlement. 74 Bank of America 2015 and leases in Table 35. Table 36 Consumer Real Estate Troubled Debt Restructurings (Dollars in millions) Residential mortgage (1, 2) Home equity (3) Total consumer real estate troubled debt restructurings December 31 Total 18,372 2,686 21,058 $ $ 2015 Nonperforming 3,284 $ 1,649 4,933 $ $ $ Performing Total 15,088 1,037 16,125 $ $ 23,270 2,358 25,628 2014 Nonperforming 4,529 $ 1,595 6,124 $ $ $ Performing 18,741 763 19,504 (1) Residential mortgage TDRs deemed collateral dependent totaled $4.9 billion and $5.8 billion, and included $2.7 billion and $3.6 billion of loans classified as nonperforming and $2.2 billion and $2.2 billion of loans classified as performing at December 31, 2015 and 2014. (2) Residential mortgage performing TDRs included $8.7 billion and $11.9 billion of loans that were fully-insured at December 31, 2015 and 2014. (3) Home equity TDRs deemed collateral dependent totaled $1.6 billion and $1.6 billion, and included $1.3 billion and $1.4 billion of loans classified as nonperforming and $290 million and $178 million of loans classified as performing at December 31, 2015 and 2014. In addition to modifying consumer real estate loans, we work with customers who are experiencing financial difficulty by modifying credit card and other consumer loans. Credit card and other consumer loan modifications generally involve a reduction in the customer’s interest rate on the account and placing the customer on a fixed payment plan not exceeding 60 months, all of which are considered TDRs (the renegotiated TDR portfolio). In addition, the accounts of non-U.S. credit card customers who do not qualify for a fixed payment plan may have their interest rates reduced, as required by certain local jurisdictions. These modifications, which are also TDRs, tend to experience higher payment default rates given that the borrowers may lack the ability to repay even with the interest rate reduction. In all cases, the customer’s available line of credit is canceled. Modifications of credit card and other consumer loans are primarily made through internal renegotiation programs utilizing direct customer contact, but may also utilize external renegotiation programs. The renegotiated TDR portfolio is excluded in large part from Table 35 as substantially all of the loans remain on accrual status until either charged off or paid in full. At December 31, 2015 and 2014, our renegotiated TDR portfolio was $779 million and $1.1 billion, of which $635 million and $907 million were current or less than 30 days past due under the modified terms. The decline in the renegotiated TDR portfolio was primarily driven by paydowns and charge-offs as well as lower program enrollments. For more information on the renegotiated TDR portfolio, see Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements. Commercial Portfolio Credit Risk Management Credit risk management for the commercial portfolio begins with an assessment of the credit risk profile of the borrower or counterparty based on an analysis of its financial position. As part of the overall credit risk assessment, our commercial credit exposures are assigned a risk rating and are subject to approval based on defined credit approval standards. Subsequent to loan origination, risk ratings are monitored on an ongoing basis, and if necessary, adjusted to reflect changes in the financial condition, cash flow, risk profile or outlook of a borrower or counterparty. In making credit decisions, we consider risk rating, collateral, country, industry and single name concentration limits while also balancing this with the total borrower or counterparty relationship. Our business and risk management personnel use a variety of tools to continuously monitor the ability of a borrower or counterparty to perform under its obligations. We use risk rating aggregations to measure and evaluate concentrations within portfolios. In addition, risk ratings are a factor in determining the level of allocated capital and the allowance for credit losses. As part of our ongoing risk mitigation initiatives, we attempt to work with clients experiencing financial difficulty to modify their loans to terms that better align with their current ability to pay. In situations where an economic concession has been granted to a borrower experiencing financial difficulty, we identify these loans as TDRs. For more information on our accounting policies regarding delinquencies, nonperforming status and net charge-offs for the commercial portfolio, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. Management of Commercial Credit Risk Concentrations Commercial credit risk is evaluated and managed with the goal that concentrations of credit exposure do not result in undesirable levels of risk. We review, measure and manage concentrations of credit exposure by industry, product, geography, customer relationship and loan size. We also review, measure and manage commercial real estate loans by geographic location and property type. In addition, within our non-U.S. portfolio, we evaluate exposures by region and by country. Tables 41, 46, 52 and 53 summarize our concentrations. We also utilize syndications of exposure to third parties, loan sales, hedging and other risk mitigation techniques to manage the size and risk profile of the commercial credit portfolio. For more information on our industry concentrations, including our utilized exposure to the energy sector which was two percent of total loans and leases at December 31, 2015, see Commercial Portfolio Credit Risk Management – Industry Concentrations on page 81 and Table 46. We account for certain large corporate loans and loan commitments, including issued but unfunded letters of credit which are considered utilized for credit risk management purposes, that exceed our single name credit risk concentration guidelines under the fair value option. Lending commitments, both funded and unfunded, are actively managed and monitored, and as appropriate, credit risk for these lending relationships may be mitigated through the use of credit derivatives, with the Corporation’s credit view and market perspectives determining the size and timing of the hedging activity. In addition, we purchase credit protection to cover the funded portion as well as the unfunded portion of certain other credit exposures. To lessen the cost of obtaining our desired credit protection levels, credit exposure may be added within an industry, borrower or counterparty group by selling protection. These credit derivatives do not meet the requirements for treatment as accounting hedges. Bank of America 2015 75 They are carried at fair value with changes in fair value recorded in other income (loss). In addition, the Corporation is a member of various securities and derivative exchanges and clearinghouses, both in the U.S. and other countries. As a member, the Corporation may be required to pay a pro-rata share of the losses incurred by some of these organizations as a result of another member default and under other loss scenarios. For additional information, see Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. Commercial Credit Portfolio During 2015, credit quality among large corporate borrowers remained stable except in the energy sector which experienced some deterioration due to the sustained drop in oil prices. Credit quality of commercial real estate borrowers continued to improve as property valuations increased and vacancy rates remained low. Outstanding commercial loans and leases increased $54.0 billion, primarily in U.S. commercial, non-U.S. commercial and Table 37 Commercial Loans and Leases commercial real estate. Nonperforming commercial loans and leases increased $112 million during 2015. Nonperforming commercial loans and leases as a percentage of outstanding loans and leases, excluding loans accounted for under the fair value option, decreased during 2015 to 0.27 percent from 0.29 percent at December 31, 2014. Reservable criticized balances increased $4.9 billion to $16.5 billion during 2015 as a result of downgrades outpacing paydowns and upgrades. The increase in reservable criticized balances was primarily due to our energy exposure as the credit quality of certain borrowers was impacted by the sustained drop in oil prices. The allowance for loan and lease losses for the commercial portfolio increased $412 million to $4.8 billion at December 31, 2015 compared to December 31, 2014. For additional information, see Allowance for Credit Losses on page 86. Table 37 presents our commercial loans and leases portfolio, and related credit quality information at December 31, 2015 and 2014. (Dollars in millions) U.S. commercial Commercial real estate (1) Commercial lease financing Non-U.S. commercial U.S. small business commercial (2) Commercial loans excluding loans accounted for under the fair value option Loans accounted for under the fair value option (3) Total commercial loans and leases December 31 Outstandings Nonperforming Accruing Past Due 90 Days or More 2015 $ 252,771 57,199 27,370 91,549 428,889 12,876 441,765 5,067 $ 446,832 2014 $ 220,293 47,682 24,866 80,083 372,924 13,293 386,217 6,604 $ 392,821 $ $ 2015 2014 2015 2014 867 93 12 158 1,130 82 1,212 13 1,225 $ $ 701 321 3 1 1,026 87 1,113 — 1,113 $ $ 113 3 17 1 134 61 195 — 195 $ $ 110 3 41 — 154 67 221 — 221 (1) (2) Includes U.S. commercial real estate loans of $53.6 billion and $45.2 billion and non-U.S. commercial real estate loans of $3.5 billion and $2.5 billion at December 31, 2015 and 2014. Includes card-related products. (3) Commercial loans accounted for under the fair value option include U.S. commercial loans of $2.3 billion and $1.9 billion and non-U.S. commercial loans of $2.8 billion and $4.7 billion at December 31, 2015 and 2014. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements. Table 38 presents net charge-offs and related ratios for our commercial loans and leases for 2015 and 2014. The increase in net charge-offs of $110 million in 2015 was primarily related to higher recoveries in commercial real estate in 2014 and higher energy sector related losses in 2015. Table 38 Commercial Net Charge-offs and Related Ratios (Dollars in millions) U.S. commercial Commercial real estate Commercial lease financing Non-U.S. commercial U.S. small business commercial Total commercial Net Charge-offs Net Charge-off Ratios (1) 2015 2014 2015 2014 $ $ 139 (5) 9 54 197 225 422 $ $ 88 (83) (9) 34 30 282 312 0.06% (0.01) 0.04 0.06 0.05 1.71 0.10 0.04% (0.18) (0.04) 0.04 0.01 2.10 0.08 (1) Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans and leases excluding loans accounted for under the fair value option. 76 Bank of America 2015 They are carried at fair value with changes in fair value recorded commercial real estate. Nonperforming commercial loans and in other income (loss). leases increased $112 million during 2015. Nonperforming In addition, the Corporation is a member of various securities commercial loans and leases as a percentage of outstanding loans and derivative exchanges and clearinghouses, both in the U.S. and and leases, excluding loans accounted for under the fair value other countries. As a member, the Corporation may be required to option, decreased during 2015 to 0.27 percent from 0.29 percent pay a pro-rata share of the losses incurred by some of these at December 31, 2014. Reservable criticized balances increased organizations as a result of another member default and under $4.9 billion to $16.5 billion during 2015 as a result of downgrades other loss scenarios. For additional information, see Note 12 – outpacing paydowns and upgrades. The increase in reservable Commitments and Contingencies to the Consolidated Financial criticized balances was primarily due to our energy exposure as Statements. Table 39 presents commercial credit exposure by type for utilized, unfunded and total binding committed credit exposure. Commercial utilized credit exposure includes SBLCs and financial guarantees, bankers’ acceptances and commercial letters of credit for which we are legally bound to advance funds under prescribed conditions, during a specified time period. Although funds have not yet been advanced, these exposure types are considered utilized for credit risk management purposes. Table 39 Commercial Credit Exposure by Type Total commercial utilized credit exposure increased $52.9 billion in 2015 primarily driven by growth in loans and leases. The utilization rate for loans and leases, SBLCs and financial guarantees, commercial letters of credit and bankers acceptances, in the aggregate, was 56 percent and 57 percent at December 31, 2015 and 2014. (Dollars in millions) Loans and leases Derivative assets (4) Standby letters of credit and financial guarantees Debt securities and other investments Loans held-for-sale Commercial letters of credit Bankers’ acceptances Foreclosed properties and other Total Commercial Utilized (1) December 31 Commercial Unfunded (2, 3) Total Commercial Committed 2015 $ 446,832 49,990 33,236 21,709 5,456 1,725 298 317 $ 559,563 2014 $ 392,821 52,682 33,550 17,301 7,036 2,037 255 960 $ 506,642 2015 $ 376,478 — 690 4,173 1,203 390 — — $ 382,934 2014 $ 317,258 — 745 5,315 2,315 126 — — $ 325,759 2015 $ 823,310 49,990 33,926 25,882 6,659 2,115 298 317 $ 942,497 2014 $ 710,079 52,682 34,295 22,616 9,351 2,163 255 960 $ 832,401 (1) Total commercial utilized exposure includes loans of $5.1 billion and $6.6 billion and issued letters of credit with a notional amount of $290 million and $535 million accounted for under the fair value option at December 31, 2015 and 2014. (2) Total commercial unfunded exposure includes loan commitments accounted for under the fair value option with a notional amount of $10.6 billion and $9.4 billion at December 31, 2015 and 2014. (3) Excludes unused business card lines which are not legally binding. (4) Derivative assets are carried at fair value, reflect the effects of legally enforceable master netting agreements and have been reduced by cash collateral of $41.9 billion and $47.3 billion at December 31, 2015 and 2014. Not reflected in utilized and committed exposure is additional non-cash derivative collateral held of $23.3 billion and $23.8 billion which consists primarily of other marketable securities. Table 40 presents commercial utilized reservable criticized exposure by loan type. Criticized exposure corresponds to the Special Mention, Substandard and Doubtful asset categories as defined by regulatory authorities. Total commercial utilized reservable criticized exposure increased $4.9 billion, or 43 percent, in 2015 driven by downgrades primarily related to our energy exposure outpacing paydowns and upgrades. Approximately 78 percent and 87 percent of commercial utilized reservable criticized exposure was secured at December 31, 2015 and 2014. Table 40 Commercial Utilized Reservable Criticized Exposure December 31 2015 2014 Commercial Credit Portfolio During 2015, credit quality among large corporate borrowers remained stable except in the energy sector which experienced some deterioration due to the sustained drop in oil prices. Credit quality of commercial real estate borrowers continued to improve as property valuations increased and vacancy rates remained low. Outstanding commercial loans and leases increased $54.0 billion, primarily in U.S. commercial, non-U.S. commercial and page 86. 2014. Table 37 Commercial Loans and Leases the credit quality of certain borrowers was impacted by the sustained drop in oil prices. The allowance for loan and lease losses for the commercial portfolio increased $412 million to $4.8 billion at December 31, 2015 compared to December 31, 2014. For additional information, see Allowance for Credit Losses on Table 37 presents our commercial loans and leases portfolio, and related credit quality information at December 31, 2015 and (Dollars in millions) U.S. commercial Commercial real estate (1) Commercial lease financing Non-U.S. commercial December 31 Outstandings Nonperforming Accruing Past Due 90 Days or More 2015 2014 2015 2014 2015 2014 $ 252,771 $ 220,293 $ 867 $ $ 113 $ 110 57,199 27,370 91,549 428,889 12,876 441,765 5,067 47,682 24,866 80,083 372,924 13,293 386,217 6,604 93 12 158 1,130 1,212 82 13 701 321 3 1 1,026 1,113 87 — 3 17 1 134 61 195 — 3 41 — 154 67 221 — 221 U.S. small business commercial (2) Commercial loans excluding loans accounted for under the fair value option Loans accounted for under the fair value option (3) Total commercial loans and leases (1) (2) Includes card-related products. Includes U.S. commercial real estate loans of $53.6 billion and $45.2 billion and non-U.S. commercial real estate loans of $3.5 billion and $2.5 billion at December 31, 2015 and 2014. $ 446,832 $ 392,821 $ 1,225 $ 1,113 $ 195 $ (3) Commercial loans accounted for under the fair value option include U.S. commercial loans of $2.3 billion and $1.9 billion and non-U.S. commercial loans of $2.8 billion and $4.7 billion at December 31, 2015 and 2014. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements. Table 38 presents net charge-offs and related ratios for our commercial loans and leases for 2015 and 2014. The increase in net charge-offs of $110 million in 2015 was primarily related to higher recoveries in commercial real estate in 2014 and higher energy sector related losses in 2015. Table 38 Commercial Net Charge-offs and Related Ratios (Dollars in millions) U.S. commercial Commercial real estate Commercial lease financing Non-U.S. commercial U.S. small business commercial Total commercial (1) Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans and leases excluding loans accounted for under the fair value option. $ 139 $ (5) 9 54 197 225 422 $ $ 88 (83) (9) 34 30 282 312 0.06% (0.01) 0.04 0.06 0.05 1.71 0.10 0.04% (0.18) (0.04) 0.04 0.01 2.10 0.08 (1) Total commercial utilized reservable criticized exposure includes loans and leases of $15.1 billion and $10.2 billion and commercial letters of credit of $1.4 billion and $1.3 billion at December 31, 2015 and 2014. (2) Percentages are calculated as commercial utilized reservable criticized exposure divided by total commercial utilized reservable exposure for each exposure category. U.S. Commercial At December 31, 2015, 70 percent of the U.S. commercial loan portfolio, excluding small business, was managed in Global Banking, 17 percent in Global Markets, 10 percent in GWIM (generally business-purpose loans for high net worth clients) and the remainder primarily in Consumer Banking. U.S. commercial loans, excluding loans accounted for under the fair value option, increased $32.5 billion, or 15 percent, during 2015 due to growth across all of the commercial businesses. Nonperforming loans and leases increased $166 million, or 24 percent, in 2015, largely related to our energy exposure. Net charge-offs increased $51 million to $139 million during 2015. 76 Bank of America 2015 Bank of America 2015 77 (Dollars in millions) U.S. commercial Commercial real estate Commercial lease financing Non-U.S. commercial Net Charge-offs Net Charge-off Ratios (1) 2015 2014 2015 2014 U.S. small business commercial Total commercial utilized reservable criticized exposure Amount (1) 9,965 $ 513 1,320 3,944 15,742 766 16,508 $ Percent (2) 3.07% 2.24 4.16 1.03 2.60 7.10 2.74 Amount (1) 7,597 1,108 1,034 887 10,626 944 $ 11,570 3.56% $ 0.87 4.82 4.04 3.39 5.95 3.46 Percent (2) Commercial Real Estate Commercial real estate primarily includes commercial loans and leases secured by non-owner-occupied real estate and is dependent on the sale or lease of the real estate as the primary source of repayment. The portfolio remains diversified across property types and geographic regions. California represented the largest state concentration at 21 percent and 22 percent of the commercial leases portfolio at December 31, 2015 and 2014. The commercial real estate portfolio is predominantly managed in Global Banking and consists of loans made primarily to public and private developers, and commercial real estate firms. Outstanding loans increased $9.5 billion, or 20 percent, during 2015 due to new originations primarily in major metropolitan markets. real estate loans and During 2015, we continued to see improvements in credit quality in both the residential and non-residential portfolios. We Table 41 Outstanding Commercial Real Estate Loans (Dollars in millions) By Geographic Region California Northeast Southwest Southeast Midwest Florida Illinois Midsouth Northwest Non-U.S. Other (1) Total outstanding commercial real estate loans By Property Type Non-residential Office Multi-family rental Shopping centers/retail Industrial/warehouse Hotels/motels Multi-use Unsecured Land and land development Other Total non-residential Residential Total outstanding commercial real estate loans use a number of proactive risk mitigation initiatives to reduce adversely rated exposure in the commercial real estate portfolio including transfers of deteriorating exposures to management by independent special asset officers and the pursuit of loan restructurings or asset sales to achieve the best results for our customers and the Corporation. Nonperforming commercial real estate loans and foreclosed properties decreased $280 million, or 72 percent, and reservable criticized balances decreased $595 million, or 54 percent, during 2015. The decrease in reservable criticized balances was primarily due to loan resolutions and strong commercial real estate fundamentals throughout the year. Net recoveries were $5 million in 2015 compared to net recoveries of $83 million in 2014. Table 41 presents outstanding commercial real estate loans by geographic region, based on the geographic location of the collateral, and by property type. December 31 2015 2014 $ $ $ $ 12,063 10,292 7,789 6,066 3,780 3,330 2,536 2,435 2,327 3,549 3,032 57,199 15,246 8,956 8,594 5,501 5,415 3,003 2,056 539 5,791 55,101 2,098 57,199 $ 10,352 8,781 6,570 5,495 2,867 2,520 2,785 1,724 2,151 2,494 1,943 $ 47,682 $ 13,306 8,382 7,969 4,550 3,578 1,943 1,194 490 4,560 45,972 1,710 $ 47,682 (1) Includes unsecured loans to real estate investment trusts and national home builders whose portfolios of properties span multiple geographic regions and properties in the states of Colorado, Utah, Hawaii, Wyoming and Montana. 78 Bank of America 2015 Commercial Real Estate Commercial real estate primarily includes commercial loans and leases secured by non-owner-occupied real estate and is dependent on the sale or lease of the real estate as the primary source of repayment. The portfolio remains diversified across use a number of proactive risk mitigation initiatives to reduce adversely rated exposure in the commercial real estate portfolio including transfers of deteriorating exposures to management by independent special asset officers and the pursuit of loan restructurings or asset sales to achieve the best results for our property types and geographic regions. California represented the customers and the Corporation. largest state concentration at 21 percent and 22 percent of the commercial real estate loans and leases portfolio at December 31, 2015 and 2014. The commercial real estate portfolio is predominantly managed in Global Banking and consists of loans made primarily to public and private developers, and commercial real estate firms. Outstanding loans increased $9.5 Nonperforming commercial real estate loans and foreclosed properties decreased $280 million, or 72 percent, and reservable criticized balances decreased $595 million, or 54 percent, during 2015. The decrease in reservable criticized balances was primarily due to loan resolutions and strong commercial real estate fundamentals throughout the year. Net recoveries were $5 million billion, or 20 percent, during 2015 due to new originations primarily in 2015 compared to net recoveries of $83 million in 2014. in major metropolitan markets. Table 41 presents outstanding commercial real estate loans During 2015, we continued to see improvements in credit by geographic region, based on the geographic location of the quality in both the residential and non-residential portfolios. We collateral, and by property type. Table 41 Outstanding Commercial Real Estate Loans Total outstanding commercial real estate loans (Dollars in millions) By Geographic Region California Northeast Southwest Southeast Midwest Florida Illinois Midsouth Northwest Non-U.S. Other (1) By Property Type Non-residential Office Multi-family rental Shopping centers/retail Industrial/warehouse Hotels/motels Multi-use Unsecured Land and land development Other Residential Total non-residential Hawaii, Wyoming and Montana. December 31 2015 2014 $ 12,063 $ 10,352 $ 57,199 $ 47,682 $ 15,246 $ 13,306 10,292 7,789 6,066 3,780 3,330 2,536 2,435 2,327 3,549 3,032 8,956 8,594 5,501 5,415 3,003 2,056 539 5,791 55,101 2,098 8,781 6,570 5,495 2,867 2,520 2,785 1,724 2,151 2,494 1,943 8,382 7,969 4,550 3,578 1,943 1,194 490 4,560 45,972 1,710 Total outstanding commercial real estate loans $ 57,199 $ 47,682 (1) Includes unsecured loans to real estate investment trusts and national home builders whose portfolios of properties span multiple geographic regions and properties in the states of Colorado, Utah, Tables 42 and 43 present commercial real estate credit quality data by non-residential and residential property types. The residential portfolio presented in Tables 41, 42 and 43 includes condominiums and other residential real estate. Other property types in Tables 41, 42 and 43 primarily include special purpose, nursing/retirement homes, medical facilities and restaurants. Table 42 Commercial Real Estate Credit Quality Data (Dollars in millions) Non-residential Office Multi-family rental Shopping centers/retail Industrial/warehouse Hotels/motels Multi-use Unsecured Land and land development Other Total non-residential Residential Total commercial real estate December 31 Nonperforming Loans and Foreclosed Properties (1) Utilized Reservable Criticized Exposure (2) 2015 2014 2015 2014 $ $ 14 18 12 6 18 15 1 2 8 94 14 108 $ $ 177 21 46 42 3 11 1 51 14 366 22 388 $ $ 110 69 183 16 16 42 4 3 59 502 11 513 $ $ 235 125 350 67 26 55 14 63 145 1,080 28 1,108 (1) (2) Includes commercial foreclosed properties of $15 million and $67 million at December 31, 2015 and 2014. Includes loans, SBLCs and bankers’ acceptances and excludes loans accounted for under the fair value option. Table 43 Commercial Real Estate Net Charge-offs and Related Ratios (Dollars in millions) Non-residential Net Charge-offs Net Charge-off Ratios (1) 2015 2014 2015 2014 $ Office Multi-family rental Shopping centers/retail Industrial/warehouse Hotels/motels Multi-use Unsecured Land and land development Other 3 1 1 (1) 5 (4) (4) (9) 1 (7) 2 (5) $ (1) Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans excluding loans accounted for under the fair value option. Total commercial real estate Total non-residential Residential $ $ (4) (22) 4 (1) (3) (9) (22) (2) (16) (75) (8) (83) 0.02% 0.01 0.01 (0.02) 0.12 (0.19) (0.20) (1.60) 0.01 (0.01) 0.08 (0.01) (0.04)% (0.25) 0.06 (0.03) (0.07) (0.49) (1.37) (0.31) (0.37) (0.16) (0.47) (0.18) At December 31, 2015, total committed non-residential exposure was $81.0 billion compared to $67.7 billion at December 31, 2014, of which $55.1 billion and $46.0 billion were funded loans. Non-residential nonperforming loans and foreclosed properties declined $272 million, or 74 percent, to $94 million during 2015 primarily due to a decrease in office property. The non-residential nonperforming loans and foreclosed properties represented 0.17 percent and 0.79 percent of total non-residential loans and foreclosed properties at December 31, 2015 and 2014. Non-residential utilized reservable criticized exposure decreased $578 million, or 54 percent, to $502 million at December 31, 2015 compared to $1.1 billion at December 31, 2014, which represented 0.89 percent and 2.27 percent of non-residential utilized reservable exposure. For the non-residential portfolio, net recoveries decreased $68 million to $7 million in 2015 compared to 2014. At December 31, 2015, total committed residential exposure was $4.1 billion compared to $3.6 billion at December 31, 2014, of which $2.1 billion and $1.7 billion were funded secured loans. Residential nonperforming loans and foreclosed properties decreased $8 million, or 36 percent, and residential utilized reservable criticized exposure decreased $17 million, or 61 percent, during 2015. The nonperforming loans, leases and foreclosed properties and the utilized reservable criticized ratios for the residential portfolio were 0.66 percent and 0.52 percent at December 31, 2015 compared to 1.28 percent and 1.51 percent at December 31, 2014. At December 31, 2015 and 2014, the commercial real estate loan portfolio included $7.6 billion and $6.7 billion of funded construction and land development loans that were originated to fund the construction and/or rehabilitation of commercial properties. Reservable criticized construction and land development loans totaled $108 million and $164 million, and nonperforming construction and land development loans and foreclosed properties totaled $44 million and $80 million at December 31, 2015 and 2014. During a property’s construction 78 Bank of America 2015 Bank of America 2015 79 phase, interest income is typically paid from interest reserves that are established at the inception of the loan. As construction is completed and the property is put into service, these interest reserves are depleted and interest payments from operating cash flows begin. We do not recognize interest income on nonperforming loans regardless of the existence of an interest reserve. in small business card loan delinquencies, a reduction in higher risk vintages and increased recoveries from the sale of previously charged-off loans. Of the U.S. small business commercial net charge-offs, 81 percent and 73 percent were credit card-related products in 2015 and 2014. Non-U.S. Commercial At December 31, 2015, 74 percent of the non-U.S. commercial loan portfolio was managed in Global Banking and 26 percent in Global Markets. Outstanding loans, excluding loans accounted for under the fair value option, increased $11.5 billion in 2015 primarily due to growth in securitization finance on consumer loans and increased corporate demand. Net charge-offs increased $20 million to $54 million in 2015. For more information on the non- U.S. commercial portfolio, see Non-U.S. Portfolio on page 84. U.S. Small Business Commercial The U.S. small business commercial loan portfolio is comprised of small business card loans and small business loans managed in Consumer Banking. Credit card-related products were 45 percent and 43 percent of the U.S. small business commercial portfolio at December 31, 2015 and 2014. Net charge-offs decreased $57 million to $225 million in 2015 primarily driven by improvement Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity Table 44 presents the nonperforming commercial loans, leases and foreclosed properties activity during 2015 and 2014. Nonperforming loans do not include loans accounted for under the fair value option. During 2015, nonperforming commercial loans and leases increased $99 million to $1.2 billion primarily due to energy sector related exposure. The decline in foreclosed properties of $52 million in 2015 was primarily due to the sale of properties. Approximately 88 commercial nonperforming loans, leases and foreclosed properties were secured and approximately 69 percent were contractually current. Commercial nonperforming loans were carried at approximately 85 percent of their unpaid principal balance before consideration of the allowance for loan and lease losses as the carrying value of these loans has been reduced to the estimated property value less costs to sell. percent of Table 44 Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity (1, 2) (Dollars in millions) Nonperforming loans and leases, January 1 Additions to nonperforming loans and leases: New nonperforming loans and leases Advances Reductions to nonperforming loans and leases: Paydowns Sales Returns to performing status (3) Charge-offs Transfers to foreclosed properties (4) Total net additions (reductions) to nonperforming loans and leases Total nonperforming loans and leases, December 31 Foreclosed properties, January 1 Additions to foreclosed properties: New foreclosed properties (4) Reductions to foreclosed properties: Sales Write-downs Total net reductions to foreclosed properties Total foreclosed properties, December 31 Nonperforming commercial loans, leases and foreclosed properties, December 31 Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases (5) Nonperforming commercial loans, leases and foreclosed properties as a percentage of outstanding commercial loans, leases and foreclosed properties (5) 2015 2014 $ 1,113 $ 1,309 1,367 36 (491) (108) (130) (362) (213) 99 1,212 67 1,228 48 (717) (149) (261) (332) (13) (196) 1,113 90 207 11 (256) (3) (52) 15 1,227 (26) (8) (23) 67 1,180 $ 0.27% 0.29% $ 0.28 0.31 (1) Balances do not include nonperforming LHFS of $220 million and $212 million at December 31, 2015 and 2014. (2) Includes U.S. small business commercial activity. Small business card loans are excluded as they are not classified as nonperforming. (3) Commercial loans and leases may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection. TDRs are generally classified as performing after a sustained period of demonstrated payment performance. (4) New foreclosed properties represents transfers of nonperforming loans to foreclosed properties net of charge-offs recorded during the first 90 days after transfer of a loan to foreclosed properties. (5) Outstanding commercial loans exclude loans accounted for under the fair value option. 80 Bank of America 2015 phase, interest income is typically paid from interest reserves that in small business card loan delinquencies, a reduction in higher are established at the inception of the loan. As construction is risk vintages and increased recoveries from the sale of previously completed and the property is put into service, these interest charged-off loans. Of the U.S. small business commercial net reserves are depleted and interest payments from operating cash charge-offs, 81 percent and 73 percent were credit card-related Table 45 presents our commercial TDRs by product type and performing status. U.S. small business commercial TDRs are comprised of renegotiated small business card loans and small business loans. The renegotiated small business card loans are not classified as nonperforming as they are charged off no later than the end of the month in which the loan becomes 180 days past due. For more information on TDRs, see Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements. flows begin. We do not recognize interest income on nonperforming products in 2015 and 2014. loans regardless of the existence of an interest reserve. Non-U.S. Commercial At December 31, 2015, 74 percent of the non-U.S. commercial loan portfolio was managed in Global Banking and 26 percent in Global Markets. Outstanding loans, excluding loans accounted for under the fair value option, increased $11.5 billion in 2015 primarily due to growth in securitization finance on consumer loans and increased corporate demand. Net charge-offs increased $20 million to $54 million in 2015. For more information on the non- U.S. commercial portfolio, see Non-U.S. Portfolio on page 84. U.S. Small Business Commercial The U.S. small business commercial loan portfolio is comprised of small business card loans and small business loans managed in Consumer Banking. Credit card-related products were 45 percent and 43 percent of the U.S. small business commercial portfolio at December 31, 2015 and 2014. Net charge-offs decreased $57 million to $225 million in 2015 primarily driven by improvement Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity Table 44 presents the nonperforming commercial loans, leases and foreclosed properties activity during 2015 and 2014. Nonperforming loans do not include loans accounted for under the fair value option. During 2015, nonperforming commercial loans and leases increased $99 million to $1.2 billion primarily due to energy sector related exposure. The decline in foreclosed properties of $52 million in 2015 was primarily due to the sale of properties. Approximately 88 percent of commercial nonperforming loans, leases and foreclosed properties were secured and approximately 69 percent were contractually current. Commercial nonperforming loans were carried at approximately 85 percent of their unpaid principal balance before consideration of the allowance for loan and lease losses as the carrying value of these loans has been reduced to the estimated property value less costs to sell. Table 44 Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity (1, 2) (Dollars in millions) Nonperforming loans and leases, January 1 Additions to nonperforming loans and leases: New nonperforming loans and leases Reductions to nonperforming loans and leases: Advances Paydowns Sales Charge-offs Returns to performing status (3) Foreclosed properties, January 1 Additions to foreclosed properties: New foreclosed properties (4) Reductions to foreclosed properties: Sales Write-downs Total net reductions to foreclosed properties Total foreclosed properties, December 31 Transfers to foreclosed properties (4) Total net additions (reductions) to nonperforming loans and leases Total nonperforming loans and leases, December 31 2015 2014 $ 1,113 $ 1,309 1,367 36 (491) (108) (130) (362) (213) 1,212 99 67 207 (256) (3) (52) 15 1,228 48 (717) (149) (261) (332) (13) (196) 1,113 90 11 (26) (8) (23) 67 Nonperforming commercial loans, leases and foreclosed properties, December 31 Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases (5) Nonperforming commercial loans, leases and foreclosed properties as a percentage of outstanding commercial loans, leases and foreclosed properties (5) $ 1,227 $ 1,180 0.27% 0.29% 0.28 0.31 (1) Balances do not include nonperforming LHFS of $220 million and $212 million at December 31, 2015 and 2014. (2) Includes U.S. small business commercial activity. Small business card loans are excluded as they are not classified as nonperforming. (3) Commercial loans and leases may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection. TDRs are generally classified as performing after a sustained period of demonstrated payment performance. (4) New foreclosed properties represents transfers of nonperforming loans to foreclosed properties net of charge-offs recorded during the first 90 days after transfer of a loan to foreclosed properties. (5) Outstanding commercial loans exclude loans accounted for under the fair value option. Table 45 Commercial Troubled Debt Restructurings (Dollars in millions) U.S. commercial Commercial real estate Non-U.S. commercial U.S. small business commercial Total commercial troubled debt restructurings Total 1,225 118 363 29 1,735 $ $ 2015 Nonperforming 394 $ 27 136 10 567 $ December 31 Performing 831 $ 91 227 19 1,168 $ Total 1,096 456 43 35 1,630 $ $ 2014 Nonperforming 308 $ 234 — — 542 $ Performing 788 $ 222 43 35 1,088 $ Industry Concentrations Table 46 presents commercial committed and utilized credit exposure by industry and the total net credit default protection purchased to cover the funded and unfunded portions of certain credit exposures. Our commercial credit exposure is diversified across a broad range of industries. Total commercial committed credit exposure increased $110.1 billion, or 13 percent, in 2015 to $942.5 billion. Increases in commercial committed exposure were concentrated in diversified financials, technology hardware and equipment, real estate, food, beverage and tobacco and retailing. Industry limits are used internally to manage industry concentrations and are based on committed exposures and capital usage that are allocated on an industry-by-industry basis. A risk management framework is in place to set and approve industry limits as well as to provide ongoing monitoring. Diversified financials, our largest industry concentration with committed exposure of $128.4 billion, increased $24.9 billion, or 24 percent, in 2015. The increase was primarily driven by growth in exposure to asset managers, acquisition financing and certain asset-backed lending products. Real estate, our second largest industry concentration with committed exposure of $87.7 billion, increased $11.5 billion, or 15 percent, in 2015. The increase was primarily due to strong demand for quality core assets in major metropolitan markets. Real estate construction and land development exposure represented 14 percent and 13 percent of the total real estate industry committed exposure at December 31, 2015 and 2014. For more information on the commercial real estate and related portfolios, see Commercial Portfolio Credit Risk Management – Commercial Real Estate on page 78. During 2015, committed exposure to the technology hardware and equipment industry increased $12.4 billion, or 100 percent, food, beverages and tobacco increased $8.7 billion, or 25 percent, and retailing industry increased $5.9 billion, or 10 percent, primarily driven by bridge financing for acquisitions and increased client activity. The significant decline in oil prices since June 2014 has impacted and may continue to impact the financial performance of energy producers as well as energy equipment and service providers within the energy sector. At December 31, 2015, these two subsectors comprised 39 percent of our overall utilized energy exposure. While we experienced modest credit losses in our energy portfolio through December 31, 2015, the magnitude of the impact over time will depend upon the level and duration of future oil prices. Our energy-related exposure decreased $3.9 billion in 2015 to $43.8 billion driven by paydowns from large clients. 80 Bank of America 2015 Bank of America 2015 81 Our committed state and municipal exposure of $43.4 billion at December 31, 2015 consisted of $35.9 billion of commercial utilized exposure (including $20.0 billion of funded loans, $6.4 billion of SBLCs and $2.2 billion of derivative assets) and $7.5 billion of unfunded commercial exposure (primarily unfunded loan commitments and letters of credit) and is reported in the government and public education industry in Table 46. With the U.S. economy gradually strengthening, most state and local governments are experiencing improved fiscal circumstances and continue to honor debt obligations as agreed. While historical default rates have been low, as part of our overall and ongoing risk management processes, we continually monitor these exposures through a rigorous review process. Additionally, internal communications are regularly circulated such that exposure levels are maintained in compliance with established concentration guidelines. Table 46 Commercial Credit Exposure by Industry (1) December 31 Commercial Utilized Total Commercial Committed (Dollars in millions) Diversified financials Real estate (2) Retailing Capital goods Healthcare equipment and services Banking Government and public education Materials Energy Food, beverage and tobacco Consumer services Commercial services and supplies Utilities Transportation Technology hardware and equipment Media Individuals and trusts Software and services Pharmaceuticals and biotechnology Automobiles and components Consumer durables and apparel Insurance, including monolines Telecommunication services Food and staples retailing Religious and social organizations Other 2015 $ 79,496 61,759 37,675 30,790 35,134 45,952 44,835 24,012 21,257 18,316 24,084 19,552 11,396 19,369 6,337 12,833 17,992 6,617 6,302 4,804 6,053 5,095 4,717 4,351 4,526 6,309 $ 559,563 2014 $ 63,306 53,834 33,683 29,028 32,923 42,330 42,095 23,664 23,830 16,131 21,657 17,997 9,399 17,538 5,489 11,128 16,749 5,927 5,707 4,114 6,111 5,204 3,814 3,848 4,881 6,255 $ 506,642 2015 $ 128,436 87,650 63,975 58,583 57,901 53,825 53,133 46,013 43,811 43,164 37,058 32,045 27,849 27,371 24,734 24,194 23,176 18,362 16,472 11,329 11,165 10,728 10,645 9,439 5,929 15,510 $ 942,497 2014 $ 103,528 76,153 58,043 54,653 52,450 48,353 49,937 45,821 47,667 34,465 33,269 30,451 25,235 24,541 12,350 21,502 21,195 14,071 13,493 9,683 10,613 11,252 9,295 7,418 6,548 10,415 $ 832,401 (7,302) Total commercial credit exposure by industry Net credit default protection purchased on total commitments (3) Includes U.S. small business commercial exposure. Industries are viewed from a variety of perspectives to best isolate the perceived risks. For purposes of this table, the real estate industry is defined based on the borrowers’ or counterparties’ primary business activity using operating cash flows and primary source of repayment as key factors. (6,677) $ $ (1) (2) (3) Represents net notional credit protection purchased. For additional information, see Commercial Portfolio Credit Risk Management – Risk Mitigation on page 82. Risk Mitigation We purchase credit protection to cover the funded portion as well as the unfunded portion of certain credit exposures. To lower the cost of obtaining our desired credit protection levels, we may add credit exposure within an industry, borrower or counterparty group by selling protection. At December 31, 2015 and 2014, net notional credit default protection purchased in our credit derivatives portfolio to hedge our funded and unfunded exposures for which we elected the fair value option, as well as certain other credit exposures, was $6.7 billion and $7.3 billion. We recorded net gains of $150 million in 2015 compared to net losses of $50 million in 2014 on these positions. The gains and losses on these instruments were offset by gains and losses on the related exposures. The Value-at-Risk (VaR) results for these exposures are included in the fair value option portfolio information in Table 56. For additional information, see Trading Risk Management on page 91. 82 Bank of America 2015 Tables 47 and 48 present the maturity profiles and the credit exposure debt ratings of the net credit default protection portfolio at December 31, 2015 and 2014. Table 47 Net Credit Default Protection by Maturity Less than or equal to one year Greater than one year and less than or equal to five years Greater than five years Total net credit default protection December 31 2015 2014 39% 43% 59 2 100% 55 2 100% Our committed state and municipal exposure of $43.4 billion governments are experiencing improved fiscal circumstances and at December 31, 2015 consisted of $35.9 billion of commercial continue to honor debt obligations as agreed. While historical utilized exposure (including $20.0 billion of funded loans, $6.4 default rates have been low, as part of our overall and ongoing billion of SBLCs and $2.2 billion of derivative assets) and $7.5 risk management processes, we continually monitor these billion of unfunded commercial exposure (primarily unfunded loan exposures through a rigorous review process. Additionally, internal commitments and letters of credit) and is reported in the communications are regularly circulated such that exposure levels government and public education industry in Table 46. With the are maintained in compliance with established concentration U.S. economy gradually strengthening, most state and local guidelines. Table 46 Commercial Credit Exposure by Industry (1) (Dollars in millions) Diversified financials Real estate (2) Retailing Capital goods Healthcare equipment and services Government and public education Banking Materials Energy Food, beverage and tobacco Consumer services Commercial services and supplies Technology hardware and equipment Utilities Transportation Media Individuals and trusts Software and services Pharmaceuticals and biotechnology Automobiles and components Consumer durables and apparel Insurance, including monolines Telecommunication services Food and staples retailing Religious and social organizations December 31 Commercial Utilized Total Commercial Committed 2015 2014 2015 2014 $ 79,496 $ 63,306 $ 128,436 $ 103,528 61,759 37,675 30,790 35,134 45,952 44,835 24,012 21,257 18,316 24,084 19,552 11,396 19,369 6,337 12,833 17,992 6,617 6,302 4,804 6,053 5,095 4,717 4,351 4,526 6,309 53,834 33,683 29,028 32,923 42,330 42,095 23,664 23,830 16,131 21,657 17,997 9,399 17,538 5,489 11,128 16,749 5,927 5,707 4,114 6,111 5,204 3,814 3,848 4,881 6,255 87,650 63,975 58,583 57,901 53,825 53,133 46,013 43,811 43,164 37,058 32,045 27,849 27,371 24,734 24,194 23,176 18,362 16,472 11,329 11,165 10,728 10,645 9,439 5,929 15,510 76,153 58,043 54,653 52,450 48,353 49,937 45,821 47,667 34,465 33,269 30,451 25,235 24,541 12,350 21,502 21,195 14,071 13,493 9,683 10,613 11,252 9,295 7,418 6,548 10,415 $ 559,563 $ 506,642 $ 942,497 $ 832,401 $ (6,677) $ (7,302) Industries are viewed from a variety of perspectives to best isolate the perceived risks. For purposes of this table, the real estate industry is defined based on the borrowers’ or counterparties’ primary business activity using operating cash flows and primary source of repayment as key factors. (3) Represents net notional credit protection purchased. For additional information, see Commercial Portfolio Credit Risk Management – Risk Mitigation on page 82. Other (1) (2) Total commercial credit exposure by industry Net credit default protection purchased on total commitments (3) Includes U.S. small business commercial exposure. Risk Mitigation We purchase credit protection to cover the funded portion as well as the unfunded portion of certain credit exposures. To lower the cost of obtaining our desired credit protection levels, we may add credit exposure within an industry, borrower or counterparty group by selling protection. At December 31, 2015 and 2014, net notional credit default protection purchased in our credit derivatives portfolio to hedge billion and $7.3 billion. We recorded net gains of $150 million in 2015 compared to net losses of $50 million in 2014 on these positions. The gains and losses on these instruments were offset by gains and losses on the related exposures. The Value-at-Risk (VaR) results for these exposures are included in the fair value option portfolio information in Table 56. For additional information, see Trading Risk Management on page 91. 82 Bank of America 2015 Tables 47 and 48 present the maturity profiles and the credit exposure debt ratings of the net credit default protection portfolio at December 31, 2015 and 2014. Table 47 Net Credit Default Protection by Maturity our funded and unfunded exposures for which we elected the fair Less than or equal to one year value option, as well as certain other credit exposures, was $6.7 Greater than one year and less than or equal to five years Greater than five years Total net credit default protection December 31 2015 2014 39% 43% 59 2 55 2 100% 100% Table 48 Net Credit Default Protection by Credit Exposure Debt Rating December 31 2015 2014 Net Notional (1) Percent of Total Net Notional (1) Percent of Total $ — (752) (3,030) (2,090) (634) (139) (32) —% $ 11.3 45.4 31.3 9.5 2.1 0.4 (30) (660) (4,401) (1,527) (610) (42) (32) 0.4% 9.0 60.3 20.9 8.4 0.6 0.4 $ (6,677) 100.0% $ (7,302) 100.0% (Dollars in millions) Ratings (2, 3) AA A BBB BB B CCC and below NR (4) Total net credit default protection (1) Represents net credit default protection (purchased) sold. (2) Ratings are refreshed on a quarterly basis. (3) Ratings of BBB- or higher are considered to meet the definition of investment grade. (4) NR is comprised of index positions held and any names that have not been rated. In addition to our net notional credit default protection purchased to cover the funded and unfunded portion of certain credit exposures, credit derivatives are used for market-making activities for clients and establishing positions intended to profit from directional or relative value changes. We execute the majority of our credit derivative trades in the OTC market with large, multinational financial institutions, including broker-dealers and, to a lesser degree, with a variety of other investors. Because these transactions are executed in the OTC market, we are subject to settlement risk. We are also subject to credit risk in the event that these counterparties fail to perform under the terms of these contracts. In most cases, credit derivative transactions are executed on a daily margin basis. Therefore, events such as a credit downgrade, depending on the ultimate rating level, or a breach of credit covenants would typically require an increase in the amount of collateral required by the counterparty, where applicable, and/or allow us to take additional protective measures such as early termination of all trades. Table 49 presents the total contract/notional amount of credit derivatives outstanding and includes both purchased and written credit derivatives. The credit risk amounts are measured as net asset exposure by counterparty, taking into consideration all contracts with the counterparty. For more information on our written credit derivatives, see Note 2 – Derivatives to the Consolidated Financial Statements. The credit risk amounts discussed above and presented in Table 49 take into consideration the effects of legally enforceable master netting agreements while amounts disclosed in Note 2 – Derivatives to the Consolidated Financial Statements are shown on a gross basis. Credit risk reflects the potential benefit from offsetting exposure to non-credit derivative products with the same counterparties that may be netted upon the occurrence of certain events, thereby reducing our overall exposure. Table 49 Credit Derivatives (Dollars in millions) Purchased credit derivatives: Credit default swaps Total return swaps/other Total purchased credit derivatives Written credit derivatives: Credit default swaps Total return swaps/other Total written credit derivatives n/a = not applicable Counterparty Credit Risk Valuation Adjustments We record counterparty credit risk valuation adjustments on certain derivative assets, including our credit default protection purchased, in order to properly reflect the credit risk of the counterparty, as presented in Table 50. We calculate CVA based on a modeled expected exposure that incorporates current market risk factors including changes in market spreads and non-credit related market factors that affect the value of a derivative. The exposure also takes into consideration credit mitigants such as legally enforceable master netting agreements and collateral. For additional information, see Note 2 – Derivatives to the Consolidated Financial Statements. We enter into risk management activities to offset market driven exposures. We often hedge the counterparty spread risk in December 31 2015 2014 Contract/ Notional Credit Risk Contract/ Notional Credit Risk $ $ $ $ 928,300 26,427 954,727 $ $ 3,677 1,596 5,273 $ 1,094,796 44,333 $ 1,139,129 $ $ 3,833 510 4,343 924,143 39,658 963,801 n/a n/a n/a $ 1,073,101 61,031 $ 1,134,132 n/a n/a n/a CVA with credit default swaps (CDS). We hedge other market risks in CVA primarily with currency and interest rate swaps. In certain instances, the net-of-hedge amounts in the table below move in the same direction as the gross amount or may move in the opposite direction. This is a consequence of the complex interaction of the risks being hedged resulting in limitations in the ability to perfectly hedge all of the market exposures at all times. Table 50 Credit Valuation Gains and Losses Gains (Losses) (Dollars in millions) 2015 Hedge Net Gross Credit valuation $ 255 $ (28) $ 227 Gross $ 2014 Hedge Net (22) $ 213 $ 191 Bank of America 2015 83 Non-U.S. Portfolio Our non-U.S. credit and trading portfolios are subject to country risk. We define country risk as the risk of loss from unfavorable economic and political conditions, currency fluctuations, social instability and changes in government policies. A risk management framework is in place to measure, monitor and manage non- U.S. risk and exposures. In addition to the direct risk of doing business in a country, we also are exposed to indirect country risks (e.g., related to the collateral received on secured financing transactions or related to client clearing activities). These indirect exposures are managed in the normal course of business through credit, market and operational risk governance, rather than through country risk governance. Table 51 presents our total non-U.S. exposure by region at December 31, 2015 and 2014. Non-U.S. exposure is presented on an internal risk management basis and includes sovereign and non-sovereign credit exposure, securities and other investments issued by or domiciled in countries other than the U.S. The risk assignments by country can be adjusted for external guarantees and certain collateral types. Exposures that are subject to external guarantees are reported under the country of the guarantor. Exposures with tangible collateral are reflected in the country where the collateral is held. For securities received, other than cross-border resale agreements, outstandings are assigned to the domicile of the issuer of the securities. Table 51 Total Non-U.S. Exposure by Region December 31 2015 2014 (Dollars in millions) Europe Asia Pacific Latin America Middle East and Africa Other (1) Total Amount $ 140,836 75,446 25,478 11,516 18,035 $ 271,311 Percent of Total 52% 28 9 4 7 100% Amount $ 129,573 78,792 23,403 10,801 22,701 $ 265,270 Percent of Total 49% 30 9 4 8 100% (1) Other includes Canada exposure of $16.6 billion and $20.4 billion at December 31, 2015 and 2014. Our increase of $6.0 billion total non-U.S. exposure was $271.3 billion at from December 31, 2015, an December 31, 2014. The increase in non-U.S. exposure was driven by growth in Europe, Latin America, and Middle East and Africa exposures, partially offset by a reduction in Asia Pacific and Other. Our non-U.S. exposure remained concentrated in Europe which accounted for $140.8 billion, or 52 percent of total non-U.S. exposure. The European exposure was mostly in Western Europe and was distributed across a variety of industries. Table 52 presents our 20 largest non-U.S. country exposures. These exposures accounted for 86 percent and 88 percent of our total non-U.S. exposure at December 31, 2015 and 2014. Net country exposure for these 20 countries increased $6.1 billion in 2015 primarily driven by increases in the United Kingdom, Belgium and Australia, partially offset by reductions in Canada, Japan, China, France and Hong Kong. On a product basis, the increase was driven by higher funded loans and loan equivalents in the United Kingdom, Germany, Australia and India and higher unfunded commitments in Belgium and the United Kingdom. These increases were partially offset by reductions in securities in the United Kingdom, Canada, India and France. Funded loans and loan equivalents include loans, leases, and other extensions of credit and funds, including letters of credit and due from placements, which have not been reduced by collateral, hedges or credit default protection. Funded loans and loan equivalents are reported net of charge-offs but prior to any allowance for loan and lease losses. Unfunded commitments are the undrawn portion of legally binding commitments related to loans and loan equivalents. Net counterparty exposure includes the fair value of derivatives, including the counterparty risk associated with CDS, and secured financing transactions. Derivatives exposures are presented net of collateral, which is predominantly cash, pledged under legally enforceable master netting agreements. Secured financing transaction exposures are presented net of eligible cash or securities pledged as collateral. Securities and other investments are carried at fair value and long securities exposures are netted against short exposures with the same underlying issuer to, but not below, zero (i.e., negative issuer exposures are reported as zero). Other investments include our GPI portfolio and strategic investments. Net country exposure represents country exposure less hedges and credit default protection purchased, net of credit default protection sold. We hedge certain of our country exposures with credit default protection primarily in the form of single-name, as well as indexed and tranched CDS. The exposures associated with these hedges represent the amount that would be realized upon the isolated default of an individual issuer in the relevant country assuming a zero recovery rate for that individual issuer, and are calculated based on the CDS notional amount adjusted for any fair value receivable or payable. Changes in the assumption of an isolated default can produce different results in a particular tranche. 84 Bank of America 2015 Non-U.S. Portfolio Our non-U.S. credit and trading portfolios are subject to country risk. We define country risk as the risk of loss from unfavorable economic and political conditions, currency fluctuations, social instability and changes in government policies. A risk management framework is in place to measure, monitor and manage non- U.S. risk and exposures. In addition to the direct risk of doing business in a country, we also are exposed to indirect country risks (e.g., related to the collateral received on secured financing transactions or related to client clearing activities). These indirect exposures are managed in the normal course of business through credit, market and operational risk governance, rather than through country risk governance. Table 51 presents our total non-U.S. exposure by region at December 31, 2015 and 2014. Non-U.S. exposure is presented on an internal risk management basis and includes sovereign and non-sovereign credit exposure, securities and other investments issued by or domiciled in countries other than the U.S. The risk assignments by country can be adjusted for external guarantees and certain collateral types. Exposures that are subject to external guarantees are reported under the country of the guarantor. Exposures with tangible collateral are reflected in the country where the collateral is held. For securities received, other than cross-border resale agreements, outstandings are assigned to the domicile of the issuer of the securities. Table 51 Total Non-U.S. Exposure by Region December 31 2015 2014 Percent of Total Percent of Total (Dollars in millions) Europe Asia Pacific Latin America Middle East and Africa Amount $ 140,836 75,446 25,478 11,516 18,035 Amount $ 129,573 78,792 23,403 10,801 22,701 52% 28 9 4 7 49% 30 9 4 8 (1) Other includes Canada exposure of $16.6 billion and $20.4 billion at December 31, 2015 and $ 271,311 100% $ 265,270 100% Other (1) Total 2014. Our total non-U.S. exposure was $271.3 billion at December 31, 2015, an increase of $6.0 billion from December 31, 2014. The increase in non-U.S. exposure was driven by growth in Europe, Latin America, and Middle East and Africa exposures, partially offset by a reduction in Asia Pacific and Other. Our non-U.S. exposure remained concentrated in Europe which accounted for $140.8 billion, or 52 percent of total non-U.S. exposure. The European exposure was mostly in Western Europe and was distributed across a variety of industries. Table 52 presents our 20 largest non-U.S. country exposures. These exposures accounted for 86 percent and 88 percent of our total non-U.S. exposure at December 31, 2015 and 2014. Net country exposure for these 20 countries increased $6.1 billion in 2015 primarily driven by increases in the United Kingdom, Belgium and Australia, partially offset by reductions in Canada, Japan, China, France and Hong Kong. On a product basis, the increase was driven by higher funded loans and loan equivalents in the United Kingdom, Germany, Australia and India and higher unfunded commitments in Belgium and the United Kingdom. These increases were partially offset by reductions in securities in the United Kingdom, Canada, India and France. Funded loans and loan equivalents include loans, leases, and other extensions of credit and funds, including letters of credit and due from placements, which have not been reduced by collateral, hedges or credit default protection. Funded loans and loan equivalents are reported net of charge-offs but prior to any allowance for loan and lease losses. Unfunded commitments are the undrawn portion of legally binding commitments related to loans and loan equivalents. Net counterparty exposure includes the fair value of derivatives, including the counterparty risk associated with CDS, and secured financing transactions. Derivatives exposures are presented net of collateral, which is predominantly cash, pledged under legally enforceable master netting agreements. Secured financing transaction exposures are presented net of eligible cash or securities pledged as collateral. Securities and other investments are carried at fair value and long securities exposures are netted against short exposures with the same underlying issuer to, but not below, zero (i.e., negative issuer exposures are reported as zero). Other investments include our GPI portfolio and strategic investments. Net country exposure represents country exposure less hedges and credit default protection purchased, net of credit default protection sold. We hedge certain of our country exposures with credit default protection primarily in the form of single-name, as well as indexed and tranched CDS. The exposures associated with these hedges represent the amount that would be realized upon the isolated default of an individual issuer in the relevant country assuming a zero recovery rate for that individual issuer, and are calculated based on the CDS notional amount adjusted for any fair value receivable or payable. Changes in the assumption of an isolated default can produce different results in a particular tranche. Table 52 Top 20 Non-U.S. Countries Exposure (Dollars in millions) United Kingdom Brazil Canada Japan Germany China India Australia France Netherlands Hong Kong South Korea Switzerland Belgium Italy Mexico Singapore Turkey Spain United Arab Emirates Total top 20 non-U.S. countries exposure Funded Loans and Loan Equivalents Unfunded Loan Commitments Net Counterparty Exposure Securities/ Other Investments Country Exposure at December 31 2015 Hedges and Credit Default Protection Net Country Exposure at December 31 2015 Increase (Decrease) from December 31 2014 $ $ 30,268 9,981 5,522 13,381 7,373 9,207 7,045 5,061 2,822 3,329 5,850 4,351 3,337 648 2,933 2,708 2,297 2,996 1,847 2,008 $ 15,086 401 6,695 532 6,389 627 238 2,390 4,795 3,283 273 749 2,947 4,749 1,062 1,327 167 172 677 56 $ 8,923 902 2,279 1,145 2,604 739 363 705 1,392 879 788 674 707 149 1,544 141 481 30 231 1,027 $ 4,194 4,593 2,097 718 1,991 748 2,880 1,737 3,816 1,631 701 1,751 650 185 1,563 1,209 1,843 49 940 37 $ 58,471 15,877 16,593 15,776 18,357 11,321 10,526 9,893 12,825 9,122 7,612 7,525 7,641 5,731 7,102 5,385 4,788 3,247 3,695 3,128 (5,225) $ (227) (1,861) (1,412) (4,953) (847) (172) (348) (4,139) (1,488) (23) (667) (1,378) (263) (1,794) (331) (59) (107) (632) (102) $ 53,246 15,650 14,732 14,364 13,404 10,474 10,354 9,545 8,686 7,634 7,589 6,858 6,263 5,468 5,308 5,054 4,729 3,140 3,063 3,026 7,699 666 (3,808) (2,370) 845 (1,818) (232) 1,872 (1,752) (501) (1,019) 409 (268) 4,260 (91) 783 725 652 (553) 619 $ 122,964 $ 52,615 $ 25,703 $ 33,333 $ 234,615 $ (26,028) $ 208,587 $ 6,118 Weakening of commodity prices, signs of slowing growth in China and a recession in Brazil are driving risk aversion in emerging markets. Net exposure to China decreased to $10.5 billion at December 31, 2015, concentrated large state-owned companies, subsidiaries of multinational corporations and commercial banks. Net exposure to Brazil was $15.7 billion, concentrated in sovereign securities, oil and gas companies and commercial banks. in Russian intervention in Ukraine initiated in 2014 significantly increased regional geopolitical tensions. The Russian economy continues to slow due to the negative impacts of weak oil prices, ongoing economic sanctions and high interest rates resulting from Russian central bank actions taken to counter ruble depreciation. Net exposure to Russia was reduced to $2.2 billion at December 31, 2015, concentrated in oil and gas companies and commercial banks. Our exposure to Ukraine at December 31, 2015 was minimal. In response to Russian actions, U.S. and European governments have imposed sanctions on a limited number of Russian individuals and business entities. Geopolitical and economic conditions remain fluid with potential for further escalation of tensions, increased severity of sanctions against Russian interests, sustained low oil prices and rating agency downgrades. Certain European countries, including Italy, Spain, Ireland and Portugal, have experienced varying degrees of financial stress in recent years. While market conditions have improved in Europe, policymakers continue to address fundamental challenges of competitiveness, growth, deflation and high unemployment. A return of political stress or financial instability in these countries could disrupt financial markets and have a detrimental impact on global economic conditions and sovereign and non-sovereign debt in these countries. Net exposure at December 31, 2015 to Italy and Spain was $5.3 billion and $3.1 billion as presented in Table 52. Net exposure at December 31, 2015 to Ireland and Portugal was $1.0 billion and $54 million. We expect to continue to support client activities in the region and our exposures may vary over time as we monitor the situation and manage our risk profile. Table 53 presents countries where total cross-border exposure exceeded one percent of our total assets. At December 31, 2015, the United Kingdom and France were the only countries where total cross-border exposure exceeded one percent of our total assets. At December 31, 2015, Canada and Germany had total cross- border exposure of $18.3 billion and $16.5 billion representing 0.85 percent and 0.77 percent of our total assets. No other countries had total cross-border exposure that exceeded 0.75 percent of our total assets at December 31, 2015. Cross-border exposures in Table 53 are calculated using Federal Financial Institutions Examination Council (FFIEC) guidelines and not our internal risk management view; therefore, exposures are not comparable between Tables 52 and 53. Exposure includes cross-border claims by our non-U.S. offices including loans, acceptances, time deposits placed, trading account assets, securities, derivative assets, other interest-earning investments and other monetary assets. Amounts also include unfunded commitments, letters of credit and financial guarantees, and the notional amount of cash loaned under secured financing transactions. Sector definitions are consistent with FFIEC reporting requirements for preparing the Country Exposure Report. 84 Bank of America 2015 Bank of America 2015 85 Table 53 Total Cross-border Exposure Exceeding One Percent of Total Assets (Dollars in millions) United Kingdom France December 31 Public Sector Banks Private Sector Cross-border Exposure Exposure as a Percent of Total Assets $ 2015 2014 2015 2014 $ 3,264 11 3,343 4,479 $ 5,104 2,056 1,766 2,631 $ 38,576 34,595 17,099 14,368 46,944 36,662 22,208 21,478 2.19% 1.74 1.04 1.02 Provision for Credit Losses The provision for credit losses increased $886 million to $3.2 billion in 2015 compared to 2014. The provision for credit losses was $1.2 billion lower than net charge-offs for 2015, resulting in a reduction in the allowance for credit losses. This compared to a reduction of $2.1 billion in the allowance for credit losses in 2014. As we look at 2016, reserve releases are expected to decrease from 2015 levels. All else equal, this would result in increased provision expense, assuming sustained stability in underlying asset quality. The provision for credit losses for the consumer portfolio increased $726 million to $2.2 billion in 2015 compared to 2014. The provision for credit losses in 2014 included $400 million of additional costs associated with the consumer relief portion of the DoJ Settlement. Excluding these additional costs, the consumer provision for credit losses increased due to a slower pace of portfolio improvement than in 2014, and also due to a lower level of recoveries on nonperforming loan sales and other recoveries in 2015. Included in the provision is a benefit of $40 million related to the PCI loan portfolio for 2015 compared to a benefit of $31 million in 2014. The provision for credit losses for the commercial portfolio, including unfunded lending commitments, increased $160 million to $953 million in 2015 compared to 2014 driven by energy sector exposure and higher unfunded balances. Allowance for Credit Losses Allowance for Loan and Lease Losses The allowance for loan and lease losses is comprised of two first component covers nonperforming components. The commercial loans and TDRs. The second component covers loans and leases on which there are incurred losses that are not yet individually identifiable, as well as incurred losses that may not be represented in the loss forecast models. We evaluate the adequacy of the allowance for loan and lease losses based on the total of these two components, each of which is described in more detail below. The allowance for loan and lease losses excludes LHFS and loans accounted for under the fair value option as the fair value reflects a credit risk component. The first component of the allowance for loan and lease losses covers both nonperforming commercial loans and all TDRs within the consumer and commercial portfolios. These loans are subject to impairment measurement based on the present value of projected future cash flows discounted at the loan’s original effective interest rate, or in certain circumstances, impairment may also be based upon the collateral value or the loan’s observable market price if available. Impairment measurement for the renegotiated consumer credit card, small business credit card and unsecured consumer TDR portfolios is based on the present 86 Bank of America 2015 value of projected cash flows discounted using the average portfolio contractual interest rate, excluding promotionally priced loans, in effect prior to restructuring. For purposes of computing this specific loss component of the allowance, larger impaired loans are evaluated individually and smaller impaired loans are evaluated as a pool using historical experience for the respective product types and risk ratings of the loans. The second component of the allowance for loan and lease losses covers the remaining consumer and commercial loans and leases that have incurred losses that are not yet individually identifiable. The allowance for consumer and certain homogeneous commercial loan and lease products is based on aggregated portfolio evaluations, generally by product type. Loss forecast models are utilized that consider a variety of factors including, but not limited to, historical loss experience, estimated defaults or foreclosures based on portfolio trends, delinquencies, economic trends and credit scores. Our consumer real estate loss forecast model estimates the portion of loans that will default based on individual loan attributes, the most significant of which are refreshed LTV or CLTV, and borrower credit score as well as vintage and geography, all of which are further broken down into current delinquency status. Additionally, we incorporate the delinquency status of underlying first-lien loans on our junior-lien home equity portfolio in our allowance process. Incorporating refreshed LTV and CLTV into our probability of default allows us to factor the impact of changes in home prices into our allowance for loan and lease losses. These loss forecast models are updated on a quarterly basis to incorporate information reflecting the current economic environment. As of December 31, 2015, the loss forecast process resulted in reductions in the allowance for all major consumer portfolios compared to December 31, 2014. and trends, geographic performance The allowance for commercial loan and lease losses is established by product type after analyzing historical loss experience, internal risk rating, current economic conditions, industry obligor concentrations within each portfolio and any other pertinent information. The statistical models for commercial loans are generally updated annually and utilize our historical database of actual defaults and other data, including external default data. The loan risk ratings and composition of the commercial portfolios used to calculate the allowance are updated quarterly to incorporate the most recent data reflecting the current economic environment. For risk-rated commercial loans, we estimate the probability of default and the LGD based on our historical experience of defaults and credit losses. Factors considered when assessing the internal risk rating include the value of the underlying collateral, if applicable, the industry in which the obligor operates, the obligor’s liquidity and other financial indicators, and other quantitative and qualitative factors relevant to the obligor’s credit risk. As of December 31, 2015, the allowance increased for the Table 53 Total Cross-border Exposure Exceeding One Percent of Total Assets (Dollars in millions) United Kingdom France December 31 Public Sector Banks Private Sector $ 3,264 $ 5,104 $ 38,576 $ 2015 2014 2015 2014 11 3,343 4,479 2,056 1,766 2,631 34,595 17,099 14,368 Cross-border Exposure Exposure as a Percent of Total Assets 46,944 36,662 22,208 21,478 2.19% 1.74 1.04 1.02 Provision for Credit Losses The provision for credit losses increased $886 million to $3.2 billion in 2015 compared to 2014. The provision for credit losses was $1.2 billion lower than net charge-offs for 2015, resulting in a reduction in the allowance for credit losses. This compared to a reduction of $2.1 billion in the allowance for credit losses in 2014. As we look at 2016, reserve releases are expected to decrease from 2015 levels. All else equal, this would result in increased provision expense, assuming sustained stability in underlying asset quality. The provision for credit losses for the consumer portfolio increased $726 million to $2.2 billion in 2015 compared to 2014. The provision for credit losses in 2014 included $400 million of additional costs associated with the consumer relief portion of the DoJ Settlement. Excluding these additional costs, the consumer provision for credit losses increased due to a slower pace of portfolio improvement than in 2014, and also due to a lower level of recoveries on nonperforming loan sales and other recoveries in 2015. Included in the provision is a benefit of $40 million related to the PCI loan portfolio for 2015 compared to a benefit of $31 million in 2014. The provision for credit losses for the commercial portfolio, including unfunded lending commitments, increased $160 million to $953 million in 2015 compared to 2014 driven by energy sector exposure and higher unfunded balances. Allowance for Credit Losses Allowance for Loan and Lease Losses The allowance for loan and lease losses is comprised of two components. The first component covers nonperforming commercial loans and TDRs. The second component covers loans and leases on which there are incurred losses that are not yet individually identifiable, as well as incurred losses that may not be represented in the loss forecast models. We evaluate the adequacy of the allowance for loan and lease losses based on the total of these two components, each of which is described in more detail below. The allowance for loan and lease losses excludes LHFS and loans accounted for under the fair value option as the fair value reflects a credit risk component. The first component of the allowance for loan and lease losses covers both nonperforming commercial loans and all TDRs within the consumer and commercial portfolios. These loans are subject to impairment measurement based on the present value of projected future cash flows discounted at the loan’s original effective interest rate, or in certain circumstances, impairment may also be based upon the collateral value or the loan’s observable market price if available. Impairment measurement for the renegotiated consumer credit card, small business credit card and unsecured consumer TDR portfolios is based on the present 86 Bank of America 2015 value of projected cash flows discounted using the average portfolio contractual interest rate, excluding promotionally priced loans, in effect prior to restructuring. For purposes of computing this specific loss component of the allowance, larger impaired loans are evaluated individually and smaller impaired loans are evaluated as a pool using historical experience for the respective product types and risk ratings of the loans. The second component of the allowance for loan and lease losses covers the remaining consumer and commercial loans and leases that have incurred losses that are not yet individually identifiable. The allowance for consumer and certain homogeneous commercial loan and lease products is based on aggregated portfolio evaluations, generally by product type. Loss forecast models are utilized that consider a variety of factors including, but not limited to, historical loss experience, estimated defaults or foreclosures based on portfolio trends, delinquencies, economic trends and credit scores. Our consumer real estate loss forecast model estimates the portion of loans that will default based on individual loan attributes, the most significant of which are refreshed LTV or CLTV, and borrower credit score as well as vintage and geography, all of which are further broken down into current delinquency status. Additionally, we incorporate the delinquency status of underlying first-lien loans on our junior-lien home equity portfolio in our allowance process. Incorporating refreshed LTV and CLTV into our probability of default allows us to factor the impact of changes in home prices into our allowance for loan and lease losses. These loss forecast models are updated on a quarterly basis to incorporate information reflecting the current economic environment. As of December 31, 2015, the loss forecast process resulted in reductions in the allowance for all major consumer portfolios compared to December 31, 2014. The allowance for commercial loan and lease losses is established by product type after analyzing historical loss experience, internal risk rating, current economic conditions, industry performance trends, geographic and obligor concentrations within each portfolio and any other pertinent information. The statistical models for commercial loans are generally updated annually and utilize our historical database of actual defaults and other data, including external default data. The loan risk ratings and composition of the commercial portfolios used to calculate the allowance are updated quarterly to incorporate the most recent data reflecting the current economic environment. For risk-rated commercial loans, we estimate the probability of default and the LGD based on our historical experience of defaults and credit losses. Factors considered when assessing the internal risk rating include the value of the underlying collateral, if applicable, the industry in which the obligor operates, the obligor’s liquidity and other financial indicators, and other quantitative and qualitative factors relevant to the obligor’s credit risk. As of December 31, 2015, the allowance increased for the U.S. commercial, non-U.S. commercial and commercial lease financing portfolios compared to December 31, 2014. Also included within the second component of the allowance for loan and lease losses are reserves to cover losses that are incurred but, in our assessment, may not be adequately represented in the historical loss data used in the loss forecast models. For example, factors that we consider include, among others, changes in lending policies and procedures, changes in economic and business conditions, changes in the nature and size of the portfolio, changes in portfolio concentrations, changes in the volume and severity of past due loans and nonaccrual loans, the effect of external factors such as competition, and legal and regulatory requirements. We also consider factors that are applicable to unique portfolio segments. For example, we consider the risk of uncertainty in our loss forecasting models related to junior-lien home equity loans that are current, but have first-lien loans that we do not service that are 30 days or more past due. In addition, we consider the increased risk of default associated with our interest-only loans that have yet to enter the amortization period. Further, we consider the in mathematical models that are built upon historical data. inherent uncertainty During 2015, the factors that impacted the allowance for loan and lease losses included overall improvements in the credit quality of the portfolios driven by continuing improvements in the U.S. economy and labor markets, continuing proactive credit risk management initiatives and the impact of recent higher credit quality originations. Additionally, the resolution of uncertainties through current recognition of net charge-offs has impacted the amount of reserve needed in certain portfolios. Evidencing the improvements in the U.S. economy and labor markets are modest growth in consumer spending, improvements in unemployment levels, increases in home prices and a decrease in the absolute level and our share of national consumer bankruptcy filings. In addition to these improvements, in the consumer portfolio, returns to performing status, charge-offs, sales, paydowns and transfers to foreclosed properties continued to outpace new nonaccrual loans. Also impacting the allowance for loan and lease losses in the commercial portfolio were growth in loan balances and higher reservable criticized levels, particularly in the energy sector due primarily to lower oil prices. We monitor differences between estimated and actual incurred loan and lease losses. This monitoring process includes periodic assessments by senior management of loan and lease portfolios and the models used to estimate incurred losses in those portfolios. Additions to, or reductions of, the allowance for loan and lease losses generally are recorded through charges or credits to the provision for credit losses. Credit exposures deemed to be uncollectible are charged against the allowance for loan and lease losses. Recoveries of previously charged off amounts are credited to the allowance for loan and lease losses. The allowance for loan and lease losses for the consumer portfolio, as presented in Table 55, was $7.4 billion at December 31, 2015, a decrease of $2.6 billion from December 31, 2014. The decrease was primarily in the residential mortgage, home equity and credit card portfolios. Reductions in the residential mortgage and home equity portfolios were due to improved home prices and lower delinquencies, a decrease in consumer loan balances, as well as the utilization of reserves recorded as a part of the DoJ Settlement. Further, the residential mortgage and home equity allowance declined due to write-offs in our PCI loan portfolio. The decrease in the allowance related to the U.S. credit card and unsecured consumer lending portfolios in Consumer Banking was primarily due to improvement in delinquencies and more generally in unemployment levels. For example, in the U.S. credit card portfolio, accruing loans 30 days or more past due decreased to $1.6 billion at December 31, 2015 from $1.7 billion (to 1.76 percent from 1.85 percent of outstanding U.S. credit card loans) at December 31, 2014, and accruing loans 90 days or more past due decreased to $789 million at December 31, 2015 from $866 million (to 0.88 percent from 0.94 percent of outstanding U.S. credit card loans) at December 31, 2014. See Tables 23, 24, 31 and 33 for additional details on key credit statistics for the credit card and other unsecured consumer lending portfolios. increase of $412 million The allowance for loan and lease losses for the commercial portfolio, as presented in Table 55, was $4.8 billion at December 31, 2015, an from December 31, 2014 with the increase attributable to loan growth and higher reservable criticized levels. Commercial utilized reservable criticized exposure increased to $16.5 billion at December 31, 2015 from $11.6 billion (to 3.46 percent from 2.74 percent of total commercial utilized reservable exposure) at December 31, 2014, largely due to downgrades in the energy portfolio. Nonperforming commercial loans increased $99 million from December 31, 2014 to $1.2 billion (to 0.27 percent from 0.29 percent of outstanding commercial loans) at December 31, 2015 largely in the energy sector. Commercial loans and leases outstanding increased to $446.8 billion at December 31, 2015 from $392.8 billion at December 31, 2014. See Tables 37, 38 and 40 for additional details on key commercial credit statistics. The allowance for loan and lease losses as a percentage of total loans and leases outstanding was 1.37 percent at December 31, 2015 compared to 1.65 percent at December 31, 2014. The decrease in the ratio was primarily due to improved credit quality driven by improved economic conditions, write-offs in the PCI loan portfolio and utilization of reserves related to the DoJ Settlement. The December 31, 2015 and 2014 ratios above include the PCI loan portfolio. Excluding the PCI loan portfolio, the allowance for loan and lease losses as a percentage of total loans and leases outstanding was 1.30 percent and 1.50 percent at December 31, 2015 and 2014. Bank of America 2015 87 Table 54 presents a rollforward of the allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, for 2015 and 2014. Table 54 Allowance for Credit Losses (Dollars in millions) Allowance for loan and lease losses, January 1 Loans and leases charged off Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total consumer charge-offs U.S. commercial (1) Commercial real estate Commercial lease financing Non-U.S. commercial Total commercial charge-offs Total loans and leases charged off Recoveries of loans and leases previously charged off Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total consumer recoveries U.S. commercial (2) Commercial real estate Commercial lease financing Non-U.S. commercial Total commercial recoveries Total recoveries of loans and leases previously charged off Net charge-offs Write-offs of PCI loans Provision for loan and lease losses Other (3) Allowance for loan and lease losses, December 31 Reserve for unfunded lending commitments, January 1 Provision for unfunded lending commitments Reserve for unfunded lending commitments, December 31 Allowance for credit losses, December 31 (1) (2) Includes U.S. small business commercial charge-offs of $282 million and $345 million in 2015 and 2014. Includes U.S. small business commercial recoveries of $57 million and $63 million in 2015 and 2014. (3) Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, and foreign currency translation adjustments. 2015 2014 $ 14,419 $ 17,428 (866) (975) (2,738) (275) (383) (224) (5,461) (536) (30) (19) (59) (644) (6,105) 393 339 424 87 271 31 1,545 172 35 10 5 222 1,767 (4,338) (808) 3,043 (82) 12,234 528 118 646 12,880 $ (855) (1,364) (3,068) (357) (456) (268) (6,368) (584) (29) (10) (35) (658) (7,026) 969 457 430 115 287 39 2,297 214 112 19 1 346 2,643 (4,383) (810) 2,231 (47) 14,419 484 44 528 14,947 $ 88 Bank of America 2015 Table 54 presents a rollforward of the allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, for 2015 and 2014. Table 54 Allowance for Credit Losses (continued) Table 54 Allowance for Credit Losses (Dollars in millions) Allowance for loan and lease losses, January 1 Total commercial charge-offs Total loans and leases charged off Recoveries of loans and leases previously charged off Loans and leases charged off Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total consumer charge-offs U.S. commercial (1) Commercial real estate Commercial lease financing Non-U.S. commercial Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total consumer recoveries U.S. commercial (2) Commercial real estate Commercial lease financing Non-U.S. commercial Total commercial recoveries Net charge-offs Write-offs of PCI loans Provision for loan and lease losses Other (3) Total recoveries of loans and leases previously charged off Allowance for loan and lease losses, December 31 Reserve for unfunded lending commitments, January 1 Provision for unfunded lending commitments Reserve for unfunded lending commitments, December 31 Allowance for credit losses, December 31 (1) (2) Includes U.S. small business commercial charge-offs of $282 million and $345 million in 2015 and 2014. Includes U.S. small business commercial recoveries of $57 million and $63 million in 2015 and 2014. (3) Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, and foreign currency translation adjustments. 2015 2014 $ 14,419 $ 17,428 (866) (975) (2,738) (275) (383) (224) (5,461) (536) (30) (19) (59) (644) (6,105) 393 339 424 87 271 31 1,545 172 35 10 5 222 1,767 (4,338) (808) 3,043 (82) 528 118 646 (855) (1,364) (3,068) (357) (456) (268) (6,368) (584) (29) (10) (35) (658) (7,026) 969 457 430 115 287 39 214 112 19 1 346 2,297 2,643 (4,383) (810) 2,231 (47) 484 44 528 12,234 14,419 $ 12,880 $ 14,947 (Dollars in millions) Loan and allowance ratios: Loans and leases outstanding at December 31 (4) Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (4) Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (5) Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (6) Average loans and leases outstanding (4) Net charge-offs as a percentage of average loans and leases outstanding (4, 7) Net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (4) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (4, 8) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (7) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs and PCI write-offs Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (9) 2015 2014 $ 896,063 $ 872,710 1.37% 1.63 1.10 $ 874,461 1.65% 2.05 1.15 $ 894,001 0.50% 0.59 130 2.82 2.38 0.49% 0.58 121 3.29 2.78 $ 4,518 $ 5,944 Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (4, 9) 82% 71% Loan and allowance ratios excluding PCI loans and the related valuation allowance: (10) Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (4) Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (5) Net charge-offs as a percentage of average loans and leases outstanding (4) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (4, 8) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs 1.30% 1.50 0.51 122 2.64 1.50% 1.79 0.50 107 2.91 (4) Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $6.9 billion and $8.7 billion at December 31, 2015 and 2014. Average loans accounted for under the fair value option were $7.7 billion and $9.9 billion in 2015 and 2014. (5) Excludes consumer loans accounted for under the fair value option of $1.9 billion and $2.1 billion at December 31, 2015 and 2014. (6) Excludes commercial loans accounted for under the fair value option of $5.1 billion and $6.6 billion at December 31, 2015 and 2014. (7) Net charge-offs exclude $808 million and $810 million of write-offs in the PCI loan portfolio in 2015 and 2014. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 71. (8) For more information on our definition of nonperforming loans, see pages 73 and 80. (9) Primarily includes amounts allocated to U.S. credit card and unsecured consumer lending portfolios in Consumer Banking, PCI loans and the non-U.S. credit card portfolio in All Other. (10) For more information on the PCI loan portfolio and the valuation allowance for PCI loans, see Note 4 – Outstanding Loans and Leases and Note 5 – Allowance for Credit Losses to the Consolidated Financial Statements. For reporting purposes, we allocate the allowance for credit losses across products. However, the allowance is generally available to absorb any credit losses without restriction. Table 55 presents our allocation by product type. Table 55 Allocation of the Allowance for Credit Losses by Product Type (Dollars in millions) Allowance for loan and lease losses Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total consumer U.S. commercial (2) Commercial real estate Commercial lease financing Non-U.S. commercial Total commercial (3) Allowance for loan and lease losses (4) Reserve for unfunded lending commitments Allowance for credit losses December 31, 2015 December 31, 2014 Amount Percent of Total Percent of Loans and Leases Outstanding (1) Amount Percent of Total Percent of Loans and Leases Outstanding (1) $ $ 1,500 2,414 2,927 274 223 47 7,385 2,964 967 164 754 4,849 12,234 646 12,880 12.26% 19.73 23.93 2.24 1.82 0.38 60.36 24.23 7.90 1.34 6.17 39.64 100.00% 0.80% $ 3.18 3.27 2.75 0.25 2.27 1.63 1.12 1.69 0.60 0.82 1.10 1.37 $ 2,900 3,035 3,320 369 299 59 9,982 2,619 1,016 153 649 4,437 14,419 528 14,947 20.11% 21.05 23.03 2.56 2.07 0.41 69.23 18.16 7.05 1.06 4.50 30.77 100.00% 1.34% 3.54 3.61 3.53 0.37 3.15 2.05 1.12 2.13 0.62 0.81 1.15 1.65 (1) Ratios are calculated as allowance for loan and lease losses as a percentage of loans and leases outstanding excluding loans accounted for under the fair value option. Consumer loans accounted for under the fair value option included residential mortgage loans of $1.6 billion and $1.9 billion and home equity loans of $250 million and $196 million at December 31, 2015 and 2014. Commercial loans accounted for under the fair value option included U.S. commercial loans of $2.3 billion and $1.9 billion and non-U.S. commercial loans of $2.8 billion and $4.7 billion at December 31, 2015 and 2014. Includes allowance for loan and lease losses for U.S. small business commercial loans of $507 million and $536 million at December 31, 2015 and 2014. Includes allowance for loan and lease losses for impaired commercial loans of $217 million and $159 million at December 31, 2015 and 2014. Includes $804 million and $1.7 billion of valuation allowance presented with the allowance for loan and lease losses related to PCI loans at December 31, 2015 and 2014. (4) (2) (3) 88 Bank of America 2015 Bank of America 2015 89 losses related to unfunded Reserve for Unfunded Lending Commitments In addition to the allowance for loan and lease losses, we also estimate probable lending commitments such as letters of credit, financial guarantees, unfunded bankers’ acceptances and binding loan commitments, excluding commitments accounted for under the fair value option. Unfunded lending commitments are subject to the same assessment as funded loans, including estimates of probability of default and LGD. Due to the nature of unfunded commitments, the estimate of probable losses must also consider utilization. To estimate the portion of these undrawn commitments that is likely to be drawn by a borrower at the time of estimated default, analyses of the Corporation’s historical experience are applied to the unfunded commitments to estimate the funded EAD. The expected loss for unfunded lending commitments is the product of the probability of default, the LGD and the EAD, adjusted for any qualitative factors including economic uncertainty and inherent imprecision in models. The reserve for unfunded lending commitments was $646 million at December 31, 2015, an increase of $118 million from December 31, 2014 with the increase attributable primarily to higher unfunded commitments. Market Risk Management Market risk is the risk that changes in market conditions may adversely impact the value of assets or liabilities, or otherwise negatively impact earnings. This risk is inherent in the financial instruments associated with our operations, primarily within our Global Markets segment. We are also exposed to these risks in other areas of the Corporation (e.g., our ALM activities). In the event of market stress, these risks could have a material impact on the results of the Corporation. For additional information, see Interest Rate Risk Management for Non-trading Activities on page 95. Our traditional banking loan and deposit products are non- trading positions and are generally reported at amortized cost for assets or the amount owed for liabilities (historical cost). However, these positions are still subject to changes in economic value based on varying market conditions, with one of the primary risks being changes in the levels of interest rates. The risk of adverse changes in the economic value of our non-trading positions arising from changes in interest rates is managed through our ALM activities. We have elected to account for certain assets and liabilities under the fair value option. Our trading positions are reported at fair value with changes reflected in income. Trading positions are subject to various changes in market-based risk factors. The majority of this risk is generated by our activities in the interest rate, foreign exchange, credit, equity and commodities markets. In addition, the values of assets and liabilities could change due to market liquidity, correlations across markets and expectations of market volatility. We seek to manage these risk exposures by using a variety of techniques financial instruments. The key risk management techniques are discussed in more detail in the Trading Risk Management section. that encompass a broad range of Global Risk Management is responsible for providing senior management with a clear and comprehensive understanding of the trading risks to which the Corporation is exposed. These responsibilities include ownership of market risk policy, developing and maintaining quantitative risk models, calculating aggregated risk measures, establishing and monitoring position limits 90 Bank of America 2015 consistent with risk appetite, conducting daily reviews and analysis of trading inventory, approving material risk exposures and fulfilling regulatory requirements. Market risks that impact businesses outside of Global Markets are monitored and governed by their respective governance functions. Quantitative risk models, such as VaR, are an essential component in evaluating the market risks within a portfolio. A subcommittee of the Management Risk Committee (MRC) is responsible for providing management oversight and approval of model risk management and governance (Risk Management, or RM subcommittee). The RM subcommittee defines model risk standards, consistent with the Corporation’s risk framework and risk appetite, prevailing regulatory guidance and industry best practice. Models must meet certain validation criteria, including effective challenge of the model development process and a sufficient demonstration of developmental evidence incorporating a comparison of alternative theories and approaches. The RM subcommittee ensures model standards are consistent with model risk requirements and monitors the effective challenge in the model validation process across the Corporation. In addition, the relevant stakeholders must agree on any required actions or restrictions to the models and maintain a stringent monitoring process to ensure continued compliance. For more information on the fair value of certain financial assets and liabilities, see Note 20 – Fair Value Measurements to the Consolidated Financial Statements. Interest Rate Risk Interest rate risk represents exposures to instruments whose values vary with the level or volatility of interest rates. These instruments include, but are not limited to, loans, debt securities, certain trading-related assets and liabilities, deposits, borrowings and derivatives. Hedging instruments used to mitigate these risks include derivatives such as options, futures, forwards and swaps. Foreign Exchange Risk Foreign exchange risk represents exposures to changes in the values of current holdings and future cash flows denominated in currencies other than the U.S. Dollar. The types of instruments exposed to this risk include investments in non-U.S. subsidiaries, foreign currency-denominated loans and securities, future cash flows in foreign currencies arising from foreign exchange transactions, foreign currency-denominated debt and various foreign exchange derivatives whose values fluctuate with changes in the level or volatility of currency exchange rates or non- U.S. interest rates. Hedging instruments used to mitigate this risk include foreign exchange options, currency swaps, futures, forwards, and foreign currency-denominated debt and deposits. Mortgage Risk Mortgage risk represents exposures to changes in the values of mortgage-related instruments. The values of these instruments are sensitive to prepayment rates, mortgage rates, agency debt ratings, default, market liquidity, government participation and interest rate volatility. Our exposure to these instruments takes several forms. First, we trade and engage in market-making activities in a variety of mortgage securities including whole loans, pass-through and collateralized mortgage obligations including collateralized debt obligations (CDO) using mortgages as underlying collateral. Second, we originate a variety of MBS which involves the commercial mortgages certificates, Reserve for Unfunded Lending Commitments In addition to the allowance for loan and lease losses, we also estimate probable losses related to unfunded lending commitments such as letters of credit, financial guarantees, unfunded bankers’ acceptances and binding loan commitments, excluding commitments accounted for under the fair value option. Unfunded lending commitments are subject to the same assessment as funded loans, including estimates of probability of default and LGD. Due to the nature of unfunded commitments, the estimate of probable losses must also consider utilization. To estimate the portion of these undrawn commitments that is likely to be drawn by a borrower at the time of estimated default, analyses of the Corporation’s historical experience are applied to the unfunded commitments to estimate the funded EAD. The expected loss for unfunded lending commitments is the product of the probability of default, the LGD and the EAD, adjusted for any qualitative factors including economic uncertainty and inherent imprecision in models. The reserve for unfunded lending commitments was $646 million at December 31, 2015, an increase of $118 million from December 31, 2014 with the increase attributable primarily to higher unfunded commitments. Market Risk Management Market risk is the risk that changes in market conditions may adversely impact the value of assets or liabilities, or otherwise negatively impact earnings. This risk is inherent in the financial instruments associated with our operations, primarily within our Global Markets segment. We are also exposed to these risks in other areas of the Corporation (e.g., our ALM activities). In the event of market stress, these risks could have a material impact on the results of the Corporation. For additional information, see Interest Rate Risk Management for Non-trading Activities on page 95. Our traditional banking loan and deposit products are non- trading positions and are generally reported at amortized cost for assets or the amount owed for liabilities (historical cost). However, these positions are still subject to changes in economic value based on varying market conditions, with one of the primary risks being changes in the levels of interest rates. The risk of adverse changes in the economic value of our non-trading positions arising from changes in interest rates is managed through our ALM activities. We have elected to account for certain assets and liabilities under the fair value option. Our trading positions are reported at fair value with changes reflected in income. Trading positions are subject to various changes in market-based risk factors. The majority of this risk is generated by our activities in the interest rate, foreign exchange, credit, equity and commodities markets. In addition, the values of assets and liabilities could change due to market liquidity, correlations across markets and expectations of market volatility. We seek to manage these risk exposures by using a variety of techniques that encompass a broad range of financial instruments. The key risk management techniques are discussed in more detail in the Trading Risk Management section. Global Risk Management is responsible for providing senior management with a clear and comprehensive understanding of the trading risks to which the Corporation is exposed. These responsibilities include ownership of market risk policy, developing and maintaining quantitative risk models, calculating aggregated risk measures, establishing and monitoring position limits 90 Bank of America 2015 consistent with risk appetite, conducting daily reviews and analysis of trading inventory, approving material risk exposures and fulfilling regulatory requirements. Market risks that impact businesses outside of Global Markets are monitored and governed by their respective governance functions. Quantitative risk models, such as VaR, are an essential component in evaluating the market risks within a portfolio. A subcommittee of the Management Risk Committee (MRC) is responsible for providing management oversight and approval of model risk management and governance (Risk Management, or RM subcommittee). The RM subcommittee defines model risk standards, consistent with the Corporation’s risk framework and risk appetite, prevailing regulatory guidance and industry best practice. Models must meet certain validation criteria, including effective challenge of the model development process and a sufficient demonstration of developmental evidence incorporating a comparison of alternative theories and approaches. The RM subcommittee ensures model standards are consistent with model risk requirements and monitors the effective challenge in the model validation process across the Corporation. In addition, the relevant stakeholders must agree on any required actions or restrictions to the models and maintain a stringent monitoring process to ensure continued compliance. For more information on the fair value of certain financial assets and liabilities, see Note 20 – Fair Value Measurements to the Consolidated Financial Statements. Interest Rate Risk Interest rate risk represents exposures to instruments whose values vary with the level or volatility of interest rates. These instruments include, but are not limited to, loans, debt securities, certain trading-related assets and liabilities, deposits, borrowings and derivatives. Hedging instruments used to mitigate these risks include derivatives such as options, futures, forwards and swaps. Foreign Exchange Risk Foreign exchange risk represents exposures to changes in the values of current holdings and future cash flows denominated in currencies other than the U.S. Dollar. The types of instruments exposed to this risk include investments in non-U.S. subsidiaries, foreign currency-denominated loans and securities, future cash flows in foreign currencies arising from foreign exchange transactions, foreign currency-denominated debt and various foreign exchange derivatives whose values fluctuate with changes in the level or volatility of currency exchange rates or non- U.S. interest rates. Hedging instruments used to mitigate this risk include foreign exchange options, currency swaps, futures, forwards, and foreign currency-denominated debt and deposits. Mortgage Risk Mortgage risk represents exposures to changes in the values of mortgage-related instruments. The values of these instruments are sensitive to prepayment rates, mortgage rates, agency debt ratings, default, market liquidity, government participation and interest rate volatility. Our exposure to these instruments takes several forms. First, we trade and engage in market-making activities in a variety of mortgage securities including whole loans, pass-through certificates, commercial mortgages and collateralized mortgage obligations including collateralized debt obligations (CDO) using mortgages as underlying collateral. Second, we originate a variety of MBS which involves the accumulation of mortgage-related loans in anticipation of eventual securitization. Third, we may hold positions in mortgage securities and residential mortgage loans as part of the ALM portfolio. Fourth, we create MSRs as part of our mortgage origination activities. For more information on MSRs, see Note 1 – Summary of Significant Accounting Principles and Note 23 – Mortgage Servicing Rights to the Consolidated Financial Statements. Hedging instruments used to mitigate this risk include derivatives such as options, swaps, futures and forwards as well as securities including MBS and U.S. Treasury securities. For additional information, see Mortgage Banking Risk Management on page 97. Equity Market Risk Equity market risk represents exposures to securities that represent an ownership interest in a corporation in the form of domestic and foreign common stock or other equity-linked instruments. Instruments that would lead to this exposure include, but are not limited to, the following: common stock, exchange- traded funds, American Depositary Receipts, convertible bonds, listed equity options (puts and calls), OTC equity options, equity total return swaps, equity index futures and other equity derivative products. Hedging instruments used to mitigate this risk include options, futures, swaps, convertible bonds and cash positions. Commodity Risk Commodity risk represents exposures to instruments traded in the petroleum, natural gas, power and metals markets. These instruments consist primarily of futures, forwards, swaps and options. Hedging instruments used to mitigate this risk include options, futures and swaps in the same or similar commodity product, as well as cash positions. Issuer Credit Risk Issuer credit risk represents exposures to changes in the creditworthiness of individual issuers or groups of issuers. Our portfolio is exposed to issuer credit risk where the value of an asset may be adversely impacted by changes in the levels of credit spreads, by credit migration or by defaults. Hedging instruments used to mitigate this risk include bonds, CDS and other credit fixed-income instruments. Market Liquidity Risk Market liquidity risk represents the risk that the level of expected market activity changes dramatically and, in certain cases, may even cease. This exposes us to the risk that we will not be able to transact business and execute trades in an orderly manner which may impact our results. This impact could be further exacerbated if expected hedging or pricing correlations are compromised by disproportionate demand or lack of demand for certain instruments. We utilize various risk mitigating techniques as discussed in more detail in Trading Risk Management. Trading Risk Management To evaluate risk in our trading activities, we focus on the actual and potential volatility of revenues generated by individual positions as well as portfolios of positions. Various techniques and procedures are utilized to enable the most complete understanding of these risks. Quantitative measures of market risk are evaluated on a daily basis from a single position to the portfolio of the Corporation. These measures include sensitivities of positions to various market risk factors, such as the potential impact on revenue from a one basis point change in interest rates, and statistical measures utilizing both actual and hypothetical market moves, such as VaR and stress testing. Periods of extreme market stress influence the reliability of these techniques to varying degrees. Qualitative evaluations of market risk utilize the suite of quantitative risk measures while understanding each of their risk managers limitations. Additionally, independently evaluate the risk of the portfolios under the current market environment and potential future environments. respective VaR is a common statistic used to measure market risk as it allows the aggregation of market risk factors, including the effects of portfolio diversification. A VaR model simulates the value of a portfolio under a range of scenarios in order to generate a distribution of potential gains and losses. VaR represents the loss a portfolio is not expected to exceed more than a certain number of times per period, based on a specified holding period, confidence level and window of historical data. We use one VaR model consistently across the trading portfolios and it uses a historical simulation approach based on a three-year window of historical data. Our primary VaR statistic is equivalent to a 99 percent confidence level. This means that for a VaR with a one- day holding period, there should not be losses in excess of VaR, on average, 99 out of 100 trading days. Within any VaR model, there are significant and numerous assumptions that will differ from company to company. The accuracy of a VaR model depends on the availability and quality of historical data for each of the risk factors in the portfolio. A VaR model may require additional modeling assumptions for new products that do not have the necessary historical market data or for less liquid positions for which accurate daily prices are not consistently available. For positions with insufficient historical data for the VaR calculation, the process for establishing an appropriate proxy is based on fundamental and statistical analysis of the new product or less liquid position. This analysis identifies reasonable alternatives that replicate both the expected volatility and correlation to other market risk factors that the missing data would be expected to experience. VaR may not be indicative of realized revenue volatility as changes in market conditions or in the composition of the portfolio can have a material impact on the results. In particular, the historical data used for the VaR calculation might indicate higher or lower levels of portfolio diversification than will be experienced. In order for the VaR model to reflect current market conditions, we update the historical data underlying our VaR model on a weekly basis, or more frequently during periods of market stress, and regularly review the assumptions underlying the model. A relatively minor portion of risks related to our trading positions is not included in VaR. These risks are reviewed as part of our ICAAP. Global Risk Management continually reviews, evaluates and enhances our VaR model so that it reflects the material risks in our trading portfolio. Changes to the VaR model are reviewed and approved prior to implementation and any material changes are reported to management through the appropriate management committees. Trading limits on quantitative risk measures, including VaR, are independently set by Global Markets Risk Management and reviewed on a regular basis to ensure they remain relevant and within our overall risk appetite for market risks. Trading limits are reviewed in the context of market liquidity, volatility and strategic business priorities. Trading limits are set at both a granular level to ensure extensive coverage of risks as well as at aggregated Bank of America 2015 91 portfolios to account for correlations among risk factors. All trading limits are approved at least annually. Approved trading limits are stored and tracked in a centralized limits management system. Trading limit excesses are communicated to management for risk measures and review. Certain quantitative market corresponding limits have been identified as critical in the Corporation’s Risk Appetite Statement. These risk appetite limits are reported on a daily basis and are approved at least annually by the ERC and the Board. In periods of market stress, Global Markets senior leadership communicates daily to discuss losses, key risk positions and any limit excesses. As a result of this process, the businesses may selectively reduce risk. Table 56 presents the total market-based trading portfolio VaR which is the combination of the covered positions trading portfolio and the impact from less liquid trading exposures. Covered positions are defined by regulatory standards as trading assets and liabilities, both on- and off-balance sheet, that meet a defined set of specifications. These specifications identify the most liquid trading positions which are intended to be held for a short-term horizon and where the Corporation is able to hedge the material risk elements in a two-way market. Positions in less liquid markets, or where there are restrictions on the ability to trade the positions, typically do not qualify as covered positions. Foreign exchange and commodity positions are always considered covered positions, except for structural foreign currency positions that we choose to exclude with prior regulatory approval. In addition, Table 56 presents our fair value option portfolio, which includes the funded and unfunded exposures for which we elect the fair value option, and their corresponding hedges. The fair value option portfolio combined with the total market-based trading portfolio VaR represents the Corporation’s total market-based portfolio VaR. Additionally, market risk VaR for trading activities as presented in Table 56 differs from VaR used for regulatory capital calculations due to the holding period being used. The holding period for VaR used for regulatory capital calculations is 10 days, while for the market risk VaR presented below it is one day. Both measures utilize the same process and methodology. The total market-based portfolio VaR results in Table 56 include market risk from all business segments to which the Corporation is exposed, excluding CVA and DVA. The majority of this portfolio is within the Global Markets segment. Table 56 presents year-end, average, high and low daily trading VaR for 2015 and 2014 using a 99 percent confidence level. Table 56 Market Risk VaR for Trading Activities (Dollars in millions) Foreign exchange Interest rate Credit Equity Commodity Portfolio diversification Total covered positions trading portfolio Impact from less liquid exposures Total market-based trading portfolio Fair value option loans Fair value option hedges Fair value option portfolio diversification Total fair value option portfolio Portfolio diversification Total market-based portfolio 2015 2014 Year End Average High (1) Low (1) Year End Average High (1) Low (1) $ $ 10 17 32 18 4 (36) 45 3 48 35 17 (35) 17 (4) 61 $ $ 10 25 35 16 5 (46) 45 8 53 26 14 (26) 14 (6) 61 $ $ 42 42 46 33 8 — 66 — 74 36 22 — 19 — 85 $ $ 5 14 27 9 3 — 26 — 31 17 8 — 10 — 41 $ $ 13 24 43 16 8 (56) 48 7 55 35 21 (37) 19 (7) 67 $ $ 16 34 52 17 8 (78) 49 7 56 31 14 (24) 21 (12) 65 $ $ 24 60 82 32 10 — 86 — 101 40 23 — 28 — 120 $ $ 8 19 32 11 6 — 33 — 38 21 8 — 15 — 44 (1) The high and low for each portfolio may have occurred on different trading days than the high and low for the components. Therefore the impact from less liquid exposures and the amount of portfolio diversification, which is the difference between the total portfolio and the sum of the individual components, are not relevant. The average total market-based trading portfolio VaR decreased during 2015 primarily due to reduced exposure to the credit and interest rate markets, partially offset by a reduction in portfolio diversification. 92 Bank of America 2015 i i l l i m n s r a l l o D 150 125 100 75 50 25 0 by the ERC and the Board. combined with the total market-based trading portfolio VaR s n o portfolios to account for correlations among risk factors. All trading or where there are restrictions on the ability to trade the positions, The graph below presents the daily total market-based trading portfolio VaR for 2015, corresponding to the data in Table 56. Daily Total Market-based Trading Portfolio VaR History limits are approved at least annually. Approved trading limits are typically do not qualify as covered positions. Foreign exchange and stored and tracked in a centralized limits management system. commodity positions are always considered covered positions, Trading limit excesses are communicated to management for except for structural foreign currency positions that we choose to review. Certain quantitative market risk measures and exclude with prior regulatory approval. In addition, Table 56 corresponding limits have been identified as critical in the presents our fair value option portfolio, which includes the funded Corporation’s Risk Appetite Statement. These risk appetite limits and unfunded exposures for which we elect the fair value option, are reported on a daily basis and are approved at least annually and their corresponding hedges. The fair value option portfolio In periods of market stress, Global Markets senior leadership represents the Corporation’s total market-based portfolio VaR. communicates daily to discuss losses, key risk positions and any Additionally, market risk VaR for trading activities as presented in limit excesses. As a result of this process, the businesses may Table 56 differs from VaR used for regulatory capital calculations selectively reduce risk. due to the holding period being used. The holding period for VaR Table 56 presents the total market-based trading portfolio VaR used for regulatory capital calculations is 10 days, while for the which is the combination of the covered positions trading portfolio market risk VaR presented below it is one day. Both measures and the impact from less liquid trading exposures. Covered utilize the same process and methodology. positions are defined by regulatory standards as trading assets The total market-based portfolio VaR results in Table 56 include and liabilities, both on- and off-balance sheet, that meet a defined market risk from all business segments to which the Corporation set of specifications. These specifications identify the most liquid is exposed, excluding CVA and DVA. The majority of this portfolio trading positions which are intended to be held for a short-term is within the Global Markets segment. horizon and where the Corporation is able to hedge the material Table 56 presents year-end, average, high and low daily trading risk elements in a two-way market. Positions in less liquid markets, VaR for 2015 and 2014 using a 99 percent confidence level. Table 56 Market Risk VaR for Trading Activities (Dollars in millions) Foreign exchange Interest rate Credit Equity Commodity Portfolio diversification Total covered positions trading portfolio Impact from less liquid exposures Total market-based trading portfolio Fair value option loans Fair value option hedges Fair value option portfolio diversification Total fair value option portfolio Portfolio diversification Total market-based portfolio 2015 2014 Average High (1) Low (1) Average High (1) Low (1) $ $ $ $ $ $ $ $ (36) (46) (56) (78) Year End 10 17 32 18 4 45 3 48 35 17 (35) 17 (4) 61 10 25 35 16 5 45 8 53 26 14 (26) 14 (6) 61 42 42 46 33 8 — 66 — 74 36 22 — 19 — 85 Year End 13 24 43 16 8 48 7 55 35 21 (37) 19 (7) 67 5 14 27 9 3 — 26 — 31 17 8 — 10 — 41 16 34 52 17 8 49 7 56 31 14 (24) 21 (12) 24 60 82 32 10 — 86 — 40 23 — 28 — 101 8 19 32 11 6 — 33 — 38 21 8 — 15 — 44 (1) The high and low for each portfolio may have occurred on different trading days than the high and low for the components. Therefore the impact from less liquid exposures and the amount of portfolio diversification, which is the difference between the total portfolio and the sum of the individual components, are not relevant. $ $ $ $ $ $ 65 $ 120 $ The average total market-based trading portfolio VaR decreased during 2015 primarily due to reduced exposure to the credit and interest rate markets, partially offset by a reduction in portfolio diversification. 12/31/2014 3/31/2015 6/30/2015 9/30/2015 12/31/2015 Additional VaR statistics produced within the Corporation’s single VaR model are provided in Table 57 at the same level of detail as in Table 56. Evaluating VaR with additional statistics allows for an increased understanding of the risks in the portfolio as the historical market data used in the VaR calculation does not necessarily follow a predefined statistical distribution. Table 57 presents average trading VaR statistics for 99 percent and 95 percent confidence levels for 2015 and 2014. Table 57 Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics (Dollars in millions) Foreign exchange Interest rate Credit Equity Commodity Portfolio diversification Total covered positions trading portfolio Impact from less liquid exposures Total market-based trading portfolio Fair value option loans Fair value option hedges Fair value option portfolio diversification Total fair value option portfolio Portfolio diversification Total market-based portfolio 2015 2014 99 percent 10 $ 25 35 16 5 (46) 45 8 53 26 14 (26) 14 (6) 61 $ 95 percent 6 $ 15 20 9 3 (31) 22 3 25 15 9 (16) 8 (5) 28 $ 99 percent 16 $ 34 52 17 8 (78) 49 7 56 31 14 (24) 21 (12) 65 $ 95 percent $ $ 9 21 26 9 4 (43) 26 3 29 15 9 (14) 10 (8) 31 Backtesting The accuracy of the VaR methodology is evaluated by backtesting, which compares the daily VaR results, utilizing a one-day holding period, against a comparable subset of trading revenue. A backtesting excess occurs when a trading loss exceeds the VaR for the corresponding day. These excesses are evaluated to understand the positions and market moves that produced the trading loss and to ensure that the VaR methodology accurately represents those losses. As our primary VaR statistic used for backtesting is based on a 99 percent confidence level and a one- day holding period, we expect one trading loss in excess of VaR every 100 days, or between two to three trading losses in excess of VaR over the course of a year. The number of backtesting excesses observed can differ from the statistically expected number of excesses if the current level of market volatility is materially different than the level of market volatility that existed during the three years of historical data used in the VaR calculation. We conduct daily backtesting on our portfolios, ranging from the total market-based portfolio to individual trading areas. Additionally, we conduct daily backtesting on the VaR results used for regulatory capital calculations as well as the VaR results for key legal entities, regions and risk factors. These results are reported to senior market risk management. Senior management regularly reviews and evaluates the results of these tests. The trading revenue used for backtesting is defined by regulatory agencies in order to most closely align with the VaR component of the regulatory capital calculation. This revenue differs from total trading-related revenue in that it excludes revenue from trading activities that either do not generate market risk or the market risk cannot be included in VaR. Some examples of the 92 Bank of America 2015 Bank of America 2015 93 types of revenue excluded for backtesting are fees, commissions, reserves, net interest income and intraday trading revenues. During 2015, there were no days in which there was a backtesting excess for our total market-based portfolio VaR, utilizing a one-day holding period. Total Trading-related Revenue Total trading-related revenue, excluding brokerage fees, and CVA and DVA related revenue, represents the total amount earned from trading positions, including market-based net interest income, which are taken in a diverse range of financial instruments and markets. Trading account assets and liabilities are reported at fair value. For more information on fair value, see Note 20 – Fair Value Measurements to the Consolidated Financial Statements. Trading- related revenues can be volatile and are largely driven by general market conditions and customer demand. Also, trading-related revenues are dependent on the volume and type of transactions, the level of risk assumed, and the volatility of price and rate movements at any given time within the ever-changing market environment. Significant daily revenues by business are monitored and the primary drivers of these are reviewed. The histogram below is a graphic depiction of trading volatility and illustrates the daily level of trading-related revenue for 2015 and 2014. During 2015, positive trading-related revenue was recorded for 98 percent of the trading days, of which 77 percent were daily trading gains of over $25 million and the largest loss was $22 million. This compares to 2014 where positive trading- related revenue was recorded for 95 percent of the trading days, of which 72 percent were daily trading gains of over $25 million and the largest loss was $17 million. Histogram of Daily Trading-related Revenue s y a D f o r e b m u N 140 120 100 80 60 40 20 0 greater than -100 -100 to -75 -75 to -50 -50 to -25 -25 to 0 0 to 25 25 to 50 50 to 75 75 to 100 greater than 100 Year Ended December 31, 2014 Year Ended December 31, 2015 Revenue (dollars in millions) Trading Portfolio Stress Testing Because the very nature of a VaR model suggests results can exceed our estimates and it is dependent on a limited historical window, we also stress test our portfolio using scenario analysis. This analysis estimates the change in the value of our trading portfolio that may result from abnormal market movements. A set of scenarios, categorized as either historical or hypothetical, are computed daily for the overall trading portfolio and individual businesses. These scenarios include shocks to underlying market risk factors that may be well beyond the shocks found in the historical data used to calculate VaR. Historical scenarios simulate the impact of the market moves that occurred during a period of extended historical market stress. Generally, a multi-week period representing the most severe point during a crisis is selected for each historical scenario. Hypothetical scenarios provide simulations of the estimated portfolio impact from potential future market stress events. Scenarios are reviewed and updated in response to changing positions and new economic or political information. In addition, new or ad hoc scenarios are developed to address specific potential market events or particular vulnerabilities in the portfolio. The stress tests are reviewed on a regular basis and the results are presented to senior management. Stress testing for the trading portfolio is integrated with enterprise-wide stress testing and incorporated into the limits framework. The macroeconomic scenarios used for enterprise- wide stress testing purposes differ from the typical trading portfolio scenarios in that they have a longer time horizon and the results are forecasted over multiple periods for use in consolidated capital and liquidity planning. For additional information, see Managing Risk – Corporation-wide Stress Testing on page 50. 94 Bank of America 2015 s y a D f o r e b m u N 140 120 100 80 60 40 20 0 types of revenue excluded for backtesting are fees, commissions, market conditions and customer demand. Also, trading-related reserves, net interest income and intraday trading revenues. revenues are dependent on the volume and type of transactions, During 2015, there were no days in which there was a the level of risk assumed, and the volatility of price and rate backtesting excess for our total market-based portfolio VaR, movements at any given time within the ever-changing market utilizing a one-day holding period. Total Trading-related Revenue Total trading-related revenue, excluding brokerage fees, and CVA and DVA related revenue, represents the total amount earned from trading positions, including market-based net interest income, which are taken in a diverse range of financial instruments and markets. Trading account assets and liabilities are reported at fair value. For more information on fair value, see Note 20 – Fair Value Measurements to the Consolidated Financial Statements. Trading- related revenues can be volatile and are largely driven by general environment. Significant daily revenues by business are monitored and the primary drivers of these are reviewed. The histogram below is a graphic depiction of trading volatility and illustrates the daily level of trading-related revenue for 2015 and 2014. During 2015, positive trading-related revenue was recorded for 98 percent of the trading days, of which 77 percent were daily trading gains of over $25 million and the largest loss was $22 million. This compares to 2014 where positive trading- related revenue was recorded for 95 percent of the trading days, of which 72 percent were daily trading gains of over $25 million and the largest loss was $17 million. Histogram of Daily Trading-related Revenue Interest Rate Risk Management for Non-trading Activities The following discussion presents net interest income excluding the impact of trading-related activities. Interest rate risk represents the most significant market risk exposure to our non-trading balance sheet. Interest rate risk is measured as the potential change in net interest income caused by movements in market interest rates. Client-facing activities, primarily lending and deposit-taking, create interest rate sensitive positions on our balance sheet. We prepare forward-looking forecasts of net interest income. The baseline forecast takes into consideration expected future business growth, ALM positioning and the direction of interest rate movements as implied by the market-based forward curve. We then measure and evaluate the impact that alternative interest rate scenarios have on the baseline forecast in order to assess interest rate sensitivity under varied conditions. The net interest income forecast is frequently updated for changing assumptions and differing outlooks based on economic trends, market conditions and business strategies. Thus, we continually monitor our balance sheet position in order to maintain an acceptable level of exposure to interest rate changes. The interest rate scenarios that we analyze incorporate balance sheet assumptions such as loan and deposit growth and pricing, changes repricing and maturity characteristics. Our overall goal is to manage interest rate risk so that movements in interest rates do not significantly adversely affect earnings and capital. funding mix, product in Table 58 presents the spot and 12-month forward rates used in our baseline forecasts at December 31, 2015 and 2014. Table 58 Forward Rates December 31, 2015 Three- month LIBOR 10-Year Swap Federal Funds greater than -100 -100 to -75 -75 to -50 -50 to -25 -25 to 0 0 to 25 25 to 50 50 to 75 75 to 100 greater than 100 Year Ended December 31, 2014 Year Ended December 31, 2015 Revenue (dollars in millions) Trading Portfolio Stress Testing Because the very nature of a VaR model suggests results can exceed our estimates and it is dependent on a limited historical window, we also stress test our portfolio using scenario analysis. This analysis estimates the change in the value of our trading portfolio that may result from abnormal market movements. A set of scenarios, categorized as either historical or hypothetical, are computed daily for the overall trading portfolio and individual businesses. These scenarios include shocks to underlying market risk factors that may be well beyond the shocks found in the historical data used to calculate VaR. Historical scenarios simulate the impact of the market moves that occurred during a period of extended historical market stress. Generally, a multi-week period representing the most severe point during a crisis is selected for each historical scenario. Hypothetical scenarios provide simulations of the estimated portfolio impact from potential future market stress events. Scenarios are reviewed and updated in response to changing positions and new economic or political information. In addition, new or ad hoc scenarios are developed to address specific potential market events or particular vulnerabilities in the portfolio. The stress tests are reviewed on a regular basis and the results are presented to senior management. Stress testing for the trading portfolio is integrated with enterprise-wide stress testing and incorporated into the limits framework. The macroeconomic scenarios used for enterprise- wide stress testing purposes differ from the typical trading portfolio scenarios in that they have a longer time horizon and the results are forecasted over multiple periods for use in consolidated capital and liquidity planning. For additional information, see Managing Risk – Corporation-wide Stress Testing on page 50. 94 Bank of America 2015 Spot rates 12-month forward rates Spot rates 12-month forward rates 0.50% 1.00 0.61% 1.22 2.19% 2.39 December 31, 2014 0.25% 0.75 0.26% 0.91 2.28% 2.55 Table 59 shows the pretax dollar impact to forecasted net interest income over the next 12 months from December 31, 2015 and 2014, resulting from instantaneous parallel and non-parallel shocks to the market-based forward curve. Periodically we evaluate the scenarios presented to ensure that they are meaningful in the context of the current rate environment. For more information on net interest income excluding the impact of trading-related activities, see page 29. During 2015, the asset sensitivity of our balance sheet increased due to higher deposit balances and lower long-end interest rates. We continue to be asset sensitive to a parallel move in interest rates with the majority of that benefit coming from the short end of the yield curve. Additionally, higher interest rates impact the fair value of debt securities and, accordingly, for debt securities classified as AFS, may adversely affect accumulated OCI and thus capital levels under the Basel 3 capital rules. Under instantaneous upward parallel shifts, the near-term adverse impact to Basel 3 capital is reduced over time by offsetting positive impacts to net interest income. For more information on the transition provisions of Basel 3, see Capital Management – Regulatory Capital on page 52. Table 59 Estimated Net Interest Income Excluding Trading-related Net Interest Income (Dollars in millions) Curve Change Parallel Shifts +100 bps Short Rate (bps) Long Rate (bps) December 31 2015 2014 instantaneous shift +100 +100 $ 4,306 $ 3,685 -50 bps instantaneous shift -50 -50 (3,903) (3,043) Flatteners Short-end instantaneous change +100 Long-end instantaneous change — — -50 2,417 1,966 (2,212) (1,772) Steepeners Short-end instantaneous change Long-end instantaneous change -50 — — (1,671) (1,261) +100 1,919 1,782 The sensitivity analysis in Table 59 assumes that we take no action in response to these rate shocks and does not assume any change in other macroeconomic variables normally correlated with changes in interest rates. As part of our ALM activities, we use securities, certain residential mortgages, and interest rate and foreign exchange derivatives in managing interest rate sensitivity. The behavior of our deposit portfolio in the baseline forecast and in alternate interest rate scenarios is a key assumption in our projected estimates of net interest income. The sensitivity analysis in Table 59 assumes no change in deposit portfolio size or mix from the baseline forecast in alternate rate environments. In higher rate scenarios, any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher-yielding deposits or market-based funding would reduce the Corporation’s benefit in those scenarios. Interest Rate and Foreign Exchange Derivative Contracts Interest rate and foreign exchange derivative contracts are utilized in our ALM activities and serve as an efficient tool to manage our interest rate and foreign exchange risk. We use derivatives to hedge the variability in cash flows or changes in fair value on our balance sheet due to interest rate and foreign exchange components. For more information on our hedging activities, see Note 2 – Derivatives to the Consolidated Financial Statements. Our interest rate contracts are generally non-leveraged generic interest rate and foreign exchange basis swaps, options, futures and forwards. In addition, we use foreign exchange contracts, including cross-currency interest rate swaps, foreign currency futures contracts, foreign currency forward contracts and options to mitigate the foreign exchange risk associated with foreign currency-denominated assets and liabilities. Changes to the composition of our derivatives portfolio during 2015 reflect actions taken for interest rate and foreign exchange rate risk management. The decisions to reposition our derivatives portfolio are based on the current assessment of economic and financial conditions including the interest rate and foreign currency Bank of America 2015 95 environments, balance sheet composition and trends, and the relative mix of our cash and derivative positions. Table 60 presents derivatives utilized in our ALM activities including those designated as accounting and economic hedging instruments and shows the notional amount, fair value, weighted- average receive-fixed and pay-fixed rates, expected maturity and average estimated durations of our open ALM derivatives at December 31, 2015 and 2014. These amounts do not include derivative hedges on our MSRs. Table 60 Asset and Liability Management Interest Rate and Foreign Exchange Contracts December 31, 2015 Expected Maturity (Dollars in millions, average estimated duration in years) Fair Value Receive-fixed interest rate swaps (1) $ 6,291 Total 2016 2017 2018 2019 2020 Thereafter Notional amount Weighted-average fixed-rate Pay-fixed interest rate swaps (1) Notional amount Weighted-average fixed-rate Same-currency basis swaps (2) Notional amount $ 114,354 $ 15,339 $ 21,453 $ 21,850 $ 9,783 $ 7,015 $ 38,914 3.12% 3.12% 3.64% 3.20% 2.37% 2.13% 3.16% (81) $ 12,131 $ 1,025 $ 1,527 $ 5,668 $ 1.70% 1.65% 1.84% 1.41% $ 600 1.59% 51 3.64% $ 3,260 2.15% (70) $ 75,224 $ 15,692 $ 20,833 $ 11,026 $ 6,786 $ 1,180 $ 19,707 Foreign exchange basis swaps (1, 3, 4) (3,968) Notional amount Option products (5) Notional amount (6) Foreign exchange contracts (1, 4, 7) Notional amount (6) Futures and forward rate contracts Notional amount (6) Net ALM contracts 57 2,345 (5) $ 4,569 144,446 25,762 27,441 19,319 12,226 10,572 49,126 752 737 — — — (25,405) (36,504) 5,380 (2,228) 2,123 200 200 — — — — 52 — 15 5,772 — December 31, 2014 Expected Maturity (Dollars in millions, average estimated duration in years) Fair Value Receive-fixed interest rate swaps (1) $ 7,626 Total 2015 2016 2017 2018 2019 Thereafter Notional amount Weighted-average fixed-rate Pay-fixed interest rate swaps (1) Notional amount Weighted-average fixed-rate Same-currency basis swaps (2) Notional amount $ 113,766 $ 11,785 $ 15,339 $ 21,453 $ 15,299 $ 10,233 $ 39,657 2.98% 3.56% 3.12% 3.64% 4.07% 0.49% 2.63% (829) $ 14,668 $ 2.27% 520 2.30% $ 1,025 $ 1,527 $ 2,908 $ 1.65% 1.84% 1.62% 425 0.09% $ 8,263 2.77% (74) $ 94,413 $ 18,881 $ 15,691 $ 21,068 $ 11,026 $ 6,787 $ 20,960 Foreign exchange basis swaps (1, 3, 4) (2,352) Notional amount Option products (5) Notional amount (6) Foreign exchange contracts (1, 4, 7) Notional amount (6) Futures and forward rate contracts Notional amount (6) Net ALM contracts 11 3,700 (129) $ 7,953 161,196 27,629 26,118 27,026 14,255 12,359 53,809 980 964 — — — — 16 (22,572) (29,931) (2,036) 6,134 (2,335) 2,359 3,237 (14,949) (14,949) — — — — — Average Estimated Duration 4.98 3.98 Average Estimated Duration 4.34 8.05 (1) Does not include basis adjustments on either fixed-rate debt issued by the Corporation or AFS debt securities, which are hedged using derivatives designated as fair value hedging instruments, that substantially offset the fair values of these derivatives. (2) At December 31, 2015 and 2014, the notional amount of same-currency basis swaps included $75.2 billion and $94.4 billion in both foreign currency and U.S. Dollar-denominated basis swaps in which both sides of the swap are in the same currency. (3) Foreign exchange basis swaps consisted of cross-currency variable interest rate swaps used separately or in conjunction with receive-fixed interest rate swaps. (4) Does not include foreign currency translation adjustments on certain non-U.S. debt issued by the Corporation that substantially offset the fair values of these derivatives. (5) The notional amount of option products of $752 million at December 31, 2015 was comprised of $737 million in foreign exchange options and $15 million in purchased caps/floors. Option products of $980 million at December 31, 2014 were comprised of $974 million in foreign exchange options, $16 million in purchased caps/floors and $(10) million in swaptions. (6) Reflects the net of long and short positions. Amounts shown as negative reflect a net short position. (7) The notional amount of foreign exchange contracts of $(25.4) billion at December 31, 2015 was comprised of $21.3 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(40.3) billion in net foreign currency forward rate contracts, $(7.6) billion in foreign currency-denominated pay-fixed swaps and $1.2 billion in net foreign currency futures contracts. Foreign exchange contracts of $(22.6) billion at December 31, 2014 were comprised of $21.0 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(36.4) billion in net foreign currency forward rate contracts, $(8.3) billion in foreign currency-denominated pay-fixed swaps and $1.1 billion in foreign currency futures contracts. 96 Bank of America 2015 environments, balance sheet composition and trends, and the average receive-fixed and pay-fixed rates, expected maturity and relative mix of our cash and derivative positions. average estimated durations of our open ALM derivatives at Table 60 presents derivatives utilized in our ALM activities December 31, 2015 and 2014. These amounts do not include including those designated as accounting and economic hedging derivative hedges on our MSRs. instruments and shows the notional amount, fair value, weighted- Table 60 Asset and Liability Management Interest Rate and Foreign Exchange Contracts (Dollars in millions, average estimated duration in years) Fair Value Receive-fixed interest rate swaps (1) $ 6,291 Foreign exchange basis swaps (1, 3, 4) (3,968) Notional amount Weighted-average fixed-rate Pay-fixed interest rate swaps (1) Notional amount Weighted-average fixed-rate Same-currency basis swaps (2) Notional amount Notional amount Option products (5) Notional amount (6) Foreign exchange contracts (1, 4, 7) Notional amount (6) Futures and forward rate contracts Notional amount (6) Net ALM contracts Notional amount Weighted-average fixed-rate Pay-fixed interest rate swaps (1) Notional amount Weighted-average fixed-rate Same-currency basis swaps (2) Notional amount Notional amount Option products (5) Notional amount (6) Foreign exchange contracts (1, 4, 7) Notional amount (6) Futures and forward rate contracts Notional amount (6) Net ALM contracts December 31, 2015 Expected Maturity Total 2016 2017 2018 2019 2020 Thereafter $ 114,354 $ 15,339 $ 21,453 $ 21,850 $ 9,783 $ 7,015 $ 38,914 3.12% 3.12% 3.64% 3.20% 2.37% 2.13% 3.16% $ 12,131 $ 1,025 $ 1,527 $ 5,668 $ 600 $ 51 $ 3,260 1.70% 1.65% 1.84% 1.41% 1.59% 3.64% 2.15% $ 75,224 $ 15,692 $ 20,833 $ 11,026 $ 6,786 $ 1,180 $ 19,707 144,446 25,762 27,441 19,319 12,226 10,572 49,126 752 737 (25,405) (36,504) 5,380 (2,228) 2,123 — 52 — 5,772 15 — $ 4,569 200 200 December 31, 2014 Expected Maturity Total 2015 2016 2017 2018 2019 Thereafter $ 113,766 $ 11,785 $ 15,339 $ 21,453 $ 15,299 $ 10,233 $ 39,657 2.98% 3.56% 3.12% 3.64% 4.07% 0.49% 2.63% $ 14,668 $ 520 $ 1,025 $ 1,527 $ 2,908 $ 425 $ 8,263 2.27% 2.30% 1.65% 1.84% 1.62% 0.09% 2.77% Average Estimated Duration 4.98 3.98 Average Estimated Duration 4.34 8.05 — — — — — — — — — — — — 980 964 (14,949) (14,949) $ 7,953 (22,572) (29,931) (2,036) 6,134 (2,335) 2,359 3,237 — — 16 — (81) (70) 57 2,345 (5) (829) (74) 11 3,700 (129) Foreign exchange basis swaps (1, 3, 4) (2,352) $ 94,413 $ 18,881 $ 15,691 $ 21,068 $ 11,026 $ 6,787 $ 20,960 161,196 27,629 26,118 27,026 14,255 12,359 53,809 (Dollars in millions, average estimated duration in years) Fair Value Receive-fixed interest rate swaps (1) $ 7,626 (1) Does not include basis adjustments on either fixed-rate debt issued by the Corporation or AFS debt securities, which are hedged using derivatives designated as fair value hedging instruments, that (2) At December 31, 2015 and 2014, the notional amount of same-currency basis swaps included $75.2 billion and $94.4 billion in both foreign currency and U.S. Dollar-denominated basis swaps in substantially offset the fair values of these derivatives. which both sides of the swap are in the same currency. (3) Foreign exchange basis swaps consisted of cross-currency variable interest rate swaps used separately or in conjunction with receive-fixed interest rate swaps. (4) Does not include foreign currency translation adjustments on certain non-U.S. debt issued by the Corporation that substantially offset the fair values of these derivatives. (5) The notional amount of option products of $752 million at December 31, 2015 was comprised of $737 million in foreign exchange options and $15 million in purchased caps/floors. Option products of $980 million at December 31, 2014 were comprised of $974 million in foreign exchange options, $16 million in purchased caps/floors and $(10) million in swaptions. (6) Reflects the net of long and short positions. Amounts shown as negative reflect a net short position. (7) The notional amount of foreign exchange contracts of $(25.4) billion at December 31, 2015 was comprised of $21.3 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(40.3) billion in net foreign currency forward rate contracts, $(7.6) billion in foreign currency-denominated pay-fixed swaps and $1.2 billion in net foreign currency futures contracts. Foreign exchange contracts of $(22.6) billion at December 31, 2014 were comprised of $21.0 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(36.4) billion in net foreign currency forward rate contracts, $(8.3) billion in foreign currency-denominated pay-fixed swaps and $1.1 billion in foreign currency futures contracts. 96 Bank of America 2015 We use interest rate derivative instruments to hedge the variability in the cash flows of our assets and liabilities and other forecasted transactions (collectively referred to as cash flow hedges). The net losses on both open and terminated cash flow hedge derivative instruments recorded in accumulated OCI were $1.7 billion and $2.7 billion, on a pretax basis, at December 31, 2015 and 2014. These net losses are expected to be reclassified into earnings in the same period as the hedged cash flows affect earnings and will decrease income or increase expense on the respective hedged cash flows. Assuming no change in open cash flow derivative hedge positions and no changes in prices or interest rates beyond what is implied in forward yield curves at December 31, 2015, the pretax net losses are expected to be reclassified into earnings as follows: $563 million, or 33 percent within the next year, 37 percent in years two through five, and 20 percent in years six through ten, with the remaining 10 percent thereafter. For more information on derivatives designated as cash flow hedges, see Note 2 – Derivatives to the Consolidated Financial Statements. We hedge our net investment in non-U.S. operations determined to have functional currencies other than the U.S. Dollar using forward foreign exchange contracts that typically settle in less than 180 days, cross-currency basis swaps and foreign exchange options. We recorded net after-tax losses on derivatives in accumulated OCI associated with net investment hedges which were offset by gains on our net investments in consolidated non- U.S. entities at December 31, 2015. Mortgage Banking Risk Management We originate, fund and service mortgage loans, which subject us to credit, liquidity and interest rate risks, among others. We determine whether loans will be HFI or held-for-sale at the time of commitment and manage credit and liquidity risks by selling or securitizing a portion of the loans we originate. Interest rate risk and market risk can be substantial in the mortgage business. Fluctuations in interest rates drive consumer demand for new mortgages and the level of refinancing activity, which in turn affects total origination and servicing income. Hedging the various sources of interest rate risk in mortgage banking is a complex process that requires complex modeling and ongoing monitoring. Typically, an increase in mortgage interest rates will lead to a decrease in mortgage originations and related fees. IRLCs and the related residential first mortgage LHFS are subject to interest rate risk between the date of the IRLC and the date the loans are sold to the secondary market, as an increase in mortgage interest rates will typically lead to a decrease in the value of these instruments. MSRs are nonfinancial assets created when the underlying mortgage loan is sold to investors and we retain the right to service the loan. Typically, an increase in mortgage rates will lead to an increase in the value of the MSRs driven by lower prepayment expectations. This increase in value from increases in mortgage rates is opposite of, and therefore offsets, the risk described for IRLCs and LHFS. Because the interest rate risks of these two hedged items offset, we combine them into one overall hedged item with one combined economic hedge portfolio. Interest rate and certain market risks of IRLCs and residential mortgage LHFS are economically hedged in combination with MSRs. To hedge these combined assets, we use certain derivatives such as interest rate options, interest rate swaps, forward sale commitments, eurodollar and U.S. Treasury futures, and mortgage TBAs, as well as other securities including agency MBS, principal-only and interest-only MBS and U.S. Treasury securities. During 2015 and 2014, we recorded gains in mortgage banking income of $360 million and $357 million related to the change in fair value of the derivative contracts and other securities used to hedge the market risks of the MSRs, IRLCs and LHFS, net of gains and losses due to changes in fair value of these hedged items. For more information on MSRs, see Note 23 – Mortgage Servicing Rights to the Consolidated Financial Statements and for more information on mortgage banking income, see Consumer Banking on page 31. Compliance Risk Management Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to the reputation of the Corporation arising from the failure of the Corporation to comply with the requirements of applicable laws, rules, regulations and related self-regulatory organizations’ standards and codes of conduct (collectively, applicable laws, rules and regulations). Global Compliance independently assesses compliance risk, and evaluates FLUs and control functions for adherence to applicable laws, rules and regulations, including identifying compliance issues and risks, performing monitoring and independent testing, and reporting on the state of compliance activities across the Corporation. Additionally, Global Compliance works with FLUs and control functions so that day-to-day activities operate in a compliant manner. For more information on FLUs and control functions, see Managing Risk on page 47. The Corporation’s approach to the management of compliance risk is described in the Global Compliance – Enterprise Policy, which outlines the requirements of the Corporation’s global compliance program, and defines roles and responsibilities related to the implementation, execution and management of the compliance program by Global Compliance. The requirements work together to drive a comprehensive risk-based approach for the proactive identification, management and escalation of compliance risks throughout the Corporation. The Global Compliance – Enterprise Policy sets the requirements for reporting compliance risk information to executive management as well as the Board or appropriate Board- level committees with an outline for conducting objective independent oversight of the Corporation’s compliance risk management activities. The Board provides oversight of compliance risk through its Audit Committee and ERC. Operational Risk Management The Corporation defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk may occur anywhere in the Corporation, including third-party business processes, and is not limited to operations functions. Effects may extend beyond financial losses and may result in reputational risk impacts. Operational risk legal risk. Successful operational risk management is particularly important to diversified financial services companies because of the nature, volume and complexity of the financial services business. Operational risk is a significant component in the calculation of total risk-weighted assets used in the Basel 3 capital calculation under the Advanced approaches. For more information on Basel 3 Advanced approaches, see Capital Management – Advanced Approaches on page 53. includes Bank of America 2015 97 from risk management We approach operational two perspectives within the structure of the Corporation: (1) at the enterprise level to provide independent, integrated management of operational risk across the organization, and (2) at the business and control function levels to address operational risk in revenue producing and non-revenue producing units. The Operational Risk Management Program addresses the overarching processes for identifying, measuring, monitoring and controlling operational risk, and reporting operational risk information to management and the Board. A sound internal governance structure enhances the effectiveness of the Corporation’s Operational Risk Management Program and is accomplished at the enterprise level through formal oversight by the Board, the ERC, the CRO and a variety of management committees and risk oversight groups aligned to the Corporation’s overall risk governance framework and practices. Of these, the MRC oversees the Corporation’s policies and processes for sound operational risk management. The MRC also serves as an escalation point for critical operational risk matters within the Corporation. The MRC reports operational risk activities to the ERC. The independent operational risk management teams oversee the businesses and control functions to monitor adherence to the Operational Risk Management Program and advise and challenge operational risk exposures. results Within the Global Risk Management organization, the Enterprise Operational Risk team develops and guides the strategies, enterprise-wide policies, practices, controls and monitoring tools for assessing and managing operational risks across the organization. The Enterprise Operational Risk team functions, senior to businesses, control reports management, management committees, the ERC and the Board. The businesses and control functions are responsible for assessing, monitoring and managing all the risks within their units, including operational risks. In addition to enterprise risk management tools such as loss reporting, scenario analysis and RCSAs, operational risk executives, working in conjunction with senior business executives, have developed key tools to help identify, measure, monitor and control risk in each business and include personnel control management practices; data management, data quality controls and related processes; fraud management units; cybersecurity controls, processes and systems; transaction processing, monitoring and analysis; business recovery planning; and new product introduction processes. The business and control functions are also responsible for consistently implementing and monitoring adherence to corporate practices. function. Examples of these Business and control function management uses the enterprise RCSA process to capture the identification and assessment of operational risk exposures and evaluate the status of risk and control issues including risk mitigation plans, as appropriate. The goals of this process are to assess changing market and business conditions, evaluate key risks impacting each business and control function, and assess the controls in place to mitigate the risks. Key operational risk indicators have been developed and are used to assist in identifying trends and issues on an enterprise, business and control function level. Independent review and challenge to the Corporation’s overall operational risk management framework is performed by the Corporate Operational Risk Program Adherence Team and reported through the operational risk governance committees and management routines. Where appropriate, insurance policies are purchased to mitigate the impact of operational losses. These insurance 98 Bank of America 2015 policies are explicitly incorporated in the structural features of operational risk evaluation. As insurance recoveries, especially given recent market events, are subject to legal and financial uncertainty, the inclusion of these insurance policies is subject to reductions in their expected mitigating benefits. Reputational Risk Management Reputational risk is the risk that negative perceptions of the Corporation’s conduct or business practices will adversely affect its profitability or operations through an inability to establish new or maintain existing customer/client relationships. Reputational risk may result from many of the Corporation’s activities, including those related to the management of our strategic, operational, compliance and credit risks. risk reputational The Corporation manages through established policies and controls in its businesses and risk management processes to mitigate reputational risks in a timely manner and through proactive monitoring and identification of potential reputational risk events. The Corporation has processes and procedures in place to respond to events that give rise to reputational risk, including educating individuals and organizations that influence public opinion, external communication strategies to mitigate the risk, and informing key stakeholders of potential reputational risks. The Corporation’s organization and governance structure provides oversight of reputational risks, and key risk indicators are reported regularly and directly to management and the ERC, which provides primary oversight of reputational risk. In addition, each FLU has a committee, which includes representatives from Compliance, Legal and Risk, that is responsible for the oversight of reputational risk. Such committees’ oversight includes providing approval for business activities that present elevated levels of reputational risks. Complex Accounting Estimates Our significant accounting principles, as described in Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements, are essential in understanding the MD&A. Many of our significant accounting principles require complex judgments to estimate the values of assets and liabilities. We have procedures and processes in place to facilitate making these judgments. The more judgmental estimates are summarized in the following discussion. We have identified and described the development of the variables most important in the estimation processes that involve mathematical models to derive the estimates. In many cases, there are numerous alternative judgments that could be used in the process of determining the inputs to the models. Where alternatives exist, we have used the factors that we believe represent the most reasonable value in developing the inputs. Actual performance that differs from our estimates of the key variables could impact our results of operations. Separate from the possible future impact to our results of operations from input and model variables, the value of our lending portfolio and market- sensitive assets and liabilities may change subsequent to the balance sheet date, often significantly, due to the nature and magnitude of future credit and market conditions. Such credit and market conditions may change quickly and in unforeseen ways and the resulting volatility could have a significant, negative effect on future operating results. These fluctuations would not be indicative of deficiencies in our models or inputs. We approach operational risk management from two policies are explicitly incorporated in the structural features of perspectives within the structure of the Corporation: (1) at the operational risk evaluation. As insurance recoveries, especially enterprise level to provide independent, integrated management given recent market events, are subject to legal and financial of operational risk across the organization, and (2) at the business uncertainty, the inclusion of these insurance policies is subject to and control function levels to address operational risk in revenue reductions in their expected mitigating benefits. producing and non-revenue producing units. The Operational Risk Management Program addresses the overarching processes for identifying, measuring, monitoring and controlling operational risk, and reporting operational risk information to management and the Board. A sound internal governance structure enhances the effectiveness of the Corporation’s Operational Risk Management Program and is accomplished at the enterprise level through formal oversight by the Board, the ERC, the CRO and a variety of management committees and risk oversight groups aligned to the Corporation’s overall risk governance framework and practices. Of these, the MRC oversees the Corporation’s policies and processes for sound operational risk management. The MRC also serves as an escalation point for critical operational risk matters within the Corporation. The MRC reports operational risk activities to the ERC. The independent operational risk management teams oversee the businesses and control functions to monitor adherence to the Operational Risk Management Program and advise and challenge operational risk exposures. Within the Global Risk Management organization, the Enterprise Operational Risk team develops and guides the strategies, enterprise-wide policies, practices, controls and monitoring tools for assessing and managing operational risks across the organization. The Enterprise Operational Risk team reports results to businesses, control functions, senior management, management committees, the ERC and the Board. The businesses and control functions are responsible for assessing, monitoring and managing all the risks within their units, including operational risks. In addition to enterprise risk management tools such as loss reporting, scenario analysis and RCSAs, operational risk executives, working in conjunction with senior business executives, have developed key tools to help identify, measure, monitor and control risk in each business and control function. Examples of these include personnel management practices; data management, data quality controls and related processes; fraud management units; cybersecurity controls, processes and systems; transaction processing, monitoring and analysis; business recovery planning; and new monitoring adherence to corporate practices. Business and control function management uses the enterprise RCSA process to capture the identification and assessment of operational risk exposures and evaluate the status of risk and control issues including risk mitigation plans, as appropriate. The goals of this process are to assess changing market and business conditions, evaluate key risks impacting each business and control function, and assess the controls in place to mitigate the risks. Key operational risk indicators have been developed and are used to assist in identifying trends and issues on an enterprise, business and control function level. Independent review and challenge to the Corporation’s overall operational risk management framework is performed by the Corporate Operational Risk Program Adherence Team and reported through the operational risk governance committees and management routines. Reputational Risk Management Reputational risk is the risk that negative perceptions of the Corporation’s conduct or business practices will adversely affect its profitability or operations through an inability to establish new or maintain existing customer/client relationships. Reputational risk may result from many of the Corporation’s activities, including those related to the management of our strategic, operational, compliance and credit risks. The Corporation manages reputational risk through established policies and controls in its businesses and risk management processes to mitigate reputational risks in a timely manner and through proactive monitoring and identification of potential reputational risk events. The Corporation has processes and procedures in place to respond to events that give rise to reputational risk, including educating individuals and organizations that influence public opinion, external communication strategies to mitigate the risk, and informing key stakeholders of potential reputational risks. The Corporation’s organization and governance structure provides oversight of reputational risks, and key risk indicators are reported regularly and directly to management and the ERC, which provides primary oversight of reputational risk. In addition, each FLU has a committee, which includes representatives from Compliance, Legal and Risk, that is responsible for the oversight of reputational risk. Such committees’ oversight includes providing approval for business activities that present elevated levels of reputational risks. Complex Accounting Estimates Our significant accounting principles, as described in Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements, are essential in understanding the MD&A. Many of our significant accounting principles require complex judgments to estimate the values of assets and liabilities. We have procedures and processes in place to facilitate making these The more judgmental estimates are summarized in the following discussion. We have identified and described the development of the variables most important in the estimation processes that involve mathematical models to derive the estimates. In many cases, there are numerous alternative judgments that could be used in the process of determining the inputs to the models. Where alternatives exist, we have used the factors that we believe represent the most reasonable value in developing the inputs. Actual performance that differs from our estimates of the key variables could impact our results of operations. Separate from the possible future impact to our results of operations from input and model variables, the value of our lending portfolio and market- sensitive assets and liabilities may change subsequent to the balance sheet date, often significantly, due to the nature and magnitude of future credit and market conditions. Such credit and market conditions may change quickly and in unforeseen ways and the resulting volatility could have a significant, negative effect on future operating results. These fluctuations would not be indicative product introduction processes. The business and control judgments. functions are also responsible for consistently implementing and Where appropriate, insurance policies are purchased to mitigate the impact of operational losses. These insurance of deficiencies in our models or inputs. 98 Bank of America 2015 Allowance for Credit Losses The allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, represents management’s estimate of probable losses inherent in the Corporation’s loan portfolio excluding those loans accounted for under the fair value option. Our process for determining the allowance for credit losses is discussed in Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. We evaluate our allowance at the portfolio segment level and our portfolio segments are Consumer Real Estate, Credit Card and Other Consumer, and Commercial. Due to the variability in the drivers of the assumptions used in this process, estimates of the portfolio’s inherent risks and overall collectability change with changes in the economy, individual industries, countries, and borrowers’ ability and willingness to repay their obligations. The degree to which any particular assumption affects the allowance for credit losses depends on the severity of the change and its relationship to the other assumptions. Key judgments used in determining the allowance for credit losses include risk ratings for pools of commercial loans and leases, market and collateral values and discount rates for individually evaluated loans, product type classifications for consumer and commercial loans and leases, loss rates used for consumer and commercial loans and leases, adjustments made to address current events and conditions (e.g., the recent sharp drop in oil prices), considerations regarding domestic and global economic uncertainty, and overall credit conditions. Our estimate for the allowance for loan and lease losses is sensitive to the loss rates and expected cash flows from our Consumer Real Estate and Credit Card and Other Consumer portfolio segments, as well as our U.S. small business commercial card portfolio within the Commercial portfolio segment. For each one-percent increase in the loss rates on loans collectively evaluated for impairment in our Consumer Real Estate portfolio segment, excluding PCI loans, coupled with a one-percent decrease in the discounted cash flows on those loans individually evaluated for impairment within this portfolio segment, the allowance for loan and lease losses at December 31, 2015 would have increased by $71 million. PCI loans within our Consumer Real Estate portfolio segment are initially recorded at fair value. Applicable accounting guidance prohibits carry-over or creation of valuation allowances initial accounting. However, subsequent decreases in the expected cash flows from the date of acquisition result in a charge to the provision for credit losses and a corresponding increase to the allowance for loan and lease losses. We subject our PCI portfolio to stress scenarios to evaluate the potential impact given certain events. A one-percent decrease in the expected cash flows could result in a $151 million impairment of the portfolio. For each one-percent increase in the loss rates on loans collectively evaluated for impairment within our Credit Card and Other Consumer portfolio segment and U.S. small business commercial card portfolio, coupled with a one- percent decrease in the expected cash flows on those loans individually evaluated for impairment within the Credit Card and Other Consumer portfolio segment and the U.S. small business commercial card portfolio, the allowance for loan and lease losses at December 31, 2015 would have increased by $38 million. the in Our allowance for loan and lease losses is sensitive to the risk ratings assigned to loans and leases within the Commercial portfolio segment (excluding the U.S. small business commercial card portfolio). Assuming a downgrade of one level in the internal risk ratings for commercial loans and leases, except loans and leases already risk-rated Doubtful as defined by regulatory authorities, the allowance for loan and lease losses would have increased by $3.2 billion at December 31, 2015. The allowance for loan and lease losses as a percentage of total loans and leases at December 31, 2015 was 1.37 percent and these hypothetical increases in the allowance would raise the ratio to 1.75 percent. These sensitivity analyses do not represent management’s expectations of the deterioration in risk ratings or the increases in loss rates but are provided as hypothetical scenarios to assess the sensitivity of the allowance for loan and lease losses to changes in key inputs. We believe the risk ratings and loss severities currently in use are appropriate and that the probability of the alternative scenarios outlined above occurring within a short period of time is remote. The process of determining the level of the allowance for credit losses requires a high degree of judgment. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions. For more information on the FASB’s proposed standard on accounting for credit losses, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. Mortgage Servicing Rights MSRs are nonfinancial assets that are created when a mortgage loan is sold and we retain the right to service the loan. We account for consumer MSRs, including residential mortgage and home equity MSRs, at fair value with changes in fair value primarily recorded in mortgage banking income in the Consolidated Statement of Income. We determine the fair value of our consumer MSRs using a valuation model that calculates the present value of estimated future net servicing income. The model incorporates key economic assumptions including estimates of prepayment rates and resultant weighted-average lives of the MSRs, and the option- adjusted spread levels. These variables can, and generally do, change from quarter to quarter as market conditions and projected interest rates change. These assumptions are subjective in nature and changes in these assumptions could materially affect our operating results. For example, increasing the prepayment rate assumption used in the valuation of our consumer MSRs by 10 percent while keeping all other assumptions unchanged could have resulted in an estimated decrease of $163 million in both MSRs and mortgage banking income for 2015. This impact does not reflect any hedge strategies that may be undertaken to mitigate such risk. We manage potential changes in the fair value of MSRs through a comprehensive risk management program. The intent is to mitigate the effects of changes in the fair value of MSRs through the use of risk management instruments. To reduce the sensitivity of earnings to interest rate and market value fluctuations, securities including MBS and U.S. Treasury securities, as well as certain derivatives such as options and interest rate swaps, may be used to hedge certain market risks of the MSRs, but are not designated as accounting hedges. These instruments are carried at fair value with changes in fair value primarily recognized in mortgage banking income. For additional information, see Mortgage Banking Risk Management on page 97. Bank of America 2015 99 For more information on MSRs, including the sensitivity of weighted-average lives and the fair value of MSRs to changes in modeled assumptions, see Note 23 – Mortgage Servicing Rights to the Consolidated Financial Statements. Fair Value of Financial Instruments We classify the fair values of financial instruments based on the fair value hierarchy established under applicable accounting guidance which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Applicable accounting guidance establishes three levels of inputs used to measure fair value. We carry trading account assets and liabilities, derivative assets and liabilities, AFS debt and equity securities, other debt securities, consumer MSRs and certain other assets at fair value. Also, we account for certain loans and loan commitments, LHFS, short-term borrowings, securities financing agreements, asset-backed secured financings, long-term deposits and long-term debt under the fair value option. The fair values of assets and liabilities may include adjustments, such as market liquidity and credit quality, where appropriate. Valuations of products using models or other techniques are sensitive to assumptions used for the significant inputs. Where market data is available, the inputs used for valuation reflect that information as of our valuation date. Inputs to valuation models are considered unobservable if they are supported by little or no market activity. In periods of extreme volatility, lessened liquidity or in illiquid markets, there may be more variability in market pricing or a lack of market data to use in the valuation process. In keeping with the prudent application of estimates and management judgment in determining the fair value of assets and liabilities, we have in place various processes and controls that include: a model validation policy that requires review and approval of quantitative models used for deal pricing, financial statement risk quantification; a trading product valuation policy that requires verification of all traded product valuations; and a periodic review value determination and fair and substantiation of daily profit and loss reporting for all traded products. Primarily through validation controls, we utilize both broker and pricing service inputs which can and do include both market-observable and internally-modeled values and/or valuation inputs. Our reliance on this information is affected by our understanding of how the broker and/or pricing service develops its data with a higher degree of reliance applied to those that are more directly observable and lesser reliance applied to those developed through their own internal modeling. Similarly, broker quotes that are executable are given a higher level of reliance than indicative broker quotes, which are not executable. These processes and controls are performed independently of the business. For additional information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option to the Consolidated Financial Statements. In 2014, we implemented an FVA into valuation estimates primarily to include funding costs on uncollateralized derivatives and derivatives where we are not permitted to use the collateral received. This change resulted in a pretax net FVA charge of $497 million at the time of implementation. Significant judgment is required in modeling expected exposure profiles and in discounting for the funding risk premium inherent in these derivatives. that inputs require techniques Level 3 Assets and Liabilities Financial assets and liabilities where values are based on valuation that are both unobservable and are significant to the overall fair value measurement are classified as Level 3 under the fair value hierarchy established in applicable accounting guidance. The Level 3 financial assets and liabilities include certain loans, MBS, ABS, CDOs, CLOs and structured liabilities, highly structured, complex or long-dated derivative contracts and consumer MSRs. The fair value of these Level 3 financial assets and liabilities is determined using pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value requires significant management judgment or estimation. Table 61 Recurring Level 3 Asset and Liability Summary (Dollars in millions) Trading account assets Derivative assets AFS debt securities Loans and leases Mortgage servicing rights All other Level 3 assets at fair value Total Level 3 assets at fair value (1) Derivative liabilities Long-term debt All other Level 3 liabilities at fair value Total Level 3 liabilities at fair value (1) 2015 As a % of Total Level 3 Assets 31.13% 28.37 7.91 8.95 17.06 6.58 100.00% As a % of Total Level 3 Liabilities 74.50% 20.22 5.28 100.00% December 31 As a % of Total Assets Level 3 Fair Value 0.26% $ 0.24 0.07 0.08 0.14 0.05 0.84% $ 6,259 6,851 2,555 1,983 3,530 1,084 22,262 As a % of Total Liabilities Level 3 Fair Value 0.30% $ 0.08 0.02 0.40% $ 7,771 2,362 46 10,179 2014 As a % of Total Level 3 Assets 28.12% 30.77 11.48 8.91 15.86 4.86 100.00% As a % of Total Level 3 Liabilities 76.34% 23.20 0.46 100.00% As a % of Total Assets 0.30% 0.33 0.12 0.09 0.17 0.05 1.06% As a % of Total Liabilities 0.42% 0.13 — 0.55% Level 3 Fair Value 5,634 5,134 1,432 1,620 3,087 1,191 18,098 Level 3 Fair Value 5,575 1,513 395 7,483 $ $ $ $ (1) Level 3 total assets and liabilities are shown before the impact of cash collateral and counterparty netting related to derivative positions. 100 Bank of America 2015 For more information on MSRs, including the sensitivity of and substantiation of daily profit and loss reporting for all traded weighted-average lives and the fair value of MSRs to changes in products. Primarily through validation controls, we utilize both modeled assumptions, see Note 23 – Mortgage Servicing Rights broker and pricing service inputs which can and do include both to the Consolidated Financial Statements. Fair Value of Financial Instruments We classify the fair values of financial instruments based on the fair value hierarchy established under applicable accounting guidance which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Applicable accounting guidance establishes three levels of inputs used to measure fair value. We carry trading account assets and liabilities, derivative assets and liabilities, AFS debt and equity securities, other debt securities, consumer MSRs and certain other assets at fair value. Also, we account for certain loans and loan commitments, LHFS, short-term borrowings, securities financing agreements, asset-backed secured financings, long-term deposits and long-term debt under the fair value option. The fair values of assets and liabilities may include adjustments, such as market liquidity and credit quality, where appropriate. Valuations of products using models or other techniques are sensitive to assumptions used for the significant inputs. Where market data is available, the inputs used for valuation reflect that information as of our valuation date. Inputs to valuation models are considered unobservable if they are supported by little or no market activity. In periods of extreme volatility, lessened liquidity or in illiquid markets, there may be more variability in market pricing or a lack of market data to use in the valuation process. In keeping with the prudent application of estimates and management judgment in determining the fair value of assets and liabilities, we have in place various processes and controls that include: a model validation policy that requires review and approval of quantitative models used for deal pricing, financial statement fair value determination and risk quantification; a trading product valuation policy that requires verification of all traded product valuations; and a periodic review Table 61 Recurring Level 3 Asset and Liability Summary market-observable and internally-modeled values and/or valuation inputs. Our reliance on this information is affected by our understanding of how the broker and/or pricing service develops its data with a higher degree of reliance applied to those that are more directly observable and lesser reliance applied to those developed through their own internal modeling. Similarly, broker quotes that are executable are given a higher level of reliance than indicative broker quotes, which are not executable. These processes and controls are performed independently of the business. For additional information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option to the Consolidated Financial Statements. In 2014, we implemented an FVA into valuation estimates primarily to include funding costs on uncollateralized derivatives and derivatives where we are not permitted to use the collateral received. This change resulted in a pretax net FVA charge of $497 million at the time of implementation. Significant judgment is required in modeling expected exposure profiles and in discounting for the funding risk premium inherent in these derivatives. Level 3 Assets and Liabilities Financial assets and liabilities where values are based on valuation techniques that require inputs that are both unobservable and are significant to the overall fair value measurement are classified as Level 3 under the fair value hierarchy established in applicable accounting guidance. The Level 3 financial assets and liabilities include certain loans, MBS, ABS, CDOs, CLOs and structured liabilities, highly structured, complex or long-dated derivative contracts and consumer MSRs. The fair value of these Level 3 financial assets and liabilities is determined using pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value requires significant management judgment or estimation. (Dollars in millions) Trading account assets Derivative assets AFS debt securities Loans and leases Mortgage servicing rights All other Level 3 assets at fair value Total Level 3 assets at fair value (1) Derivative liabilities Long-term debt All other Level 3 liabilities at fair value Total Level 3 liabilities at fair value (1) 100 Bank of America 2015 2015 As a % of Total Level 3 Assets 31.13% 28.37 7.91 8.95 17.06 6.58 December 31 As a % of Total Assets Level 3 Fair Value 0.24 0.07 0.08 0.14 0.05 6,259 6,851 2,555 1,983 3,530 1,084 2014 As a % of Total Level 3 Assets 30.77 11.48 8.91 15.86 4.86 As a % of Total Assets 0.33 0.12 0.09 0.17 0.05 0.26% $ 28.12% 0.30% Level 3 Fair Value $ 5,634 5,134 1,432 1,620 3,087 1,191 $ 18,098 100.00% 0.84% $ 22,262 100.00% 1.06% As a % of Total Level 3 As a % of Total As a % of Total Level 3 As a % of Total Level 3 Fair Value $ $ 5,575 1,513 395 7,483 Level 3 Fair Value Liabilities Liabilities Liabilities Liabilities 74.50% 20.22 5.28 100.00% 0.30% $ 0.08 0.02 7,771 2,362 46 76.34% 23.20 0.46 0.40% $ 10,179 100.00% 0.42% 0.13 — 0.55% (1) Level 3 total assets and liabilities are shown before the impact of cash collateral and counterparty netting related to derivative positions. Level 3 financial instruments may be hedged with derivatives classified as Level 1 or 2; therefore, gains or losses associated with Level 3 financial instruments may be offset by gains or losses associated with financial instruments classified in other levels of the fair value hierarchy. The Level 3 gains and losses recorded in earnings did not have a significant impact on our liquidity or capital. We conduct a review of our fair value hierarchy classifications on a quarterly basis. Transfers into or out of Level 3 are made if the significant inputs used in the financial models measuring the fair values of the assets and liabilities became unobservable or observable, respectively, in the current marketplace. These transfers are considered to be effective as of the beginning of the quarter in which they occur. For more information on the significant transfers into and out of Level 3 during 2015 and 2014, see Note 20 – Fair Value Measurements to the Consolidated Financial Statements. Accrued Income Taxes and Deferred Tax Assets Accrued income taxes, reported as a component of either other assets or accrued expenses and other liabilities on the Consolidated Balance Sheet, represent the net amount of current income taxes we expect to pay to or receive from various taxing jurisdictions attributable to our operations to date. We currently file income tax returns in more than 100 jurisdictions and consider many factors, including statutory, judicial and regulatory guidance, in estimating the appropriate accrued income taxes for each jurisdiction. Consistent with the applicable accounting guidance, we monitor relevant tax authorities and change our estimate of accrued income taxes due to changes in income tax laws and their interpretation by the courts and regulatory authorities. These revisions of our estimate of accrued income taxes, which also may result from our income tax planning and from the resolution of income tax controversies, may be material to our operating results for any given period. Net deferred tax assets, reported as a component of other assets on the Consolidated Balance Sheet, represent the net decrease in taxes expected to be paid in the future because of net operating loss (NOL) and tax credit carryforwards and 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. NOL and tax credit carryforwards result in reductions to future tax liabilities, and many of these attributes can expire if not utilized within certain periods. We consider the need for valuation allowances to reduce net deferred tax assets to the amounts that we estimate are more-likely-than-not to be realized. While we have established valuation allowances for certain state and non-U.S. deferred tax assets, we have concluded that no valuation allowance was necessary with respect to nearly all U.S. federal and U.K. deferred tax assets, including NOL and tax credit carryforwards. The majority of U.K. net deferred tax assets, which consist primarily of NOLs, are expected to be realized by certain subsidiaries over an extended number of years. Management’s conclusion is supported by financial results and forecasts, the reorganization of certain business activities and the indefinite period to carry forward NOLs. However, significant changes to our estimates, such as changes that would be caused by substantial and prolonged worsening of the condition of Europe’s capital markets, or to applicable tax laws, such as laws affecting the realizability of NOLs or other deferred tax assets, could lead management to reassess its U.K. valuation allowance conclusions. See Note 19 – Income Taxes to the Consolidated Financial Statements for a table of significant tax attributes and additional information. For more information, see page 14 under Item 1A. Risk Factors of our 2015 Annual Report on Form 10-K. Goodwill and Intangible Assets Background The nature of and accounting for goodwill and intangible assets are discussed in Note 1 – Summary of Significant Accounting Principles and Note 8 – Goodwill and Intangible Assets to the Consolidated Financial Statements. Goodwill is reviewed for potential impairment at the reporting unit level on an annual basis, which for the Corporation is as of June 30, and in interim periods if events or circumstances indicate a potential impairment. A reporting unit is an operating segment or one level below. As reporting units are determined after an acquisition or evolve with changes in business strategy, goodwill is assigned to reporting units and it no longer retains its association with a particular acquisition. All of the revenue streams and related activities of a reporting unit, whether acquired or organic, are available to support the value of the goodwill. Effective January 1, 2015, the Corporation changed its basis of presentation related to its business segments. The realignment triggered a test for goodwill impairment, which was performed both immediately before and after the realignment. In performing the goodwill impairment test, the Corporation compared the fair value of the affected reporting units with their carrying value as measured by allocated equity. The fair value of the affected reporting units exceeded their carrying value and, accordingly, no goodwill impairment resulted from the realignment. 2015 Annual Impairment Test Estimating the fair value of reporting units is a subjective process that involves the use of estimates and judgments, particularly related to cash flows, the appropriate discount rates and an applicable control premium. We determined the fair values of the reporting units using a combination of valuation techniques consistent with the market approach and the income approach and also utilized independent valuation specialists. The market approach we used estimates the fair value of the individual reporting units by incorporating any combination of the tangible capital, book capital and earnings multiples from comparable publicly-traded companies in industries similar to the reporting unit. The relative weight assigned to these multiples varies among the reporting units based on qualitative and quantitative characteristics, primarily the size and relative profitability of the reporting unit as compared to the comparable publicly-traded companies. Since the fair values determined under the market approach are representative of a noncontrolling interest, we added a control premium to arrive at the reporting units’ estimated fair values on a controlling basis. For purposes of the income approach, we calculated discounted cash flows by taking the net present value of estimated future cash flows and an appropriate terminal value. Our discounted cash flow analysis employs a capital asset pricing model in estimating the discount rate (i.e., cost of equity financing) for each reporting unit. The inputs to this model include the risk- free rate of return, beta, which is a measure of the level of non- diversifiable risk associated with comparable companies for each Bank of America 2015 101 2014 Annual Impairment Test We completed our annual goodwill impairment test as of June 30, 2014 for all of our reporting units that had goodwill. We also evaluated the U.K. Card business within All Other, as the U.K. Card business comprises the majority of the goodwill included in All Other. Based on the results of step one of the annual goodwill impairment test, we determined that step two was not required for any of the reporting units as their fair value exceeded their carrying value indicating there was no impairment. Representations and Warranties Liability The methodology used to estimate the liability for obligations under representations and warranties related to transfers of residential mortgage loans is a function of the type of representations and warranties provided in the sales contract and considers a variety of factors. Depending upon the counterparty, these factors include actual defaults, estimated future defaults, historical loss experience, estimated home prices, other economic conditions, estimated probability that we will receive a repurchase request, number of payments made by the borrower prior to default and estimated probability that we will be required to repurchase a loan. It also considers other relevant facts and circumstances, such as bulk settlements and identity of the counterparty or type of counterparty, as appropriate. The estimate of the liability for obligations under representations and warranties is based upon currently available information, significant judgment, and a number of factors, including those set forth above, that are subject to change. Changes to any one of these factors could significantly impact the estimate of our liability. The representations and warranties provision may vary significantly each period as the methodology used to estimate the expense continues to be refined based on the level and type of repurchase requests presented, defects identified, the latest experience gained on repurchase requests and other relevant facts and circumstances. The estimate of the liability for representations and warranties is sensitive to future defaults, loss severity and the net repurchase rate. An assumed simultaneous increase or decrease of 10 percent in estimated future defaults, loss severity and the net repurchase rate would result in an increase or decrease of approximately $300 million in the representations and warranties liability as of December 31, 2015. These sensitivities are hypothetical and are intended to provide an indication of the impact of a significant change in these key assumptions on the representations and warranties liability. In reality, changes in one assumption may result in changes in other assumptions, which may or may not counteract the sensitivity. For more information on representations and warranties exposure and the corresponding estimated range of possible loss, see Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 44, as well as Note 7 – Representations and Warranties Obligations and Corporate Guarantees and Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. specific reporting unit, market equity risk premium and in certain cases an unsystematic (company-specific) risk factor. The unsystematic risk factor is the input that specifically addresses uncertainty related to our projections of earnings and growth, including the uncertainty related to loss expectations. We utilized discount rates that we believe adequately reflect the risk and uncertainty in the financial markets generally and specifically in our internally developed forecasts. We estimated expected rates of equity returns based on historical market returns and risk/return rates for industries similar to each reporting unit. We use our internal forecasts to estimate future cash flows and actual results may differ from forecasted results. We completed our annual goodwill impairment test as of June 30, 2015 for all of our reporting units that had goodwill. In performing the first step of the annual goodwill impairment analysis, we compared the fair value of each reporting unit to its estimated carrying value as measured by allocated equity, which includes goodwill. We also evaluated the U.K. Card business within All Other, as the U.K. Card business comprises substantially all of the goodwill included in All Other. To determine fair value, we utilized a combination of the market approach and the income approach. Under the market approach, we compared earnings and equity multiples of the individual reporting units to multiples of public companies comparable to the individual reporting units. The control premium used in the June 30, 2015 annual goodwill impairment test was 30 percent, based upon observed comparable premiums paid for change in control transactions for financial institutions, for all reporting units. The discount rates used in the June 30, 2015 annual goodwill impairment test ranged from 10.2 percent to 13.7 percent depending on the relative risk of a reporting unit. Growth rates developed by management for individual revenue and expense items in each reporting unit ranged from negative 3.5 percent to positive 8.0 percent. individual reporting unit The Corporation’s market capitalization remained below our recorded book value during 2015. As none of our reporting units are publicly-traded, fair value determinations may not directly correlate to the Corporation’s market capitalization. We considered the comparison of the aggregate fair value of the reporting units with assigned goodwill to the Corporation’s market capitalization as of June 30, 2015. Although we believe it is reasonable to conclude that market capitalization could be an indicator of fair value over time, we do not believe that our current market capitalization would reflect the aggregate fair value of our individual reporting units with assigned goodwill, as reporting units with no assigned goodwill have not been valued and are excluded (e.g., LAS) from the comparison and our market capitalization does not include consideration of individual reporting unit control premiums. Although the individual reporting units have considered the impact of recent regulatory changes in their forecasts and valuations, overall regulatory and market uncertainties persist that we believe further impact the Corporation’s stock price. Based on the results of step one of the annual goodwill impairment test, we determined that step two was not required for any of the reporting units as their fair value exceeded their carrying value indicating there was no impairment. 102 Bank of America 2015 specific reporting unit, market equity risk premium and in certain 2014 Annual Impairment Test cases an unsystematic (company-specific) risk factor. The unsystematic risk factor is the input that specifically addresses uncertainty related to our projections of earnings and growth, including the uncertainty related to loss expectations. We utilized We completed our annual goodwill impairment test as of June 30, 2014 for all of our reporting units that had goodwill. We also evaluated the U.K. Card business within All Other, as the U.K. Card business comprises the majority of the goodwill included in All discount rates that we believe adequately reflect the risk and Other. uncertainty in the financial markets generally and specifically in our internally developed forecasts. We estimated expected rates of equity returns based on historical market returns and risk/return Based on the results of step one of the annual goodwill impairment test, we determined that step two was not required for any of the reporting units as their fair value exceeded their rates for industries similar to each reporting unit. We use our carrying value indicating there was no impairment. internal forecasts to estimate future cash flows and actual results may differ from forecasted results. We completed our annual goodwill impairment test as of June 30, 2015 for all of our reporting units that had goodwill. In performing the first step of the annual goodwill impairment analysis, we compared the fair value of each reporting unit to its estimated carrying value as measured by allocated equity, which includes goodwill. We also evaluated the U.K. Card business within All Other, as the U.K. Card business comprises substantially all of the goodwill included in All Other. To determine fair value, we utilized a combination of the market approach and the income approach. Under the market approach, we compared earnings and equity multiples of the individual reporting units to multiples of public companies comparable to the individual reporting units. The control premium used in the June 30, 2015 annual goodwill impairment test was 30 percent, based upon observed comparable premiums paid for change in control transactions for financial institutions, for all reporting units. The discount rates used in the June 30, 2015 annual goodwill impairment test ranged from 10.2 percent to 13.7 percent depending on the relative risk of a reporting unit. Growth rates developed by management for individual revenue and expense items in each reporting unit ranged from negative 3.5 percent to positive 8.0 percent. The Corporation’s market capitalization remained below our recorded book value during 2015. As none of our reporting units are publicly-traded, individual reporting unit fair value determinations may not directly correlate to the Corporation’s market capitalization. We considered the comparison of the aggregate fair value of the reporting units with assigned goodwill to the Corporation’s market capitalization as of June 30, 2015. Although we believe it is reasonable to conclude that market capitalization could be an indicator of fair value over time, we do not believe that our current market capitalization would reflect the aggregate fair value of our individual reporting units with assigned goodwill, as reporting units with no assigned goodwill have not been valued and are excluded (e.g., LAS) from the comparison and our market capitalization does not include consideration of individual reporting unit control premiums. Although the individual reporting units have considered the impact of recent regulatory changes in their forecasts and valuations, overall regulatory and market uncertainties persist that we believe further impact the Corporation’s stock price. Based on the results of step one of the annual goodwill impairment test, we determined that step two was not required for any of the reporting units as their fair value exceeded their carrying value indicating there was no impairment. Representations and Warranties Liability The methodology used to estimate the liability for obligations under representations and warranties related to transfers of residential mortgage loans is a function of the type of representations and warranties provided in the sales contract and considers a variety of factors. Depending upon the counterparty, these factors include actual defaults, estimated future defaults, historical loss experience, estimated home prices, other economic conditions, estimated probability that we will receive a repurchase request, number of payments made by the borrower prior to default and estimated probability that we will be required to repurchase a loan. It also considers other relevant facts and circumstances, such as bulk settlements and identity of the counterparty or type of counterparty, as appropriate. The estimate of the liability for obligations under representations and warranties is based upon currently available information, significant judgment, and a number of factors, including those set forth above, that are subject to change. Changes to any one of these factors could significantly impact the estimate of our liability. The representations and warranties provision may vary significantly each period as the methodology used to estimate the expense continues to be refined based on the level and type of repurchase requests presented, defects identified, the latest experience gained on repurchase requests and other relevant facts and circumstances. The estimate of the liability for representations and warranties is sensitive to future defaults, loss severity and the net repurchase rate. An assumed simultaneous increase or decrease of 10 percent in estimated future defaults, loss severity and the net repurchase rate would result in an increase or decrease of approximately $300 million in the representations and warranties liability as of December 31, 2015. These sensitivities are hypothetical and are intended to provide an indication of the impact of a significant change in these key assumptions on the representations and warranties liability. In reality, changes in one assumption may result in changes in other assumptions, which may or may not counteract the sensitivity. For more information on representations and warranties exposure and the corresponding estimated range of possible loss, see Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties on page 44, as well as Note 7 – Representations and Warranties Obligations and Corporate Guarantees and Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. Litigation Reserve For a limited number of the matters disclosed in Note 12 – Commitments and Contingencies to the Consolidated Financial Statements for which a loss is probable or reasonably possible in future periods, whether in excess of a related accrued liability or where there is no accrued liability, we are able to estimate a range of possible loss. In determining whether it is possible to provide an estimate of loss or range of possible loss, the Corporation reviews and evaluates its material litigation and regulatory matters on an ongoing basis, in conjunction with any outside counsel handling the matter, in light of potentially relevant factual and legal developments. These may include information learned through the discovery process, rulings on dispositive motions, settlement discussions, and other rulings by courts, arbitrators or others. In cases in which the Corporation possesses sufficient information to develop an estimate of loss or range of possible loss, that estimate is aggregated and disclosed in Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. For other disclosed matters for which a loss is probable or reasonably possible, such an estimate is not possible. Those matters for which an estimate is not possible are not included within this estimated range. Therefore, the estimated range of possible loss represents what we believe to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Corporation’s maximum loss exposure. Information is provided in Note 12 – Commitments and Contingencies to the Consolidated Financial Statements regarding the nature of all of these contingencies and, where specified, the amount of the claim associated with these loss contingencies. Consolidation and Accounting for Variable Interest Entities In accordance with applicable accounting guidance, an entity that has a controlling financial interest in a variable interest entity (VIE) is referred to as the primary beneficiary and consolidates the VIE. The Corporation is deemed to have a controlling financial interest and is the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Determining whether an entity has a controlling financial interest in a VIE requires significant judgment. An entity must assess the purpose and design of the VIE, including explicit and implicit contractual arrangements, and the entity’s involvement in both the design of the VIE and its ongoing activities. The entity must then determine which activities have the most significant impact on the economic performance of the VIE and whether the entity has the power to direct such activities. For VIEs that hold financial assets, the party that services the assets or makes investment management decisions may have the power to direct the most significant activities of a VIE. Alternatively, a third party that has the unilateral right to replace the servicer or investment manager or to liquidate the VIE may be deemed to be the party with power. If there are no significant ongoing activities, the party that was responsible for the design of the VIE may be deemed to have power. If the entity determines that it has the power to direct the most significant activities of the VIE, then the entity must determine if it has either an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Such economic interests may include investments in debt or equity instruments issued by the VIE, liquidity commitments, and explicit and implicit guarantees. On a quarterly basis, we reassess whether we have a controlling financial interest and are the primary beneficiary of a VIE. The quarterly reassessment process considers whether we have acquired or divested the power to direct the activities of the VIE through changes in governing documents or other circumstances. The reassessment also considers whether we have acquired or disposed of a financial interest that could be significant to the VIE, or whether an interest in the VIE has become significant or is no longer significant. The consolidation status of the VIEs with which we are involved may change as a result of such reassessments. Changes in consolidation status are applied prospectively, with assets and liabilities of a newly consolidated VIE initially recorded at fair value. A gain or loss may be recognized upon deconsolidation of a VIE depending on the carrying values of deconsolidated assets and liabilities compared to the fair value of retained interests and ongoing contractual arrangements. 2014 Compared to 2013 The following discussion and analysis provide a comparison of our results of operations for 2014 and 2013. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes. Tables 8 and 9 contain financial data to supplement this discussion. Overview Net Income Net income was $4.8 billion in 2014 compared to $11.4 billion in 2013. Including preferred stock dividends, net income applicable to common shareholders was $3.8 billion, or $0.36 per diluted share in 2014 and $10.1 billion, or $0.90 per diluted share in 2013. Net Interest Income Net interest income on an FTE basis decreased $2.3 billion to $40.8 billion in 2014 compared to 2013. The net interest yield on an FTE basis decreased 12 bps to 2.25 percent in 2014. These declines were primarily due to the acceleration of market-related premium amortization on debt securities as the decline in long- term interest rates shortened the expected lives of the securities. Also contributing to these declines were lower loan yields and consumer loan balances, lower net interest income from the ALM portfolio and a decrease in trading-related net interest income. Market-related premium amortization was an expense of $1.2 billion in 2014 compared to a benefit of $784 million in 2013. Partially offsetting these declines were reductions in funding yields, lower long-term debt balances and commercial loan growth. 102 Bank of America 2015 Bank of America 2015 103 Noninterest Income Noninterest income was $44.3 billion in 2014, a decrease of $2.4 billion compared to 2013. Investment and brokerage services income increased $1.0 billion primarily driven by increased asset management fees driven by the impact of long-term AUM inflows and higher market levels. Equity investment income decreased $1.8 billion to $1.1 billion in 2014 primarily due to a lower level of gains compared to 2013 and the continued wind-down of GPI. Trading account profits decreased $747 million, which included a charge of $497 million in 2014 related to the implementation of an FVA in Global Markets and net DVA losses on derivatives of $150 million in 2014 compared to losses of $509 million in 2013. Mortgage banking income decreased $2.3 billion primarily driven by lower servicing income and core production revenue, partially offset by a lower representations and warranties provision. Other income (loss) improved $1.3 billion due to an increase of $1.1 billion in net DVA gains on structured liabilities as our spreads widened, and gains associated with the sales of residential mortgage loans, partially offset by an increase in U.K. consumer PPI costs. Results for 2013 also included a write- down of $450 million on a monoline receivable. Provision for Credit Losses The provision for credit losses was $2.3 billion in 2014, a decrease of $1.3 billion compared to 2013. The provision for credit losses was $2.1 billion lower than net charge-offs for 2014, resulting in a reduction in the allowance for credit losses. The decrease in the provision from 2013 was driven by portfolio improvement, including increased home prices in the consumer real estate portfolio and lower unemployment levels driving improvement in the credit card portfolios, as well as improved asset quality in the commercial portfolio. Partially offsetting this decline was $400 million of additional costs in 2014 associated with the consumer relief portion of the DoJ Settlement. Net charge-offs totaled $4.4 billion, or 0.49 percent of average loans and leases in 2014 compared to $7.9 billion, or 0.87 percent in 2013. The decrease in net charge-offs was due to credit quality improvement across all major portfolios and the impact of increased recoveries primarily from nonperforming and delinquent loan sales. Noninterest Expense Noninterest expense was $75.1 billion in 2014, an increase of $5.9 billion compared to 2013. The increase was primarily driven by higher litigation expense. Litigation expense increased $10.3 billion primarily as a result of charges related to the settlements with the DoJ and the Federal Housing Finance Agency (FHFA). The increase in litigation expense was partially offset by a decrease of $3.2 billion in default-related staffing and other default-related servicing expenses in LAS. Income Tax Expense The income tax expense was $2.0 billion on pretax income of $6.9 billion in 2014 compared to income tax expense of $4.7 billion in 2013. The effective tax rate for 2014 was 29.5 percent and was driven by our recurring tax preference items, the resolution of several tax examinations and tax benefits from non-U.S. 104 Bank of America 2015 restructurings, partially offset by the non-deductible treatment of certain litigation charges. The effective tax rate for 2013 was 29.3 percent and was driven by our recurring tax preference items and by certain tax benefits related to non-U.S. operations, partially offset by the $1.1 billion negative impact from the U.K. 2013 Finance Act, enacted in July 2013, which reduced the U.K. corporate income tax rate by three percent. The $1.1 billion charge resulted from remeasuring our U.K. net deferred tax assets, in the period of enactment, using the lower rates. Business Segment Operations Consumer Banking Consumer Banking recorded net income of $6.4 billion in 2014 compared to $6.3 billion in 2013 with the increase primarily driven by lower noninterest expense and provision for credit losses, partially offset by lower revenue. Net interest income decreased $442 million to $20.2 billion in 2014 due to lower average card loan balances and yields, partially offset by the beneficial impact of an increase in investable assets as a result of higher deposit balances. Noninterest income decreased $681 million to $10.6 billion in 2014 primarily due to lower mortgage banking income and lower revenue from consumer protection products, partially offset by portfolio divestiture gains, and higher service charges and card income. The provision for credit losses decreased $486 million to $2.7 billion in 2014 primarily as a result of improvements in credit quality. Noninterest expense decreased $1.0 billion to $17.9 billion in 2014 primarily driven by lower personnel, operating, litigation and FDIC expenses. Global Wealth & Investment Management GWIM recorded net income of $3.0 billion in both 2014 and 2013 as an increase in noninterest income and lower credit costs were offset by lower net interest income and higher noninterest expense. Net interest income decreased $228 million to $5.8 billion in 2014 as a result of the low rate environment, partially offset by the impact of loan growth. Noninterest income, primarily investment and brokerage services, increased $842 million to $12.6 billion in 2014 driven by increased asset management fees due to the impact of long-term AUM flows and higher market levels, partially offset by lower transactional revenue. Noninterest expense increased $615 million to $13.7 billion in 2014 primarily due to higher revenue-related incentive compensation and support expenses, partially offset by lower other expenses. Global Banking Global Banking recorded net income of $5.8 billion in 2014 compared to $5.2 billion in 2013 with the increase primarily driven by a reduction in the provision for credit losses and, to a lesser degree, an increase in revenue, partially offset by higher noninterest expense. Revenue increased $171 million to $17.6 billion in 2014 primarily from higher net interest income. The provision for credit losses decreased $820 million to $322 million in 2014 driven by improved credit quality, and 2013 included increased reserves from loan growth. Noninterest expense increased $119 million to $8.2 billion in 2014 primarily from additional client-facing personnel expense and higher litigation expense. Noninterest Income billion compared to 2013. Noninterest income was $44.3 billion in 2014, a decrease of $2.4 certain litigation charges. Investment and brokerage services income increased $1.0 billion primarily driven by increased asset management fees driven by the impact of long-term AUM inflows and higher market levels. Equity investment income decreased $1.8 billion to $1.1 billion in 2014 primarily due to a lower level of gains compared to 2013 and the continued wind-down of GPI. Trading account profits decreased $747 million, which included a charge of $497 million in 2014 related to the implementation of an FVA in Global Markets and net DVA losses on derivatives of $150 million in 2014 compared to losses of $509 million in Mortgage banking income decreased $2.3 billion primarily driven by lower servicing income and core production revenue, partially offset by a lower representations and warranties 2013. provision. Other income (loss) improved $1.3 billion due to an increase of $1.1 billion in net DVA gains on structured liabilities as our spreads widened, and gains associated with the sales of residential mortgage loans, partially offset by an increase in U.K. consumer PPI costs. Results for 2013 also included a write- down of $450 million on a monoline receivable. Provision for Credit Losses The provision for credit losses was $2.3 billion in 2014, a decrease of $1.3 billion compared to 2013. The provision for credit losses was $2.1 billion lower than net charge-offs for 2014, resulting in a reduction in the allowance for credit losses. The decrease in the provision from 2013 was driven by portfolio improvement, including increased home prices in the consumer real estate portfolio and lower unemployment levels driving improvement in the credit card portfolios, as well as improved asset quality in the commercial portfolio. Partially offsetting this decline was $400 million of additional costs in 2014 associated with the consumer relief portion of the DoJ Settlement. Net charge-offs totaled $4.4 billion, or 0.49 percent of average loans and leases in 2014 compared to $7.9 billion, or 0.87 percent in 2013. The decrease in net charge-offs was due to credit quality improvement across all major portfolios and the impact of increased recoveries primarily from nonperforming and delinquent loan sales. Noninterest Expense Noninterest expense was $75.1 billion in 2014, an increase of $5.9 billion compared to 2013. The increase was primarily driven by higher litigation expense. Litigation expense increased $10.3 billion primarily as a result of charges related to the settlements with the DoJ and the Federal Housing Finance Agency (FHFA). The increase in litigation expense was partially offset by a decrease of $3.2 billion in default-related staffing and other default-related servicing expenses in LAS. Income Tax Expense The income tax expense was $2.0 billion on pretax income of $6.9 billion in 2014 compared to income tax expense of $4.7 billion in 2013. The effective tax rate for 2014 was 29.5 percent and was driven by our recurring tax preference items, the resolution of several tax examinations and tax benefits from non-U.S. expense. 104 Bank of America 2015 restructurings, partially offset by the non-deductible treatment of The effective tax rate for 2013 was 29.3 percent and was driven by our recurring tax preference items and by certain tax benefits related to non-U.S. operations, partially offset by the $1.1 billion negative impact from the U.K. 2013 Finance Act, enacted in July 2013, which reduced the U.K. corporate income tax rate by three percent. The $1.1 billion charge resulted from remeasuring our U.K. net deferred tax assets, in the period of enactment, using the lower rates. Business Segment Operations Consumer Banking Consumer Banking recorded net income of $6.4 billion in 2014 compared to $6.3 billion in 2013 with the increase primarily driven by lower noninterest expense and provision for credit losses, partially offset by lower revenue. Net interest income decreased $442 million to $20.2 billion in 2014 due to lower average card loan balances and yields, partially offset by the beneficial impact of an increase in investable assets as a result of higher deposit balances. Noninterest income decreased $681 million to $10.6 billion in 2014 primarily due to lower mortgage banking income and lower revenue from consumer protection products, partially offset by portfolio divestiture gains, and higher service charges and card income. The provision for credit losses decreased $486 million to $2.7 billion in 2014 primarily as a result of improvements in credit quality. Noninterest expense decreased $1.0 billion to $17.9 billion in 2014 primarily driven by lower personnel, operating, litigation and FDIC expenses. Global Wealth & Investment Management GWIM recorded net income of $3.0 billion in both 2014 and 2013 as an increase in noninterest income and lower credit costs were offset by lower net interest income and higher noninterest expense. Net interest income decreased $228 million to $5.8 billion in 2014 as a result of the low rate environment, partially offset by the impact of loan growth. Noninterest income, primarily investment and brokerage services, increased $842 million to $12.6 billion in 2014 driven by increased asset management fees due to the impact of long-term AUM flows and higher market levels, partially offset by lower transactional revenue. Noninterest expense increased $615 million to $13.7 billion in 2014 primarily due to higher revenue-related incentive compensation and support expenses, partially offset by lower other expenses. Global Banking Global Banking recorded net income of $5.8 billion in 2014 compared to $5.2 billion in 2013 with the increase primarily driven by a reduction in the provision for credit losses and, to a lesser degree, an increase in revenue, partially offset by higher noninterest expense. Revenue increased $171 million to $17.6 billion in 2014 primarily from higher net interest income. The provision for credit losses decreased $820 million to $322 million in 2014 driven by improved credit quality, and 2013 included increased reserves from loan growth. Noninterest expense increased $119 million to $8.2 billion in 2014 primarily from additional client-facing personnel expense and higher litigation Global Markets Global Markets recorded net income of $2.7 billion in 2014 compared to $1.1 billion in 2013. In 2014, we implemented an FVA into valuation estimates resulting in an initial charge of $497 million. Excluding net DVA/FVA and charges in 2013 related to the U.K. corporate income tax rate reduction, net income decreased $135 million to $2.9 billion in 2014 primarily driven by lower trading account profits and net interest income, partially offset by a decrease in noninterest expense, a $240 million gain in 2014 related to the IPO of an equity investment and higher investment and brokerage services income. Net DVA/FVA losses were $240 million in 2014 compared to losses of $1.2 billion in 2013. Noninterest expense decreased $232 million to $11.9 billion in 2014 due to lower litigation expense and revenue-related incentives, partially offset by higher technology costs and investments in infrastructure. Legacy Assets & Servicing LAS recorded a net loss of $13.1 billion in 2014 compared to a net loss of $4.9 billion in 2013 with the increase in the net loss primarily driven by significantly higher litigation expense, which is included in noninterest expense, as a result of the settlements with the DoJ and FHFA, a lower tax benefit rate resulting from the non-deductible treatment of a portion of the DoJ Settlement, lower mortgage banking income and higher provision for credit losses. Mortgage banking income decreased $1.6 billion to $1.0 billion in 2014 primarily due to lower servicing income, partially offset by a lower representations and warranties provision. The provision for credit losses increased $410 million to $127 million in 2014 driven by additional costs associated with the consumer relief portion of the DoJ Settlement. Noninterest expense increased $8.2 billion to $20.6 billion in 2014 due to an $11.4 billion increase in litigation expense, partially offset by a decline in default-related servicing expenses, including mortgage-related assessments, waivers and similar costs related to foreclosure delays. All Other All Other recorded net income of $64 million in 2014 compared to $717 million in 2013 with the decrease due to the negative impact on net interest income of market-related premium amortization expense on debt securities of $1.2 billion in 2014 compared to a benefit of $784 million in 2013, a decrease of $2.0 billion in equity investment income and a $363 million increase in U.K. PPI costs. Partially offsetting these decreases were gains related to the sales of residential mortgage loans, a $313 million improvement in the provision (benefit) for credit losses and a decrease of $1.8 billion in noninterest expense. The decrease in noninterest expense was primarily due to a decline in litigation expense. Also, the income tax benefit increased $547 million. Bank of America 2015 105 Statistical Tables Table of Contents Table I – Average Balances and Interest Rates – FTE Basis Table II – Analysis of Changes in Net Interest Income – FTE Basis Table III – Preferred Stock Cash Dividend Summary Table IV – Outstanding Loans and Leases Table V – Allowance for Credit Losses Table VI – Allocation of the Allowance for Credit Losses by Product Type Table VII – Selected Loan Maturity Data Table VIII – Non-exchange Traded Commodity Contracts Table IX – Non-exchange Traded Commodity Contract Maturities Table X – Selected Quarterly Financial Data Table XI – Quarterly Average Balances and Interest Rates – FTE Basis Table XII – Quarterly Supplemental Financial Data Table XIII – Five-year Reconciliations to GAAP Financial Measures Table XIV – Two-year Reconciliations to GAAP Financial Measures Table XV – Quarterly Reconciliations to GAAP Financial Measures Page 107 108 109 111 112 114 114 115 115 116 118 120 121 122 123 106 Bank of America 2015 Statistical Tables Table of Contents Table I – Average Balances and Interest Rates – FTE Basis Table II – Analysis of Changes in Net Interest Income – FTE Basis Table III – Preferred Stock Cash Dividend Summary Table IV – Outstanding Loans and Leases Table V – Allowance for Credit Losses Table VI – Allocation of the Allowance for Credit Losses by Product Type Table VII – Selected Loan Maturity Data Table VIII – Non-exchange Traded Commodity Contracts Table IX – Non-exchange Traded Commodity Contract Maturities Table X – Selected Quarterly Financial Data Table XI – Quarterly Average Balances and Interest Rates – FTE Basis Table XII – Quarterly Supplemental Financial Data Table XIII – Five-year Reconciliations to GAAP Financial Measures Table XIV – Two-year Reconciliations to GAAP Financial Measures Table XV – Quarterly Reconciliations to GAAP Financial Measures Table I Average Balances and Interest Rates – FTE Basis (Dollars in millions) Earning assets 2015 Interest Income/ Expense Average Balance Yield/ Rate Average Balance 2014 Interest Income/ Expense Yield/ Rate Average Balance 2013 Interest Income/ Expense Yield/ Rate Page 107 108 109 111 112 114 114 115 115 116 118 120 121 122 123 Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks (1) $ 136,391 $ Time deposits placed and other short-term investments Federal funds sold and securities borrowed or purchased under agreements to resell Trading account assets Debt securities (2) Loans and leases (3): Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer (4) Other consumer (5) Total consumer U.S. commercial Commercial real estate (6) Commercial lease financing Non-U.S. commercial Total commercial Total loans and leases Other earning assets Total earning assets (7) Cash and due from banks Other assets, less allowance for loan and lease losses Total assets Interest-bearing liabilities U.S. interest-bearing deposits: Savings NOW and money market deposit accounts Consumer CDs and IRAs Negotiable CDs, public funds and other deposits Total U.S. interest-bearing deposits Non-U.S. interest-bearing deposits: Banks located in non-U.S. countries Governments and official institutions Time, savings and other Total non-U.S. interest-bearing deposits Total interest-bearing deposits Federal funds purchased, securities loaned or sold under agreements to repurchase and short-term borrowings Trading account liabilities Long-term debt (8) 9,556 211,471 137,837 390,884 201,366 81,070 88,244 10,104 84,585 1,938 467,307 248,355 52,136 25,197 89,188 414,876 882,183 62,020 1,830,342 28,921 300,878 $ 2,160,141 $ 46,498 $ 543,133 54,679 29,976 674,286 4,473 1,492 54,767 60,732 735,018 246,295 76,772 240,059 369 147 988 4,547 9,374 6,967 2,984 8,085 1,051 2,040 56 21,183 6,883 1,521 799 2,008 11,211 32,394 2,890 50,709 7 273 162 95 537 31 5 288 324 861 2,387 1,343 5,958 Total interest-bearing liabilities (7) 1,298,144 10,549 0.27% $ 113,999 $ 1.53 0.47 3.30 2.41 3.46 3.68 9.16 10.40 2.41 2.86 4.53 2.77 2.92 3.17 2.25 2.70 3.67 4.66 2.77 11,032 222,483 145,686 351,702 237,270 89,705 88,962 11,511 82,409 2,029 511,886 230,173 47,525 24,423 89,894 392,015 903,901 66,127 1,814,930 27,079 303,581 $ 2,145,590 308 170 1,039 4,716 8,062 8,462 3,340 8,313 1,200 2,099 139 23,553 6,630 1,432 838 2,196 11,096 34,649 2,811 51,755 0.01% $ 0.05 0.30 0.32 0.08 0.70 0.33 0.53 0.53 0.12 0.97 1.75 2.48 0.81 46,270 $ 518,893 66,797 31,507 663,467 8,744 1,740 60,729 71,213 3 316 264 108 691 61 2 326 389 734,680 1,080 257,678 87,152 253,607 2,578 1,576 5,700 1,333,117 10,934 182 187 1,229 4,879 9,779 9,315 3,835 8,792 1,271 2,370 72 25,655 6,811 1,391 851 2,083 11,136 36,791 2,832 55,879 22 413 472 117 1,024 69 3 300 372 0.27% $ 72,574 $ 1.54 0.47 3.24 2.28 3.57 3.72 9.34 10.42 2.55 6.86 4.60 2.88 3.01 3.43 2.44 2.83 3.83 4.25 2.85 16,066 224,331 168,998 337,953 256,534 100,264 90,369 10,861 82,907 1,807 542,742 218,875 42,345 23,863 90,816 375,899 918,641 80,985 1,819,548 36,440 307,525 $ 2,163,513 0.01% $ 43,868 $ 506,082 79,913 26,553 656,416 12,431 1,584 55,630 69,645 0.06 0.40 0.34 0.10 0.69 0.14 0.54 0.55 0.15 1.00 1.81 2.25 0.82 726,061 1,396 2,923 1,638 6,798 12,755 301,415 88,323 263,417 1,379,216 363,674 186,672 233,951 $ 2,163,513 0.25% 1.16 0.55 2.89 2.89 3.63 3.82 9.73 11.70 2.86 4.02 4.73 3.11 3.29 3.56 2.29 2.96 4.00 3.50 3.07 0.05% 0.08 0.59 0.44 0.16 0.56 0.18 0.54 0.54 0.19 0.97 1.85 2.58 0.92 2.15% 0.22 2.37% Noninterest-bearing sources: Noninterest-bearing deposits Other liabilities Shareholders’ equity Total liabilities and shareholders’ equity Net interest spread Impact of noninterest-bearing sources 420,842 189,165 251,990 $ 2,160,141 389,527 184,464 238,482 $ 2,145,590 Net interest income/yield on earning assets $ 40,160 1.96% 0.24 2.20% 2.03% 0.22 2.25% $ 40,821 $ 43,124 106 Bank of America 2015 Bank of America 2015 107 (1) Beginning in 2014, interest-bearing deposits placed with the Federal Reserve and certain non-U.S. central banks are included in earning assets. In prior periods, these balances were included with cash and due from banks in the cash and cash equivalents line, consistent with the Consolidated Balance Sheet presentation. Prior periods have been reclassified to conform to current period presentation. (2) Yields on debt securities excluding the impact of market-related adjustments were 2.50 percent, 2.62 percent and 2.67 percent in 2015, 2014 and 2013, respectively. Yields on debt securities excluding the impact of market-related adjustments are a non-GAAP financial measure. The Corporation believes the use of this non-GAAP financial measure provides additional clarity in assessing its results. (3) Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis. PCI loans were recorded at fair (4) (5) (6) (7) value upon acquisition and accrete interest income over the remaining life of the loan. Includes non-U.S. consumer loans of $4.0 billion, $4.4 billion and $6.7 billion in 2015, 2014 and 2013, respectively. Includes consumer finance loans of $619 million, $1.1 billion and $1.3 billion; consumer leases of $1.2 billion, $819 million and $354 million; and consumer overdrafts of $156 million, $149 million and $153 million in 2015, 2014 and 2013, respectively. Includes U.S. commercial real estate loans of $49.0 billion, $46.0 billion and $40.7 billion, and non-U.S. commercial real estate loans of $3.1 billion, $1.6 billion and $1.6 billion in 2015, 2014 and 2013, respectively. Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets by $59 million, $58 million and $205 million in 2015, 2014 and 2013, respectively. Interest expense includes the impact of interest rate risk management contracts, which decreased interest expense on the underlying liabilities by $2.4 billion, $2.5 billion and $2.4 billion in 2015, 2014 and 2013, respectively. For additional information, see Interest Rate Risk Management for Non-trading Activities on page 95. (8) The yield on long-term debt excluding the $612 million adjustment on certain trust preferred securities was 2.23 percent for 2015. For more information, see Note 11 – Long-term Debt to the Consolidated Financial Statements. The yield on long-term debt excluding the adjustment is a non-GAAP financial measure. Table II Analysis of Changes in Net Interest Income – FTE Basis (Dollars in millions) Increase (decrease) in interest income Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks (2) Time deposits placed and other short-term investments Federal funds sold and securities borrowed or purchased under agreements to resell Trading account assets Debt securities Loans and leases: Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total consumer U.S. commercial Commercial real estate Commercial lease financing Non-U.S. commercial Total commercial Total loans and leases Other earning assets Total interest income Increase (decrease) in interest expense U.S. interest-bearing deposits: Savings NOW and money market deposit accounts Consumer CDs and IRAs Negotiable CDs, public funds and other deposits Total U.S. interest-bearing deposits Non-U.S. interest-bearing deposits: Banks located in non-U.S. countries Governments and official institutions Time, savings and other Total non-U.S. interest-bearing deposits Total interest-bearing deposits Federal funds purchased, securities loaned or sold under agreements to repurchase and From 2014 to 2015 From 2013 to 2014 Due to Change in (1) Due to Change in (1) Volume Rate Net Change Volume Rate Net Change $ 60 $ 1 $ 61 $ 103 $ 23 $ 126 (23) (45) (250) 850 (1,273) (324) (71) (147) 58 (6) 523 137 26 (20) (175) — (6) 81 462 (23) (51) (169) 1,312 (222) (32) (157) (2) (117) (77) (270) (48) (65) (168) (1,495) (356) (228) (149) (59) (83) (2,370) 253 89 (39) (188) 115 (2,255) 79 $ (1,046) 254 $ $ 2 10 (45) (6) (30) — (30) $ 2 (53) (57) (7) — 3 (8) (115) (76) $ 4 (43) (102) (13) (154) (30) 3 (38) (65) (219) (191) (59) (5) (669) 385 (702) (408) (136) 76 (13) 10 347 173 18 (24) (518) 1 2 (78) 22 (20) — 28 42 (185) 506 (2,102) (17) (190) (163) (1,717) (151) (87) (343) (147) (258) 57 (528) (132) (31) 137 (853) (495) (479) (71) (271) 67 (2,102) (181) 41 (13) 113 (40) (2,142) (21) $ (4,124) 497 $ (20) $ (99) (130) (31) 12 (1) (2) (19) (97) (208) (9) (333) (8) (1) 26 17 (316) (345) (424) 79 short-term borrowings Trading account liabilities Long-term debt (62) (1,098) (1,821) $ (2,303) (1) The changes for each category of interest income and expense are divided between the portion of change attributable to the variance in volume and the portion of change attributable to the variance Total interest expense Net decrease in net interest income (233) 258 (385) (661) (26) (255) (36) (843) (186) (299) (47) 557 $ in rate for that category. The unallocated change in rate or volume variance is allocated between the rate and volume variances. (2) Beginning in 2014, interest-bearing deposits placed with the Federal Reserve and certain non-U.S. central banks are included in earning assets. In prior periods, these balances were included with cash and due from banks in the cash and cash equivalents line, consistent with the Consolidated Balance Sheet presentation. Prior periods have been reclassified to conform to current period presentation. 108 Bank of America 2015 (Dollars in millions) Increase (decrease) in interest income banks (2) Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other Time deposits placed and other short-term investments Federal funds sold and securities borrowed or purchased under agreements to resell Trading account assets Debt securities Loans and leases: Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total consumer U.S. commercial Commercial real estate Commercial lease financing Non-U.S. commercial Total commercial Total loans and leases Other earning assets Total interest income Increase (decrease) in interest expense U.S. interest-bearing deposits: Savings NOW and money market deposit accounts Consumer CDs and IRAs Negotiable CDs, public funds and other deposits Total U.S. interest-bearing deposits Non-U.S. interest-bearing deposits: Banks located in non-U.S. countries Governments and official institutions Time, savings and other Total non-U.S. interest-bearing deposits Total interest-bearing deposits short-term borrowings Trading account liabilities Long-term debt Total interest expense From 2014 to 2015 From 2013 to 2014 Due to Change in (1) Due to Change in (1) Volume Rate Volume Rate Net Change Net Change $ 60 $ 1 $ 61 $ 103 $ $ (1,273) (23) (45) (250) 850 (324) (71) (147) 58 (6) 523 137 26 (20) 2 10 (45) (6) (30) — (30) (115) (186) (299) — (6) 81 462 (222) (32) (157) (2) (117) (77) (270) (48) (65) (168) (53) (57) (7) — 3 (8) (76) (47) 557 (23) (51) (169) 1,312 (1,495) (2,370) (356) (228) (149) (59) (83) 253 89 (39) (188) 115 (2,255) 79 (43) (102) (13) (154) (30) 3 (38) (65) (219) (191) (233) 258 (385) (661) (59) (5) (669) 385 (702) (408) (136) 76 (13) 10 347 173 18 (24) 1 2 (78) 22 (20) — 28 (424) (26) (255) (2,102) (1,717) 23 42 (185) 506 (151) (87) (343) (147) (258) 57 (528) (132) (31) 137 (99) (130) (31) 12 (1) (2) 79 (36) (843) 126 (17) (190) (163) (853) (495) (479) (71) (271) 67 (2,102) (181) 41 (13) 113 (40) (2,142) (21) (19) (97) (208) (9) (333) (8) (1) 26 17 (316) (345) (62) (1,098) (1,821) $ (2,303) (175) 254 (518) 497 $ (1,046) $ (4,124) $ $ 2 $ 4 $ $ (20) $ Federal funds purchased, securities loaned or sold under agreements to repurchase and Net decrease in net interest income $ (1) The changes for each category of interest income and expense are divided between the portion of change attributable to the variance in volume and the portion of change attributable to the variance in rate for that category. The unallocated change in rate or volume variance is allocated between the rate and volume variances. (2) Beginning in 2014, interest-bearing deposits placed with the Federal Reserve and certain non-U.S. central banks are included in earning assets. In prior periods, these balances were included with cash and due from banks in the cash and cash equivalents line, consistent with the Consolidated Balance Sheet presentation. Prior periods have been reclassified to conform to current period presentation. Table II Analysis of Changes in Net Interest Income – FTE Basis Table III Preferred Stock Cash Dividend Summary (1) December 31, 2015 Preferred Stock Series B (2) Series D (3) Series E (3) Series F Series G Series I (3) Series K (4, 5) Series L Series M (4, 5) Series T Series U (4, 5) Series V (4, 5) Series W (3) Series X (4, 5) Series Y (3) Series Z (4, 5) Series AA (4, 5) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Per Annum Dividend Rate Dividend Per Share 7.00% $ 7.00 7.00 7.00 7.00 6.204 6.204 6.204 6.204 Floating Floating Floating Floating 1.75 1.75 1.75 1.75 1.75 0.38775 0.38775 0.38775 0.38775 0.38775 0.25556 0.25556 0.25556 0.24722 0.25556 Floating Floating Floating Floating 1,011.11111 1,022.22222 1,022.22222 1,000.00 Adjustable $ 1,011.11111 Adjustable Adjustable Adjustable Adjustable 6.625% $ 6.625 6.625 6.625 6.625 1,011.11111 1,022.22222 1,022.22222 1,000.00 0.4140625 0.4140625 0.4140625 0.4140625 0.4140625 Outstanding Notional Amount (in millions) 1 Declaration Date Record Date Payment Date January 21, 2016 October 22, 2015 July 23, 2015 April 16, 2015 February 10, 2015 April 11, 2016 January 11, 2016 October 9, 2015 July 10, 2015 April 10, 2015 April 25, 2016 January 25, 2016 October 23, 2015 July 24, 2015 April 24, 2015 654 January 11, 2016 February 29, 2016 March 14, 2016 6.204% $ October 9, 2015 November 30, 2015 December 14, 2015 July 9, 2015 April 13, 2015 January 9, 2015 February 27, 2015 August 31, 2015 September 14, 2015 May 29, 2015 June 15, 2015 March 16, 2015 317 January 11, 2016 October 9, 2015 July 9, 2015 April 13, 2015 October 30, 2015 November 16, 2015 July 31, 2015 April 30, 2015 August 17, 2015 May 15, 2015 January 9, 2015 January 30, 2015 February 17, 2015 January 29, 2016 February 16, 2016 Floating $ 141 January 11, 2016 February 29, 2016 March 15, 2016 Floating $ 1,011.11111 October 9, 2015 November 30, 2015 December 15, 2015 July 9, 2015 April 13, 2015 January 9, 2015 January 11, 2016 August 31, 2015 September 15, 2015 May 29, 2015 February 27, 2015 February 29, 2016 June 15, 2015 March 16, 2015 March 15, 2016 October 9, 2015 November 30, 2015 December 15, 2015 August 31, 2015 September 15, 2015 October 9, 2015 December 15, 2015 July 9, 2015 September 15, 2015 May 29, 2015 February 27, 2015 March 15, 2016 June 15, 2015 March 15, 2015 June 15, 2015 March 16, 2015 April 1, 2016 January 4, 2016 October 1, 2015 July 1, 2015 April 1, 2015 July 9, 2015 April 13, 2015 January 9, 2015 January 11, 2016 April 13, 2015 January 9, 2015 January 11, 2016 July 9, 2015 December 18, 2015 September 18, 2015 June 19, 2015 March 18, 2015 October 9, 2015 April 13, 2015 January 21, 2016 January 15, 2016 February 1, 2016 Fixed-to-floating $ July 15, 2015 July 30, 2015 Fixed-to-floating January 9, 2015 January 15, 2015 January 30, 2015 Fixed-to-floating January 1, 2016 October 1, 2015 July 1, 2015 April 1, 2015 February 1, 2016 October 30, 2015 July 30, 2015 April 30, 2015 7.25% $ 7.25 7.25 7.25 October 31, 2015 November 16, 2015 Fixed-to-floating $ April 30, 2015 March 26, 2016 October 22, 2015 December 26, 2015 July 23, 2015 September 25, 2015 April 16, 2015 February 10, 2015 June 25, 2015 March 26, 2015 May 15, 2015 Fixed-to-floating April 11, 2016 January 11, 2016 October 13, 2015 July 10, 2015 April 10, 2015 6.00% $ 6.00 6.00 6.00 6.00 October 9, 2015 November 15, 2015 December 1, 2015 Fixed-to-floating April 13, 2015 May 15, 2015 June 1, 2015 Fixed-to-floating October 9, 2015 December 1, 2015 December 17, 2015 Fixed-to-floating April 13, 2015 June 1, 2015 June 17, 2015 Fixed-to-floating $ $ October 9, 2015 November 15, 2015 December 9, 2015 August 15, 2015 September 9, 2015 July 9, 2015 April 13, 2015 January 9, 2015 January 11, 2016 May 15, 2015 February 15, 2015 February 15, 2016 June 9, 2015 March 9, 2015 March 7, 2016 Fixed-to-floating $ 6.625 6.625 6.625 6.625 July 9, 2015 August 15, 2015 September 8, 2015 Fixed-to-floating January 9, 2015 February 15, 2015 March 5, 2015 Fixed-to-floating December 18, 2015 September 18, 2015 June 19, 2015 March 18, 2015 September 18, 2015 March 18, 2015 January 11, 2016 January 1, 2016 October 1, 2015 July 1, 2015 April 1, 2015 October 1, 2015 April 1, 2015 March 1, 2016 January 27, 2016 October 27, 2015 July 27, 2015 April 27, 2015 October 23, 2015 6.50% $ 6.50 6.50 $ $ 6.50 Fixed-to-floating April 23, 2015 Fixed-to-floating March 17, 2016 Fixed-to-floating 40.00 40.00 40.00 18.125 18.125 18.125 18.125 40.625 40.625 1,500.00 1,500.00 1,500.00 1,500.00 1,500.00 26.00 26.00 25.625 25.625 0.4140625 0.4140625 0.4140625 0.4140625 31.25 31.25 31.25 0.40625 0.40625 0.40625 0.40625 32.50 32.50 30.50 30.50 January 11, 2016 February 15, 2016 March 9, 2016 6.625% $ 0.4140625 493 365 1,544 3,080 1,310 5,000 1,000 1,500 1,100 2,000 1,100 1,400 1,900 For footnotes see page 110. July 9, 2015 September 1, 2015 September 17, 2015 Fixed-to-floating 108 Bank of America 2015 Bank of America 2015 109 Table III Preferred Stock Cash Dividend Summary (1) (continued) Preferred Stock Series 1 (6) Series 2 (6) Series 3 (6) Series 4 (6) Series 5 (6) December 31, 2015 Outstanding Notional Amount (in millions) Declaration Date Record Date Payment Date Per Annum Dividend Rate Dividend Per Share 98 January 11, 2016 February 15, 2016 February 29, 2016 Floating $ $ $ $ $ $ October 9, 2015 November 15, 2015 November 30, 2015 July 9, 2015 April 13, 2015 January 9, 2015 January 11, 2016 August 15, 2015 May 15, 2015 February 15, 2015 February 15, 2016 August 28, 2015 May 28, 2015 February 27, 2015 February 29, 2016 October 9, 2015 November 15, 2015 November 30, 2015 July 9, 2015 April 13, 2015 January 9, 2015 January 11, 2016 August 15, 2015 May 15, 2015 February 15, 2015 February 15, 2016 August 28, 2015 May 28, 2015 February 27, 2015 February 29, 2016 October 9, 2015 November 15, 2015 November 30, 2015 July 9, 2015 April 13, 2015 January 9, 2015 January 11, 2016 August 15, 2015 May 15, 2015 February 15, 2015 February 15, 2016 August 28, 2015 May 28, 2015 March 2, 2015 February 29, 2016 October 9, 2015 November 15, 2015 November 30, 2015 299 653 210 July 9, 2015 April 13, 2015 August 15, 2015 May 15, 2015 January 9, 2015 February 15, 2015 422 January 11, 2016 February 1, 2016 August 28, 2015 May 28, 2015 February 27, 2015 February 22, 2016 October 9, 2015 November 1, 2015 November 23, 2015 July 9, 2015 April 13, 2015 August 1, 2015 May 1, 2015 August 21, 2015 May 21, 2015 January 9, 2015 February 1, 2015 February 23, 2015 Floating Floating Floating Floating Floating $ Floating Floating Floating Floating 6.375 6.375 6.375 6.375 Floating Floating Floating Floating Floating Floating $ Floating Floating Floating Floating 0.18750 0.18750 0.18750 0.18750 0.18750 0.19167 0.19167 0.19167 0.18542 0.19167 0.25556 0.25556 0.24722 0.25556 0.25556 0.25556 0.25556 0.24722 0.25556 6.375% $ 0.3984375 0.3984375 0.3984375 0.3984375 0.3984375 0.25556 $ (1) Preferred stock cash dividend summary is as of February 24, 2016. (2) Dividends are cumulative. (3) Dividends per depositary share, each representing a 1/1,000th interest in a share of preferred stock. (4) Initially pays dividends semi-annually. (5) Dividends per depositary share, each representing a 1/25th interest in a share of preferred stock. (6) Dividends per depositary share, each representing a 1/1,200th interest in a share of preferred stock. 110 Bank of America 2015 Table III Preferred Stock Cash Dividend Summary (1) (continued) Table IV Outstanding Loans and Leases Preferred Stock Series 1 (6) Series 2 (6) Series 3 (6) Series 4 (6) December 31, 2015 Outstanding Notional Amount (in millions) $ $ $ $ $ 299 653 210 Declaration Date Record Date Payment Date Per Annum Dividend Rate Dividend Per Share 98 January 11, 2016 February 15, 2016 February 29, 2016 Floating $ October 9, 2015 November 15, 2015 November 30, 2015 October 9, 2015 November 15, 2015 November 30, 2015 Floating $ October 9, 2015 November 15, 2015 November 30, 2015 6.375% $ 0.3984375 July 9, 2015 April 13, 2015 January 9, 2015 January 11, 2016 July 9, 2015 April 13, 2015 January 9, 2015 January 11, 2016 July 9, 2015 April 13, 2015 January 9, 2015 January 11, 2016 August 15, 2015 May 15, 2015 February 15, 2015 February 15, 2016 August 15, 2015 May 15, 2015 February 15, 2015 February 15, 2016 August 15, 2015 May 15, 2015 February 15, 2015 February 15, 2016 July 9, 2015 April 13, 2015 August 15, 2015 May 15, 2015 January 9, 2015 February 15, 2015 August 28, 2015 May 28, 2015 February 27, 2015 February 29, 2016 August 28, 2015 May 28, 2015 February 27, 2015 February 29, 2016 August 28, 2015 May 28, 2015 March 2, 2015 August 28, 2015 May 28, 2015 February 27, 2015 February 22, 2016 October 9, 2015 November 1, 2015 November 23, 2015 July 9, 2015 April 13, 2015 August 1, 2015 May 1, 2015 August 21, 2015 May 21, 2015 January 9, 2015 February 1, 2015 February 23, 2015 Floating Floating Floating Floating Floating Floating Floating Floating 6.375 6.375 6.375 6.375 Floating Floating Floating Floating Floating Floating Floating Floating 0.18750 0.18750 0.18750 0.18750 0.18750 0.19167 0.19167 0.19167 0.18542 0.19167 0.3984375 0.3984375 0.3984375 0.3984375 0.25556 0.25556 0.25556 0.24722 0.25556 0.25556 0.25556 0.25556 0.24722 0.25556 October 9, 2015 November 15, 2015 November 30, 2015 February 29, 2016 Floating $ (Dollars in millions) Consumer Residential mortgage (1) Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer (2) Other consumer (3) Total consumer loans excluding loans accounted for under the fair value option Consumer loans accounted for under the fair value option (4) Total consumer Commercial U.S. commercial (5) Commercial real estate (6) Commercial lease financing Non-U.S. commercial Total commercial loans excluding loans accounted for under the fair value option Commercial loans accounted for under the fair value option (4) Total commercial Total loans and leases 2015 2014 December 31 2013 2012 2011 $ 187,911 75,948 89,602 9,975 88,795 2,067 454,298 1,871 456,169 265,647 57,199 27,370 91,549 441,765 5,067 446,832 $ 903,001 $ 216,197 85,725 91,879 10,465 80,381 1,846 486,493 2,077 488,570 233,586 47,682 24,866 80,083 386,217 6,604 392,821 $ 881,391 $ 248,066 93,672 92,338 11,541 82,192 1,977 529,786 2,164 531,950 225,851 47,893 25,199 89,462 388,405 7,878 396,283 $ 928,233 $ 252,929 108,140 94,835 11,697 83,205 1,628 552,434 1,005 553,439 209,719 38,637 23,843 74,184 346,383 7,997 354,380 $ 907,819 $ 273,228 124,856 102,291 14,418 89,713 2,688 607,194 2,190 609,384 193,199 39,596 21,989 55,418 310,202 6,614 316,816 $ 926,200 (1) (2) (3) Includes pay option loans of $2.3 billion, $3.2 billion, $4.4 billion, $6.7 billion and $9.9 billion, and non-U.S. residential mortgage loans of $2 million, $2 million, $0, $93 million and $85 million at December 31, 2015, 2014, 2013, 2012 and 2011, respectively. The Corporation no longer originates pay option loans. Includes auto and specialty lending loans of $42.6 billion, $37.7 billion, $38.5 billion, $35.9 billion and $43.0 billion, unsecured consumer lending loans of $886 million, $1.5 billion, $2.7 billion, $4.7 billion and $8.0 billion, U.S. securities-based lending loans of $39.8 billion, $35.8 billion, $31.2 billion, $28.3 billion and $23.6 billion, non-U.S. consumer loans of $3.9 billion, $4.0 billion, $4.7 billion, $8.3 billion and $7.6 billion, student loans of $564 million, $632 million, $4.1 billion, $4.8 billion and $6.0 billion, and other consumer loans of $1.0 billion, $761 million, $1.0 billion, $1.2 billion and $1.5 billion at December 31, 2015, 2014, 2013, 2012 and 2011, respectively. Includes consumer finance loans of $564 million, $676 million, $1.2 billion, $1.4 billion and $1.7 billion, consumer leases of $1.4 billion, $1.0 billion, $606 million, $34 million and $0, consumer overdrafts of $146 million, $162 million, $176 million, $177 million and $103 million, and other non-U.S. consumer loans of $4 million, $3 million, $5 million, $5 million and $929 million at December 31, 2015, 2014, 2013, 2012 and 2011, respectively. Series 5 (6) 422 January 11, 2016 February 1, 2016 Floating $ (4) Consumer loans accounted for under the fair value option were residential mortgage loans of $1.6 billion, $1.9 billion, $2.0 billion, $1.0 billion and $2.2 billion, and home equity loans of $250 million, $196 million, $147 million, $0 and $0 at December 31, 2015, 2014, 2013, 2012 and 2011, respectively. Commercial loans accounted for under the fair value option were U.S. commercial loans of $2.3 billion, $1.9 billion, $1.5 billion, $2.3 billion and $2.2 billion, and non-U.S. commercial loans of $2.8 billion, $4.7 billion, $6.4 billion, $5.7 billion and $4.4 billion at December 31, 2015, 2014, 2013, 2012 and 2011, respectively. Includes U.S. small business commercial loans, including card-related products, of $12.9 billion, $13.3 billion, $13.3 billion, $12.6 billion and $13.3 billion at December 31, 2015, 2014, 2013, 2012 and 2011, respectively. Includes U.S. commercial real estate loans of $53.6 billion, $45.2 billion, $46.3 billion, $37.2 billion and $37.8 billion, and non-U.S. commercial real estate loans of $3.5 billion, $2.5 billion, $1.6 billion, $1.5 billion and $1.8 billion at December 31, 2015, 2014, 2013, 2012 and 2011, respectively. (5) (6) (1) Preferred stock cash dividend summary is as of February 24, 2016. (2) Dividends are cumulative. (3) Dividends per depositary share, each representing a 1/1,000th interest in a share of preferred stock. (4) Initially pays dividends semi-annually. (5) Dividends per depositary share, each representing a 1/25th interest in a share of preferred stock. (6) Dividends per depositary share, each representing a 1/1,200th interest in a share of preferred stock. 110 Bank of America 2015 Bank of America 2015 111 Table V Allowance for Credit Losses (Dollars in millions) Allowance for loan and lease losses, January 1 Loans and leases charged off Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total consumer charge-offs U.S. commercial (1) Commercial real estate Commercial lease financing Non-U.S. commercial Total commercial charge-offs Total loans and leases charged off Recoveries of loans and leases previously charged off Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total consumer recoveries U.S. commercial (2) Commercial real estate Commercial lease financing Non-U.S. commercial Total commercial recoveries Total recoveries of loans and leases previously charged off Net charge-offs Write-offs of PCI loans Provision for loan and lease losses Other (3) Allowance for loan and lease losses, December 31 Reserve for unfunded lending commitments, January 1 Provision for unfunded lending commitments Other (4) Reserve for unfunded lending commitments, December 31 Allowance for credit losses, December 31 2015 2014 2013 2012 2011 $ 14,419 $ 17,428 $ 24,179 $ 33,783 $ 41,885 (866) (975) (2,738) (275) (383) (224) (5,461) (536) (30) (19) (59) (644) (6,105) (855) (1,364) (3,068) (357) (456) (268) (6,368) (584) (29) (10) (35) (658) (7,026) (1,508) (2,258) (4,004) (508) (710) (273) (9,261) (774) (251) (4) (79) (1,108) (10,369) (3,276) (4,573) (5,360) (835) (1,258) (274) (15,576) (1,309) (719) (32) (36) (2,096) (17,672) 393 339 424 87 271 31 1,545 172 35 10 5 222 1,767 (4,338) (808) 3,043 (82) 12,234 528 118 — 646 12,880 969 457 430 115 287 39 2,297 214 112 19 1 346 2,643 (4,383) (810) 2,231 (47) 14,419 484 44 — 528 14,947 424 455 628 109 365 39 2,020 287 102 29 34 452 2,472 (7,897) (2,336) 3,574 (92) 17,428 513 (18) (11) 484 17,912 165 331 728 254 495 42 2,015 368 335 38 8 749 2,764 (14,908) (2,820) 8,310 (186) 24,179 714 (141) (60) 513 24,692 (4,294) (4,997) (8,114) (1,691) (2,190) (252) (21,538) (1,690) (1,298) (61) (155) (3,204) (24,742) 377 517 838 522 714 50 3,018 500 351 37 3 891 3,909 (20,833) — 13,629 (898) 33,783 1,188 (219) (255) 714 34,497 $ Includes U.S. small business commercial charge-offs of $282 million, $345 million, $457 million, $799 million and $1.1 billion in 2015, 2014, 2013, 2012 and 2011, respectively. Includes U.S. small business commercial recoveries of $57 million, $63 million, $98 million, $100 million and $106 million in 2015, 2014, 2013, 2012 and 2011, respectively. $ $ $ $ (1) (2) (3) Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, and foreign currency translation adjustments. In addition, the 2011 amount includes a $449 million reduction in the allowance for loan and lease losses related to Canadian consumer card loans that were transferred to LHFS. (4) Primarily represents accretion of the Merrill Lynch purchase accounting adjustment and the impact of funding previously unfunded positions. 112 Bank of America 2015 Table V Allowance for Credit Losses (Dollars in millions) Allowance for loan and lease losses, January 1 2015 2014 2013 2012 2011 $ 14,419 $ 17,428 $ 24,179 $ 33,783 $ 41,885 (Dollars in millions) Loan and allowance ratios: Table V Allowance for Credit Losses (continued) Loans and leases outstanding at December 31 (5) Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (5) Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (6) Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (7) Average loans and leases outstanding (5) Net charge-offs as a percentage of average loans and leases outstanding (5, 8) Net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (5, 9) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (5, 10) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (8) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs and PCI write-offs (9) Amounts included in allowance for loan and lease losses for loans and leases that are 2015 2014 2013 2012 2011 $ 896,063 $ 872,710 $ 918,191 $ 898,817 $ 917,396 1.37% 1.65% 1.90% 2.69% 3.68% 1.63 1.10 2.05 1.15 2.53 1.03 3.81 0.90 4.88 1.33 $ 874,461 $ 894,001 $ 909,127 $ 890,337 $ 929,661 0.50% 0.49% 0.87% 1.67% 2.24% 0.59 130 2.82 2.38 0.58 121 3.29 2.78 1.13 102 2.21 1.70 1.99 107 1.62 1.36 2.24 135 1.62 1.62 2,297 2,020 2,015 3,018 Allowance for loan and lease losses as a percentage of total loans and leases excluded from nonperforming loans and leases at December 31 (11) $ 4,518 $ 5,944 $ 7,680 $ 12,021 $ 17,490 Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (5, 11) Loan and allowance ratios excluding PCI loans and the related valuation allowance: (12) 82% 71% 57% 54% 65% outstanding at December 31 (5) 1.30% 1.50% 1.67% 2.14% 2.86% Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (6) Net charge-offs as a percentage of average loans and leases outstanding (5) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (5, 10) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs 1.50 0.51 122 2.64 1.79 0.50 107 2.91 2.17 0.90 87 1.89 2.95 1.73 82 1.25 3.68 2.32 101 1.22 (5) Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $6.9 billion, $8.7 billion, $10.0 billion, $9.0 billion and $8.8 billion at December 31, 2015, 2014, 2013, 2012 and 2011, respectively. Average loans accounted for under the fair value option were $7.7 billion, $9.9 billion, $9.5 billion, $8.4 billion and $8.4 billion in 2015, 2014, 2013, 2012 and 2011, respectively. (6) Excludes consumer loans accounted for under the fair value option of $1.9 billion, $2.1 billion, $2.2 billion, $1.0 billion and $2.2 billion at December 31, 2015, 2014, 2013, 2012 and 2011, respectively. (7) Excludes commercial loans accounted for under the fair value option of $5.1 billion, $6.6 billion, $7.9 billion, $8.0 billion and $6.6 billion at December 31, 2015, 2014, 2013, 2012 and 2011, respectively. (8) Net charge-offs exclude $808 million, $810 million, $2.3 billion and $2.8 billion of write-offs in the PCI loan portfolio in 2015, 2014, 2013 and 2012. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 71. (9) There were no write-offs of PCI loans in 2011. (10) For more information on our definition of nonperforming loans, see pages 73 and 80. (11) Primarily includes amounts allocated to U.S. credit card and unsecured lending portfolios in Consumer Banking, PCI loans and the non-U.S. credit portfolio in All Other. (12) For more information on the PCI loan portfolio and the valuation allowance for PCI loans, see Note 4 – Outstanding Loans and Leases and Note 5 – Allowance for Credit Losses to the Consolidated (1) (2) Includes U.S. small business commercial charge-offs of $282 million, $345 million, $457 million, $799 million and $1.1 billion in 2015, 2014, 2013, 2012 and 2011, respectively. Includes U.S. small business commercial recoveries of $57 million, $63 million, $98 million, $100 million and $106 million in 2015, 2014, 2013, 2012 and 2011, respectively. (3) Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, and foreign currency translation adjustments. In addition, the 2011 amount includes a $449 million Financial Statements. reduction in the allowance for loan and lease losses related to Canadian consumer card loans that were transferred to LHFS. (4) Primarily represents accretion of the Merrill Lynch purchase accounting adjustment and the impact of funding previously unfunded positions. Total commercial charge-offs Total loans and leases charged off Recoveries of loans and leases previously charged off (658) (7,026) (1,108) (10,369) (2,096) (17,672) Loans and leases charged off Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total consumer charge-offs U.S. commercial (1) Commercial real estate Commercial lease financing Non-U.S. commercial Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total consumer recoveries U.S. commercial (2) Commercial real estate Commercial lease financing Non-U.S. commercial Total commercial recoveries Total recoveries of loans and leases previously charged off Net charge-offs Write-offs of PCI loans Provision for loan and lease losses Allowance for loan and lease losses, December 31 Reserve for unfunded lending commitments, January 1 Provision for unfunded lending commitments Other (3) Other (4) Reserve for unfunded lending commitments, December 31 Allowance for credit losses, December 31 (866) (975) (2,738) (275) (383) (224) (5,461) (536) (30) (19) (59) (644) (6,105) 393 339 424 87 271 31 1,545 172 35 10 5 222 1,767 (4,338) (808) 3,043 (82) 528 118 — 646 (855) (1,364) (3,068) (357) (456) (268) (6,368) (584) (29) (10) (35) 969 457 430 115 287 39 214 112 19 1 346 2,643 (4,383) (810) 2,231 (47) 484 44 — 528 (1,508) (2,258) (4,004) (9,261) (508) (710) (273) (774) (251) (4) (79) 424 455 628 109 365 39 287 102 29 34 452 2,472 (7,897) (2,336) 3,574 (92) 513 (18) (11) 484 (3,276) (4,573) (5,360) (835) (1,258) (274) (15,576) (1,309) (719) (32) (36) 165 331 728 254 495 42 368 335 38 8 749 2,764 (2,820) 8,310 (186) 24,179 714 (141) (60) 513 (4,294) (4,997) (8,114) (1,691) (2,190) (252) (21,538) (1,690) (1,298) (61) (155) (3,204) (24,742) 377 517 838 522 714 50 500 351 37 3 891 3,909 — 13,629 (898) 33,783 1,188 (219) (255) 714 (14,908) (20,833) 12,234 14,419 17,428 $ 12,880 $ 14,947 $ 17,912 $ 24,692 $ 34,497 112 Bank of America 2015 Bank of America 2015 113 Table VI Allocation of the Allowance for Credit Losses by Product Type (Dollars in millions) Allowance for loan and lease losses Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total consumer U.S. commercial (1) Commercial real estate Commercial lease financing Non-U.S. commercial Total commercial (2) Allowance for loan and lease losses (3) Reserve for unfunded lending commitments Allowance for credit losses 2015 2014 December 31 2013 2012 2011 Amount Percent of Total Amount Percent of Total Amount Percent of Total Amount Percent of Total Amount Percent of Total $ 1,500 2,414 2,927 274 223 47 7,385 2,964 967 164 754 4,849 12,234 646 $ 12,880 12.26% $ 2,900 19.73 3,035 23.93 3,320 2.24 369 1.82 299 0.38 59 60.36 9,982 24.23 2,619 7.90 1,016 1.34 153 6.17 649 39.64 4,437 100.00% 14,419 528 $ 14,947 20.11% $ 4,084 4,434 21.05 3,930 23.03 459 2.56 417 2.07 99 0.41 13,423 69.23 2,394 18.16 917 7.05 118 1.06 576 4.50 4,005 30.77 17,428 100.00% 484 $ 17,912 23.43% $ 7,088 7,845 25.44 4,718 22.55 600 2.63 718 2.39 104 0.58 21,073 77.02 1,885 13.74 846 5.26 78 0.68 297 3.30 3,106 22.98 24,179 100.00% 513 $ 24,692 29.31% $ 7,985 13,094 32.45 6,322 19.51 946 2.48 1,153 2.97 148 0.43 29,648 87.15 2,441 7.80 1,349 3.50 92 0.32 253 1.23 4,135 12.85 33,783 100.00% 714 $ 34,497 23.64% 38.76 18.71 2.80 3.41 0.44 87.76 7.23 3.99 0.27 0.75 12.24 100.00% (1) (2) (3) Includes allowance for loan and lease losses for U.S. small business commercial loans of $507 million, $536 million, $462 million, $642 million and $893 million at December 31, 2015, 2014, 2013, 2012 and 2011, respectively. Includes allowance for loan and lease losses for impaired commercial loans of $217 million, $159 million, $277 million, $475 million and $545 million at December 31, 2015, 2014, 2013, 2012 and 2011, respectively. Includes $804 million, $1.7 billion, $2.5 billion, $5.5 billion and $8.5 billion of valuation allowance presented with the allowance for loan and lease losses related to PCI loans at December 31, 2015, 2014, 2013, 2012 and 2011, respectively. Table VII Selected Loan Maturity Data (1, 2) (Dollars in millions) U.S. commercial U.S. commercial real estate Non-U.S. and other (3) Total selected loans Percent of total Sensitivity of selected loans to changes in interest rates for loans due after one year: Fixed interest rates Floating or adjustable interest rates Total (1) Loan maturities are based on the remaining maturities under contractual terms. (2) Includes loans accounted for under the fair value option. (3) Loan maturities include non-U.S. commercial and commercial real estate loans. December 31, 2015 Due in One Year or Less $ $ 74,624 10,417 64,078 149,119 Due After One Year Through Five Years $ $ 149,456 39,495 27,646 216,597 36% 51% $ $ 16,216 200,381 216,597 $ $ $ $ Due After Five Years 43,837 3,738 6,171 53,746 $ $ Total 267,917 53,650 97,895 419,462 13% 100% 27,338 26,408 53,746 114 Bank of America 2015 Table VI Allocation of the Allowance for Credit Losses by Product Type Table VIII Non-exchange Traded Commodity Contracts $ 1,500 12.26% $ 2,900 20.11% $ 4,084 23.43% $ 7,088 29.31% $ 7,985 23.64% Gross fair value of contracts outstanding, January 1, 2015 (Dollars in millions) Net fair value of contracts outstanding, January 1, 2015 Effect of legally enforceable master netting agreements Contracts realized or otherwise settled Fair value of new contracts Other changes in fair value Gross fair value of contracts outstanding, December 31, 2015 Less: Legally enforceable master netting agreements 87.15 29,648 87.76 Net fair value of contracts outstanding, December 31, 2015 Table IX Non-exchange Traded Commodity Contract Maturities (Dollars in millions) Less than one year Greater than or equal to one year and less than three years Greater than or equal to three years and less than five years Greater than or equal to five years Gross fair value of contracts outstanding Less: Legally enforceable master netting agreements Net fair value of contracts outstanding (Dollars in millions) Amount Amount Amount Amount Amount 2015 2014 Percent of Total Percent of Total December 31 2013 Percent of Total 2012 2011 Percent of Total Percent of Total Allowance for loan and lease losses Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total consumer U.S. commercial (1) Commercial real estate Commercial lease financing Non-U.S. commercial Total commercial (2) 2,414 2,927 274 223 47 7,385 2,964 967 164 754 19.73 23.93 2.24 1.82 0.38 60.36 24.23 7.90 1.34 6.17 3,035 3,320 369 299 59 9,982 2,619 1,016 153 649 21.05 23.03 2.56 2.07 0.41 69.23 18.16 7.05 1.06 4.50 25.44 22.55 2.63 2.39 0.58 77.02 13.74 5.26 0.68 3.30 7,845 4,718 600 718 104 21,073 1,885 846 78 297 32.45 19.51 2.48 2.97 0.43 7.80 3.50 0.32 1.23 13,094 6,322 946 1,153 148 2,441 1,349 92 253 38.76 18.71 2.80 3.41 0.44 7.23 3.99 0.27 0.75 4,434 3,930 459 417 99 13,423 2,394 917 118 576 484 Allowance for loan and lease losses (3) 12,234 100.00% 14,419 100.00% 17,428 100.00% 24,179 100.00% 33,783 100.00% Reserve for unfunded lending commitments Allowance for credit losses 646 $ 12,880 528 $ 14,947 $ 17,912 513 $ 24,692 714 $ 34,497 (1) Includes allowance for loan and lease losses for U.S. small business commercial loans of $507 million, $536 million, $462 million, $642 million and $893 million at December 31, 2015, 2014, 4,849 39.64 4,437 30.77 4,005 22.98 3,106 12.85 4,135 12.24 (2) Includes allowance for loan and lease losses for impaired commercial loans of $217 million, $159 million, $277 million, $475 million and $545 million at December 31, 2015, 2014, 2013, 2012 (3) Includes $804 million, $1.7 billion, $2.5 billion, $5.5 billion and $8.5 billion of valuation allowance presented with the allowance for loan and lease losses related to PCI loans at December 31, 2013, 2012 and 2011, respectively. and 2011, respectively. 2015, 2014, 2013, 2012 and 2011, respectively. Table VII Selected Loan Maturity Data (1, 2) (Dollars in millions) U.S. commercial U.S. commercial real estate Non-U.S. and other (3) Total selected loans Percent of total Fixed interest rates Floating or adjustable interest rates Total Sensitivity of selected loans to changes in interest rates for loans due after one year: (1) Loan maturities are based on the remaining maturities under contractual terms. (2) Includes loans accounted for under the fair value option. (3) Loan maturities include non-U.S. commercial and commercial real estate loans. December 31, 2015 Due After One Year Through Five Years Due After Five Years Total Due in One Year or Less 74,624 10,417 64,078 $ $ 149,456 $ 43,837 $ 267,917 39,495 27,646 3,738 6,171 53,650 97,895 $ 149,119 $ 216,597 $ 53,746 $ 419,462 36% 51% 13% 100% $ 16,216 200,381 216,597 $ $ $ 27,338 26,408 53,746 2015 Asset Positions Liability Positions $ $ 8,052 5,506 13,558 (8,262) 4,624 1,623 11,543 (3,244) 8,299 $ $ 8,593 5,506 14,099 (9,114) 4,250 1,322 10,557 (3,244) 7,313 2015 Asset Positions Liability Positions $ $ 5,420 2,619 723 2,781 11,543 (3,244) 8,299 $ $ 5,853 2,121 671 1,912 10,557 (3,244) 7,313 114 Bank of America 2015 Bank of America 2015 115 Table X Selected Quarterly Financial Data (In millions, except per share information) Income statement Net interest income Noninterest income Total revenue, net of interest expense Provision for credit losses Noninterest expense Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Net income (loss) applicable to common shareholders Average common shares issued and outstanding Average diluted common shares issued and outstanding (2) Performance ratios Return on average assets Four quarter trailing return on average assets (3) Return on average common shareholders’ equity Return on average tangible common shareholders’ equity (4) Return on average tangible shareholders’ equity (4) Total ending equity to total ending assets Total average equity to total average assets Dividend payout Per common share data Earnings (loss) Diluted earnings (loss) (2) Dividends paid Book value Tangible book value (4) Market price per share of common stock Closing High closing Low closing Market capitalization $ $ $ 2015 Quarters (1) 2014 Quarters Fourth Third Second First Fourth Third Second First 9,801 9,727 19,528 810 13,871 4,847 1,511 3,336 3,006 10,399 11,153 $ 9,511 $ 10,488 $ 9,451 $ 10,870 20,381 806 13,808 5,767 1,446 4,321 3,880 10,444 11,197 11,328 21,816 780 13,818 7,218 2,084 5,134 4,804 10,488 11,238 11,331 20,782 765 15,695 4,322 1,225 3,097 2,715 10,519 11,267 9,635 9,090 18,725 219 14,196 4,310 1,260 3,050 2,738 10,516 11,274 0.61% 0.74 0.79% 0.73 0.96% 0.52 0.59% 0.38 0.57% 0.23 5.08 7.32 7.15 11.95 11.79 17.27 0.29 0.28 0.05 22.54 15.62 16.83 17.95 15.38 6.65 9.65 9.43 11.89 11.71 13.43 0.37 0.35 0.05 22.41 15.50 15.58 18.45 15.26 8.42 12.31 11.51 11.71 11.67 10.90 0.46 0.43 0.05 21.91 15.02 17.02 17.67 15.41 $ $ 4.88 7.19 7.24 11.67 11.49 19.38 0.26 0.25 0.05 21.66 14.79 15.39 17.90 15.15 $ $ $ $ 4.84 7.15 7.08 11.57 11.39 19.21 0.26 0.25 0.05 21.32 14.43 17.89 18.13 15.76 $ $ $ $ $ 10,219 $ 10,013 $ 10,085 10,990 21,209 636 20,142 431 663 (232) (470) 10,516 10,516 n/m 0.24% n/m n/m n/m 11.24 11.14 n/m (0.04) (0.04) 0.05 20.99 14.09 17.05 17.18 14.98 $ $ 11,734 21,747 411 18,541 2,795 504 2,291 2,035 10,519 11,265 0.42% 0.37 3.68 5.47 5.64 10.94 10.87 5.16 0.19 0.19 0.01 21.16 14.24 15.37 17.34 14.51 $ $ 12,481 22,566 1,009 22,238 (681) (405) (276) (514) 10,561 10,561 n/m 0.45% n/m n/m n/m 10.79 11.06 n/m (0.05) (0.05) 0.01 20.75 13.81 17.20 17.92 16.10 $ 174,700 $ 162,457 $ 178,231 $ 161,909 $ 188,141 $ 179,296 $ 161,628 $ 181,117 (1) The results for 2015 were impacted by the early adoption of new accounting guidance on recognition and measurement of financial instruments. For additional information, see Executive Summary – Recent Events on page 20. (2) The diluted earnings (loss) per common share excluded the effect of any equity instruments that are antidilutive to earnings per share. There were no potential common shares that were dilutive in the third and first quarters of 2014 because of the net loss applicable to common shareholders. (3) Calculated as total net income (loss) for four consecutive quarters divided by annualized average assets for four consecutive quarters. (4) Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. Other companies may define or calculate these measures differently. For more information on these ratios, see Supplemental Financial Data on page 28, and for corresponding reconciliations to GAAP financial measures, see Statistical Table XV. (5) For more information on the impact of the PCI loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 64. (6) Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments. (7) Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 73 and corresponding Table 35, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 80 and corresponding Table 44. (8) Primarily includes amounts allocated to the U.S. credit card and unsecured consumer lending portfolios in Consumer Banking, PCI loans and the non-U.S. credit card portfolio in All Other. (9) Net charge-offs exclude $82 million, $148 million, $290 million and $288 million of write-offs in the PCI loan portfolio in the fourth, third, second and first quarters of 2015, respectively, and $13 million, $246 million, $160 million and $391 million in the fourth, third, second and first quarters of 2014, respectively. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 71. (10) Capital ratios reported under Advanced approaches in the fourth quarter of 2015. Prior to fourth quarter of 2015, we were required to report regulatory capital ratios under the Standardized approach only. For additional information, see Capital Management on page 51. n/m = not meaningful 116 Bank of America 2015 Table X Selected Quarterly Financial Data Table X Selected Quarterly Financial Data (continued) (In millions, except per share information) Fourth Third Second First Fourth Third Second First 2015 Quarters (1) 2014 Quarters Income statement Net interest income Noninterest income Total revenue, net of interest expense Provision for credit losses Noninterest expense Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Net income (loss) applicable to common shareholders Average common shares issued and outstanding Average diluted common shares issued and outstanding (2) Performance ratios Return on average assets Four quarter trailing return on average assets (3) Return on average common shareholders’ equity Return on average tangible common shareholders’ equity (4) Return on average tangible shareholders’ equity (4) Total ending equity to total ending assets Total average equity to total average assets Dividend payout Per common share data Earnings (loss) Diluted earnings (loss) (2) Dividends paid Book value Tangible book value (4) Closing High closing Low closing Market capitalization – Recent Events on page 20. Market price per share of common stock 0.61% 0.79% 0.96% 0.59% 0.57% 0.42% $ $ 9,511 $ 10,488 $ 9,451 $ $ 10,219 $ 10,013 $ 10,085 9,801 9,727 19,528 810 13,871 4,847 1,511 3,336 3,006 10,399 11,153 0.74 5.08 7.32 7.15 11.95 11.79 17.27 0.29 0.28 0.05 22.54 15.62 16.83 17.95 15.38 10,870 20,381 806 13,808 5,767 1,446 4,321 3,880 10,444 11,197 0.73 6.65 9.65 9.43 11.89 11.71 13.43 0.37 0.35 0.05 22.41 15.50 15.58 18.45 15.26 11,328 21,816 780 13,818 7,218 2,084 5,134 4,804 10,488 11,238 0.52 8.42 12.31 11.51 11.71 11.67 10.90 0.46 0.43 0.05 21.91 15.02 17.02 17.67 15.41 11,331 20,782 765 15,695 4,322 1,225 3,097 2,715 10,519 11,267 0.38 4.88 7.19 7.24 11.67 11.49 19.38 0.26 0.25 0.05 21.66 14.79 15.39 17.90 15.15 9,635 9,090 18,725 219 14,196 4,310 1,260 3,050 2,738 10,516 11,274 0.23 4.84 7.15 7.08 11.57 11.39 19.21 0.26 0.25 0.05 21.32 14.43 17.89 18.13 15.76 10,990 21,209 636 20,142 431 663 (232) (470) 10,516 10,516 n/m 0.24% n/m n/m n/m 11.24 11.14 n/m (0.04) (0.04) 0.05 20.99 14.09 17.05 17.18 14.98 11,734 21,747 411 18,541 2,795 504 2,291 2,035 10,519 11,265 0.37 3.68 5.47 5.64 10.94 10.87 5.16 0.19 0.19 0.01 21.16 14.24 15.37 17.34 14.51 12,481 22,566 1,009 22,238 (681) (405) (276) (514) 10,561 10,561 n/m 0.45% n/m n/m n/m 10.79 11.06 n/m (0.05) (0.05) 0.01 20.75 13.81 17.20 17.92 16.10 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ (1) The results for 2015 were impacted by the early adoption of new accounting guidance on recognition and measurement of financial instruments. For additional information, see Executive Summary $ 174,700 $ 162,457 $ 178,231 $ 161,909 $ 188,141 $ 179,296 $ 161,628 $ 181,117 (2) The diluted earnings (loss) per common share excluded the effect of any equity instruments that are antidilutive to earnings per share. There were no potential common shares that were dilutive in the third and first quarters of 2014 because of the net loss applicable to common shareholders. (3) Calculated as total net income (loss) for four consecutive quarters divided by annualized average assets for four consecutive quarters. (4) Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. Other companies may define or calculate these measures differently. For more information on these ratios, see Supplemental Financial Data on page 28, and for corresponding reconciliations to GAAP financial measures, see Statistical Table XV. (5) For more information on the impact of the PCI loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 64. (6) Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments. (7) Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 73 and corresponding Table 35, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 80 and corresponding Table 44. (8) Primarily includes amounts allocated to the U.S. credit card and unsecured consumer lending portfolios in Consumer Banking, PCI loans and the non-U.S. credit card portfolio in All Other. (9) Net charge-offs exclude $82 million, $148 million, $290 million and $288 million of write-offs in the PCI loan portfolio in the fourth, third, second and first quarters of 2015, respectively, and $13 million, $246 million, $160 million and $391 million in the fourth, third, second and first quarters of 2014, respectively. For more information on PCI write-offs, see Consumer Portfolio Credit Risk (10) Capital ratios reported under Advanced approaches in the fourth quarter of 2015. Prior to fourth quarter of 2015, we were required to report regulatory capital ratios under the Standardized approach Management – Purchased Credit-impaired Loan Portfolio on page 71. only. For additional information, see Capital Management on page 51. n/m = not meaningful (Dollars in millions) Average balance sheet Total loans and leases Total assets Total deposits Long-term debt Common shareholders’ equity Total shareholders’ equity Asset quality (5) 2015 Quarters (1) 2014 Quarters Fourth Third Second First Fourth Third Second First $ 891,861 $ 882,841 $ 881,415 $ 872,393 $ 884,733 $ 899,241 $ 912,580 $ 919,482 2,180,472 1,186,051 237,384 234,851 257,125 2,168,993 2,151,966 2,138,574 2,137,551 2,136,109 2,169,555 2,139,266 1,159,231 1,146,789 1,130,726 1,122,514 1,127,488 1,128,563 1,118,178 240,520 231,620 253,893 242,230 228,780 251,054 240,127 225,357 245,744 249,221 224,479 243,454 251,772 222,374 238,040 259,825 222,221 235,803 253,678 223,207 236,559 Allowance for credit losses (6) Nonperforming loans, leases and foreclosed properties (7) $ 12,880 9,836 $ 13,318 10,336 $ 13,656 11,565 $ 14,213 12,101 $ 14,947 12,629 $ 15,635 14,232 $ 16,314 15,300 $ 17,127 17,732 Allowance for loan and lease losses as a percentage of total loans and leases outstanding (7) 1.37% 1.44% 1.49% 1.57% 1.65% 1.71% 1.75% 1.84% Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (7) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio (7) Amounts included in allowance for loan and lease losses for loans and 130 122 129 120 122 111 122 110 121 107 112 100 108 95 97 85 leases that are excluded from nonperforming loans and leases (8) $ 4,518 $ 4,682 $ 5,050 $ 5,492 $ 5,944 $ 6,013 $ 6,488 $ 7,143 Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases (7, 8) 82% 81% 75% 73% 71% 67% 64% 55% Net charge-offs (9) $ 1,144 $ 932 $ 1,068 $ 1,194 $ 879 $ 1,043 $ 1,073 $ 1,388 Annualized net charge-offs as a percentage of average loans and leases outstanding (7, 9) Annualized net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (7) Annualized net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (7) Nonperforming loans and leases as a percentage of total loans and leases outstanding (7) Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (7) Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs (9) Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs, excluding the PCI loan portfolio Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs and PCI write-offs Capital ratios at period end (10) Risk-based capital: Common equity tier 1 capital Tier 1 capital Total capital Tier 1 leverage Tangible equity (4) Tangible common equity (4) For footnotes see page 116. 0.51% 0.42% 0.49% 0.56% 0.40% 0.46% 0.48% 0.62% 0.52 0.55 1.05 1.10 2.70 2.52 2.52 10.2% 11.3 13.2 8.6 8.9 7.8 0.43 0.49 1.11 1.17 3.42 3.18 2.95 11.6% 12.9 15.8 8.5 8.8 7.8 0.50 0.62 1.22 1.31 3.05 2.79 2.40 11.2% 12.5 15.5 8.5 8.6 7.6 0.57 0.70 1.29 1.39 2.82 2.55 2.28 11.1% 12.3 15.3 8.4 8.6 7.5 0.41 0.40 1.37 1.45 4.14 3.66 4.08 12.3% 13.4 16.5 8.2 8.4 7.5 0.48 0.57 1.53 1.61 3.65 3.27 2.95 12.0% 12.8 15.8 7.9 8.1 7.2 0.49 0.55 1.63 1.70 3.67 3.25 3.20 12.0% 12.5 15.3 7.7 7.8 7.1 0.64 0.79 1.89 1.96 2.95 2.58 2.30 11.8% 11.9 14.8 7.4 7.6 7.0 116 Bank of America 2015 Bank of America 2015 117 Table XI Quarterly Average Balances and Interest Rates – FTE Basis (Dollars in millions) Earning assets Fourth Quarter 2015 Third Quarter 2015 Average Balance Interest Income/ Expense Yield/ Rate Average Balance Interest Income/ Expense Yield/ Rate Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks $ 148,102 $ 0.29% $ 145,174 1.62 11,503 $ Time deposits placed and other short-term investments Federal funds sold and securities borrowed or purchased under agreements to resell Trading account assets Debt securities (1) Loans and leases (2): Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer (3) Other consumer (4) Total consumer U.S. commercial Commercial real estate (5) Commercial lease financing Non-U.S. commercial Total commercial Total loans and leases Other earning assets Total earning assets (6) Cash and due from banks Other assets, less allowance for loan and lease losses Total assets Interest-bearing liabilities U.S. interest-bearing deposits: Savings NOW and money market deposit accounts Consumer CDs and IRAs Negotiable CDs, public funds and other deposits Total U.S. interest-bearing deposits Non-U.S. interest-bearing deposits: Banks located in non-U.S. countries Governments and official institutions Time, savings and other Total non-U.S. interest-bearing deposits Total interest-bearing deposits Federal funds purchased, securities loaned or sold under agreements to repurchase and short-term borrowings Trading account liabilities Long-term debt (7) Total interest-bearing liabilities (6) Noninterest-bearing sources: Noninterest-bearing deposits Other liabilities Shareholders’ equity Total liabilities and shareholders’ equity Net interest spread Impact of noninterest-bearing sources Net interest income/yield on earning assets 10,120 207,585 134,797 399,423 189,650 77,109 88,623 10,155 87,858 2,039 455,434 261,727 56,126 26,127 92,447 436,427 891,861 61,070 108 42 214 1,141 2,541 1,644 715 2,045 258 530 11 5,203 1,790 408 204 530 2,932 8,135 748 1,852,958 12,929 29,503 298,011 $ 2,180,472 1 68 37 25 131 7 2 71 80 211 519 272 1,895 2,897 $ 46,094 $ 558,441 51,107 30,546 686,188 3,997 1,687 55,965 61,649 747,837 231,650 73,139 237,384 1,290,010 438,214 195,123 257,125 $ 2,180,472 96 38 275 1,170 1,853 1,690 730 2,033 267 515 15 5,250 1,743 384 199 514 2,840 8,090 716 2 67 38 26 133 7 1 73 81 214 597 342 1,343 2,496 1,847,396 12,238 27,730 293,867 $ 2,168,993 0.01% $ 0.05 0.41 3.37 2.55 3.47 3.69 9.15 10.07 2.40 2.09 4.55 2.72 2.89 3.12 2.27 2.67 3.63 4.87 2.78 0.29 0.32 0.08 0.69 0.37 0.51 0.52 0.11 0.89 1.48 3.18 0.89 210,127 140,484 394,420 193,791 79,715 88,201 10,244 85,975 1,980 459,906 251,908 53,605 25,425 91,997 422,935 882,841 62,847 46,297 $ 545,741 53,174 30,631 675,843 4,196 1,654 53,793 59,643 735,486 257,323 77,443 240,520 1,310,772 423,745 180,583 253,893 $ 2,168,993 1.89% 0.27 2.16% $ 10,032 $ 9,742 0.26% 1.33 0.52 3.31 1.88 3.49 3.64 9.15 10.34 2.38 3.01 4.54 2.75 2.84 3.12 2.22 2.67 3.64 4.52 2.64 0.02% 0.05 0.29 0.33 0.08 0.71 0.33 0.53 0.54 0.12 0.92 1.75 2.22 0.76 1.88% 0.22 2.10% (1) Yields on debt securities excluding the impact of market-related adjustments were 2.47 percent, 2.50 percent, 2.48 percent and 2.54 percent in the fourth, third, second and first quarters of 2015, respectively, and 2.53 percent in the fourth quarter of 2014. Yields on debt securities excluding the impact of market-related adjustments are a non-GAAP financial measure. The Corporation believes the use of this non-GAAP financial measure provides additional clarity in assessing its results. (2) Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis. PCI loans were recorded at fair (3) (4) (5) (6) value upon acquisition and accrete interest income over the remaining life of the loan. Includes non-U.S. consumer loans of $4.0 billion for each of the quarters of 2015 and $4.2 billion in the fourth quarter of 2014. Includes consumer finance loans of $578 million, $605 million, $632 million and $661 million in the fourth, third, second and first quarters of 2015, respectively, and $907 million in the fourth quarter of 2014; consumer leases of $1.3 billion, $1.2 billion, $1.1 billion and $1.0 billion in the fourth, third, second and first quarters of 2015, respectively, and $965 million in the fourth quarter of 2014; and consumer overdrafts of $174 million, $177 million, $131 million and $141 million in the fourth, third, second and first quarters of 2015, respectively, and $156 million in the fourth quarter of 2014. Includes U.S. commercial real estate loans of $52.8 billion, $49.8 billion, $47.6 billion and $45.6 billion in the fourth, third, second and first quarters of 2015, respectively, and $45.1 billion in the fourth quarter of 2014; and non-U.S. commercial real estate loans of $3.3 billion, $3.8 billion, $2.8 billion and $2.7 billion in the fourth, third, second and first quarters of 2015, respectively, and $1.9 billion in the fourth quarter of 2014. Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets by $32 million, $8 million, $8 million and $11 million in the fourth, third, second and first quarters of 2015, respectively, and $10 million in the fourth quarter of 2014. Interest expense includes the impact of interest rate risk management contracts, which decreased interest expense on the underlying liabilities by $681 million, $590 million, $509 million and $582 million in the fourth, third, second and first quarters of 2015, respectively, and $659 million in the fourth quarter of 2014. For additional information, see Interest Rate Risk Management for Non-trading Activities on page 95. (7) The yield on long-term debt excluding the $612 million adjustment on certain trust preferred securities was 2.15 percent for the fourth quarter of 2015. For more information, see Note 11 – Long- term Debt to the Consolidated Financial Statements. The yield on long-term debt excluding the adjustment is a non-GAAP financial measure. 118 Bank of America 2015 Table XI Quarterly Average Balances and Interest Rates – FTE Basis Table XI Quarterly Average Balances and Interest Rates – FTE Basis (continued) Fourth Quarter 2015 Third Quarter 2015 Average Balance Interest Income/ Expense Yield/ Rate Average Balance Interest Income/ Expense Yield/ Rate (Dollars in millions) Earning assets Second Quarter 2015 First Quarter 2015 Fourth Quarter 2014 Average Balance Interest Income/ Expense Yield/ Rate Average Balance Interest Income/ Expense Yield/ Rate Average Balance Interest Income/ Expense Yield/ Rate Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks $ 148,102 $ 0.29% $ 145,174 $ Time deposits placed and other short-term investments Federal funds sold and securities borrowed or purchased under agreements to resell Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks $ 125,762 $ Time deposits placed and other short-term investments 8,183 Federal funds sold and securities borrowed or purchased under agreements to resell Trading account assets Debt securities (1) Loans and leases (2): Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer (3) Other consumer (4) Total consumer U.S. commercial Commercial real estate (5) Commercial lease financing Non-U.S. commercial Total commercial Total loans and leases Other earning assets Total earning assets (6) Cash and due from banks Other assets, less allowance for loan and lease losses Total assets Interest-bearing liabilities U.S. interest-bearing deposits: Savings NOW and money market deposit accounts Consumer CDs and IRAs Negotiable CDs, public funds and other deposits Total U.S. interest-bearing deposits Non-U.S. interest-bearing deposits: Banks located in non-U.S. countries Governments and official institutions Time, savings and other Total non-U.S. interest-bearing deposits Total interest-bearing deposits Federal funds purchased, securities loaned or sold under agreements to repurchase and short-term borrowings Trading account liabilities Long-term debt (7) Total interest-bearing liabilities (6) Noninterest-bearing sources: Noninterest-bearing deposits Other liabilities Shareholders’ equity Total liabilities and shareholders’ equity Net interest spread Impact of noninterest-bearing sources 0.26% $ 126,189 $ 0.27% $ 109,042 $ 74 41 0.27% 1.73 81 34 268 1,114 3,082 1,782 769 1,980 264 504 15 5,314 1,705 382 180 479 2,746 8,060 721 1.64 0.50 3.25 3.21 3.44 3.73 9.08 10.56 2.42 3.14 4.50 2.80 3.03 2.92 2.17 2.70 3.67 4.60 2.95 8,379 213,931 138,946 383,120 215,030 84,915 88,695 10,002 80,713 1,847 481,202 234,907 48,234 24,495 83,555 391,191 872,393 61,441 84 33 231 1,122 1,898 1,851 770 2,027 262 491 15 5,416 1,645 347 216 485 2,693 8,109 705 1.61 0.44 3.26 2.01 3.45 3.66 9.27 10.64 2.47 3.29 4.54 2.84 2.92 3.53 2.35 2.79 3.75 4.66 2.73 214,326 137,137 386,357 207,356 82,640 87,460 10,012 83,698 1,885 473,051 244,540 50,478 24,723 88,623 408,364 881,415 62,712 9,339 217,982 144,147 371,014 223,132 86,825 89,381 10,950 83,121 2,031 495,440 231,215 46,996 24,238 86,844 389,293 884,733 65,864 237 1,142 1,687 1,946 808 2,087 280 522 85 5,728 1,648 360 199 527 2,734 8,462 739 1,815,892 13,360 30,751 305,323 $ 2,151,966 2 71 42 22 137 9 1 69 79 216 686 335 1,407 2,644 $ 47,381 $ 536,201 55,832 29,904 669,318 5,162 1,239 55,030 61,431 730,749 252,088 77,772 242,230 1,302,839 416,040 182,033 251,054 $ 2,151,966 1,804,399 12,182 27,695 306,480 $ 2,138,574 1,802,121 12,382 27,590 307,840 $ 2,137,551 2 67 45 22 136 8 1 75 84 220 585 394 1,313 2,512 0.02% $ 46,224 $ 0.05 0.30 0.30 0.08 0.67 0.38 0.51 0.52 0.12 1.09 1.73 2.33 0.81 531,827 58,704 28,796 665,551 4,544 1,382 54,276 60,202 725,753 244,134 78,787 240,127 1,288,801 404,973 199,056 245,744 $ 2,138,574 1 76 52 22 151 9 1 76 86 237 615 350 1,315 2,517 0.02% $ 45,621 $ 0.05 0.31 0.31 0.08 0.74 0.21 0.55 0.56 0.12 0.97 2.03 2.20 0.79 515,995 61,880 30,950 654,446 5,415 1,647 57,029 64,091 718,537 251,432 78,174 249,221 1,297,364 403,977 192,756 243,454 $ 2,137,551 2.14% 0.23 2.37% 1.94% 0.23 2.17% $ 9,670 $ 9,865 0.43 3.15 1.82 3.49 3.70 9.26 10.14 2.49 16.75 4.60 2.83 3.04 3.28 2.41 2.79 3.80 4.46 2.73 0.01% 0.06 0.33 0.29 0.09 0.63 0.18 0.53 0.53 0.13 0.97 1.78 2.10 0.77 1.96% 0.22 2.18% Net interest income/yield on earning assets $ 10,716 For footnotes see page 118. (Dollars in millions) Earning assets Trading account assets Debt securities (1) Loans and leases (2): Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer (3) Other consumer (4) Total consumer U.S. commercial Commercial real estate (5) Commercial lease financing Non-U.S. commercial Total commercial Total loans and leases Other earning assets Total earning assets (6) Cash and due from banks Total assets Interest-bearing liabilities U.S. interest-bearing deposits: Savings Other assets, less allowance for loan and lease losses NOW and money market deposit accounts Consumer CDs and IRAs Negotiable CDs, public funds and other deposits Total U.S. interest-bearing deposits Non-U.S. interest-bearing deposits: Banks located in non-U.S. countries Governments and official institutions Time, savings and other Total non-U.S. interest-bearing deposits Total interest-bearing deposits borrowings Trading account liabilities Long-term debt (7) Total interest-bearing liabilities (6) Noninterest-bearing sources: Noninterest-bearing deposits Other liabilities Shareholders’ equity Total liabilities and shareholders’ equity Net interest spread Impact of noninterest-bearing sources Net interest income/yield on earning assets 1,852,958 12,929 1,847,396 12,238 $ 46,094 $ 0.01% $ 46,297 $ 0.02% 10,120 207,585 134,797 399,423 189,650 77,109 88,623 10,155 87,858 2,039 455,434 261,727 56,126 26,127 92,447 436,427 891,861 61,070 29,503 298,011 $ 2,180,472 558,441 51,107 30,546 686,188 3,997 1,687 55,965 61,649 747,837 231,650 73,139 237,384 1,290,010 438,214 195,123 257,125 $ 2,180,472 108 42 214 1,141 2,541 1,644 715 2,045 258 530 11 5,203 1,790 408 204 530 2,932 8,135 748 1 68 37 25 131 7 2 71 80 211 519 272 1,895 2,897 1.62 0.41 3.37 2.55 3.47 3.69 9.15 10.07 2.40 2.09 4.55 2.72 2.89 3.12 2.27 2.67 3.63 4.87 2.78 0.05 0.29 0.32 0.08 0.69 0.37 0.51 0.52 0.11 0.89 1.48 3.18 0.89 11,503 210,127 140,484 394,420 193,791 79,715 88,201 10,244 85,975 1,980 459,906 251,908 53,605 25,425 91,997 422,935 882,841 62,847 27,730 293,867 $ 2,168,993 545,741 53,174 30,631 675,843 4,196 1,654 53,793 59,643 735,486 257,323 77,443 240,520 1,310,772 423,745 180,583 253,893 $ 2,168,993 96 38 275 1,170 1,853 1,690 730 2,033 267 515 15 5,250 1,743 384 199 514 2,840 8,090 716 2 67 38 26 133 7 1 73 81 214 597 342 1,343 2,496 0.26% 1.33 0.52 3.31 1.88 3.49 3.64 9.15 10.34 2.38 3.01 4.54 2.75 2.84 3.12 2.22 2.67 3.64 4.52 2.64 0.05 0.29 0.33 0.08 0.71 0.33 0.53 0.54 0.12 0.92 1.75 2.22 0.76 1.88% 0.22 2.10% Federal funds purchased, securities loaned or sold under agreements to repurchase and short-term 1.89% 0.27 2.16% $ 10,032 $ 9,742 (1) Yields on debt securities excluding the impact of market-related adjustments were 2.47 percent, 2.50 percent, 2.48 percent and 2.54 percent in the fourth, third, second and first quarters of 2015, respectively, and 2.53 percent in the fourth quarter of 2014. Yields on debt securities excluding the impact of market-related adjustments are a non-GAAP financial measure. The Corporation believes the use of this non-GAAP financial measure provides additional clarity in assessing its results. (2) Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis. PCI loans were recorded at fair value upon acquisition and accrete interest income over the remaining life of the loan. Includes non-U.S. consumer loans of $4.0 billion for each of the quarters of 2015 and $4.2 billion in the fourth quarter of 2014. Includes consumer finance loans of $578 million, $605 million, $632 million and $661 million in the fourth, third, second and first quarters of 2015, respectively, and $907 million in the fourth quarter of 2014; consumer leases of $1.3 billion, $1.2 billion, $1.1 billion and $1.0 billion in the fourth, third, second and first quarters of 2015, respectively, and $965 million in the fourth quarter of 2014; and consumer overdrafts of $174 million, $177 million, $131 million and $141 million in the fourth, third, second and first quarters of 2015, respectively, and $156 million in the fourth (3) (4) quarter of 2014. (5) Includes U.S. commercial real estate loans of $52.8 billion, $49.8 billion, $47.6 billion and $45.6 billion in the fourth, third, second and first quarters of 2015, respectively, and $45.1 billion in the fourth quarter of 2014; and non-U.S. commercial real estate loans of $3.3 billion, $3.8 billion, $2.8 billion and $2.7 billion in the fourth, third, second and first quarters of 2015, respectively, and $1.9 billion in the fourth quarter of 2014. (6) Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets by $32 million, $8 million, $8 million and $11 million in the fourth, third, second and first quarters of 2015, respectively, and $10 million in the fourth quarter of 2014. Interest expense includes the impact of interest rate risk management contracts, which decreased interest expense on the underlying liabilities by $681 million, $590 million, $509 million and $582 million in the fourth, third, second and first quarters of 2015, respectively, and $659 million in the fourth quarter of 2014. For additional information, see Interest Rate Risk Management for Non-trading Activities on page 95. (7) The yield on long-term debt excluding the $612 million adjustment on certain trust preferred securities was 2.15 percent for the fourth quarter of 2015. For more information, see Note 11 – Long- term Debt to the Consolidated Financial Statements. The yield on long-term debt excluding the adjustment is a non-GAAP financial measure. 118 Bank of America 2015 Bank of America 2015 119 Table XII Quarterly Supplemental Financial Data (Dollars in millions, except per share information) Fully taxable-equivalent basis data (1) Net interest income Total revenue, net of interest expense (2) Net interest yield Efficiency ratio (2) 2015 Quarters 2014 Quarters Fourth Third Second First Fourth Third Second First $ 10,032 19,759 $ 9,742 20,612 $ 10,716 22,044 $ 9,670 21,001 $ 9,865 18,955 $ 10,444 21,434 $ 10,226 21,960 $ 10,286 22,767 2.16% 2.10% 2.37% 2.17% 2.18% 2.29% 2.22% 2.29% 66.99 (1) FTE basis is a non-GAAP financial measure. FTE basis is a performance measure used by management in operating the business that management believes provides investors with a more accurate picture of the interest margin for comparative purposes. For more information on these performance measures and ratios, see Supplemental Financial Data on page 28 and for corresponding reconciliations to GAAP financial measures, see Statistical Table XV. 74.73 84.43 93.97 74.90 62.69 97.68 70.20 (2) The results for 2015 were impacted by the early adoption of new accounting guidance on recognition and measurement of financial instruments. For additional information, see Executive Summary – Recent Events on page 20. 120 Bank of America 2015 (1) FTE basis is a non-GAAP financial measure. FTE basis is a performance measure used by management in operating the business that management believes provides investors with a more accurate picture of the interest margin for comparative purposes. For more information on these performance measures and ratios, see Supplemental Financial Data on page 28 and for corresponding $ 10,032 19,759 $ 9,742 $ 10,716 $ 9,670 $ 9,865 $ 10,444 $ 10,226 $ 10,286 20,612 22,044 21,001 18,955 21,434 21,960 22,767 2.16% 70.20 2.10% 66.99 2.37% 62.69 2.17% 74.73 2.18% 74.90 2.29% 93.97 2.22% 84.43 2.29% 97.68 (Dollars in millions, except per share information) Fully taxable-equivalent basis data (1) Net interest income Total revenue, net of interest expense (2) Net interest yield Efficiency ratio (2) reconciliations to GAAP financial measures, see Statistical Table XV. – Recent Events on page 20. Table XII Quarterly Supplemental Financial Data Table XIII Five-year Reconciliations to GAAP Financial Measures (1) 2015 Quarters 2014 Quarters Fourth Third Second First Fourth Third Second First (Dollars in millions, shares in thousands) Reconciliation of net interest income to net interest income on a fully taxable-equivalent basis 2015 2014 2013 2012 2011 (2) The results for 2015 were impacted by the early adoption of new accounting guidance on recognition and measurement of financial instruments. For additional information, see Executive Summary Reconciliation of total noninterest expense to total noninterest expense, excluding goodwill impairment Net interest income Fully taxable-equivalent adjustment Net interest income on a fully taxable-equivalent basis Reconciliation of total revenue, net of interest expense to total revenue, net of interest expense on a fully taxable-equivalent basis Total revenue, net of interest expense Fully taxable-equivalent adjustment Total revenue, net of interest expense on a fully taxable-equivalent basis charges Total noninterest expense Goodwill impairment charges Total noninterest expense, excluding goodwill impairment charges Reconciliation of income tax expense (benefit) to income tax expense (benefit) on a fully taxable-equivalent basis Income tax expense (benefit) Fully taxable-equivalent adjustment Income tax expense (benefit) on a fully taxable-equivalent basis Reconciliation of net income to net income, excluding goodwill impairment charges Net income Goodwill impairment charges Net income, excluding goodwill impairment charges Reconciliation of net income applicable to common shareholders to net income applicable to common shareholders, excluding goodwill impairment charges Net income applicable to common shareholders Goodwill impairment charges Net income applicable to common shareholders, excluding goodwill impairment charges Reconciliation of average common shareholders’ equity to average tangible common shareholders’ equity Common shareholders’ equity Goodwill Intangible assets (excluding MSRs) Related deferred tax liabilities Tangible common shareholders’ equity Reconciliation of average shareholders’ equity to average tangible shareholders’ equity Shareholders’ equity Goodwill Intangible assets (excluding MSRs) Related deferred tax liabilities Tangible shareholders’ equity Reconciliation of year-end common shareholders’ equity to year-end tangible common shareholders’ equity Common shareholders’ equity Goodwill Intangible assets (excluding MSRs) Related deferred tax liabilities Tangible common shareholders’ equity Reconciliation of year-end shareholders’ equity to year-end tangible shareholders’ equity Shareholders’ equity Goodwill Intangible assets (excluding MSRs) Related deferred tax liabilities Tangible shareholders’ equity Reconciliation of year-end assets to year-end tangible assets Assets Goodwill Intangible assets (excluding MSRs) Related deferred tax liabilities Tangible assets $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 39,251 909 40,160 82,507 909 83,416 57,192 — 57,192 6,266 909 7,175 15,888 — 15,888 14,405 — 14,405 230,182 (69,772) (4,201) 1,852 158,061 251,990 (69,772) (4,201) 1,852 179,869 233,932 (69,761) (3,768) 1,716 162,119 256,205 (69,761) (3,768) 1,716 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 39,952 869 40,821 84,247 869 85,116 75,117 — 75,117 2,022 869 2,891 4,833 — 4,833 3,789 — 3,789 223,072 (69,809) (5,109) 2,090 150,244 238,482 (69,809) (5,109) 2,090 165,654 224,162 (69,777) (4,612) 1,960 151,733 243,471 (69,777) (4,612) 1,960 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 42,265 859 43,124 88,942 859 89,801 69,214 — 69,214 4,741 859 5,600 11,431 — 11,431 10,082 — 10,082 218,468 (69,910) (6,132) 2,328 144,754 233,951 (69,910) (6,132) 2,328 160,237 219,333 (69,844) (5,574) 2,166 146,081 232,685 (69,844) (5,574) 2,166 40,656 901 41,557 83,334 901 84,235 72,093 — 72,093 $ $ $ $ $ $ (1,116) $ 901 (215) $ $ $ $ $ $ $ $ $ $ $ $ 4,188 — 4,188 2,760 — 2,760 216,996 (69,974) (7,366) 2,593 142,249 235,677 (69,974) (7,366) 2,593 160,930 218,188 (69,976) (6,684) 2,428 143,956 236,956 (69,976) (6,684) 2,428 44,616 972 45,588 93,454 972 94,426 80,274 (3,184) 77,090 (1,676) 972 (704) 1,446 3,184 4,630 85 3,184 3,269 211,709 (72,334) (9,180) 2,898 133,093 229,095 (72,334) (9,180) 2,898 150,479 211,704 (69,967) (8,021) 2,702 136,418 230,101 (69,967) (8,021) 2,702 $ 184,392 $ 171,042 $ 159,433 $ 162,724 $ 154,815 $ 2,144,316 $ 2,104,534 $ 2,102,273 (69,761) (3,768) 1,716 (69,777) (4,612) 1,960 (69,844) (5,574) 2,166 $ 2,072,503 $ 2,032,105 $ 2,029,021 $ 2,209,974 (69,976) (6,684) 2,428 $ 2,135,742 $ 2,129,046 (69,967) (8,021) 2,702 $ 2,053,760 (1) Presents reconciliations of non-GAAP financial measures to GAAP financial measures. We believe the use of these non-GAAP financial measures provides additional clarity in assessing the results of the Corporation. Other companies may define or calculate these measures differently. For more information on non-GAAP financial measures and ratios we use in assessing the results of the Corporation, see Supplemental Financial Data on page 28. 120 Bank of America 2015 Bank of America 2015 121 Table XIV Two-year Reconciliations to GAAP Financial Measures (1, 2) (Dollars in millions) Consumer Banking Reported net income Adjustment related to intangibles (3) Adjusted net income Average allocated equity (4) Adjustment related to goodwill and a percentage of intangibles Average allocated capital Deposits Reported net income Adjustment related to intangibles (3) Adjusted net income Average allocated equity (4) Adjustment related to goodwill and a percentage of intangibles Average allocated capital Consumer Lending Reported net income Adjustment related to intangibles (3) Adjusted net income Average allocated equity (4) Adjustment related to goodwill and a percentage of intangibles Average allocated capital Global Wealth & Investment Management Reported net income Adjustment related to intangibles (3) Adjusted net income Average allocated equity (4) Adjustment related to goodwill and a percentage of intangibles Average allocated capital Global Banking Reported net income Adjustment related to intangibles (3) Adjusted net income Average allocated equity (4) Adjustment related to goodwill and a percentage of intangibles Average allocated capital Global Markets Reported net income Adjustment related to intangibles (3) Adjusted net income Average allocated equity (4) Adjustment related to goodwill and a percentage of intangibles Average allocated capital 2015 2014 6,739 4 6,743 59,319 (30,319) 29,000 2,685 — 2,685 30,420 (18,420) 12,000 4,054 4 4,058 28,900 (11,900) 17,000 2,609 11 2,620 22,130 (10,130) 12,000 5,273 1 5,274 58,935 (23,935) 35,000 2,496 10 2,506 40,392 (5,392) 35,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 6,436 4 6,440 60,398 (30,398) 30,000 2,415 — 2,415 29,432 (18,432) 11,000 4,021 4 4,025 30,966 (11,966) 19,000 2,969 13 2,982 22,214 (10,214) 12,000 5,769 2 5,771 57,429 (23,929) 33,500 2,705 9 2,714 39,394 (5,394) 34,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ (1) Presents reconciliations of non-GAAP financial measures to GAAP financial measures. We believe the use of these non-GAAP financial measures provides additional clarity in assessing the results of the Corporation and our segments. Other companies may define or calculate these measures differently. For more information on non-GAAP financial measures and ratios we use in assessing the results of the Corporation, see Supplemental Financial Data on page 28. (2) There are no adjustments to reported net income (loss) or average allocated equity for LAS. (3) Represents cost of funds, earnings credits and certain expenses related to intangibles. (4) Average allocated equity is comprised of average allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the business segment. For more information on allocated capital, see Business Segment Operations on page 30 and Note 8 – Goodwill and Intangible Assets to the Consolidated Financial Statements. 122 Bank of America 2015 Adjustment related to goodwill and a percentage of intangibles Adjustment related to goodwill and a percentage of intangibles Adjustment related to goodwill and a percentage of intangibles Average allocated capital Adjustment related to goodwill and a percentage of intangibles (Dollars in millions) Consumer Banking Reported net income Adjustment related to intangibles (3) Adjusted net income Average allocated equity (4) Average allocated capital Deposits Reported net income Adjustment related to intangibles (3) Adjusted net income Average allocated equity (4) Average allocated capital Consumer Lending Reported net income Adjustment related to intangibles (3) Adjusted net income Average allocated equity (4) Global Wealth & Investment Management Reported net income Adjustment related to intangibles (3) Adjusted net income Average allocated equity (4) Average allocated capital Global Banking Reported net income Adjustment related to intangibles (3) Adjusted net income Average allocated equity (4) Average allocated capital Global Markets Reported net income Adjustment related to intangibles (3) Adjusted net income Average allocated equity (4) Adjustment related to goodwill and a percentage of intangibles $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 6,739 4 6,743 59,319 (30,319) 29,000 2,685 — 2,685 30,420 (18,420) 12,000 4,054 4 4,058 28,900 (11,900) 17,000 2,609 11 2,620 22,130 (10,130) 12,000 5,273 1 5,274 58,935 (23,935) 35,000 2,496 10 2,506 40,392 (5,392) 35,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 6,436 4 6,440 60,398 (30,398) 30,000 2,415 — 2,415 29,432 (18,432) 11,000 4,021 4 4,025 30,966 (11,966) 19,000 2,969 13 2,982 22,214 (10,214) 12,000 5,769 2 5,771 57,429 (23,929) 33,500 2,705 9 2,714 39,394 (5,394) 34,000 Table XIV Two-year Reconciliations to GAAP Financial Measures (1, 2) Table XV Quarterly Reconciliations to GAAP Financial Measures (1) 2015 2014 2015 Quarters 2014 Quarters (Dollars in millions) Fourth Third Second First Fourth Third Second First Reconciliation of net interest income to net interest income on a fully taxable-equivalent basis Net interest income Fully taxable-equivalent adjustment Net interest income on a fully taxable-equivalent basis Reconciliation of total revenue, net of interest expense to total revenue, net of interest expense on a fully taxable-equivalent basis $ $ 9,801 231 10,032 $ $ 9,511 231 9,742 $ $ 10,488 228 10,716 $ $ 9,451 219 9,670 $ $ 9,635 230 9,865 $ $ 10,219 225 10,444 $ $ 10,013 213 10,226 $ $ 10,085 201 10,286 Total revenue, net of interest expense (2) Fully taxable-equivalent adjustment $ 19,528 $ 231 20,381 231 $ 21,816 $ 20,782 $ 18,725 $ 21,209 $ 21,747 $ 22,566 228 219 230 225 213 201 Total revenue, net of interest expense on a fully taxable-equivalent basis $ 19,759 $ 20,612 $ 22,044 $ 21,001 $ 18,955 $ 21,434 $ 21,960 $ 22,767 Reconciliation of income tax expense (benefit) to income tax expense (benefit) on a fully taxable-equivalent basis Income tax expense (benefit) (2) Fully taxable-equivalent adjustment Income tax expense (benefit) on a fully taxable-equivalent basis Reconciliation of average common shareholders’ equity to average tangible common shareholders’ equity Common shareholders’ equity Goodwill Intangible assets (excluding MSRs) Related deferred tax liabilities $ $ 1,511 231 1,742 $ $ 1,446 231 1,677 $ $ 2,084 228 2,312 $ $ 1,225 219 1,444 $ $ 1,260 230 1,490 $ $ 663 225 888 $ $ 504 213 717 $ $ (405) 201 (204) $ 234,851 $ 231,620 $ 228,780 $ 225,357 $ 224,479 $ 222,374 $ 222,221 (69,761) (3,888) 1,753 (69,774) (69,775) (69,776) (69,782) (69,792) (69,822) (4,099) 1,811 (4,307) 1,885 (4,518) 1,959 (4,747) 2,019 (4,992) 2,077 (5,235) 2,100 Tangible common shareholders’ equity $ 162,955 $ 159,558 $ 156,583 $ 153,022 $ 151,969 $ 149,667 $ 149,264 Reconciliation of average shareholders’ equity to average tangible shareholders’ equity Shareholders’ equity Goodwill Intangible assets (excluding MSRs) Related deferred tax liabilities Tangible shareholders’ equity Reconciliation of period-end common shareholders’ equity to period-end tangible common shareholders’ equity Common shareholders’ equity Goodwill Intangible assets (excluding MSRs) Related deferred tax liabilities $ 257,125 $ 253,893 $ 251,054 $ 245,744 $ 243,454 $ 238,040 $ 235,803 (69,761) (3,888) 1,753 (69,774) (69,775) (69,776) (69,782) (69,792) (69,822) (4,099) 1,811 (4,307) 1,885 (4,518) 1,959 (4,747) 2,019 (4,992) 2,077 (5,235) 2,100 $ 185,229 $ 181,831 $ 178,857 $ 173,409 $ 170,944 $ 165,333 $ 162,846 $ 233,932 $ 233,632 $ 229,386 $ 227,915 $ 224,162 $ 220,768 $ 222,565 (69,761) (3,768) 1,716 (69,761) (69,775) (69,776) (69,777) (69,784) (69,810) (3,973) 1,762 (4,188) 1,813 (4,391) 1,900 (4,612) 1,960 (4,849) 2,019 (5,099) 2,078 Tangible common shareholders’ equity $ 162,119 $ 161,660 $ 157,236 $ 155,648 $ 151,733 $ 148,154 $ 149,734 Reconciliation of period-end shareholders’ equity to period-end tangible shareholders’ equity Shareholders’ equity Goodwill Intangible assets (excluding MSRs) Related deferred tax liabilities Tangible shareholders’ equity Reconciliation of period-end assets to period-end tangible assets Assets Goodwill Intangible assets (excluding MSRs) Related deferred tax liabilities Tangible assets $ 256,205 $ 255,905 $ 251,659 $ 250,188 $ 243,471 $ 238,681 $ 237,411 (69,761) (3,768) 1,716 (69,761) (69,775) (69,776) (69,777) (69,784) (69,810) (3,973) 1,762 (4,188) 1,813 (4,391) 1,900 (4,612) 1,960 (4,849) 2,019 (5,099) 2,078 $ 184,392 $ 183,933 $ 179,509 $ 177,921 $ 171,042 $ 166,067 $ 164,580 $ 2,144,316 $2,153,006 $2,149,034 $2,143,545 $2,104,534 $2,123,613 (69,761) (3,768) 1,716 (69,761) (69,775) (69,776) (69,777) (69,784) (3,973) 1,762 (4,188) 1,813 (4,391) 1,900 (4,612) 1,960 (4,849) 2,019 $ 2,072,503 $2,081,034 $2,076,884 $2,071,278 $2,032,105 $2,050,999 $2,170,557 (69,810) (5,099) 2,078 $2,097,726 $2,149,851 (69,842) (5,337) 2,100 $2,076,772 $ 223,207 (69,842) (5,474) 2,165 $ 150,056 $ 236,559 (69,842) (5,474) 2,165 $ 163,408 $ 218,536 (69,842) (5,337) 2,100 $ 145,457 $ 231,888 (69,842) (5,337) 2,100 $ 158,809 (1) Presents reconciliations of non-GAAP financial measures to GAAP financial measures. We believe the use of these non-GAAP financial measures provides additional clarity in assessing the results of the Corporation and our segments. Other companies may define or calculate these measures differently. For more information on non-GAAP financial measures and ratios we use in assessing the Adjustment related to goodwill and a percentage of intangibles Average allocated capital results of the Corporation, see Supplemental Financial Data on page 28. (2) There are no adjustments to reported net income (loss) or average allocated equity for LAS. (3) Represents cost of funds, earnings credits and certain expenses related to intangibles. (4) Average allocated equity is comprised of average allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the business segment. For more information on allocated capital, see Business Segment Operations on page 30 and Note 8 – Goodwill and Intangible Assets to the Consolidated Financial Statements. (1) Presents reconciliations of non-GAAP financial measures to GAAP financial measures. We believe the use of these non-GAAP financial measures provides additional clarity in assessing the results of the Corporation. Other companies may define or calculate these measures differently. For more information on non-GAAP financial measures and ratios we use in assessing the results of the Corporation, see Supplemental Financial Data on page 28. (2) The results for 2015 were impacted by the early adoption of new accounting guidance on recognition and measurement of financial instruments. For additional information, see Executive Summary – Recent Events on page 20. 122 Bank of America 2015 Bank of America 2015 123 Glossary Alt-A Mortgage – A type of U.S. mortgage that, for various reasons, is considered riskier than A-paper, or “prime,” and less risky than “subprime,” the riskiest category. Alt-A interest rates, which are determined by credit risk, therefore tend to be between those of prime and subprime consumer real estate loans. Typically, Alt-A mortgages are characterized by borrowers with less than full documentation, lower credit scores and higher LTVs. Assets in Custody – Consist largely of custodial and non- discretionary trust assets excluding brokerage assets administered for clients. Trust assets encompass a broad range of asset types including real estate, private company ownership interest, personal property and investments. obligations. The nature of a credit event is established by the protection purchaser and the protection seller at the inception of the transaction, and such events generally include bankruptcy or insolvency of the referenced credit entity, failure to meet payment obligations when due, as well as acceleration of indebtedness and payment repudiation or moratorium. The purchaser of the credit derivative pays a periodic fee in return for a payment by the protection seller upon the occurrence, if any, of such a credit event. A credit default swap is a type of a credit derivative. Credit Valuation Adjustment (CVA) – A portfolio adjustment required to properly reflect the counterparty credit risk exposure as part of the fair value of derivative instruments. Assets Under Management (AUM) – The total market value of assets under the investment advisory and/or discretion of GWIM which generate asset management fees based on a percentage of the assets’ market values. AUM reflects assets that are generally managed for institutional, high net worth and retail clients, and are distributed through various investment products including mutual funds, other commingled vehicles and separate accounts. AUM is classified in two categories, Liquidity AUM and Long-term AUM. Liquidity AUM are assets under advisory and discretion of GWIM in which the investment strategy seeks current income, while maintaining liquidity and capital preservation. The duration of these strategies is primarily less than one year. Long- term AUM are assets under advisory and/or discretion of GWIM in which the duration of investment strategy is longer than one year. Carrying Value (with respect to loans) – The amount at which a loan is recorded on the balance sheet. For loans recorded at amortized cost, carrying value is the unpaid principal balance net of unamortized deferred loan origination fees and costs, and unamortized purchase premium or discount. For loans that are or have been on nonaccrual status, the carrying value is also reduced by any net charge-offs that have been recorded and the amount of interest payments applied as a reduction of principal under the cost recovery method. For PCI loans, the carrying value equals fair value upon acquisition adjusted for subsequent cash collections and yield accreted to date. For credit card loans, the carrying value also includes interest that has been billed to the customer. For loans classified as held-for-sale, carrying value is the lower of carrying value as described in the sentences above, or fair value. For loans for which we have elected the fair value option, the carrying value is fair value. Client Brokerage Assets – Include client assets which are held in brokerage accounts. This includes non-discretionary brokerage and fee-based assets which generate brokerage income and asset management fee revenue. Committed Credit Exposure – Includes any funded portion of a facility plus the unfunded portion of a facility on which the lender is legally bound to advance funds during a specified period under prescribed conditions. Credit Derivatives – Contractual agreements that provide protection against a credit event on one or more referenced 124 Bank of America 2015 Debit Valuation Adjustment (DVA) – A portfolio adjustment required to properly reflect the Corporation’s own credit risk exposure as part of the fair value of derivative instruments and/or structured liabilities. Funding Valuation Adjustment (FVA) – A portfolio adjustment required to include funding costs on uncollateralized derivatives and derivatives where the Corporation is not permitted to use the collateral it receives. Interest Rate Lock Commitment (IRLC) – Commitment with a loan applicant in which the loan terms, including interest rate and price, are guaranteed for a designated period of time subject to credit approval. Letter of Credit – A document issued on behalf of a customer to a third party promising to pay the third party upon presentation of specified documents. A letter of credit effectively substitutes the issuer’s credit for that of the customer. Loan-to-value (LTV) – A commonly used credit quality metric that is reported in terms of ending and average LTV. Ending LTV is calculated as the outstanding carrying value of the loan at the end of the period divided by the estimated value of the property securing the loan. An additional metric related to LTV is combined loan-to-value (CLTV) which is similar to the LTV metric, yet combines the outstanding balance on the residential mortgage loan and the outstanding carrying value on the home equity loan or available line of credit, both of which are secured by the same property, divided by the estimated value of the property. A LTV of 100 percent reflects a loan that is currently secured by a property valued at an amount exactly equal to the carrying value or available line of the loan. Estimated property values are generally determined through the use of automated valuation models (AVMs) or the CoreLogic Case-Shiller Index. An AVM is a tool that estimates the value of a property by reference to large volumes of market data including sales of comparable properties and price trends specific to the MSA in which the property being valued is located. CoreLogic Case- Shiller is a widely used index based on data from repeat sales of single family homes. CoreLogic Case-Shiller indexed-based values are reported on a three-month or one-quarter lag. Margin Receivable – An extension of credit secured by eligible securities in certain brokerage accounts. Glossary Alt-A Mortgage – A type of U.S. mortgage that, for various reasons, obligations. The nature of a credit event is established by the is considered riskier than A-paper, or “prime,” and less risky than protection purchaser and the protection seller at the inception of “subprime,” the riskiest category. Alt-A interest rates, which are the transaction, and such events generally include bankruptcy or determined by credit risk, therefore tend to be between those of insolvency of the referenced credit entity, failure to meet payment prime and subprime consumer real estate loans. Typically, Alt-A obligations when due, as well as acceleration of indebtedness and mortgages are characterized by borrowers with less than full payment repudiation or moratorium. The purchaser of the credit documentation, lower credit scores and higher LTVs. derivative pays a periodic fee in return for a payment by the protection seller upon the occurrence, if any, of such a credit event. A credit default swap is a type of a credit derivative. Assets in Custody – Consist largely of custodial and non- discretionary trust assets excluding brokerage assets administered for clients. Trust assets encompass a broad range Credit Valuation Adjustment (CVA) – A portfolio adjustment required of asset types including real estate, private company ownership to properly reflect the counterparty credit risk exposure as part of interest, personal property and investments. the fair value of derivative instruments. Assets Under Management (AUM) – The total market value of Debit Valuation Adjustment (DVA) – A portfolio adjustment required assets under the investment advisory and/or discretion of GWIM to properly reflect the Corporation’s own credit risk exposure as which generate asset management fees based on a percentage part of the fair value of derivative instruments and/or structured of the assets’ market values. AUM reflects assets that are liabilities. generally managed for institutional, high net worth and retail clients, and are distributed through various investment products including mutual funds, other commingled vehicles and separate accounts. AUM is classified in two categories, Liquidity AUM and Long-term AUM. Liquidity AUM are assets under advisory and discretion of GWIM in which the investment strategy seeks current income, while maintaining liquidity and capital preservation. The duration of these strategies is primarily less than one year. Long- term AUM are assets under advisory and/or discretion of GWIM in which the duration of investment strategy is longer than one year. Carrying Value (with respect to loans) – The amount at which a loan is recorded on the balance sheet. For loans recorded at amortized cost, carrying value is the unpaid principal balance net of unamortized deferred loan origination fees and costs, and unamortized purchase premium or discount. For loans that are or have been on nonaccrual status, the carrying value is also reduced by any net charge-offs that have been recorded and the amount of interest payments applied as a reduction of principal under the cost recovery method. For PCI loans, the carrying value equals fair value upon acquisition adjusted for subsequent cash collections and yield accreted to date. For credit card loans, the carrying value also includes interest that has been billed to the customer. For loans classified as held-for-sale, carrying value is the lower of carrying value as described in the sentences above, or fair value. For loans for which we have elected the fair value option, the carrying value is fair value. Client Brokerage Assets – Include client assets which are held in brokerage accounts. This includes non-discretionary brokerage and fee-based assets which generate brokerage income and asset management fee revenue. Committed Credit Exposure – Includes any funded portion of a facility plus the unfunded portion of a facility on which the lender is legally bound to advance funds during a specified period under prescribed conditions. Credit Derivatives – Contractual agreements that provide protection against a credit event on one or more referenced 124 Bank of America 2015 Funding Valuation Adjustment (FVA) – A portfolio adjustment required to include funding costs on uncollateralized derivatives and derivatives where the Corporation is not permitted to use the collateral it receives. Interest Rate Lock Commitment (IRLC) – Commitment with a loan applicant in which the loan terms, including interest rate and price, are guaranteed for a designated period of time subject to credit approval. Letter of Credit – A document issued on behalf of a customer to a third party promising to pay the third party upon presentation of specified documents. A letter of credit effectively substitutes the issuer’s credit for that of the customer. Loan-to-value (LTV) – A commonly used credit quality metric that is reported in terms of ending and average LTV. Ending LTV is calculated as the outstanding carrying value of the loan at the end of the period divided by the estimated value of the property securing the loan. An additional metric related to LTV is combined loan-to-value (CLTV) which is similar to the LTV metric, yet combines the outstanding balance on the residential mortgage loan and the outstanding carrying value on the home equity loan or available line of credit, both of which are secured by the same property, divided by the estimated value of the property. A LTV of 100 percent reflects a loan that is currently secured by a property valued at an amount exactly equal to the carrying value or available line of the loan. Estimated property values are generally determined through the use of automated valuation models (AVMs) or the CoreLogic Case-Shiller Index. An AVM is a tool that estimates the value of a property by reference to large volumes of market data including sales of comparable properties and price trends specific to the MSA in which the property being valued is located. CoreLogic Case- Shiller is a widely used index based on data from repeat sales of single family homes. CoreLogic Case-Shiller indexed-based values are reported on a three-month or one-quarter lag. Margin Receivable – An extension of credit secured by eligible securities in certain brokerage accounts. Market-related Adjustments – Include adjustments to premium amortization or discount accretion on debt securities when a decrease in long-term rates shortens (or an increase extends) the estimated lives of mortgage-related debt securities. Also included in market-related adjustments is hedge ineffectiveness that impacts net interest income. Matched Book – Repurchase and resale agreements and securities borrowed and loaned transactions entered into to accommodate customers and earn interest rate spreads. Mortgage Servicing Right (MSR) – The right to service a mortgage loan when the underlying loan is sold or securitized. Servicing includes collections for principal, interest and escrow payments from borrowers and accounting for and remitting principal and interest payments to investors. Net Interest Yield – Net interest income divided by average total interest-earning assets. Nonperforming Loans and Leases – Include loans and leases that have been placed on nonaccrual status, including nonaccruing loans whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties (TDRs). Loans accounted for under the fair value option, PCI loans and LHFS are not reported as nonperforming loans and leases. Consumer credit card loans, business card loans, consumer loans secured by personal property (except for certain secured consumer loans, including those that have been modified in a TDR), and consumer loans secured by real estate that are insured by the FHA or through long-term credit protection agreements with FNMA and FHLMC (fully-insured loan portfolio) are not placed on nonaccrual status and are, therefore, not reported as nonperforming loans and leases. Prompt Corrective Action (PCA) – A framework established by the U.S. banking regulators requiring banks to maintain certain levels of regulatory capital ratios, comprised of five categories of capitalization: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” Insured depository institutions that fail to meet these capital levels are subject to increasingly strict limits on their activities, including their ability to make capital distributions, pay management compensation, grow assets and take other actions. Purchased Credit-impaired (PCI) Loan – A loan purchased as an individual loan, in a portfolio of loans or in a business combination with evidence of deterioration in credit quality since origination for which it is probable, upon acquisition, that the investor will be unable to collect all contractually required payments. These loans are recorded at fair value upon acquisition. Subprime Loans – Although a standard industry definition for subprime loans (including subprime mortgage loans) does not exist, the Corporation defines subprime loans as specific product offerings for higher risk borrowers, including individuals with one or a combination of high credit risk factors, such as low FICO scores, high debt to income ratios and inferior payment history. Troubled Debt Restructurings (TDRs) – Loans whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. Certain consumer loans for which a binding offer to restructure has been extended are also classified as TDRs. Concessions could include a reduction in the interest rate to a rate that is below market on the loan, payment extensions, forgiveness of principal, forbearance, loans discharged in bankruptcy or other actions intended to maximize collection. Secured consumer loans that have been discharged in Chapter 7 bankruptcy and have not been reaffirmed by the borrower are classified as TDRs at the time of discharge from bankruptcy. TDRs are generally reported as nonperforming loans and leases while on nonaccrual status. Nonperforming TDRs may be returned to accrual status when, among other criteria, payment in full of all amounts due under the restructured terms is expected and the borrower has demonstrated a sustained period of repayment performance, generally six months. TDRs that are on accrual status are reported as performing TDRs through the end of the calendar year in which the restructuring occurred or the year in which they are returned to accrual status. In addition, if accruing TDRs bear less than a market rate of interest at the time of modification, they are reported as performing TDRs throughout their remaining lives unless and until they cease to perform in accordance with their modified contractual terms, at which time they would be placed on nonaccrual status and reported as nonperforming TDRs. Value-at-Risk (VaR) – VaR is a model that simulates the value of a portfolio under a range of hypothetical scenarios in order to generate a distribution of potential gains and losses. VaR represents the loss the portfolio is expected to experience with a given confidence level based on historical data. A VaR model is an effective tool in estimating ranges of potential gains and losses on our trading portfolios. Bank of America 2015 125 Acronyms ABS AFS ALM ARM AUM BHC CCAR CDO CGA CLO CRA CVA DVA EAD ERC FDIC FHA FHFA FHLB FHLMC FICC FICO FLUs FNMA FTE FVA GAAP GM&CA GNMA GSE HELOC Asset-backed securities Available-for-sale Asset and liability management Adjustable-rate mortgage Assets under management Bank holding company Comprehensive Capital Analysis and Review Collateralized debt obligation Corporate General Auditor Collateralized loan obligation Community Reinvestment Act Credit valuation adjustment Debit valuation adjustment Exposure at default Enterprise Risk Committee Federal Deposit Insurance Corporation Federal Housing Administration Federal Housing Finance Agency Federal Home Loan Bank Freddie Mac Fixed-income, currencies and commodities Fair Isaac Corporation (credit score) Front line units Fannie Mae Fully taxable-equivalent Funding valuation adjustment Accounting principles generally accepted in the United States of America Global Marketing and Corporate Affairs Government National Mortgage Association Government-sponsored enterprise Home equity lines of credit HFI HQLA HUD IRM LCR LGD LHFS LIBOR LTV MD&A MI MRC MSA MSR NSFR OCC OCI OTC OTTI PCA PCI PPI RCSAs RMBS SBLCs SEC SLR TDR TLAC VIE Held-for-investment High Quality Liquid Assets U.S. Department of Housing and Urban Development Independent risk management Liquidity Coverage Ratio Loss-given default Loans held-for-sale London InterBank Offered Rate Loan-to-value Management’s Discussion and Analysis of Financial Condition and Results of Operations Mortgage insurance Management Risk Committee Metropolitan statistical area Mortgage servicing right Net Stable Funding Ratio Office of the Comptroller of the Currency Other comprehensive income Over-the-counter Other-than-temporary impairment Prompt Corrective Action Purchased credit-impaired Payment protection insurance Risk and Control Self Assessments Residential mortgage-backed securities Standby letters of credit Securities and Exchange Commission Supplementary leverage ratio Troubled debt restructurings Total Loss-Absorbing Capacity Variable interest entity 126 Bank of America 2015 CCAR Comprehensive Capital Analysis and Review Asset-backed securities Available-for-sale Asset and liability management Adjustable-rate mortgage Assets under management Bank holding company Collateralized debt obligation Corporate General Auditor Collateralized loan obligation Community Reinvestment Act Credit valuation adjustment Debit valuation adjustment Exposure at default Enterprise Risk Committee Acronyms ABS AFS ALM ARM AUM BHC CDO CGA CLO CRA CVA DVA EAD ERC FDIC FHA FHFA FHLB FICC FICO FLUs Federal Deposit Insurance Corporation Federal Housing Administration Federal Housing Finance Agency Federal Home Loan Bank FHLMC Freddie Mac Fixed-income, currencies and commodities Fair Isaac Corporation (credit score) Front line units FNMA Fannie Mae FTE FVA GAAP GM&CA GNMA GSE HELOC Fully taxable-equivalent Funding valuation adjustment Accounting principles generally accepted in the United States of America Global Marketing and Corporate Affairs Government National Mortgage Association Government-sponsored enterprise Home equity lines of credit HFI HQLA HUD IRM LCR LGD LHFS LIBOR LTV MD&A MI MRC MSA MSR NSFR OCC OCI OTC OTTI PCA PCI PPI RCSAs RMBS SBLCs SEC SLR TDR TLAC VIE Held-for-investment High Quality Liquid Assets U.S. Department of Housing and Urban Development Independent risk management Liquidity Coverage Ratio Loss-given default Loans held-for-sale London InterBank Offered Rate Loan-to-value Management’s Discussion and Analysis of Financial Condition and Results of Operations Mortgage insurance Management Risk Committee Metropolitan statistical area Mortgage servicing right Net Stable Funding Ratio Office of the Comptroller of the Currency Other comprehensive income Over-the-counter Other-than-temporary impairment Prompt Corrective Action Purchased credit-impaired Payment protection insurance Risk and Control Self Assessments Residential mortgage-backed securities Standby letters of credit Securities and Exchange Commission Supplementary leverage ratio Troubled debt restructurings Total Loss-Absorbing Capacity Variable interest entity Financial Statements and Notes Table of Contents Consolidated Statement of Income Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Shareholders’ Equity Consolidated Statement of Cash Flows Note 1 – Summary of Significant Accounting Principles Note 2 – Derivatives Note 3 – Securities Note 4 – Outstanding Loans and Leases Note 5 – Allowance for Credit Losses Note 6 – Securitizations and Other Variable Interest Entities Note 7 – Representations and Warranties Obligations and Corporate Guarantees Note 8 – Goodwill and Intangible Assets Note 9 – Deposits Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings Note 11 – Long-term Debt Note 12 – Commitments and Contingencies Note 13 – Shareholders’ Equity Note 14 – Accumulated Other Comprehensive Income (Loss) Note 15 – Earnings Per Common Share Note 16 – Regulatory Requirements and Restrictions Note 17 – Employee Benefit Plans Note 18 – Stock-based Compensation Plans Note 19 – Income Taxes Note 20 – Fair Value Measurements Note 21 – Fair Value Option Note 22 – Fair Value of Financial Instruments Note 23 – Mortgage Servicing Rights Note 24 – Business Segment Information Note 25 – Parent Company Information Note 26 – Performance by Geographical Area Page 130 131 132 134 135 136 147 157 162 177 179 185 189 190 190 193 196 204 208 210 211 213 220 221 224 238 241 242 243 247 249 126 Bank of America 2015 Bank of America 2015 127 Report of Management on Internal Control Over Financial Reporting based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). Based on that assessment, management concluded that, as of December 31, 2015, the Corporation’s internal control over financial reporting is effective. The Corporation’s internal control over financial reporting as of December 31, by has PricewaterhouseCoopers, LLP, an independent registered public accounting firm, as stated in their accompanying report which expresses an unqualified opinion on the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2015. audited 2015 been Brian T. Moynihan Chairman, Chief Executive Officer and President Paul M. Donofrio Chief Financial Officer Bank of America Corporation and Subsidiaries The management of Bank of America Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. The Corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Corporation’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of management and directors of the Corporation; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporation’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2015 128 Bank of America 2015 Report of Management on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Bank of America Corporation and Subsidiaries Bank of America Corporation and Subsidiaries The management of Bank of America Corporation is responsible based on the framework set forth by the Committee of Sponsoring for establishing and maintaining adequate internal control over Organizations of the Treadway Commission in Internal Control – financial reporting. Integrated Framework (2013). Based on that assessment, The Corporation’s internal control over financial reporting is a management concluded that, as of December 31, 2015, the process designed to provide reasonable assurance regarding the Corporation’s internal control over financial reporting is effective. reliability of financial reporting and the preparation of financial The Corporation’s internal control over financial reporting as of statements for external purposes in accordance with accounting December 31, 2015 has been audited by principles generally accepted in the United States of America. The PricewaterhouseCoopers, LLP, an independent registered public Corporation’s internal control over financial reporting includes accounting firm, as stated in their accompanying report which those policies and procedures that: (i) pertain to the maintenance expresses an unqualified opinion on the effectiveness of the of records that, in reasonable detail, accurately and fairly reflect Corporation’s internal control over financial reporting as of the transactions and dispositions of the assets of the Corporation; December 31, 2015. (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of management and directors of the Corporation; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporation’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2015 Brian T. Moynihan Chairman, Chief Executive Officer and President Paul M. Donofrio Chief Financial Officer To the Board of Directors and Shareholders of Bank of America Corporation: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows present fairly, in all material respects, the financial position of Bank of America Corporation and its subsidiaries at December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Corporation’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Corporation’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over included obtaining an reporting understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing financial and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Charlotte, North Carolina February 24, 2016 128 Bank of America 2015 Bank of America 2015 129 Bank of America Corporation and Subsidiaries Consolidated Statement of Income (Dollars in millions, except per share information) Interest income Loans and leases Debt securities Federal funds sold and securities borrowed or purchased under agreements to resell Trading account assets Other interest income Total interest income Interest expense Deposits Short-term borrowings Trading account liabilities Long-term debt Total interest expense Net interest income Noninterest income Card income Service charges Investment and brokerage services Investment banking income Equity investment income Trading account profits Mortgage banking income Gains on sales of debt securities Other income (loss) Total noninterest income Total revenue, net of interest expense Provision for credit losses Noninterest expense Personnel Occupancy Equipment Marketing Professional fees Amortization of intangibles Data processing Telecommunications Other general operating Total noninterest expense Income before income taxes Income tax expense Net income Preferred stock dividends Net income applicable to common shareholders Per common share information Earnings Diluted earnings Dividends paid Average common shares issued and outstanding (in thousands) Average diluted common shares issued and outstanding (in thousands) 2015 2014 2013 $ 32,070 9,319 988 4,397 3,026 49,800 861 2,387 1,343 5,958 10,549 39,251 5,959 7,381 13,337 5,572 261 6,473 2,364 1,091 818 43,256 82,507 $ 34,307 8,021 1,039 4,561 2,958 50,886 1,080 2,578 1,576 5,700 10,934 39,952 5,944 7,443 13,284 6,065 1,130 6,309 1,563 1,354 1,203 44,295 84,247 36,470 9,749 1,229 4,706 2,866 55,020 1,396 2,923 1,638 6,798 12,755 42,265 5,826 7,390 12,282 6,126 2,901 7,056 3,874 1,271 (49) 46,677 88,942 3,161 2,275 3,556 32,868 4,093 2,039 1,811 2,264 834 3,115 823 9,345 57,192 22,154 6,266 15,888 1,483 14,405 $ $ 33,787 4,260 2,125 1,829 2,472 936 3,144 1,259 25,305 75,117 6,855 2,022 4,833 1,044 3,789 $ $ 34,719 4,475 2,146 1,834 2,884 1,086 3,170 1,593 17,307 69,214 16,172 4,741 11,431 1,349 10,082 $ $ $ $ 1.38 1.31 0.20 10,462,282 11,213,992 $ 0.36 0.36 0.12 10,527,818 10,584,535 $ 0.94 0.90 0.04 10,731,165 11,491,418 130 Bank of America 2015 See accompanying Notes to Consolidated Financial Statements. Bank of America Corporation and Subsidiaries Bank of America Corporation and Subsidiaries Consolidated Statement of Income (Dollars in millions, except per share information) 2015 2014 2013 (Dollars in millions) Consolidated Statement of Comprehensive Income Federal funds sold and securities borrowed or purchased under agreements to resell $ 32,070 $ 34,307 $ 36,470 49,800 50,886 55,020 Net income Other comprehensive income (loss), net-of-tax: Net change in available-for-sale debt and marketable equity securities Net change in debit valuation adjustments Net change in derivatives Employee benefit plan adjustments Net change in foreign currency translation adjustments Other comprehensive income (loss) Comprehensive income 2015 2014 2013 $ 15,888 $ 4,833 $ 11,431 (1,598) 615 584 394 (123) (128) 15,760 $ 4,621 — 616 (943) (157) 4,137 8,970 $ (8,166) — 592 2,049 (135) (5,660) 5,771 $ Interest income Loans and leases Debt securities Trading account assets Other interest income Total interest income Interest expense Deposits Short-term borrowings Trading account liabilities Long-term debt Total interest expense Net interest income Noninterest income Card income Service charges Investment and brokerage services Investment banking income Equity investment income Trading account profits Mortgage banking income Gains on sales of debt securities Other income (loss) Total noninterest income Total revenue, net of interest expense Provision for credit losses Noninterest expense Personnel Occupancy Equipment Marketing Professional fees Amortization of intangibles Data processing Telecommunications Other general operating Total noninterest expense Income before income taxes Income tax expense Net income Preferred stock dividends Per common share information Earnings Diluted earnings Dividends paid Net income applicable to common shareholders 9,319 988 4,397 3,026 861 2,387 1,343 5,958 10,549 39,251 5,959 7,381 13,337 5,572 261 6,473 2,364 1,091 818 43,256 82,507 4,093 2,039 1,811 2,264 834 3,115 823 9,345 57,192 22,154 6,266 15,888 1,483 14,405 1.38 1.31 0.20 8,021 1,039 4,561 2,958 1,080 2,578 1,576 5,700 10,934 39,952 5,944 7,443 13,284 6,065 1,130 6,309 1,563 1,354 1,203 44,295 84,247 4,260 2,125 1,829 2,472 936 3,144 1,259 25,305 75,117 6,855 2,022 4,833 1,044 3,789 0.36 0.36 0.12 9,749 1,229 4,706 2,866 1,396 2,923 1,638 6,798 12,755 42,265 5,826 7,390 12,282 6,126 2,901 7,056 3,874 1,271 (49) 46,677 88,942 4,475 2,146 1,834 2,884 1,086 3,170 1,593 17,307 69,214 16,172 4,741 11,431 1,349 10,082 0.94 0.90 0.04 3,161 2,275 3,556 32,868 33,787 34,719 $ $ $ $ $ $ $ $ $ Average common shares issued and outstanding (in thousands) Average diluted common shares issued and outstanding (in thousands) 10,462,282 10,527,818 10,731,165 11,213,992 10,584,535 11,491,418 130 Bank of America 2015 Bank of America 2015 131 See accompanying Notes to Consolidated Financial Statements. See accompanying Notes to Consolidated Financial Statements. Bank of America Corporation and Subsidiaries Consolidated Balance Sheet (Dollars in millions) Assets Cash and due from banks Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks Cash and cash equivalents Time deposits placed and other short-term investments Federal funds sold and securities borrowed or purchased under agreements to resell (includes $55,143 and $62,182 measured at fair value) Trading account assets (includes $105,135 and $110,620 pledged as collateral) Derivative assets Debt securities: Carried at fair value (includes $29,810 and $32,741 pledged as collateral) Held-to-maturity, at cost (fair value – $84,046 and $59,641; $9,074 and $15,432 pledged as collateral) Total debt securities Loans and leases (includes $6,938 and $8,681 measured at fair value and $37,767 and $52,959 pledged as collateral) Allowance for loan and lease losses Loans and leases, net of allowance Premises and equipment, net Mortgage servicing rights (includes $3,087 and $3,530 measured at fair value) Goodwill Intangible assets Loans held-for-sale (includes $4,818 and $6,801 measured at fair value) Customer and other receivables Other assets (includes $14,320 and $13,873 measured at fair value) Total assets Assets of consolidated variable interest entities included in total assets above (isolated to settle the liabilities of the variable interest entities) Trading account assets Loans and leases Allowance for loan and lease losses Loans and leases, net of allowance Loans held-for-sale All other assets Total assets of consolidated variable interest entities December 31 2015 2014 $ 31,265 128,088 159,353 7,744 192,482 176,527 49,990 322,380 84,625 407,005 903,001 (12,234) 890,767 9,485 3,087 69,761 3,768 7,453 58,312 108,582 $ 2,144,316 $ 33,118 105,471 138,589 7,510 191,823 191,785 52,682 320,695 59,766 380,461 881,391 (14,419) 866,972 10,049 3,530 69,777 4,612 12,836 61,845 112,063 $ 2,104,534 $ $ 6,344 72,946 (1,320) 71,626 284 1,530 79,784 $ 6,890 95,187 (1,968) 93,219 1,822 2,769 $ 104,700 132 Bank of America 2015 See accompanying Notes to Consolidated Financial Statements. Bank of America Corporation and Subsidiaries Consolidated Balance Sheet (Dollars in millions) Assets Cash and due from banks value) Derivative assets Debt securities: Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks Cash and cash equivalents Time deposits placed and other short-term investments Federal funds sold and securities borrowed or purchased under agreements to resell (includes $55,143 and $62,182 measured at fair Trading account assets (includes $105,135 and $110,620 pledged as collateral) Carried at fair value (includes $29,810 and $32,741 pledged as collateral) Held-to-maturity, at cost (fair value – $84,046 and $59,641; $9,074 and $15,432 pledged as collateral) Loans and leases (includes $6,938 and $8,681 measured at fair value and $37,767 and $52,959 pledged as collateral) Total debt securities Allowance for loan and lease losses Loans and leases, net of allowance Premises and equipment, net Mortgage servicing rights (includes $3,087 and $3,530 measured at fair value) Goodwill Intangible assets Total assets Loans held-for-sale (includes $4,818 and $6,801 measured at fair value) Customer and other receivables Other assets (includes $14,320 and $13,873 measured at fair value) Assets of consolidated variable interest entities included in total assets above (isolated to settle the liabilities of the variable interest entities) Trading account assets Loans and leases Allowance for loan and lease losses Loans and leases, net of allowance Loans held-for-sale All other assets Total assets of consolidated variable interest entities December 31 2015 2014 $ 31,265 $ 33,118 128,088 159,353 7,744 192,482 176,527 49,990 322,380 84,625 407,005 903,001 (12,234) 890,767 9,485 3,087 69,761 3,768 7,453 58,312 108,582 105,471 138,589 7,510 191,823 191,785 52,682 320,695 59,766 380,461 881,391 (14,419) 866,972 10,049 3,530 69,777 4,612 12,836 61,845 112,063 $ 2,144,316 $ 2,104,534 $ 6,344 $ 72,946 (1,320) 71,626 284 1,530 6,890 95,187 (1,968) 93,219 1,822 2,769 $ 79,784 $ 104,700 Bank of America Corporation and Subsidiaries Consolidated Balance Sheet (continued) (Dollars in millions) Liabilities Deposits in U.S. offices: Noninterest-bearing Interest-bearing (includes $1,116 and $1,469 measured at fair value) Deposits in non-U.S. offices: Noninterest-bearing Interest-bearing Total deposits Federal funds purchased and securities loaned or sold under agreements to repurchase (includes $24,574 and $35,357 measured at fair value) Trading account liabilities Derivative liabilities Short-term borrowings (includes $1,325 and $2,697 measured at fair value) Accrued expenses and other liabilities (includes $13,899 and $12,055 measured at fair value and $646 and $528 of reserve for unfunded lending commitments) Long-term debt (includes $30,097 and $36,404 measured at fair value) Total liabilities Commitments and contingencies (Note 6 – Securitizations and Other Variable Interest Entities, Note 7 – Representations and Warranties Obligations and Corporate Guarantees and Note 12 – Commitments and Contingencies) Shareholders’ equity Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding – 3,767,790 and 3,647,790 shares Common stock and additional paid-in capital, $0.01 par value; authorized – 12,800,000,000 shares; issued and outstanding – 10,380,265,063 and 10,516,542,476 shares Retained earnings Accumulated other comprehensive income (loss) Total shareholders’ equity Total liabilities and shareholders’ equity Liabilities of consolidated variable interest entities included in total liabilities above Short-term borrowings Long-term debt (includes $11,304 and $11,943 of non-recourse debt) All other liabilities (includes $20 and $84 of non-recourse liabilities) Total liabilities of consolidated variable interest entities December 31 2015 2014 $ 422,237 703,761 $ 393,102 660,161 9,916 61,345 1,197,259 7,230 58,443 1,118,936 174,291 201,277 66,963 38,450 28,098 74,192 46,909 31,172 146,286 145,438 236,764 1,888,111 243,139 1,861,063 22,273 19,309 151,042 153,458 88,564 (5,674) 256,205 $ 2,144,316 75,024 (4,320) 243,471 $ 2,104,534 $ $ 681 14,073 21 14,775 $ $ 1,032 13,307 138 14,477 132 Bank of America 2015 Bank of America 2015 133 See accompanying Notes to Consolidated Financial Statements. See accompanying Notes to Consolidated Financial Statements. Bank of America Corporation and Subsidiaries Consolidated Statement of Changes in Shareholders’ Equity (Dollars in millions, shares in thousands) Balance, December 31, 2012 Net income Net change in available-for-sale debt and marketable equity securities Net change in derivatives Employee benefit plan adjustments Net change in foreign currency translation adjustments Dividends paid: Common Preferred Issuance of preferred stock Redemption of preferred stock Common stock issued under employee plans and related tax effects Common stock repurchased Other Balance, December 31, 2013 Net income Net change in available-for-sale debt and marketable equity securities Net change in derivatives Employee benefit plan adjustments Net change in foreign currency translation adjustments Dividends paid: Common Preferred Issuance of preferred stock Common stock issued under employee plans and related tax effects Common stock repurchased Balance, December 31, 2014 Cumulative adjustment for accounting change related to debit valuation adjustments Net income Net change in available-for-sale debt and marketable equity securities Net change in debit valuation adjustments Net change in derivatives Employee benefit plan adjustments Net change in foreign currency translation adjustments Dividends paid: Common Preferred Issuance of preferred stock Common stock issued under employee plans and related tax effects Common stock repurchased Balance, December 31, 2015 Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Preferred Stock Common Stock and Additional Paid-in Capital Shares Amount $ 18,768 10,778,264 $ 158,142 $ Retained Earnings 62,843 11,431 1,008 (6,461) 37 13,352 45,288 (231,744) 371 (3,220) 10,591,808 155,293 (428) (1,249) (100) 72,497 4,833 (1,262) (1,044) $ (2,797) $ (8,166) 592 2,049 (135) (8,457) 4,621 616 (943) (157) 5,957 19,309 25,866 (101,132) 10,516,542 (160) (1,675) 153,458 75,024 (4,320) (1,226) (1,598) 615 584 394 (123) 1,226 15,888 (2,091) (1,483) 2,964 $ 22,273 4,054 (140,331) 10,380,265 $ (42) (2,374) 151,042 $ 88,564 $ (5,674) $ 236,956 11,431 (8,166) 592 2,049 (135) (428) (1,249) 1,008 (6,561) 371 (3,220) 37 232,685 4,833 4,621 616 (943) (157) (1,262) (1,044) 5,957 (160) (1,675) 243,471 — 15,888 (1,598) 615 584 394 (123) (2,091) (1,483) 2,964 (42) (2,374) 256,205 134 Bank of America 2015 See accompanying Notes to Consolidated Financial Statements. Bank of America Corporation and Subsidiaries Bank of America Corporation and Subsidiaries Consolidated Statement of Changes in Shareholders’ Equity Preferred Stock Common Stock and Additional Paid-in Capital Shares Amount Accumulated Other Total Retained Earnings Comprehensive Shareholders’ Income (Loss) Equity $ 18,768 10,778,264 $ 158,142 $ 62,843 $ (2,797) $ 236,956 Common stock issued under employee plans and related tax effects 45,288 (231,744) 371 (3,220) 1,008 (6,461) 37 13,352 10,591,808 155,293 (8,457) 232,685 Issuance of preferred stock 5,957 Common stock issued under employee plans and related tax effects 25,866 (101,132) (160) (1,675) 19,309 10,516,542 153,458 75,024 (4,320) 243,471 (Dollars in millions, shares in thousands) Balance, December 31, 2012 Net income Net change in available-for-sale debt and marketable equity securities Net change in derivatives Employee benefit plan adjustments Net change in foreign currency translation adjustments Dividends paid: Common Preferred Issuance of preferred stock Redemption of preferred stock Common stock repurchased Balance, December 31, 2013 Other Net income Dividends paid: Common Preferred Common stock repurchased Balance, December 31, 2014 valuation adjustments Net income Dividends paid: Common Preferred Common stock repurchased Balance, December 31, 2015 Net change in available-for-sale debt and marketable equity securities Net change in derivatives Employee benefit plan adjustments Net change in foreign currency translation adjustments Cumulative adjustment for accounting change related to debit Net change in available-for-sale debt and marketable equity securities Net change in debit valuation adjustments Net change in derivatives Employee benefit plan adjustments Net change in foreign currency translation adjustments 11,431 (428) (1,249) (100) 72,497 4,833 (1,262) (1,044) 1,226 15,888 (2,091) (1,483) (8,166) 592 2,049 (135) 4,621 616 (943) (157) (1,226) (1,598) 615 584 394 (123) 11,431 (8,166) 592 2,049 (135) (428) (1,249) 1,008 (6,561) 371 (3,220) 37 4,833 4,621 616 (943) (157) (1,262) (1,044) 5,957 (160) (1,675) — 15,888 (1,598) 615 584 394 (123) (2,091) (1,483) 2,964 (42) (2,374) Issuance of preferred stock 2,964 Common stock issued under employee plans and related tax effects 4,054 (140,331) (42) (2,374) $ 22,273 10,380,265 $ 151,042 $ 88,564 $ (5,674) $ 256,205 Consolidated Statement of Cash Flows (Dollars in millions) Operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses Gains on sales of debt securities Fair value adjustments on structured liabilities Depreciation and premises improvements amortization Amortization of intangibles Net amortization of premium/discount on debt securities Deferred income taxes Loans held-for-sale: Originations and purchases Proceeds from sales and paydowns of loans originally classified as held-for-sale Net change in: Trading and derivative instruments Other assets Accrued expenses and other liabilities Other operating activities, net Net cash provided by operating activities Investing activities Net change in: Time deposits placed and other short-term investments Federal funds sold and securities borrowed or purchased under agreements to resell Debt securities carried at fair value: Proceeds from sales Proceeds from paydowns and maturities Purchases Held-to-maturity debt securities: Proceeds from paydowns and maturities Purchases Loans and leases: Proceeds from sales Purchases Other changes in loans and leases, net Proceeds from sales of equity investments Other investing activities, net Net cash provided by (used in) investing activities Financing activities Net change in: Deposits Federal funds purchased and securities loaned or sold under agreements to repurchase Short-term borrowings Long-term debt: Proceeds from issuance Retirement of long-term debt Preferred stock: Proceeds from issuance Redemption Common stock repurchased Cash dividends paid Excess tax benefits on share-based payments Other financing activities, net Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents at January 1 Cash and cash equivalents at December 31 Supplemental cash flow disclosures Interest paid Income taxes paid Income taxes refunded 2015 2014 2013 $ 15,888 $ 4,833 $ 11,431 3,161 (1,091) 633 1,555 834 2,472 3,108 2,275 (1,354) (407) 1,586 936 2,688 726 (38,675) 36,204 (40,113) 38,528 3,292 2,458 730 (2,839) 27,730 6,621 5,828 9,702 (1,714) 30,135 3,556 (1,271) 649 1,597 1,086 1,577 3,262 (65,688) 77,707 33,870 35,154 (12,919) 2,806 92,817 50 (659) 4,030 (1,495) 7,154 29,596 145,079 84,988 (219,412) 126,399 79,704 (247,902) 103,743 85,554 (160,744) 12,872 (36,575) 22,316 (12,629) (52,626) 333 1,309 (54,954) 78,347 (26,986) (3,074) 43,670 (40,365) 2,964 — (2,374) (3,574) 16 (39) 48,585 (597) 20,764 138,589 159,353 7,889 (13,274) 28,765 (10,609) 19,239 1,577 (1,923) (7,600) (335) 3,171 (14,827) 51,573 (53,749) 8,472 (14,388) 12,331 (16,734) (34,256) 4,818 (488) 25,058 14,010 (95,153) 16,009 45,658 (65,602) 5,957 — (1,675) (2,306) 34 (44) (12,201) (3,067) 7,267 131,322 $ 138,589 1,008 (6,461) (3,220) (1,677) 12 (26) (95,442) (1,863) 20,570 110,752 $ 131,322 $ 10,623 2,326 (151) $ 11,082 2,558 (144) 12,912 1,559 (244) $ $ 134 Bank of America 2015 Bank of America 2015 135 See accompanying Notes to Consolidated Financial Statements. See accompanying Notes to Consolidated Financial Statements. Bank of America Corporation and Subsidiaries Notes to Consolidated Financial Statements NOTE 1 Summary of Significant Accounting Principles Bank of America Corporation (together with its consolidated subsidiaries, the Corporation), a bank holding company (BHC) 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 are included in other assets. Equity method investments are subject to impairment testing and the Corporation’s proportionate share of income or loss is included in equity investment income. The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect reported amounts and disclosures. Realized results could differ from those estimates and assumptions. New Accounting Pronouncements In January 2016, the FASB issued new accounting guidance on recognition and measurement of financial instruments. The new guidance makes targeted changes to existing GAAP including, among other provisions, requiring certain equity investments to be measured at fair value with changes in fair value reported in earnings and requiring changes in instrument-specific credit risk (i.e., debit valuation adjustments (DVA)) for financial liabilities recorded at fair value under the fair value option to be reported in other comprehensive income (OCI). The accounting for DVA related to other financial liabilities, for example, derivatives, does not change. The new guidance is effective on January 1, 2018, with early adoption permitted for the provisions related to DVA. The Corporation early adopted, retrospective to January 1, 2015, the provisions of this new accounting guidance related to DVA on financial liabilities accounted for under the fair value option. The impact of the adoption was to reclassify, as of January 1, 2015, unrealized DVA losses of $1.2 billion after tax ($2.0 billion pretax) from January 1, 2015 retained earnings to accumulated OCI. Further, pretax unrealized DVA gains of $301 million, $301 million and $420 million were reclassified from other income to accumulated OCI for the three months ended September 30, 2015, 136 Bank of America 2015 June 30, 2015 and March 31, 2015, respectively. This had the effect of reducing net income as previously reported for the aforementioned quarters by $187 million, $186 million and $260 million, or approximately $0.02 per share in each quarter. This change is reflected in the Consolidated Statement of Income and the Global Markets segment results. Financial statements for 2014 and 2013 were not subject to restatement under the provisions of this new accounting guidance. For additional information, see Note 14 – Accumulated Other Comprehensive Income (Loss) and Note 21 – Fair Value Option. The Corporation does not expect the provisions of this new accounting guidance other than those related to DVA, as described above, to have a material impact on its consolidated financial position or results of operations. In February 2015, the FASB issued new accounting guidance that amends the criteria for determining whether limited partnerships and similar entities are VIEs, clarifies when a general partner or asset manager should consolidate an entity and eliminates the indefinite deferral of certain aspects of VIE accounting guidance for investments in certain investment funds. Money market funds registered under Rule 2a-7 of the Investment Company Act and similar funds are exempt from consolidation under the new guidance. The new accounting guidance is effective on January 1, 2016. The Corporation does not expect the new guidance to have a material impact on its consolidated financial position or results of operations. In May 2014, the FASB issued new accounting guidance to clarify the principles for recognizing revenue from contracts with customers. The new accounting guidance, which does not apply to financial instruments, is effective on January 1, 2018. The Corporation does not expect the new guidance to have a material impact on its consolidated financial position or results of operations. In December 2012, the FASB issued a proposed standard on accounting for credit losses. It would replace multiple existing impairment models, including an “incurred loss” model for loans, with an “expected loss” model. The FASB has indicated a tentative effective date of January 1, 2019, and final guidance is expected to be issued in the second quarter of 2016. The final standard may materially reduce retained earnings in the period of adoption. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, cash items in the process of collection, cash segregated under federal and other brokerage regulations, and amounts due from correspondent banks, the Federal Reserve Bank and certain non-U.S. central banks. Consolidated Statement of Cash Flows In the Consolidated Statement of Cash Flows for the year ended December 31, 2014 as included herein, the Corporation made certain corrections related to non-cash activity which are not material to the Consolidated Financial Statements taken as a whole, do not impact the Consolidated Statement of Income or Consolidated Balance Sheet, and have no impact on the Corporation’s cash and cash equivalents balance. Certain non- cash transactions involving the sale of loans and receipt of debt securities as proceeds were incorrectly classified between Bank of America Corporation and Subsidiaries Notes to Consolidated Financial Statements NOTE 1 Summary of Significant Accounting Principles Bank of America Corporation (together with its consolidated subsidiaries, the Corporation), a bank holding company (BHC) 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 are included in other assets. Equity method investments are subject to impairment testing and the Corporation’s proportionate share of income or loss is included in equity investment income. The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect reported amounts and operations. disclosures. Realized results could differ from those estimates and assumptions. to other financial liabilities, for example, derivatives, does not banks. New Accounting Pronouncements In January 2016, the FASB issued new accounting guidance on recognition and measurement of financial instruments. The new guidance makes targeted changes to existing GAAP including, among other provisions, requiring certain equity investments to be measured at fair value with changes in fair value reported in earnings and requiring changes in instrument-specific credit risk (i.e., debit valuation adjustments (DVA)) for financial liabilities recorded at fair value under the fair value option to be reported in other comprehensive income (OCI). The accounting for DVA related change. The new guidance is effective on January 1, 2018, with early adoption permitted for the provisions related to DVA. The Corporation early adopted, retrospective to January 1, 2015, the provisions of this new accounting guidance related to DVA on financial liabilities accounted for under the fair value option. The impact of the adoption was to reclassify, as of January 1, 2015, unrealized DVA losses of $1.2 billion after tax ($2.0 billion pretax) from January 1, 2015 retained earnings to accumulated OCI. Further, pretax unrealized DVA gains of $301 million, $301 million and $420 million were reclassified from other income to accumulated OCI for the three months ended September 30, 2015, 136 Bank of America 2015 June 30, 2015 and March 31, 2015, respectively. This had the effect of reducing net income as previously reported for the aforementioned quarters by $187 million, $186 million and $260 million, or approximately $0.02 per share in each quarter. This change is reflected in the Consolidated Statement of Income and the Global Markets segment results. Financial statements for 2014 and 2013 were not subject to restatement under the provisions of this new accounting guidance. For additional information, see Note 14 – Accumulated Other Comprehensive Income (Loss) and Note 21 – Fair Value Option. The Corporation does not expect the provisions of this new accounting guidance other than those related to DVA, as described above, to have a material impact on its consolidated financial position or results of operations. In February 2015, the FASB issued new accounting guidance that amends the criteria for determining whether limited partnerships and similar entities are VIEs, clarifies when a general partner or asset manager should consolidate an entity and eliminates the indefinite deferral of certain aspects of VIE accounting guidance for investments in certain investment funds. Money market funds registered under Rule 2a-7 of the Investment Company Act and similar funds are exempt from consolidation under the new guidance. The new accounting guidance is effective on January 1, 2016. The Corporation does not expect the new guidance to have a material impact on its consolidated financial position or results of operations. In May 2014, the FASB issued new accounting guidance to clarify the principles for recognizing revenue from contracts with customers. The new accounting guidance, which does not apply to financial instruments, is effective on January 1, 2018. The Corporation does not expect the new guidance to have a material impact on its consolidated financial position or results of In December 2012, the FASB issued a proposed standard on accounting for credit losses. It would replace multiple existing impairment models, including an “incurred loss” model for loans, with an “expected loss” model. The FASB has indicated a tentative effective date of January 1, 2019, and final guidance is expected to be issued in the second quarter of 2016. The final standard may materially reduce retained earnings in the period of adoption. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, cash items in the process of collection, cash segregated under federal and other brokerage regulations, and amounts due from correspondent banks, the Federal Reserve Bank and certain non-U.S. central Consolidated Statement of Cash Flows In the Consolidated Statement of Cash Flows for the year ended December 31, 2014 as included herein, the Corporation made certain corrections related to non-cash activity which are not material to the Consolidated Financial Statements taken as a whole, do not impact the Consolidated Statement of Income or Consolidated Balance Sheet, and have no impact on the Corporation’s cash and cash equivalents balance. Certain non- cash transactions involving the sale of loans and receipt of debt securities as proceeds were incorrectly classified between operating activities and investing activities. The corrections resulted in a $3.4 billion increase in net cash provided by operating activities, offset by a $3.4 billion increase in net cash used in investing activities when compared to the Consolidated Statement of Cash Flows in the Form 10-K for the year ended December 31, 2014. The Consolidated Statement of Cash Flows included in the previously-filed Form 10-Qs for the quarterly periods ended March 31, 2015 and June 30, 2015 also incorrectly reported this type of non-cash activity by $4.8 billion and $9.3 billion, where an increase in net cash provided by operating activities was offset by an increase in net cash used in investing activities. The incorrectly reported amounts in these 2015 quarterly periods also were not material to the Consolidated Financial Statements taken as a whole, did not impact the Consolidated Statements of Income or Consolidated Balance Sheets and had no impact on cash and cash equivalents for those periods. For information on certain non-cash transactions, which are not reflected in the Consolidated Statement of Cash Flows, see Note 4 – Outstanding Loans and Leases and Note 6 – Securitizations and Other Variable Interest Entities. Securities Financing Agreements The Corporation enters into securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase (securities financing agreements) to accommodate customers (also referred to as “matched-book transactions”), obtain securities to cover short positions, and to finance inventory positions. Securities financing agreements are treated as collateralized financing transactions except in instances where the transaction is required to be accounted for as individual sale and purchase transactions. Generally, these agreements are recorded at the amounts at which the securities were acquired or sold plus accrued interest, except for certain securities financing agreements that the Corporation accounts for under the fair value option. Changes in the fair value of securities financing agreements that are accounted for under the fair value option are recorded in trading account profits in the Consolidated Statement of Income. The Corporation’s policy is to obtain possession of collateral with a market value equal to or in excess of the principal amount loaned under resale agreements. To ensure that the market value of the underlying collateral remains sufficient, collateral is generally valued daily and require counterparties to deposit additional collateral or may return collateral pledged when appropriate. Securities financing agreements give rise to negligible credit risk as a result of these collateral provisions and, accordingly, no allowance for loan losses is considered necessary. the Corporation may In transactions where the Corporation acts as the lender in a securities lending agreement and receives securities that can be pledged or sold as collateral, it recognizes an asset on the Consolidated Balance Sheet at fair value, representing the securities received, and a liability, representing the obligation to return those securities. Collateral The Corporation accepts securities as collateral that it is permitted by contract or custom to sell or repledge. At December 31, 2015 and 2014, the fair value of this collateral was $458.9 billion and $508.7 billion, of which $383.5 billion and $419.3 billion was sold or repledged. The primary source of this collateral is securities borrowed or purchased under agreements to resell. The Corporation also pledges company-owned securities and loans as collateral in transactions that include repurchase agreements, securities loaned, public and trust deposits, U.S. Treasury tax and loan notes, and short-term borrowings. This collateral, which in some cases can be sold or repledged by the counterparties to the transactions, is parenthetically disclosed on the Consolidated Balance Sheet. In certain cases, the Corporation has transferred assets to consolidated VIEs where those restricted assets serve as collateral for the interests issued by the VIEs. These assets are included on the Consolidated Balance Sheet in Assets of Consolidated VIEs. In addition, the Corporation obtains collateral in connection with its derivative contracts. Required collateral levels vary depending on the credit risk rating and the type of counterparty. Generally, the Corporation accepts collateral in the form of cash, U.S. Treasury securities and other marketable securities. Based on provisions contained in master netting agreements, the Corporation nets cash collateral received against derivative assets. The Corporation also pledges collateral on its own derivative positions which can be applied against derivative liabilities. Trading Instruments Financial instruments utilized in trading activities are carried at fair value. Fair value is generally based on quoted market prices or quoted market prices for similar assets and liabilities. If these market prices are not available, fair values are estimated based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques where the determination of fair value may require significant management judgment or estimation. Realized gains and losses are recorded on a trade- date basis. Realized and unrealized gains and losses are recognized in trading account profits. Derivatives and Hedging Activities Derivatives are entered into on behalf of customers, for trading or to support risk management activities. Derivatives used in risk that are both management activities designated in qualifying accounting hedge relationships and derivatives used to hedge market risks in relationships that are not designated in qualifying accounting hedge relationships (referred to as other risk management activities). Derivatives utilized by the Corporation include swaps, financial futures and forward settlement contracts, and option contracts. include derivatives Bank of America 2015 137 All derivatives are recorded on the Consolidated Balance Sheet at fair value, taking into consideration the effects of legally enforceable master netting agreements that allow the Corporation to settle positive and negative positions and offset cash collateral held with the same counterparty on a net basis. For exchange- traded contracts, fair value is based on quoted market prices in active or inactive markets or is derived from observable market- based pricing parameters, similar to those applied to over-the- counter (OTC) derivatives. For non-exchange traded contracts, fair value is based on dealer quotes, pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value may require significant management judgment or estimation. Valuations of derivative assets and liabilities reflect the value of the instrument including counterparty credit risk. These values also take into account the Corporation’s own credit standing. Trading Derivatives and Other Risk Management Activities Derivatives held for trading purposes are included in derivative assets or derivative liabilities on the Consolidated Balance Sheet with changes in fair value included in trading account profits. Derivatives used for other risk management activities are included in derivative assets or derivative liabilities. Derivatives used in other risk management activities have not been designated in a qualifying accounting hedge relationship because they did not qualify or the risk that is being mitigated pertains to an item that is reported at fair value through earnings so that the effect of measuring the derivative instrument and the asset or liability to which the risk exposure pertains will offset in the Consolidated Statement of Income to the extent effective. The changes in the fair value of derivatives that serve to mitigate certain risks associated with mortgage servicing rights (MSRs), interest rate lock commitments (IRLCs) and first mortgage loans held-for-sale (LHFS) that are originated by the Corporation are recorded in mortgage banking income. Changes in the fair value of derivatives that serve to mitigate interest rate risk and foreign currency risk are included in other income (loss). Credit derivatives are also used by the Corporation to mitigate the risk associated with various credit exposures. The changes in the fair value of these derivatives are included in other income (loss). Derivatives Used For Hedge Accounting Purposes (Accounting Hedges) For accounting hedges, the Corporation formally documents at inception all relationships between hedging instruments and hedged items, as well as the risk management objectives and strategies for undertaking various accounting hedges. Additionally, the Corporation primarily uses regression analysis at the inception of a hedge and for each reporting period thereafter to assess whether the derivative used in an accounting hedge transaction is expected to be and has been highly effective in offsetting changes in the fair value or cash flows of a hedged item or forecasted transaction. The Corporation discontinues hedge accounting when it is determined that a derivative is not expected to be or has ceased to be highly effective as a hedge, and then reflects changes in fair value of the derivative in earnings after termination of the hedge relationship. The Corporation uses its accounting hedges as either fair value hedges, cash flow hedges or hedges of net investments in foreign operations. The Corporation manages interest rate and foreign currency exchange rate sensitivity predominantly through the use of derivatives. Fair value hedges are used to protect against changes in the fair value of the Corporation’s assets and liabilities that are attributable to interest rate or foreign exchange volatility. Changes in the fair value of derivatives designated as fair value hedges are recorded in earnings, together and in the same income statement line item with changes in the fair value of the related hedged item. If a derivative instrument in a fair value hedge is terminated or the hedge designation removed, the previous adjustments to the carrying value of the hedged asset or liability are subsequently accounted for in the same manner as other components of the carrying value of that asset or liability. For interest-earning assets and interest-bearing liabilities, such adjustments are amortized to earnings over the remaining life of the respective asset or liability. Cash flow hedges are used primarily to minimize the variability in cash flows of assets or liabilities, or forecasted transactions caused by interest rate or foreign exchange fluctuations. Changes in the fair value of derivatives designated as cash flow hedges are recorded in accumulated OCI and are reclassified into the line item in the income statement in which the hedged item is recorded in the same period the hedged item affects earnings. Hedge ineffectiveness and gains and losses on the component of a derivative excluded in assessing hedge effectiveness are recorded in the same income statement line item. The Corporation records changes in the fair value of derivatives used as hedges of the net investment in foreign operations, to the extent effective, as a component of accumulated OCI. If a derivative instrument in a cash flow hedge is terminated or the hedge designation is removed, related amounts in accumulated OCI are reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. If it becomes probable that a forecasted transaction will not occur, any related amounts in accumulated OCI are reclassified into earnings in that period. Interest Rate Lock Commitments The Corporation enters into IRLCs in connection with its mortgage banking activities to fund residential mortgage loans at specified times in the future. IRLCs that relate to the origination of mortgage loans that will be classified as held-for-sale are considered derivative instruments under applicable accounting guidance. As such, these IRLCs are recorded at fair value with changes in fair value recorded in mortgage banking income, typically resulting in recognition of a gain when the Corporation enters into IRLCs. In estimating the fair value of an IRLC, the Corporation assigns a probability that the loan commitment will be exercised and the loan will be funded. The fair value of the commitments is derived from the fair value of related mortgage loans which is based on observable market data and includes the expected net future cash flows related to servicing of the loans. Changes in the fair value of IRLCs are recognized based on interest rate changes, changes in the probability that the commitment will be exercised and the passage of time. Changes from the expected future cash flows related to the customer relationship are excluded from the valuation of IRLCs. 138 Bank of America 2015 All derivatives are recorded on the Consolidated Balance Sheet The Corporation uses its accounting hedges as either fair value at fair value, taking into consideration the effects of legally hedges, cash flow hedges or hedges of net investments in foreign enforceable master netting agreements that allow the Corporation operations. The Corporation manages interest rate and foreign to settle positive and negative positions and offset cash collateral currency exchange rate sensitivity predominantly through the use held with the same counterparty on a net basis. For exchange- of derivatives. traded contracts, fair value is based on quoted market prices in Fair value hedges are used to protect against changes in the active or inactive markets or is derived from observable market- fair value of the Corporation’s assets and liabilities that are based pricing parameters, similar to those applied to over-the- attributable to interest rate or foreign exchange volatility. Changes counter (OTC) derivatives. For non-exchange traded contracts, fair in the fair value of derivatives designated as fair value hedges are value is based on dealer quotes, pricing models, discounted cash recorded in earnings, together and in the same income statement flow methodologies or similar techniques for which the line item with changes in the fair value of the related hedged item. determination of fair value may require significant management If a derivative instrument in a fair value hedge is terminated or the judgment or estimation. hedge designation removed, the previous adjustments to the Valuations of derivative assets and liabilities reflect the value carrying value of the hedged asset or liability are subsequently of the instrument including counterparty credit risk. These values accounted for in the same manner as other components of the also take into account the Corporation’s own credit standing. carrying value of that asset or liability. For interest-earning assets Trading Derivatives and Other Risk Management Activities Derivatives held for trading purposes are included in derivative assets or derivative liabilities on the Consolidated Balance Sheet with changes in fair value included in trading account profits. Derivatives used for other risk management activities are included in derivative assets or derivative liabilities. Derivatives used in other risk management activities have not been designated in a qualifying accounting hedge relationship because they did not qualify or the risk that is being mitigated pertains to an item that is reported at fair value through earnings so that the effect of measuring the derivative instrument and the asset or liability to which the risk exposure pertains will offset in the Consolidated Statement of Income to the extent effective. The changes in the fair value of derivatives that serve to mitigate certain risks associated with mortgage servicing rights (MSRs), interest rate lock commitments (IRLCs) and first mortgage loans held-for-sale (LHFS) that are originated by the Corporation are recorded in mortgage banking income. Changes in the fair value of derivatives that serve to mitigate interest rate risk and foreign currency risk are included in other income (loss). Credit derivatives are also used by the Corporation to mitigate the risk associated with various are included in other income (loss). Derivatives Used For Hedge Accounting Purposes (Accounting Hedges) For accounting hedges, the Corporation formally documents at inception all relationships between hedging instruments and hedged items, as well as the risk management objectives and strategies for undertaking various accounting hedges. Additionally, the Corporation primarily uses regression analysis at the inception of a hedge and for each reporting period thereafter to assess whether the derivative used in an accounting hedge transaction is expected to be and has been highly effective in offsetting changes in the fair value or cash flows of a hedged item or forecasted transaction. The Corporation discontinues hedge accounting when it is determined that a derivative is not expected to be or has ceased to be highly effective as a hedge, and then reflects changes in fair value of the derivative in earnings after termination of the hedge relationship. and interest-bearing liabilities, such adjustments are amortized to earnings over the remaining life of the respective asset or liability. Cash flow hedges are used primarily to minimize the variability in cash flows of assets or liabilities, or forecasted transactions caused by interest rate or foreign exchange fluctuations. Changes in the fair value of derivatives designated as cash flow hedges are recorded in accumulated OCI and are reclassified into the line item in the income statement in which the hedged item is recorded in the same period the hedged item affects earnings. Hedge ineffectiveness and gains and losses on the component of a derivative excluded in assessing hedge effectiveness are recorded in the same income statement line item. The Corporation records changes in the fair value of derivatives used as hedges of the net investment in foreign operations, to the extent effective, as a component of accumulated OCI. If a derivative instrument in a cash flow hedge is terminated or the hedge designation is removed, related amounts in accumulated OCI are reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. If it becomes probable that a forecasted transaction will not occur, any related amounts in accumulated OCI are reclassified into earnings in that period. Interest Rate Lock Commitments banking activities to fund residential mortgage loans at specified times in the future. IRLCs that relate to the origination of mortgage loans that will be classified as held-for-sale are considered derivative instruments under applicable accounting guidance. As such, these IRLCs are recorded at fair value with changes in fair value recorded in mortgage banking income, typically resulting in recognition of a gain when the Corporation enters into IRLCs. In estimating the fair value of an IRLC, the Corporation assigns a probability that the loan commitment will be exercised and the loan will be funded. The fair value of the commitments is derived from the fair value of related mortgage loans which is based on observable market data and includes the expected net future cash flows related to servicing of the loans. Changes in the fair value of IRLCs are recognized based on interest rate changes, changes in the probability that the commitment will be exercised and the passage of time. Changes from the expected future cash flows related to the customer relationship are excluded from the valuation of IRLCs. credit exposures. The changes in the fair value of these derivatives The Corporation enters into IRLCs in connection with its mortgage Outstanding IRLCs expose the Corporation to the risk that the price of the loans underlying the commitments might decline from inception of the rate lock to funding of the loan. To manage this risk, the Corporation utilizes forward loan sales commitments and other derivative instruments, including interest rate swaps and options, to economically hedge the risk of potential changes in the value of the loans that would result from the commitments. The changes in the fair value of these derivatives are recorded in mortgage banking income. Securities Debt securities are recorded on the Consolidated Balance Sheet as of their trade date. Debt securities bought principally with the intent to buy and sell in the short term as part of the Corporation’s trading activities are reported at fair value in trading account assets with unrealized gains and losses included in trading account profits. Debt securities purchased for longer term investment purposes, as part of asset and liability management (ALM) and other strategic activities are generally reported at fair value as available-for-sale (AFS) securities with net unrealized gains and losses net-of-tax included in accumulated OCI. Certain other debt securities purchased for ALM and other strategic purposes are reported at fair value with unrealized gains and losses reported in other income (loss). These are referred to as other debt securities carried at fair value. AFS securities and other debt securities carried at fair value are reported in debt securities on the Consolidated Balance Sheet. The Corporation may hedge these other debt securities with risk management derivatives with the unrealized gains and losses also reported in other income (loss). The debt securities are carried at fair value with unrealized gains and losses reported in other income (loss) to mitigate accounting asymmetry with the risk management derivatives and to achieve operational simplifications. Debt securities which management has the intent and ability to hold to maturity are reported at amortized cost. Certain debt securities purchased for use in other risk management activities, such as hedging certain market risks related to MSRs, are reported in other assets at fair value with unrealized gains and losses reported in the same line item as the item being hedged. The Corporation regularly evaluates each AFS and held-to- maturity (HTM) debt security where the value has declined below amortized cost to assess whether the decline in fair value is other than temporary. In determining whether an impairment is other than temporary, the Corporation considers the severity and duration of the decline in fair value, the length of time expected for recovery, the financial condition of the issuer, and other qualitative factors, as well as whether the Corporation either plans to sell the security or it is more-likely-than-not that it will be required to sell the security before recovery of the amortized cost. If the impairment of the AFS or HTM debt security is credit-related, an other-than-temporary impairment (OTTI) loss is recorded in earnings. For AFS debt securities, the non-credit related impairment loss is recognized in accumulated OCI. If the Corporation intends to sell an AFS debt security or believes it will more-likely-than-not be required to sell a security, the Corporation records the full amount of the impairment loss as an OTTI loss. Interest on debt securities, including amortization of premiums and accretion of discounts, is included in interest income. Premiums and discounts are amortized to interest income over the estimated lives of the securities. Prepayment experience, which is primarily driven by interest rates, is continually evaluated to determine the estimated lives of the securities. When a change is made to the estimated lives of the securities, the related premium or discount is adjusted, with a corresponding charge or credit to interest income, to the appropriate amount had the current estimated lives been applied since the acquisition of the securities. Realized gains and losses from the sales of debt securities are determined using the specific identification method. Marketable equity securities are classified based on management’s intention on the date of purchase and recorded on the Consolidated Balance Sheet as of the trade date. Marketable equity securities that are bought and held principally for the purpose of resale in the near term are classified as trading and are carried at fair value with unrealized gains and losses included in trading account profits. Other marketable equity securities are accounted for as AFS and classified in other assets. All AFS marketable equity securities are carried at fair value with net unrealized gains and losses included in accumulated OCI, net-of- tax. If there is an other-than-temporary decline in the fair value of any individual AFS marketable equity security, the cost basis is reduced and the Corporation reclassifies the associated net unrealized loss out of accumulated OCI with a corresponding charge to equity investment income. Dividend income on AFS marketable equity securities is included in equity investment income. Realized gains and losses on the sale of all AFS marketable equity securities, which are recorded in equity investment the specific identification method. Certain equity investments held by Global Principal Investments, the Corporation’s diversified equity investor in private equity, real estate and other alternative investments, are subject to investment company accounting under applicable accounting guidance and, accordingly, are carried at fair value with changes in fair value reported in equity investment income. These investments are included in other assets. Initially, the transaction price of the investment is generally considered to be the best indicator of fair value. Thereafter, valuation of direct investments is based on an assessment of each individual investment using methodologies that include publicly-traded comparables derived by multiplying a key performance metric of the portfolio company by the relevant valuation multiple observed for comparable companies, acquisition comparables, entry level multiples and discounted cash flow analyses, and are subject to appropriate discounts for lack of liquidity or marketability. For fund investments, the Corporation generally records the fair value of its proportionate interest in the fund’s capital as reported by the respective fund managers. income, are determined using Loans and Leases Loans, with the exception of loans accounted for under the fair value option, are measured at historical cost and reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and for purchased loans, net of any unamortized premiums or discounts. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income over the lives of the related loans. Unearned income, discounts and premiums are amortized to interest income using a level yield methodology. The Corporation elects to account for certain consumer and commercial loans under the fair value option with changes in fair value reported in other income (loss). 138 Bank of America 2015 Bank of America 2015 139 Under applicable accounting guidance, for reporting purposes, the loan and lease portfolio is categorized by portfolio segment and, within each portfolio segment, by class of financing receivables. A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine the allowance for credit losses, and a class of financing receivables is defined as the level of disaggregation of portfolio segments based on the initial measurement attribute, risk characteristics and methods for assessing risk. The Corporation’s three portfolio segments are Consumer Real Estate, Credit Card and Other Consumer, and Commercial. The classes within the Consumer Real Estate portfolio segment are core portfolio residential mortgage, Legacy Assets & Servicing residential mortgage, core portfolio home equity and Legacy Assets & Servicing home equity. The classes within the Credit Card and Other Consumer portfolio segment are U.S. credit card, non-U.S. credit card, direct/indirect consumer and other consumer. The classes within the Commercial portfolio segment are U.S. commercial, commercial real estate, commercial lease financing, non-U.S. commercial and U.S. small business commercial. Purchased Credit-impaired Loans Purchased loans with evidence of credit quality deterioration as of the purchase date for which it is probable that the Corporation will not receive all contractually required payments receivable are accounted for as purchased credit-impaired (PCI) loans. Evidence of credit quality deterioration since origination may include past due status, refreshed credit scores and refreshed loan-to-value (LTV) ratios. At acquisition, PCI loans are recorded at fair value with no allowance for credit losses, and accounted for individually or aggregated in pools based on similar risk characteristics such as credit risk, collateral type and interest rate risk. The Corporation estimates the amount and timing of expected cash flows for each loan or pool of loans. The expected cash flows in excess of the amount paid for the loans is referred to as the accretable yield and is recorded as interest income over the remaining estimated life of the loan or pool of loans. The excess of the PCI loans’ contractual principal and interest over the expected cash flows is referred to as the nonaccretable difference. Over the life of the PCI loans, the expected cash flows continue to be estimated using models that incorporate management’s estimate of current assumptions such as default rates, loss severity and prepayment speeds. the Corporation determines it is probable that the present value of the expected cash flows has decreased, a charge to the provision for credit losses is recorded with a corresponding increase in the allowance for credit losses. If it is probable that there is a significant increase in the present value of expected cash flows, the allowance for credit losses is reduced or, if there is no remaining allowance for credit losses related to these PCI loans, the accretable yield is from nonaccretable increased difference, resulting in a prospective increase in interest income. Reclassifications to or from nonaccretable difference can also occur for changes in the PCI loans’ estimated lives. If a loan within a PCI pool is sold, foreclosed, forgiven or the expectation of any future proceeds is remote, the loan is removed from the pool at its proportional carrying value. If the loan’s recovery value is less than the loan’s carrying value, the difference is first applied against If, upon subsequent valuation, reclassification through a the PCI pool’s nonaccretable difference and then against the allowance for credit losses. Leases The Corporation provides equipment financing to its customers through a variety of lease arrangements. Direct financing leases are carried at the aggregate of lease payments receivable plus estimated residual value of the leased property less unearned income. Leveraged leases, which are a form of financing leases, are reported net of non-recourse debt. Unearned income on leveraged and direct financing leases is accreted to interest income over the lease terms using methods that approximate the interest method. Allowance for Credit Losses The allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, represents management’s estimate of probable losses inherent in the Corporation’s lending activities. The allowance for loan and lease losses and the reserve for unfunded lending commitments exclude amounts for loans and unfunded lending commitments accounted for under the fair value option as the fair values of these instruments reflect a credit component. The allowance for loan and lease losses does not include amounts related to accrued interest receivable, other than billed interest and fees on credit card receivables, as accrued interest receivable is reversed when a loan is placed on nonaccrual status. The allowance for loan and lease losses represents the estimated probable credit losses on funded consumer and commercial loans and leases while the reserve for unfunded lending commitments, including standby letters of credit (SBLCs) and binding unfunded loan commitments, represents estimated probable credit losses on these unfunded credit instruments based on utilization assumptions. Lending-related credit exposures deemed to be uncollectible, excluding loans carried at fair value, are charged off against these accounts. Write-offs on PCI loans on which there is a valuation allowance are recorded against the valuation allowance. For additional information, see Purchased Credit- impaired Loans in this Note. Cash recovered on previously charged- off amounts is recorded as a recovery to these accounts. Management evaluates the adequacy of the allowance for credit losses based on the combined total of the allowance for loan and lease losses and the reserve for unfunded lending commitments. The Corporation performs periodic and systematic detailed reviews of its lending portfolios to identify credit risks and to assess the overall collectability of those portfolios. The allowance on certain homogeneous consumer loan portfolios, which generally consist of consumer real estate within the Consumer Real Estate portfolio segment and credit card loans within the Credit Card and Other Consumer portfolio segment, is based on aggregated portfolio segment evaluations generally by product type. Loss forecast models are utilized for these portfolios which consider a variety of factors including, but not limited to, historical loss experience, estimated defaults or foreclosures based on portfolio trends, delinquencies, bankruptcies, economic conditions and credit scores. 140 Bank of America 2015 Under applicable accounting guidance, for reporting purposes, the PCI pool’s nonaccretable difference and then against the the loan and lease portfolio is categorized by portfolio segment allowance for credit losses. and, within each portfolio segment, by class of financing receivables. A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine the allowance for credit losses, and a class of financing receivables is defined as the level of disaggregation of portfolio segments based on the initial measurement attribute, risk characteristics and methods for assessing risk. The Corporation’s three portfolio segments are Consumer Real Estate, Credit Card and Other Consumer, and Commercial. The classes within the Consumer Real Estate portfolio segment are core portfolio residential mortgage, Legacy Assets & Servicing residential mortgage, core portfolio home equity and Legacy Assets & Servicing home equity. The classes within the Credit Card and Other Consumer portfolio segment are U.S. credit card, non-U.S. credit card, direct/indirect consumer and other consumer. The classes within the Commercial portfolio segment are U.S. commercial, commercial real estate, commercial lease financing, non-U.S. commercial and U.S. small business commercial. Purchased Credit-impaired Loans Purchased loans with evidence of credit quality deterioration as of the purchase date for which it is probable that the Corporation will not receive all contractually required payments receivable are accounted for as purchased credit-impaired (PCI) loans. Evidence of credit quality deterioration since origination may include past due status, refreshed credit scores and refreshed loan-to-value (LTV) ratios. At acquisition, PCI loans are recorded at fair value with no allowance for credit losses, and accounted for individually or aggregated in pools based on similar risk characteristics such as credit risk, collateral type and interest rate risk. The Corporation estimates the amount and timing of expected cash flows for each loan or pool of loans. The expected cash flows in excess of the amount paid for the loans is referred to as the accretable yield and is recorded as interest income over the remaining estimated life of the loan or pool of loans. The excess of the PCI loans’ contractual principal and interest over the expected cash flows is referred to as the nonaccretable difference. Over the life of the PCI loans, the expected cash flows continue to be estimated using models that incorporate management’s estimate of current assumptions such as default rates, loss severity and prepayment speeds. If, upon subsequent valuation, the Corporation determines it is probable that the present value of the expected cash flows has decreased, a charge to the provision for credit losses is recorded with a corresponding increase in the allowance for credit losses. If it is probable that there is a significant increase in the present value of expected cash flows, the allowance for credit losses is reduced or, if there is no remaining allowance for credit losses related to these PCI loans, the accretable yield is increased through a reclassification from nonaccretable difference, resulting in a prospective increase in interest income. Reclassifications to or from nonaccretable difference can also occur for changes in the PCI loans’ estimated lives. If a loan within a PCI pool is sold, foreclosed, forgiven or the expectation of any future proceeds is remote, the loan is removed from the pool at its proportional carrying value. If the loan’s recovery value is less than the loan’s carrying value, the difference is first applied against 140 Bank of America 2015 Leases The Corporation provides equipment financing to its customers through a variety of lease arrangements. Direct financing leases are carried at the aggregate of lease payments receivable plus estimated residual value of the leased property less unearned income. Leveraged leases, which are a form of financing leases, are reported net of non-recourse debt. Unearned income on leveraged and direct financing leases is accreted to interest income over the lease terms using methods that approximate the interest method. Allowance for Credit Losses The allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, represents management’s estimate of probable losses inherent in the Corporation’s lending activities. The allowance for loan and lease losses and the reserve for unfunded lending commitments exclude amounts for loans and unfunded lending commitments accounted for under the fair value option as the fair values of these instruments reflect a credit component. The allowance for loan and lease losses does not include amounts related to accrued interest receivable, other than billed interest and fees on credit card receivables, as accrued interest receivable is reversed when a loan is placed on nonaccrual status. The allowance for loan and lease losses represents the estimated probable credit losses on funded consumer and commercial loans and leases while the reserve for unfunded lending commitments, including standby letters of credit (SBLCs) and binding unfunded loan commitments, represents estimated probable credit losses on these unfunded credit instruments based on utilization assumptions. Lending-related credit exposures deemed to be uncollectible, excluding loans carried at fair value, are charged off against these accounts. Write-offs on PCI loans on which there is a valuation allowance are recorded against the valuation allowance. For additional information, see Purchased Credit- impaired Loans in this Note. Cash recovered on previously charged- off amounts is recorded as a recovery to these accounts. Management evaluates the adequacy of the allowance for credit losses based on the combined total of the allowance for loan and lease losses and the reserve for unfunded lending commitments. The Corporation performs periodic and systematic detailed reviews of its lending portfolios to identify credit risks and to assess the overall collectability of those portfolios. The allowance on certain homogeneous consumer loan portfolios, which generally consist of consumer real estate within the Consumer Real Estate portfolio segment and credit card loans within the Credit Card and Other Consumer portfolio segment, is based on aggregated portfolio segment evaluations generally by product type. Loss forecast models are utilized for these portfolios which consider a variety of factors including, but not limited to, historical loss experience, estimated defaults or foreclosures based on portfolio trends, delinquencies, bankruptcies, economic conditions and credit scores. The Corporation’s Consumer Real Estate portfolio segment is comprised primarily of large groups of homogeneous consumer loans secured by residential real estate. The amount of losses incurred in the homogeneous loan pools is estimated based on the number of loans that will default and the loss in the event of default. Using modeling methodologies, the Corporation estimates the number of homogeneous loans that will default based on the individual loan attributes aggregated into pools of homogeneous loans with similar attributes. The attributes that are most significant to the probability of default and are used to estimate defaults include refreshed LTV or, in the case of a subordinated lien, refreshed combined LTV, borrower credit score, months since origination (referred to as vintage) and geography, all of which are further broken down by present collection status (whether the loan is current, delinquent, in default or in bankruptcy). This estimate is based on the Corporation’s historical experience with the loan portfolio. The estimate is adjusted to reflect an assessment of environmental factors not yet reflected in the historical data underlying the loss estimates, such as changes in real estate values, local and national economies, underwriting standards and the regulatory environment. The probability of default on a loan is based on an analysis of the movement of loans with the measured attributes from either current or any of the delinquency categories to default over a 12-month period. On home equity loans where the Corporation holds only a second-lien position and foreclosure is not the best alternative, the loss severity is estimated at 100 percent. The allowance on certain commercial loans (except business card and certain small business loans) is calculated using loss rates delineated by risk rating and product type. Factors considered when assessing loss rates include the value of the underlying collateral, if applicable, the industry of the obligor, and the obligor’s liquidity and other financial indicators along with certain qualitative factors. These statistical models are updated regularly for changes in economic and business conditions. Included in the analysis of consumer and commercial loan portfolios are reserves which are maintained to cover uncertainties that affect the Corporation’s estimate of probable losses including domestic and global economic uncertainty and large single-name defaults. The remaining portfolios, including nonperforming commercial loans, as well as consumer and commercial loans modified in a troubled debt restructuring (TDR), are reviewed in accordance with applicable accounting guidance on impaired loans and TDRs. If necessary, a specific allowance is established for these loans if they are deemed to be impaired. A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all amounts due, including principal and/or interest, in accordance with the contractual terms of the agreement, or the loan has been modified in a TDR. Once a loan has been identified as impaired, management measures impairment primarily based on the present value of payments expected to be received, discounted at the loans’ original effective contractual interest rates, or discounted at the portfolio average contractual annual percentage rate, excluding promotionally priced loans, in effect prior to restructuring. Impaired loans and TDRs may also be measured based on observable market prices, or for loans that are solely dependent on the collateral for repayment, the estimated fair value of the collateral less costs to sell. If the recorded investment in impaired loans exceeds this amount, a specific allowance is established as a component of the allowance for loan and lease losses unless these are secured consumer loans that are solely dependent on the collateral for repayment, in which case the amount that exceeds the fair value of the collateral is charged off. Generally, when determining the fair value of the collateral securing consumer real estate-secured loans that are solely dependent on the collateral for repayment, prior to performing a detailed property valuation including a walk-through of a property, the Corporation initially estimates the fair value of the collateral securing these consumer loans using an automated valuation model (AVM). An AVM is a tool that estimates the value of a property by reference to market data including sales of comparable properties and price trends specific to the Metropolitan Statistical Area in which the property being valued is located. In the event that an AVM value is not available, the Corporation utilizes publicized indices or if these methods provide less reliable valuations, the Corporation uses appraisals or broker price opinions to estimate the fair value of the collateral. While there is inherent imprecision in these valuations, the Corporation believes that they are representative of the portfolio in the aggregate. In addition to the allowance for loan and lease losses, the Corporation also estimates probable losses related to unfunded lending commitments, such as letters of credit and financial guarantees, and binding unfunded loan commitments. The reserve for unfunded lending commitments excludes commitments accounted for under the fair value option. Unfunded lending commitments are subject to individual reviews and are analyzed and segregated by risk according to the Corporation’s internal risk rating scale. These risk classifications, in conjunction with an analysis of historical loss experience, utilization assumptions, current economic conditions, performance trends within the portfolio and any other pertinent information, result in the estimation of the reserve for unfunded lending commitments. The allowance for credit losses related to the loan and lease portfolio is reported separately on the Consolidated Balance Sheet whereas the reserve for unfunded lending commitments is reported on the Consolidated Balance Sheet in accrued expenses and other liabilities. The provision for credit losses related to the loan and lease portfolio and unfunded lending commitments is reported in the Consolidated Statement of Income. Nonperforming Loans and Leases, Charge-offs and Delinquencies Nonperforming loans and leases generally include loans and leases that have been placed on nonaccrual status, including nonaccruing terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. Loans accounted for under the fair value option, PCI loans and LHFS are not reported as nonperforming. loans whose contractual In accordance with the Corporation’s policies, consumer real estate-secured loans, including residential mortgages and home equity loans, are generally placed on nonaccrual status and classified as nonperforming at 90 days past due unless repayment of the loan is insured by the Federal Housing Administration (FHA) or through individually insured long-term standby agreements with Fannie Mae (FNMA) or Freddie Mac (FHLMC) (the fully-insured portfolio). Residential mortgage loans in the fully-insured portfolio are not placed on nonaccrual status and, therefore, are not reported as nonperforming. Junior-lien home equity loans are placed on nonaccrual status and classified as nonperforming when the underlying first-lien mortgage loan becomes 90 days past due even if the junior-lien loan is current. Accrued interest receivable Bank of America 2015 141 is reversed when a consumer loan is placed on nonaccrual status. Interest collections on nonaccruing consumer loans for which the ultimate collectability of principal is uncertain are generally applied as principal reductions; otherwise, such collections are credited to interest income when received. These loans may be restored to accrual status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection. The outstanding balance of real estate-secured loans that is in excess of the estimated property value less costs to sell is charged off no later than the end of the month in which the loan becomes 180 days past due unless the loan is fully insured. The estimated property value less costs to sell is determined using the same process as described for impaired loans in Allowance for Credit Losses in this Note. Consumer loans secured by personal property, credit card loans and other unsecured consumer loans are not placed on nonaccrual status prior to charge-off and, therefore, are not reported as nonperforming loans, except for certain secured consumer loans, including those that have been modified in a TDR. Personal property-secured loans are charged off to collateral value no later than the end of the month in which the account becomes 120 days past due or, for loans in bankruptcy, 60 days past due. Credit card and other unsecured consumer loans are charged off no later than the end of the month in which the account becomes 180 days past due or within 60 days after receipt of notification of death or bankruptcy. Commercial loans and leases, excluding business card loans, that are past due 90 days or more as to principal or interest, or where reasonable doubt exists as to timely collection, including loans that are individually identified as being impaired, are generally placed on nonaccrual status and classified as nonperforming unless well-secured and in the process of collection. Accrued interest receivable is reversed when commercial loans and leases are placed on nonaccrual status. Interest collections on nonaccruing commercial loans and leases for which the ultimate collectability of principal is uncertain are applied as principal reductions; otherwise, such collections are credited to income when received. Commercial loans and leases may be restored to accrual status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well- secured and is in the process of collection. Business card loans are charged off no later than the end of the month in which the account becomes 180 days past due or 60 days after receipt of notification of death or bankruptcy. These loans are not placed on nonaccrual status prior to charge-off and, therefore, are not reported as nonperforming loans. Other commercial loans and leases are generally charged off when all or a portion of the principal amount is determined to be uncollectible. The entire balance of a consumer loan or commercial loan or lease is contractually delinquent if the minimum payment is not received by the specified due date on the customer’s billing statement. Interest and fees continue to accrue on past due loans and leases until the date the loan is placed on nonaccrual status, if applicable. PCI loans are recorded at fair value at the acquisition date. Although the PCI loans may be contractually delinquent, the Corporation does not classify these loans as nonperforming as the loans were written down to fair value at the acquisition date and the accretable yield is recognized in interest income over the 142 Bank of America 2015 remaining life of the loan. In addition, reported net charge-offs exclude write-offs on PCI loans as the fair value already considers the estimated credit losses. Troubled Debt Restructurings Consumer and commercial loans and leases whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties are classified as TDRs. Concessions could include a reduction in the interest rate to a rate that is below market on the loan, payment extensions, forgiveness of principal, forbearance or other actions designed to maximize collections. Loans classified as TDRs are considered impaired loans. Loans that are carried at fair value, LHFS and PCI loans are not classified as TDRs. if there Consumer and commercial loans and leases whose contractual terms have been modified in a TDR and are current at the time of restructuring may remain on accrual status is demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Otherwise, the loans are placed on nonaccrual status and reported as nonperforming, except for fully-insured consumer real estate loans, until there is sustained repayment performance for a reasonable period, generally six months. If accruing TDRs cease to perform in accordance with their modified contractual terms, they are placed on nonaccrual status and reported as nonperforming TDRs. Generally, TDRs are reported as performing or nonperforming TDRs, depending on nonaccrual status, throughout their remaining lives. Accruing TDRs that bear a market rate of interest are reported as performing TDRs through the end of the calendar year in which the loans are returned to accrual status. Secured consumer loans that have been discharged in Chapter 7 bankruptcy and have not been reaffirmed by the borrower are classified as TDRs at the time of discharge. Such loans are placed on nonaccrual status and written down to the estimated collateral value less costs to sell no later than at the time of discharge. If these loans are contractually current, interest collections are generally recorded in interest income on a cash basis. Consumer real estate-secured loans for which a binding offer to restructure has been extended are also classified as TDRs. Credit card and other unsecured consumer loans that have been renegotiated in a TDR are not placed on nonaccrual status. Credit card and other unsecured consumer loans that have been renegotiated and placed on a fixed payment plan after July 1, 2012 are generally charged off no later than the end of the month in which the account becomes 120 days past due. A loan that had previously been modified in a TDR and is subsequently refinanced under current underwriting standards at a market rate with no concessionary terms is accounted for as a new loan and is no longer reported as a TDR. Loans Held-for-sale Loans that are intended to be sold in the foreseeable future, including residential mortgages, loan syndications, and to a lesser degree, commercial real estate, consumer finance and other loans, are reported as LHFS and are carried at the lower of aggregate cost or fair value. The Corporation accounts for certain LHFS, including residential mortgage LHFS, under the fair value option. Loan origination costs related to LHFS that the Corporation accounts for under the fair value option are recognized in noninterest expense when incurred. Loan origination costs for LHFS carried at the lower of cost or fair value are capitalized as is reversed when a consumer loan is placed on nonaccrual status. remaining life of the loan. In addition, reported net charge-offs Interest collections on nonaccruing consumer loans for which the exclude write-offs on PCI loans as the fair value already considers ultimate collectability of principal is uncertain are generally applied the estimated credit losses. as principal reductions; otherwise, such collections are credited to interest income when received. These loans may be restored to accrual status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection. The outstanding balance of real estate-secured loans that is in excess of the estimated property value less costs to sell is charged off no later than the end of the month in which the loan becomes 180 days past due unless the loan is fully insured. The estimated property value less costs to sell is determined using the same process as described for impaired loans in Allowance for Credit Losses in this Note. Consumer loans secured by personal property, credit card loans and other unsecured consumer loans are not placed on nonaccrual status prior to charge-off and, therefore, are not reported as nonperforming loans, except for certain secured consumer loans, including those that have been modified in a TDR. Personal property-secured loans are charged off to collateral value no later than the end of the month in which the account becomes 120 days past due or, for loans in bankruptcy, 60 days past due. Credit card and other unsecured consumer loans are charged off no later than the end of the month in which the account becomes 180 days past due or within 60 days after receipt of notification of death or bankruptcy. Commercial loans and leases, excluding business card loans, that are past due 90 days or more as to principal or interest, or where reasonable doubt exists as to timely collection, including loans that are individually identified as being impaired, are generally placed on nonaccrual status and classified as nonperforming unless well-secured and in the process of collection. Accrued interest receivable is reversed when commercial loans and leases are placed on nonaccrual status. Interest collections on nonaccruing commercial loans and leases for which the ultimate collectability of principal is uncertain are applied as principal reductions; otherwise, such collections are credited to income when received. Commercial loans and leases may be restored to accrual status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well- secured and is in the process of collection. Business card loans are charged off no later than the end of the month in which the account becomes 180 days past due or 60 days after receipt of notification of death or bankruptcy. These loans are not placed on nonaccrual status prior to charge-off and, therefore, are not reported as nonperforming loans. Other commercial loans and leases are generally charged off when all or a portion of the principal amount is determined to be uncollectible. The entire balance of a consumer loan or commercial loan or lease is contractually delinquent if the minimum payment is not received by the specified due date on the customer’s billing statement. Interest and fees continue to accrue on past due loans and leases until the date the loan is placed on nonaccrual status, if applicable. PCI loans are recorded at fair value at the acquisition date. Although the PCI loans may be contractually delinquent, the Corporation does not classify these loans as nonperforming as the loans were written down to fair value at the acquisition date and the accretable yield is recognized in interest income over the 142 Bank of America 2015 Troubled Debt Restructurings Consumer and commercial loans and leases whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties are classified as TDRs. Concessions could include a reduction in the interest rate to a rate that is below market on the loan, payment extensions, forgiveness of principal, forbearance or other actions designed to maximize collections. Loans classified as TDRs are considered impaired loans. Loans that are carried at fair value, LHFS and PCI loans are not classified as TDRs. Consumer and commercial loans and leases whose contractual terms have been modified in a TDR and are current at the time of restructuring may remain on accrual status if there is demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Otherwise, the loans are placed on nonaccrual status and reported as nonperforming, except for fully-insured consumer real estate loans, until there is sustained repayment performance for a reasonable period, generally six months. If accruing TDRs cease to perform in accordance with their modified contractual terms, they are placed on nonaccrual status and reported as nonperforming TDRs. Generally, TDRs are reported as performing or nonperforming TDRs, depending on nonaccrual status, throughout their remaining lives. Accruing TDRs that bear a market rate of interest are reported as performing TDRs through the end of the calendar year in which the loans are returned to accrual status. Secured consumer loans that have been discharged in Chapter 7 bankruptcy and have not been reaffirmed by the borrower are classified as TDRs at the time of discharge. Such loans are placed on nonaccrual status and written down to the estimated collateral value less costs to sell no later than at the time of discharge. If these loans are contractually current, interest collections are generally recorded in interest income on a cash basis. Consumer real estate-secured loans for which a binding offer to restructure has been extended are also classified as TDRs. Credit card and other unsecured consumer loans that have been renegotiated in a TDR are not placed on nonaccrual status. Credit card and other unsecured consumer loans that have been renegotiated and placed on a fixed payment plan after July 1, 2012 are generally charged off no later than the end of the month in which the account becomes 120 days past due. A loan that had previously been modified in a TDR and is subsequently refinanced under current underwriting standards at a market rate with no concessionary terms is accounted for as a new loan and is no longer reported as a TDR. Loans Held-for-sale Loans that are intended to be sold in the foreseeable future, including residential mortgages, loan syndications, and to a lesser degree, commercial real estate, consumer finance and other loans, are reported as LHFS and are carried at the lower of aggregate cost or fair value. The Corporation accounts for certain LHFS, including residential mortgage LHFS, under the fair value option. Loan origination costs related to LHFS that the Corporation accounts for under the fair value option are recognized in noninterest expense when incurred. Loan origination costs for LHFS carried at the lower of cost or fair value are capitalized as part of the carrying value of the loans and recognized as a reduction of noninterest income upon the sale of such loans. LHFS that are on nonaccrual status and are reported as nonperforming, as defined in the policy herein, are reported separately from nonperforming loans and leases. Premises and Equipment Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are recognized using the straight-line method over the estimated useful lives of the assets. Estimated lives range up to 40 years for buildings, up to 12 years for furniture and equipment, and the shorter of lease term or estimated useful life for leasehold improvements. Internally-developed Software The Corporation capitalizes the costs associated with certain internally-developed software, and amortizes the costs over the expected useful life. Direct project costs of internally-developed software are capitalized when it is probable that the project will be completed and the software will be used for its intended function. for consumer MSRs, Mortgage Servicing Rights The Corporation accounts including residential mortgage and home equity MSRs, at fair value with changes in fair value recorded in mortgage banking income. To reduce the volatility of earnings related to interest rate and market value fluctuations, U.S. Treasury securities, mortgage-backed securities and derivatives such as options and interest rate swaps may be used to hedge certain market risks of the MSRs. Such derivatives are not designated as qualifying accounting hedges. These instruments are carried at fair value with changes in fair value recognized in mortgage banking income. The Corporation estimates the fair value of consumer MSRs using a valuation model that calculates the present value of estimated future net servicing income and, when available, quoted prices from independent parties. Goodwill and Intangible Assets Goodwill is the purchase premium after adjusting for the fair value of net assets acquired. Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or when events or circumstances indicate a potential impairment, at the reporting unit level. A reporting unit, as defined under applicable accounting guidance, is a business segment or one level below a business segment. The goodwill impairment analysis is a two-step test. The first step of the goodwill impairment test involves comparing the fair value of each reporting unit with its carrying value, including In certain goodwill, as measured by allocated equity. circumstances, the first step may be performed using a qualitative assessment. If the fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not impaired; however, if the carrying value of the reporting unit exceeds its fair value, the second step must be performed to measure potential impairment. The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated possible impairment. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. Measurement of the fair values of the assets and liabilities of a reporting unit is consistent with the requirements of the fair value measurements accounting guidance, as described in Fair Value in this Note. The adjustments to measure the assets, liabilities and intangibles at fair value are for the purpose of measuring the implied fair value of goodwill and such adjustments are not reflected on the Consolidated Balance Sheet. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded for the excess. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit. An impairment loss establishes a new basis in the goodwill and subsequent reversals of goodwill impairment losses are not permitted under applicable accounting guidance. For intangible assets subject to amortization, an impairment loss is recognized if the carrying value of the intangible asset is not recoverable and exceeds fair value. The carrying value of the intangible asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. Intangible assets deemed to have indefinite useful lives are not subject to amortization. An impairment loss is recognized if the carrying value of the intangible asset with an indefinite life exceeds its fair value. Variable Interest Entities A VIE is an entity that lacks equity investors or whose equity investors do not have a controlling financial interest in the entity through their equity investments. The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and consolidates the VIE. The Corporation is deemed to have a controlling financial interest and is the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. On a quarterly basis, the Corporation reassesses whether it has a controlling financial interest in and is the primary beneficiary of a VIE. The quarterly reassessment process considers whether the Corporation has acquired or divested the power to direct the activities of the VIE through changes in governing documents or other circumstances. The reassessment also considers whether the Corporation has acquired or disposed of a financial interest that could be significant to the VIE, or whether an interest in the VIE has become significant or is no longer significant. The consolidation status of the VIEs with which the Corporation is involved may change as a result of such reassessments. Changes in consolidation status are applied prospectively, with assets and liabilities of a newly consolidated VIE initially recorded at fair value. A gain or loss may be recognized upon deconsolidation of a VIE depending on the carrying values of deconsolidated assets and liabilities compared to the fair value of retained interests and ongoing contractual arrangements. The Corporation primarily uses VIEs for its securitization activities, in which the Corporation transfers whole loans or debt securities into a trust or other vehicle such that the assets are legally isolated from the creditors of the Corporation. Assets held in a trust can only be used to settle obligations of the trust. The Bank of America 2015 143 creditors of these trusts typically have no recourse to the Corporation except in accordance with the Corporation’s obligations under standard representations and warranties. When the Corporation is the servicer of whole loans held in a securitization trust, including non-agency residential mortgages, home equity loans, credit cards, automobile loans and student loans, the Corporation has the power to direct the most significant activities of the trust. The Corporation generally does not have the power to direct the most significant activities of a residential mortgage agency trust except in certain circumstances in which the Corporation holds substantially all of the issued securities and has the unilateral right to liquidate the trust. The power to direct the most significant activities of a commercial mortgage securitization trust is typically held by the special servicer or by the party holding specific subordinate securities which embody certain controlling rights. The Corporation consolidates a whole- loan securitization trust if it has the power to direct the most significant activities and also holds securities issued by the trust or has other contractual arrangements, other than standard representations and warranties, that could potentially be significant to the trust. The Corporation may also transfer trading account securities and AFS securities into municipal bond or resecuritization trusts. The Corporation consolidates a municipal bond or resecuritization trust if it has control over the ongoing activities of the trust such as the remarketing of the trust’s liabilities or, if there are no ongoing activities, sole discretion over the design of the trust, including the identification of securities to be transferred in and the structure of securities to be issued, and also retains securities or has liquidity or other commitments that could potentially be significant to the trust. The Corporation does not consolidate a municipal bond or resecuritization trust if one or a limited number of third- party investors share responsibility for the design of the trust or have control over the significant activities of the trust through liquidation or other substantive rights. Other VIEs used by the Corporation include collateralized debt obligations (CDOs), investment vehicles created on behalf of customers and other investment vehicles. The Corporation does not routinely serve as collateral manager for CDOs and, therefore, does not typically have the power to direct the activities that most significantly impact the economic performance of a CDO. However, following an event of default, if the Corporation is a majority holder of senior securities issued by a CDO and acquires the power to manage the assets of the CDO, the Corporation consolidates the CDO. The Corporation consolidates a customer or other investment vehicle if it has control over the initial design of the vehicle or manages the assets in the vehicle and also absorbs potentially significant gains or losses through an investment in the vehicle, derivative contracts or other arrangements. The Corporation does not consolidate an investment vehicle if a single investor controlled the initial design of the vehicle or manages the assets in the vehicles or if the Corporation does not have a variable interest that could potentially be significant to the vehicle. Retained interests in securitized assets are initially recorded at fair value. In addition, the Corporation may invest in debt securities issued by unconsolidated VIEs. Fair values of these debt securities, which are classified as trading account assets, debt securities carried at fair value or held-to-maturity securities, are based primarily on quoted market prices in active or inactive markets. Generally, quoted market prices for retained residual interests are not available; therefore, the Corporation estimates 144 Bank of America 2015 fair values based on the present value of the associated expected future cash flows. This may require management to estimate credit losses, prepayment speeds, forward interest yield curves, discount rates and other factors that impact the value of retained interests. Retained residual interests in unconsolidated securitization trusts are classified in trading account assets or other assets with changes in fair value recorded in earnings. The Corporation may also enter into derivatives with unconsolidated VIEs, which are carried at fair value with changes in fair value recorded in earnings. Fair Value The Corporation measures the fair values of its assets and liabilities, where applicable, in accordance with accounting guidance that requires an entity to base fair value on exit price. A three-level hierarchy, provided in the applicable accounting guidance, for inputs is utilized in measuring fair value which maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used to determine the exit price when available. Under applicable accounting guidance, the Corporation categorizes its financial instruments, based on the priority of inputs to the valuation technique, into this three-level hierarchy, as described below. Trading account assets and liabilities, derivative assets and liabilities, AFS debt and equity securities, other debt securities carried at fair value, consumer MSRs and certain other assets are carried at fair value in accordance with applicable accounting guidance. The Corporation has also elected to account for certain assets and liabilities under the fair value option, including certain commercial and consumer loans and loan commitments, LHFS, short-term borrowings, securities financing agreements, long-term deposits and long-term debt. The following describes the three- level hierarchy. Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in OTC markets. than exchange-traded Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently instruments and derivative contracts where fair value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. government and agency mortgage-backed and asset-backed securities (ABS), corporate debt securities, derivative contracts, certain loans and LHFS. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the overall fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments for which the determination of requires significant management judgment or estimation. The fair value for such assets and liabilities is generally determined using fair value creditors of these trusts typically have no recourse to the fair values based on the present value of the associated expected Corporation except in accordance with the Corporation’s future cash flows. This may require management to estimate credit obligations under standard representations and warranties. losses, prepayment speeds, forward interest yield curves, discount When the Corporation is the servicer of whole loans held in a rates and other factors that impact the value of retained interests. securitization trust, including non-agency residential mortgages, Retained residual interests in unconsolidated securitization trusts home equity loans, credit cards, automobile loans and student are classified in trading account assets or other assets with loans, the Corporation has the power to direct the most significant changes in fair value recorded in earnings. The Corporation may activities of the trust. The Corporation generally does not have the also enter into derivatives with unconsolidated VIEs, which are power to direct the most significant activities of a residential carried at fair value with changes in fair value recorded in earnings. mortgage agency trust except in certain circumstances in which the Corporation holds substantially all of the issued securities and has the unilateral right to liquidate the trust. The power to direct the most significant activities of a commercial mortgage securitization trust is typically held by the special servicer or by the party holding specific subordinate securities which embody certain controlling rights. The Corporation consolidates a whole- loan securitization trust if it has the power to direct the most significant activities and also holds securities issued by the trust or has other contractual arrangements, other than standard representations and warranties, that could potentially be significant to the trust. The Corporation may also transfer trading account securities and AFS securities into municipal bond or resecuritization trusts. The Corporation consolidates a municipal bond or resecuritization trust if it has control over the ongoing activities of the trust such as the remarketing of the trust’s liabilities or, if there are no ongoing activities, sole discretion over the design of the trust, including the identification of securities to be transferred in and the structure of securities to be issued, and also retains securities or has liquidity or other commitments that could potentially be significant to the trust. The Corporation does not consolidate a municipal bond or resecuritization trust if one or a limited number of third- party investors share responsibility for the design of the trust or have control over the significant activities of the trust through liquidation or other substantive rights. Other VIEs used by the Corporation include collateralized debt obligations (CDOs), investment vehicles created on behalf of customers and other investment vehicles. The Corporation does not routinely serve as collateral manager for CDOs and, therefore, does not typically have the power to direct the activities that most significantly impact the economic performance of a CDO. However, following an event of default, if the Corporation is a majority holder of senior securities issued by a CDO and acquires the power to manage the assets of the CDO, the Corporation consolidates the CDO. The Corporation consolidates a customer or other investment vehicle if it has control over the initial design of the vehicle or manages the assets in the vehicle and also absorbs potentially significant gains or losses through an investment in the vehicle, derivative contracts or other arrangements. The Corporation does not consolidate an investment vehicle if a single investor controlled the initial design of the vehicle or manages the assets in the vehicles or if the Corporation does not have a variable interest that could potentially be significant to the vehicle. Retained interests in securitized assets are initially recorded at fair value. In addition, the Corporation may invest in debt securities issued by unconsolidated VIEs. Fair values of these debt securities, which are classified as trading account assets, debt securities carried at fair value or held-to-maturity securities, are based primarily on quoted market prices in active or inactive markets. Generally, quoted market prices for retained residual interests are not available; therefore, the Corporation estimates 144 Bank of America 2015 Fair Value The Corporation measures the fair values of its assets and liabilities, where applicable, in accordance with accounting guidance that requires an entity to base fair value on exit price. A three-level hierarchy, provided in the applicable accounting guidance, for inputs is utilized in measuring fair value which maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used to determine the exit price when available. Under applicable accounting guidance, the Corporation categorizes its financial instruments, based on the priority of inputs to the valuation technique, into this three-level hierarchy, as described below. Trading account assets and liabilities, derivative assets and liabilities, AFS debt and equity securities, other debt securities carried at fair value, consumer MSRs and certain other assets are carried at fair value in accordance with applicable accounting guidance. The Corporation has also elected to account for certain assets and liabilities under the fair value option, including certain commercial and consumer loans and loan commitments, LHFS, short-term borrowings, securities financing agreements, long-term deposits and long-term debt. The following describes the three- level hierarchy. Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in OTC markets. Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts where fair value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. government and agency mortgage-backed and asset-backed securities (ABS), corporate debt securities, derivative contracts, certain loans and LHFS. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the overall fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments for which the determination of fair value requires significant management judgment or estimation. The fair value for such assets and liabilities is generally determined using pricing models, discounted cash flow methodologies or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability. This category generally includes retained residual interests in securitizations, consumer MSRs, certain ABS, highly structured, complex or long-dated derivative contracts, certain loans and LHFS, IRLCs and certain 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 reflects 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: first, a tax position must be more-likely-than-not to be sustained based solely on its technical merits in order to be recognized, and second, 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. The Corporation records income tax-related interest and penalties, if applicable, within income tax expense. Accumulated Other Comprehensive Income The Corporation records the following in accumulated OCI, net-of- tax: unrealized gains and losses on AFS debt and marketable equity securities, unrealized gains or losses on DVA on financial liabilities recorded at fair value under the fair value option, gains and losses on cash flow accounting hedges, certain employee benefit plan adjustments, and foreign currency translation adjustments and related hedges of net investments in foreign operations. 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. Realized gains or losses on DVA are reclassified to earnings upon derecognition of the liability. 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 includes fees such as interchange, cash advance, annual, late, over-limit and other miscellaneous fees, which are recorded as revenue when earned. 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 generally includes 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. Bank of America 2015 145 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 five or more 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. 146 Bank of America 2015 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 component of accumulated OCI, net-of-tax. When the foreign entity’s functional currency is determined to be the U.S. Dollar, the 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 five or more 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 well as gains and losses from certain hedges, are reported as a recorded as contra-revenue in card income. Unvested share-based payment awards that contain resulting remeasurement gains or losses on foreign currency- nonforfeitable rights to dividends are participating securities that denominated assets or liabilities are included in earnings. NOTE 2 Derivatives Derivative Balances Derivatives are entered into on behalf of customers, for trading, or to support risk management activities. Derivatives used in risk management activities include derivatives that may or may not be designated relationships. Derivatives that are not designated in qualifying hedge accounting relationships are referred to as other risk management derivatives. For more information on the Corporation’s derivatives and hedging in qualifying hedge accounting activities, see Note 1 – Summary of Significant Accounting Principles. The following tables present derivative instruments included on the Consolidated Balance Sheet in derivative assets and liabilities at December 31, 2015 and 2014. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and have been reduced by the cash collateral received or paid. Gross Derivative Assets Gross Derivative Liabilities December 31, 2015 (Dollars in billions) Interest rate contracts Swaps Futures and forwards Written options Purchased options Foreign exchange contracts Swaps Spot, futures and forwards Written options Purchased options Equity contracts Swaps Futures and forwards Written options Purchased options Commodity contracts Swaps Futures and forwards Written options Purchased options Credit derivatives Purchased credit derivatives: Credit default swaps Total return swaps/other Written credit derivatives: Credit default swaps Total return swaps/other Trading and Other Risk Management Derivatives Qualifying Accounting Hedges Contract/ Notional (1) Trading and Other Risk Management Derivatives Qualifying Accounting Hedges Total $ $ 21,706.8 7,259.7 1,322.4 1,403.3 $ 439.6 1.1 — 58.9 $ $ 447.0 1.1 — 58.9 $ 440.7 1.3 57.7 — 7.4 — — — 0.9 1.2 — — — — — — — — — — — — 50.1 47.2 — 10.2 3.3 2.1 — 23.8 4.7 3.8 — 5.3 14.4 0.2 — — 9.5 $ $ $ 15.3 2.3 689.7 (597.8) (41.9) 50.0 52.2 45.8 10.6 — 3.8 1.2 21.1 — 7.1 0.7 5.5 — 14.8 1.9 13.1 0.4 677.9 $ Total $ 441.9 1.3 57.7 — 55.0 46.1 10.6 — 3.8 1.2 21.1 — 7.1 0.7 5.5 — 14.8 1.9 1.2 — — — 2.8 0.3 — — — — — — — — — — — — — — 4.3 $ $ 13.1 0.4 682.2 (597.8) (45.9) 38.5 2,149.9 4,104.4 467.2 439.9 201.2 74.0 352.8 325.4 47.0 268.7 58.7 65.7 928.3 26.4 924.1 39.7 49.2 46.0 — 10.2 3.3 2.1 — 23.8 4.7 3.8 — 5.3 14.4 0.2 15.3 2.3 680.2 $ Gross derivative assets/liabilities $ Less: Legally enforceable master netting agreements Less: Cash collateral received/paid Total derivative assets/liabilities (1) Represents the total contract/notional amount of derivative assets and liabilities outstanding. 146 Bank of America 2015 Bank of America 2015 147 (Dollars in billions) Interest rate contracts Swaps Futures and forwards Written options Purchased options Foreign exchange contracts Swaps Spot, futures and forwards Written options Purchased options Equity contracts Swaps Futures and forwards Written options Purchased options Commodity contracts Swaps Futures and forwards Written options Purchased options Credit derivatives Purchased credit derivatives: Credit default swaps Total return swaps/other Written credit derivatives: Credit default swaps Total return swaps/other Gross Derivative Assets Gross Derivative Liabilities December 31, 2014 Trading and Other Risk Management Derivatives Qualifying Accounting Hedges Contract/ Notional (1) Trading and Other Risk Management Derivatives Qualifying Accounting Hedges Total $ $ 29,445.4 10,159.4 1,725.2 1,739.8 $ 658.5 1.7 — 85.6 $ $ 667.0 1.7 — 85.6 $ 658.2 2.0 85.4 — 8.5 — — — 0.8 1.5 — — — — — — — — — — — — 52.3 70.4 — 15.1 3.2 2.1 — 27.9 5.8 4.5 — 10.7 13.3 0.2 2,159.1 4,226.4 600.7 584.6 193.7 69.5 341.0 318.4 74.3 376.5 129.5 141.3 1,094.8 44.3 1,073.1 61.0 51.5 68.9 — 15.1 3.2 2.1 — 27.9 5.8 4.5 — 10.7 13.3 0.2 24.5 0.5 974.0 Total $ 658.7 2.0 85.4 — 56.5 72.6 16.0 — 4.0 1.8 26.0 — 8.5 1.8 11.5 — 23.4 1.4 0.5 — — — 1.9 0.2 — — — — — — — — — — — — — — 2.6 $ $ 11.9 0.3 981.8 (884.8) (50.1) 46.9 54.6 72.4 16.0 — 4.0 1.8 26.0 — 8.5 1.8 11.5 — 23.4 1.4 11.9 0.3 979.2 $ Gross derivative assets/liabilities $ Less: Legally enforceable master netting agreements Less: Cash collateral received/paid Total derivative assets/liabilities — — 10.8 $ $ $ 24.5 0.5 984.8 (884.8) (47.3) 52.7 $ (1) Represents the total contract/notional amount of derivative assets and liabilities outstanding. Offsetting of Derivatives The Corporation enters into International Swaps and Derivatives Association, Inc. (ISDA) master netting agreements or similar agreements with substantially all of the Corporation’s derivative counterparties. Where legally enforceable, these master netting agreements give the Corporation, in the event of default by the counterparty, the right to liquidate securities held as collateral and to offset receivables and payables with the same counterparty. For purposes of the Consolidated Balance Sheet, the Corporation offsets derivative assets and liabilities and cash collateral held with the same counterparty where it has such a legally enforceable master netting agreement. The Offsetting of Derivatives table presents derivative instruments included in derivative assets and liabilities on the Consolidated Balance Sheet at December 31, 2015 and 2014 by primary risk (e.g., interest rate risk) and the platform, where applicable, on which these derivatives are transacted. Exchange- traded derivatives include listed options transacted on an exchange. OTC derivatives include bilateral transactions between the Corporation and a particular counterparty. OTC-cleared derivatives include bilateral transactions between the Corporation and a counterparty where the transaction is cleared through a clearinghouse. Balances are presented on a gross basis, prior to 148 Bank of America 2015 the application of counterparty and cash collateral netting. Total gross derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements which includes reducing the balance for counterparty netting and cash collateral received or paid. Other gross derivative assets and liabilities in the table represent derivatives entered into under master netting agreements where uncertainty exists as to the enforceability of these agreements under bankruptcy laws in some countries or industries and, accordingly, receivables and payables with counterparties in these countries or industries are reported on a gross basis. Also included in the table is financial instruments collateral related to legally enforceable master netting agreements that represents securities collateral received or pledged and customer cash collateral held at third-party custodians. These amounts are not offset on the Consolidated Balance Sheet but are shown as a reduction to total derivative assets and liabilities in the table to derive net derivative assets and liabilities. For more information on offsetting of securities financing agreements, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings. (Dollars in billions) Interest rate contracts Swaps Futures and forwards Written options Purchased options Foreign exchange contracts Swaps Spot, futures and forwards Written options Purchased options Equity contracts Swaps Futures and forwards Written options Purchased options Commodity contracts Swaps Futures and forwards Written options Purchased options Credit derivatives Purchased credit derivatives: Credit default swaps Total return swaps/other Written credit derivatives: Credit default swaps Total return swaps/other Trading and Other Risk Management Derivatives Qualifying Accounting Hedges Contract/ Notional (1) Trading and Other Risk Management Derivatives Qualifying Accounting Hedges Total Total $ 29,445.4 $ 658.5 $ 8.5 $ 667.0 $ 658.2 $ 0.5 $ 658.7 10,159.4 1,725.2 1,739.8 2,159.1 4,226.4 600.7 584.6 193.7 69.5 341.0 318.4 74.3 376.5 129.5 141.3 1,094.8 44.3 1,073.1 61.0 1.7 — 85.6 51.5 68.9 — 15.1 3.2 2.1 — 27.9 5.8 4.5 — 10.7 13.3 0.2 24.5 0.5 — — — 0.8 1.5 — — — — — — — — — — — — — — 1.7 — 85.6 52.3 70.4 — 15.1 3.2 2.1 — 27.9 5.8 4.5 — 10.7 13.3 0.2 24.5 0.5 2.0 85.4 — 54.6 72.4 16.0 — 4.0 1.8 26.0 — 8.5 1.8 11.5 — 23.4 1.4 11.9 0.3 — — — 1.9 0.2 — — — — — — — — — — — — — — 2.0 85.4 — 56.5 72.6 16.0 — 4.0 1.8 26.0 — 8.5 1.8 11.5 — 23.4 1.4 11.9 0.3 Gross derivative assets/liabilities $ 974.0 $ 10.8 $ 984.8 $ 979.2 $ 2.6 $ Less: Legally enforceable master netting agreements Less: Cash collateral received/paid Total derivative assets/liabilities (1) Represents the total contract/notional amount of derivative assets and liabilities outstanding. (884.8) (47.3) 52.7 $ 981.8 (884.8) (50.1) 46.9 $ Offsetting of Derivatives The Corporation enters into International Swaps and Derivatives Association, Inc. (ISDA) master netting agreements or similar agreements with substantially all of the Corporation’s derivative counterparties. Where legally enforceable, these master netting agreements give the Corporation, in the event of default by the counterparty, the right to liquidate securities held as collateral and to offset receivables and payables with the same counterparty. For purposes of the Consolidated Balance Sheet, the Corporation offsets derivative assets and liabilities and cash collateral held with the same counterparty where it has such a legally enforceable master netting agreement. The Offsetting of Derivatives table presents derivative instruments included in derivative assets and liabilities on the Consolidated Balance Sheet at December 31, 2015 and 2014 by primary risk (e.g., interest rate risk) and the platform, where applicable, on which these derivatives are transacted. Exchange- traded derivatives include listed options transacted on an exchange. OTC derivatives include bilateral transactions between the Corporation and a particular counterparty. OTC-cleared derivatives include bilateral transactions between the Corporation and a counterparty where the transaction is cleared through a clearinghouse. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total gross derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements which includes reducing the balance for counterparty netting and cash collateral received or paid. Other gross derivative assets and liabilities in the table represent derivatives entered into under master netting agreements where uncertainty exists as to the enforceability of these agreements under bankruptcy laws in some countries or industries and, accordingly, receivables and payables with counterparties in these countries or industries are reported on a gross basis. Also included in the table is financial instruments collateral related to legally enforceable master netting agreements that represents securities collateral received or pledged and customer cash collateral held at third-party custodians. These amounts are not offset on the Consolidated Balance Sheet but are shown as a reduction to total derivative assets and liabilities in the table to derive net derivative assets and liabilities. For more information on offsetting of securities financing agreements, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings. Gross Derivative Assets Gross Derivative Liabilities December 31, 2014 Offsetting of Derivatives (Dollars in billions) Interest rate contracts Over-the-counter Exchange-traded Over-the-counter cleared Foreign exchange contracts Over-the-counter Over-the-counter cleared Equity contracts Over-the-counter Exchange-traded Commodity contracts Over-the-counter Exchange-traded Over-the-counter cleared Credit derivatives Over-the-counter Over-the-counter cleared Total gross derivative assets/liabilities, before netting Over-the-counter Exchange-traded Over-the-counter cleared Less: Legally enforceable master netting agreements and cash collateral received/paid Over-the-counter Exchange-traded Over-the-counter cleared Derivative assets/liabilities, after netting Other gross derivative assets/liabilities Total derivative assets/liabilities Less: Financial instruments collateral (1) December 31, 2015 December 31, 2014 Derivative Assets Derivative Liabilities Derivative Assets Derivative Liabilities $ $ 309.3 — 197.0 103.2 0.1 16.6 10.0 7.3 2.9 0.1 24.6 6.5 461.0 12.9 203.7 (426.6) (9.8) (203.3) 37.9 12.1 50.0 (13.9) 36.1 297.2 — 201.7 107.5 0.1 14.0 9.2 8.9 2.9 0.1 22.9 6.4 450.5 12.1 208.3 (425.7) (9.8) (208.2) 27.2 11.3 38.5 (6.5) 32.0 $ $ 386.6 0.1 365.7 133.0 — 19.5 8.6 10.2 7.4 0.1 30.8 7.0 580.1 16.1 372.8 (545.7) (13.9) (372.5) 36.9 15.8 52.7 (13.3) 39.4 $ $ 373.2 0.1 368.7 139.9 — 16.7 7.8 11.9 7.7 0.6 30.2 6.8 571.9 15.6 376.1 (545.5) (13.9) (375.5) 28.7 18.2 46.9 (8.9) 38.0 Total net derivative assets/liabilities (1) These amounts are limited to the derivative asset/liability balance and, accordingly, do not include excess collateral received/pledged. $ $ ALM and Risk Management Derivatives The Corporation’s ALM and risk management activities include the use of derivatives to mitigate risk to the Corporation including derivatives designated in qualifying hedge accounting relationships and derivatives used in other risk management activities. Interest rate, foreign exchange, equity, commodity and credit contracts are utilized in the Corporation’s ALM and risk management activities. The Corporation maintains an overall interest rate risk management strategy that incorporates the use of interest rate contracts, which are generally non-leveraged generic interest rate and basis swaps, options, futures and forwards, to minimize significant fluctuations in earnings caused by interest rate volatility. The Corporation’s goal is to manage interest rate sensitivity and volatility so that movements in interest rates do not significantly adversely affect earnings or capital. As a result of interest rate fluctuations, hedged fixed-rate assets and liabilities appreciate or depreciate in fair value. Gains or losses on the derivative instruments that are linked to the hedged fixed-rate assets and liabilities are expected to substantially offset this unrealized appreciation or depreciation. Market risk, including interest rate risk, can be substantial in the mortgage business. Market risk is the risk that values of mortgage assets or revenues will be adversely affected by changes in market conditions such as interest rate movements. To mitigate the interest rate risk in mortgage banking production income, the Corporation utilizes forward loan sale commitments and other derivative instruments, including purchased options, and certain debt securities. The Corporation also utilizes derivatives such as interest rate options, interest rate swaps, forward settlement contracts and eurodollar futures to hedge certain market risks of MSRs. For more information on MSRs, see Note 23 – Mortgage Servicing Rights. The Corporation uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency- denominated assets and liabilities, as well as the Corporation’s investments in non-U.S. subsidiaries. Foreign exchange contracts, which include spot and forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. Exposure to loss on these contracts will increase or decrease over their respective lives as currency exchange and interest rates fluctuate. The Corporation enters into derivative commodity contracts such as futures, swaps, options and forwards as well as non- derivative commodity contracts to provide price risk management services to customers or to manage price risk associated with its physical and financial commodity positions. The non-derivative commodity contracts and physical inventories of commodities expose the Corporation to earnings volatility. Fair value accounting hedges provide a method to mitigate a portion of this earnings volatility. 148 Bank of America 2015 Bank of America 2015 149 The Corporation purchases credit derivatives to manage credit risk related to certain funded and unfunded credit exposures. Credit derivatives include credit default swaps (CDS), total return swaps and swaptions. These derivatives are recorded on the Consolidated Balance Sheet at fair value with changes in fair value recorded in other income. Derivatives Designated as Accounting Hedges The Corporation uses various types of interest rate, commodity and foreign exchange derivative contracts to protect against changes in the fair value of its assets and liabilities due to fluctuations in interest rates, commodity prices and exchange rates (fair value hedges). The Corporation also uses these types of contracts and equity derivatives to protect against changes in the cash flows of its assets and liabilities, and other forecasted transactions (cash flow hedges). The Corporation hedges its net investment in consolidated non-U.S. operations determined to have functional currencies other than the U.S. Dollar using forward exchange contracts and cross-currency basis swaps, and by issuing foreign currency-denominated debt (net investment hedges). Fair Value Hedges The table below summarizes information related to fair value hedges for 2015, 2014 and 2013, including hedges of interest rate risk on long-term debt that were acquired as part of a business combination and redesignated at that time. At redesignation, the fair value of the derivatives was positive. As the derivatives mature, the fair value will approach zero. As a result, ineffectiveness will occur and the fair value changes in the derivatives and the long- term debt being hedged may be directionally the same in certain scenarios. Based on a regression analysis, the derivatives continue to be highly effective at offsetting changes in the fair value of the long-term debt attributable to interest rate risk. Derivatives Designated as Fair Value Hedges Gains (Losses) (Dollars in millions) Interest rate risk on long-term debt (1) Interest rate and foreign currency risk on long-term debt (1) Interest rate risk on available-for-sale securities (2) Price risk on commodity inventory (3) Total Interest rate risk on long-term debt (1) Interest rate and foreign currency risk on long-term debt (1) Interest rate risk on available-for-sale securities (2) Price risk on commodity inventory (3) Total Interest rate risk on long-term debt (1) Interest rate and foreign currency risk on long-term debt (1) Interest rate risk on available-for-sale securities (2) Price risk on commodity inventory (3) Total (1) Amounts are recorded in interest expense on long-term debt and in other income (loss). (2) Amounts are recorded in interest income on debt securities. (3) Amounts relating to commodity inventory are recorded in trading account profits. Derivative 2015 Hedged Item Hedge Ineffectiveness $ $ $ $ $ $ (718) $ (1,898) 105 15 (2,496) $ $ 2,144 (2,212) (35) 21 (82) $ (4,704) $ (1,291) 839 (13) (5,169) $ (77) $ 1,812 (127) (11) 1,597 $ 2014 (2,935) $ 2,120 3 (15) (827) $ 2013 3,925 1,085 (840) 11 4,181 $ $ (795) (86) (22) 4 (899) (791) (92) (32) 6 (909) (779) (206) (1) (2) (988) 150 Bank of America 2015 The Corporation purchases credit derivatives to manage credit have functional currencies other than the U.S. Dollar using forward risk related to certain funded and unfunded credit exposures. exchange contracts and cross-currency basis swaps, and by Credit derivatives include credit default swaps (CDS), total return issuing foreign currency-denominated debt (net investment swaps and swaptions. These derivatives are recorded on the hedges). Consolidated Balance Sheet at fair value with changes in fair value recorded in other income. Derivatives Designated as Accounting Hedges The Corporation uses various types of interest rate, commodity and foreign exchange derivative contracts to protect against changes in the fair value of its assets and liabilities due to fluctuations in interest rates, commodity prices and exchange rates (fair value hedges). The Corporation also uses these types of contracts and equity derivatives to protect against changes in the cash flows of its assets and liabilities, and other forecasted transactions (cash flow hedges). The Corporation hedges its net investment in consolidated non-U.S. operations determined to Fair Value Hedges The table below summarizes information related to fair value hedges for 2015, 2014 and 2013, including hedges of interest rate risk on long-term debt that were acquired as part of a business combination and redesignated at that time. At redesignation, the fair value of the derivatives was positive. As the derivatives mature, the fair value will approach zero. As a result, ineffectiveness will occur and the fair value changes in the derivatives and the long- term debt being hedged may be directionally the same in certain scenarios. Based on a regression analysis, the derivatives continue to be highly effective at offsetting changes in the fair value of the long-term debt attributable to interest rate risk. Derivatives Designated as Fair Value Hedges Gains (Losses) (Dollars in millions) Interest rate risk on long-term debt (1) Interest rate and foreign currency risk on long-term debt (1) Interest rate risk on available-for-sale securities (2) Price risk on commodity inventory (3) Interest rate risk on long-term debt (1) Interest rate and foreign currency risk on long-term debt (1) Interest rate risk on available-for-sale securities (2) Price risk on commodity inventory (3) Total Total Total Interest rate risk on long-term debt (1) Interest rate and foreign currency risk on long-term debt (1) Interest rate risk on available-for-sale securities (2) Price risk on commodity inventory (3) (1) Amounts are recorded in interest expense on long-term debt and in other income (loss). (2) Amounts are recorded in interest income on debt securities. (3) Amounts relating to commodity inventory are recorded in trading account profits. Derivative 2015 Hedged Item Hedge Ineffectiveness $ $ $ $ $ $ (718) $ (1,898) 105 15 (77) $ 1,812 (127) (11) (2,496) $ 1,597 $ 2014 2,144 $ (2,935) $ (2,212) (35) 21 2,120 3 (15) (82) $ (827) $ (4,704) $ (1,291) 839 (13) 2013 $ 3,925 1,085 (840) 11 (5,169) $ 4,181 $ (795) (86) (22) 4 (899) (791) (92) (32) 6 (909) (779) (206) (1) (2) (988) Cash Flow and Net Investment Hedges The table below summarizes certain information related to cash flow hedges and net investment hedges for 2015, 2014 and 2013. Of the $1.1 billion net loss (after-tax) on derivatives in accumulated OCI for 2015, $563 million ($352 million after-tax) is expected to be reclassified into earnings in the next 12 months. These net losses reclassified into earnings are expected to primarily reduce net interest income related to the respective hedged items. Amounts related to price risk on restricted stock awards reclassified from accumulated OCI are recorded in personnel expense. For terminated cash flow hedges, the time period over which substantially all of the forecasted transactions are hedged is approximately seven years, with a maximum length of time for certain forecasted transactions of 20 years. Derivatives Designated as Cash Flow and Net Investment Hedges (Dollars in millions, amounts pretax) Cash flow hedges Interest rate risk on variable-rate portfolios Price risk on restricted stock awards (2) Total Net investment hedges Foreign exchange risk Cash flow hedges Interest rate risk on variable-rate portfolios Price risk on restricted stock awards (2) Total Net investment hedges Foreign exchange risk Cash flow hedges Interest rate risk on variable-rate portfolios Price risk on restricted stock awards (2) Total Net investment hedges Foreign exchange risk 2015 Gains (Losses) Recognized in Accumulated OCI on Derivatives Gains (Losses) in Income Reclassified from Accumulated OCI Hedge Ineffectiveness and Amounts Excluded from Effectiveness Testing (1) $ $ $ $ $ $ $ $ $ 95 (40) 55 3,010 68 127 195 3,021 $ $ $ $ $ $ (974) $ 91 (883) $ (2) — (2) 153 $ (298) (1,119) $ 359 (760) $ (4) — (4) 21 $ (503) 2014 2013 (321) $ 477 156 $ (1,102) $ 329 (773) $ — — — 1,024 $ (355) $ (134) (1) Amounts related to cash flow hedges represent hedge ineffectiveness and amounts related to net investment hedges represent amounts excluded from effectiveness testing. (2) The hedge gain (loss) recognized in accumulated OCI is primarily related to the change in the Corporation’s stock price for the period. 150 Bank of America 2015 Bank of America 2015 151 Other Risk Management Derivatives Other risk management derivatives are used by the Corporation to reduce certain risk exposures. These derivatives are not qualifying accounting hedges because either they did not qualify for or were not designated as accounting hedges. The table below presents gains (losses) on these derivatives for 2015, 2014 and 2013. These gains (losses) are largely offset by the income or expense that is recorded on the hedged item. Other Risk Management Derivatives Gains (Losses) (Dollars in millions) 2015 2014 2013 (619) Interest rate risk on mortgage banking income (1) (47) Credit risk on loans (2) 2,501 Interest rate and foreign currency risk on ALM activities (3) 865 Price risk on restricted stock awards (4) (19) Other (1) Net gains (losses) on these derivatives are recorded in mortgage banking income as they are used to mitigate the interest rate risk related to MSRs, IRLCs and mortgage loans held-for-sale, all of which are measured at fair value with changes in fair value recorded in mortgage banking income. The net gains on IRLCs related to the origination of mortgage loans that are held-for-sale, which are not included in the table but are considered derivative instruments, were $714 million, $776 million and $927 million for 2015, 2014 and 2013, respectively. 1,017 16 (3,683) 600 (9) 254 (22) (222) (267) 11 $ $ $ (2) Primarily related to derivatives that are economic hedges of credit risk on loans. Net gains (losses) on these derivatives are recorded in other income. (3) Primarily related to hedges of debt securities carried at fair value and hedges of foreign currency-denominated debt. Gains (losses) on these derivatives and the related hedged items are recorded in other income. (4) Gains (losses) on these derivatives are recorded in personnel expense. Transfers of Financial Assets with Risk Retained through Derivatives The Corporation enters into certain transactions involving the transfer of financial assets that are accounted for as sales where substantially all of the economic exposure to the transferred financial assets is retained by the Corporation through a derivative agreement with the initial transferee. These transactions are accounted for as sales because the Corporation does not retain control over the assets transferred. Through December 31, 2015, the Corporation transferred $7.9 billion of primarily non-U.S. government-guaranteed mortgage- backed securities (MBS) to a third-party trust. The Corporation received gross cash proceeds of $7.9 billion at the transfer dates. At December 31, 2015, the fair value of these securities was $7.2 billion. The Corporation simultaneously entered into derivatives with those counterparties whereby the Corporation retained certain economic exposures to those securities (e.g., interest rate and/or credit risk). A derivative asset of $24 million and a liability of $29 million were recorded at December 31, 2015 and are included in credit derivatives in the derivative instruments table on page 147. The economic exposure retained by the Corporation is typically hedged with interest rate swaps and interest rate swaptions. Sales and Trading Revenue The Corporation enters into trading derivatives to facilitate client transactions and to manage risk exposures arising from trading account assets and liabilities. It is the Corporation’s policy to include these derivative instruments in its trading activities which include derivatives and non-derivative cash instruments. The resulting risk from these derivatives is managed on a portfolio basis as part of the Corporation’s Global Markets business segment. The related sales and trading revenue generated within Global Markets is recorded in various income statement line items including trading account profits and net interest income as well as other revenue categories. Sales and trading revenue includes changes in the fair value and realized gains and losses on the sales of trading and other assets, net interest income, and fees primarily from commissions on equity securities. Revenue is generated by the difference in the client price for an instrument and the price at which the trading desk can execute the trade in the dealer market. For equity securities, commissions related to purchases and sales are recorded in the “Other” column in the Sales and Trading Revenue table. Changes in the fair value of these securities are included in trading account profits. For debt securities, revenue, with the exception of interest associated with the debt securities, is typically included in trading account profits. Unlike commissions for equity securities, the initial revenue related to broker-dealer services for debt securities is typically included in the pricing of the instrument rather than being charged through separate fee arrangements. Therefore, this revenue is recorded in trading account profits as part of the initial mark to fair value. For derivatives, the majority of revenue is included in trading account profits. In transactions where the Corporation acts as agent, which include exchange-traded futures and options, fees are recorded in other income. 152 Bank of America 2015 Other Risk Management Derivatives Other risk management derivatives are used by the Corporation to reduce certain risk exposures. These derivatives are not qualifying accounting hedges because either they did not qualify for or were not designated as accounting hedges. The table below presents gains (losses) on these derivatives for 2015, 2014 and 2013. These gains (losses) are largely offset by the income or expense that is recorded on the hedged item. Other Risk Management Derivatives Gains (Losses) (Dollars in millions) Interest rate risk on mortgage banking income (1) Credit risk on loans (2) Interest rate and foreign currency risk on ALM activities (3) Price risk on restricted stock awards (4) Other 2015 2014 2013 $ 254 $ 1,017 $ (22) (222) (267) 11 16 (3,683) 600 (9) (619) (47) 2,501 865 (19) (1) Net gains (losses) on these derivatives are recorded in mortgage banking income as they are used to mitigate the interest rate risk related to MSRs, IRLCs and mortgage loans held-for-sale, all of which are measured at fair value with changes in fair value recorded in mortgage banking income. The net gains on IRLCs related to the origination of mortgage loans that are held-for-sale, which are not included in the table but are considered derivative instruments, were $714 million, $776 million and $927 million for 2015, 2014 and 2013, respectively. (2) Primarily related to derivatives that are economic hedges of credit risk on loans. Net gains (losses) on these derivatives are recorded in other income. (3) Primarily related to hedges of debt securities carried at fair value and hedges of foreign currency-denominated debt. Gains (losses) on these derivatives and the related hedged items are recorded in other income. (4) Gains (losses) on these derivatives are recorded in personnel expense. Transfers of Financial Assets with Risk Retained through Derivatives The Corporation enters into certain transactions involving the transfer of financial assets that are accounted for as sales where substantially all of the economic exposure to the transferred financial assets is retained by the Corporation through a derivative agreement with the initial transferee. These transactions are accounted for as sales because the Corporation does not retain control over the assets transferred. Through December 31, 2015, the Corporation transferred $7.9 billion of primarily non-U.S. government-guaranteed mortgage- backed securities (MBS) to a third-party trust. The Corporation received gross cash proceeds of $7.9 billion at the transfer dates. At December 31, 2015, the fair value of these securities was $7.2 billion. The Corporation simultaneously entered into derivatives with those counterparties whereby the Corporation retained certain economic exposures to those securities (e.g., interest rate and/or credit risk). A derivative asset of $24 million and a liability of $29 million were recorded at December 31, 2015 and are included in credit derivatives in the derivative instruments table on page 147. The economic exposure retained by the Corporation is typically hedged with interest rate swaps and interest rate swaptions. Sales and Trading Revenue The Corporation enters into trading derivatives to facilitate client transactions and to manage risk exposures arising from trading account assets and liabilities. It is the Corporation’s policy to include these derivative instruments in its trading activities which include derivatives and non-derivative cash instruments. The resulting risk from these derivatives is managed on a portfolio basis as part of the Corporation’s Global Markets business segment. The related sales and trading revenue generated within Global Markets is recorded in various income statement line items including trading account profits and net interest income as well as other revenue categories. Sales and trading revenue includes changes in the fair value and realized gains and losses on the sales of trading and other assets, net interest income, and fees primarily from commissions on equity securities. Revenue is generated by the difference in the client price for an instrument and the price at which the trading desk can execute the trade in the dealer market. For equity securities, commissions related to purchases and sales are recorded in the “Other” column in the Sales and Trading Revenue table. Changes in the fair value of these securities are included in trading account profits. For debt securities, revenue, with the exception of interest associated with the debt securities, is typically included in trading account profits. Unlike commissions for equity securities, the initial revenue related to broker-dealer services for debt securities is typically included in the pricing of the instrument rather than being charged through separate fee arrangements. Therefore, this revenue is recorded in trading account profits as part of the initial mark to fair value. For derivatives, the majority of revenue is included in trading account profits. In transactions where the Corporation acts as agent, which include exchange-traded futures and options, fees are recorded in other income. The table below, which includes both derivatives and non- derivative cash instruments, identifies the amounts in the respective income statement line items attributable to the Corporation’s sales and trading revenue in Global Markets, categorized by primary risk, for 2015, 2014 and 2013. The difference between total trading account profits in the table below and in the Consolidated Statement of Income represents trading activities in business segments other than Global Markets. This table includes DVA and funding valuation adjustment (FVA) gains (losses). Global Markets results in Note 24 – Business Segment Information are presented on a fully taxable-equivalent (FTE) basis. The table below is not presented on an FTE basis. The results for 2015 were impacted by the early adoption of new accounting guidance on recognition and measurement of financial instruments. As such, amounts in the "Other" column for 2015 exclude unrealized DVA resulting from changes in the Corporation’s own credit spreads on liabilities accounted for under the fair value option. Amounts for 2014 and 2013 include such amounts. For more information on the new accounting guidance, see Note 1 – Summary of Significant Accounting Principles. Sales and Trading Revenue (Dollars in millions) Interest rate risk Foreign exchange risk Equity risk Credit risk Other risk Total sales and trading revenue Interest rate risk Foreign exchange risk Equity risk Credit risk Other risk Total sales and trading revenue Interest rate risk Foreign exchange risk Equity risk Credit risk Other risk Total sales and trading revenue 2015 Trading Account Profits Net Interest Income Other (1) Total $ $ $ $ $ $ 1,251 1,322 2,115 901 481 6,070 962 1,177 1,954 1,396 508 5,997 1,217 1,169 1,994 1,966 388 6,734 $ $ $ $ $ $ 1,457 (10) 56 2,360 (80) 3,783 $ $ (319) $ (117) 2,146 452 61 2,223 $ 2,389 1,195 4,317 3,713 462 12,076 2014 $ 1,097 7 (79) 2,563 (123) 3,465 1,158 6 112 2,647 (217) 3,706 2013 $ $ $ 401 (128) 2,307 617 106 3,303 $ 2,460 1,056 4,182 4,576 491 $ 12,765 (290) $ (100) 2,066 77 69 1,822 2,085 1,075 4,172 4,690 240 $ 12,262 (1) Represents amounts in investment and brokerage services and other income that are recorded in Global Markets and included in the definition of sales and trading revenue. Includes investment and brokerage services revenue of $2.2 billion, $2.2 billion and $2.1 billion for 2015, 2014 and 2013, respectively. Credit Derivatives The Corporation enters into credit derivatives primarily to facilitate client transactions and to manage credit risk exposures. Credit derivatives derive value based on an underlying third-party referenced obligation or a portfolio of referenced obligations and generally require the Corporation, as the seller of credit protection, to make payments to a buyer upon the occurrence of a pre-defined credit event. Such credit events generally include bankruptcy of the referenced credit entity and failure to pay under the obligation, as well as acceleration of indebtedness and payment repudiation or moratorium. For credit derivatives based on a portfolio of referenced credits or credit indices, the Corporation may not be required to make payment until a specified amount of loss has occurred and/or may only be required to make payment up to a specified amount. Credit derivative instruments where the Corporation is the seller of credit protection and their expiration at December 31, 2015 and 2014 are summarized in the table below. These instruments are classified as investment and non-investment grade based on the credit quality of the underlying referenced obligation. The Corporation considers ratings of BBB- or higher as investment grade. Non-investment grade includes non-rated credit derivative instruments. The Corporation discloses internal categorizations of investment grade and non-investment grade consistent with how risk is managed for these instruments. 152 Bank of America 2015 Bank of America 2015 153 December 31, 2015 Carrying Value Less than One Year One to Three Years Three to Five Years Over Five Years Total $ $ $ $ $ $ $ $ $ $ 84 672 756 5 171 176 932 267 61 328 149,177 81,596 230,773 9,758 20,917 30,675 261,448 100 916 1,016 24 64 88 1,104 2 5 7 $ $ $ $ $ $ $ $ $ $ 481 3,035 3,516 — 236 236 3,752 $ $ 2,203 2,386 4,589 — 8 8 4,597 $ $ $ $ 57 118 175 Maximum Payout/Notional 444 117 561 $ $ 680 3,583 4,263 — 2 2 4,265 2,203 1,264 3,467 280,658 135,850 416,508 — 6,989 6,989 423,497 $ $ 178,990 53,299 232,289 — 1,371 1,371 233,660 $ $ 26,352 18,221 44,573 — 623 623 45,196 December 31, 2014 Carrying Value 714 2,107 2,821 — 247 247 3,068 $ $ 1,455 1,338 2,793 — 2 2 2,795 $ $ $ $ 365 141 506 Maximum Payout/Notional 568 85 653 $ $ 939 4,301 5,240 — — — 5,240 2,634 1,443 4,077 $ $ $ $ $ $ $ $ $ $ 3,448 9,676 13,124 5 417 422 13,546 2,971 1,560 4,531 635,177 288,966 924,143 9,758 29,900 39,658 963,801 3,208 8,662 11,870 24 313 337 12,207 3,569 1,674 5,243 $ 132,974 54,326 187,300 $ 342,914 170,580 513,494 $ 242,728 80,011 322,739 22,645 23,839 46,484 $ 233,784 — 10,792 10,792 $ 524,286 — 3,268 3,268 $ 326,007 $ $ 28,982 20,586 49,568 $ 747,598 325,503 1,073,101 — 487 487 50,055 22,645 38,386 61,031 $ 1,134,132 Credit Derivative Instruments (Dollars in millions) Credit default swaps: Investment grade Non-investment grade Total Total return swaps/other: Investment grade Non-investment grade Total Total credit derivatives Credit-related notes: Investment grade Non-investment grade Total credit-related notes Credit default swaps: Investment grade Non-investment grade Total Total return swaps/other: Investment grade Non-investment grade Total Total credit derivatives Credit default swaps: Investment grade Non-investment grade Total Total return swaps/other: Investment grade Non-investment grade Total Total credit derivatives Credit-related notes: Investment grade Non-investment grade Total credit-related notes Credit default swaps: Investment grade Non-investment grade Total Total return swaps/other: Investment grade Non-investment grade Total Total credit derivatives 154 Bank of America 2015 Credit Derivative Instruments (Dollars in millions) Credit default swaps: Investment grade Non-investment grade Total return swaps/other: Investment grade Non-investment grade Total Total Total credit derivatives Credit-related notes: Investment grade Non-investment grade Total credit-related notes Credit default swaps: Investment grade Non-investment grade Total return swaps/other: Investment grade Non-investment grade Total Total Total credit derivatives Credit default swaps: Investment grade Non-investment grade Total return swaps/other: Investment grade Non-investment grade Total Total Total credit derivatives Credit-related notes: Investment grade Non-investment grade Total credit-related notes Credit default swaps: Investment grade Non-investment grade Total return swaps/other: Investment grade Non-investment grade Total Total Total credit derivatives December 31, 2015 Carrying Value Less than One Year One to Three Years Three to Five Years Over Five Years Total $ 84 $ 481 $ $ 680 $ 3,752 4,597 4,265 13,546 672 756 5 171 176 932 267 61 328 $ $ $ 3,035 3,516 — 236 236 57 118 175 Maximum Payout/Notional $ 149,177 $ 280,658 $ 178,990 $ $ 635,177 81,596 230,773 135,850 416,508 53,299 232,289 9,758 20,917 30,675 — 6,989 6,989 — 1,371 1,371 $ 261,448 $ 423,497 $ 233,660 $ 45,196 $ 963,801 December 31, 2014 Carrying Value $ 714 $ $ 939 $ 2,203 2,386 4,589 — 8 8 444 117 561 1,455 1,338 2,793 — 2 2 568 85 653 $ $ $ $ $ $ 3,583 4,263 — 2 2 2,203 1,264 3,467 26,352 18,221 44,573 — 623 623 4,301 5,240 — — — 2,634 1,443 4,077 3,448 9,676 13,124 5 417 422 2,971 1,560 4,531 288,966 924,143 9,758 29,900 39,658 3,208 8,662 11,870 24 313 337 3,569 1,674 5,243 $ $ $ $ $ $ $ $ $ $ $ $ 100 916 1,016 24 64 88 2 5 7 $ $ $ 2,107 2,821 — 247 247 365 141 506 1,104 3,068 2,795 5,240 12,207 $ $ $ $ $ $ $ Maximum Payout/Notional $ 132,974 $ 342,914 $ 242,728 $ 28,982 $ 747,598 54,326 187,300 170,580 513,494 80,011 322,739 20,586 49,568 325,503 1,073,101 22,645 23,839 46,484 — 10,792 10,792 — 3,268 3,268 — 487 487 22,645 38,386 61,031 $ 233,784 $ 524,286 $ 326,007 $ 50,055 $ 1,134,132 The notional amount represents the maximum amount payable by the Corporation for most credit derivatives. However, the Corporation does not monitor its exposure to credit derivatives based solely on the notional amount because this measure does not take into consideration the probability of occurrence. As such, the notional amount is not a reliable indicator of the Corporation’s exposure to these contracts. Instead, a risk framework is used to define risk tolerances and establish limits to help ensure that certain credit risk-related losses occur within acceptable, predefined limits. The Corporation manages its market risk exposure to credit derivatives by entering into a variety of offsetting derivative contracts and security positions. For example, in certain instances, the Corporation may purchase credit protection with identical underlying referenced names to offset its exposure. The carrying value and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names and terms were $8.2 billion and $706.0 billion at December 31, 2015 and $5.7 billion and $880.6 billion at December 31, 2014. Credit-related notes in the table on page 154 include investments in securities issued by CDO, collateralized loan obligation (CLO) and credit-linked note vehicles. These instruments are primarily classified as trading securities. The carrying value of these instruments equals the Corporation’s maximum exposure to loss. The Corporation is not obligated to make any payments to the entities under the terms of the securities owned. Credit-related Contingent Features and Collateral The Corporation executes the majority of its derivative contracts in the OTC market with large, international financial institutions, including broker-dealers and, to a lesser degree, with a variety of non-financial companies. A significant majority of the derivative transactions are executed on a daily margin basis. Therefore, events such as a credit rating downgrade (depending on the ultimate rating level) or a breach of credit covenants would typically require an increase in the amount of collateral required of the counterparty, where applicable, and/or allow the Corporation to take additional protective measures such as early termination of all trades. Further, as previously discussed on page 147, the Corporation enters into legally enforceable master netting agreements which reduce risk by permitting the closeout and netting of transactions with the same counterparty upon the occurrence of certain events. A majority of the Corporation’s derivative contracts contain credit risk-related contingent features, primarily in the form of ISDA master netting agreements and credit support documentation that enhance the creditworthiness of these instruments compared to other obligations of the respective counterparty with whom the Corporation has transacted. These contingent features may be for the benefit of the Corporation as well as its counterparties with respect to changes in the Corporation’s creditworthiness and the mark-to-market exposure under the derivative transactions. At December 31, 2015 and 2014, the Corporation held cash and securities collateral of $78.9 billion and $82.0 billion, and posted cash and securities collateral of $62.7 billion and $67.9 billion in the normal course of business under derivative agreements. This excludes cross-product margining agreements where clients are permitted to margin on a net basis for both derivative and secured financing arrangements. In connection with certain OTC derivative contracts and other trading agreements, the Corporation can be required to provide additional collateral or to terminate transactions with certain counterparties in the event of a downgrade of the senior debt ratings of the Corporation or certain subsidiaries. The amount of additional collateral required depends on the contract and is usually a fixed incremental amount and/or the market value of the exposure. At December 31, 2015, the amount of collateral, calculated based on the terms of the contracts, that the Corporation and certain subsidiaries could be required to post to counterparties but had not yet posted to counterparties was approximately $2.9 billion, including $1.6 billion for Bank of America, N.A. (BANA). Some counterparties are currently able to unilaterally terminate certain contracts, or the Corporation or certain subsidiaries may be required to take other action such as find a suitable replacement or obtain a guarantee. At December 31, 2015, the current liability recorded for these derivative contracts was $69 million. The table below presents the amount of additional collateral that would have been contractually required by derivative contracts and other trading agreements at December 31, 2015 if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch and by an additional second incremental notch. Additional Collateral Required to be Posted Upon Downgrade (Dollars in millions) Bank of America Corporation Bank of America, N.A. and subsidiaries (1) (1) Included in Bank of America Corporation collateral requirements in this table. December 31, 2015 Second One incremental incremental notch notch $ 1,011 $ 762 1,948 1,474 The table below presents the derivative liabilities that would be subject to unilateral termination by counterparties and the amounts of collateral that would have been contractually required at December 31, 2015 if the long-term senior debt ratings for the Corporation or certain subsidiaries had been lower by one incremental notch and by an additional second incremental notch. Derivative Liabilities Subject to Unilateral Termination Upon Downgrade (Dollars in millions) Derivative liabilities Collateral posted December 31, 2015 Second One incremental incremental notch notch $ 879 $ 501 2,792 2,269 154 Bank of America 2015 Bank of America 2015 155 Valuation Adjustments on Derivatives The Corporation records credit risk valuation adjustments on derivatives in order to properly reflect the credit quality of the counterparties and its own credit quality. The Corporation calculates valuation adjustments on derivatives based on a modeled expected exposure that incorporates current market risk factors. The exposure also takes into consideration credit mitigants such as enforceable master netting agreements and collateral. CDS spread data is used to estimate the default probabilities and severities that are applied to the exposures. Where no observable credit default data is available for counterparties, the Corporation uses proxies and other market data to estimate default probabilities and severity. Valuation adjustments on derivatives are affected by changes in market spreads, non-credit related market factors such as interest rate and currency changes that affect the expected exposure, and other in collateral arrangements and partial payments. Credit spreads and non-credit factors can move independently. For example, for an interest rate swap, changes in interest rates may increase the expected exposure, which would increase the counterparty credit valuation adjustment (CVA). Independently, counterparty credit spreads may tighten, which would result in an offsetting decrease to CVA. like changes factors The Corporation early adopted, retrospective to January 1, 2015, the provision of new accounting guidance issued in January 2016 that requires the Corporation to record unrealized DVA resulting from changes in the Corporation’s own credit spreads on liabilities accounted for under the fair value option in accumulated OCI. This new accounting guidance had no impact on the accounting for DVA on derivatives. For additional information, see New Accounting Pronouncements in Note 1 – Summary of Significant Accounting Principles. In 2014, the Corporation implemented a funding valuation adjustment (FVA) into valuation estimates primarily to include Valuation Adjustments on Derivatives Gains (Losses) (Dollars in millions) funding costs on uncollateralized derivatives and derivatives where the Corporation is not permitted to use the collateral it receives. The change in estimate resulted in a net pretax FVA charge of $497 million, at the time of implementation, including a charge of $632 million related to funding costs, partially offset by a funding benefit of $135 million, both related to derivative asset exposures. The net FVA charge was recorded as a reduction to sales and trading revenue in Global Markets. The Corporation calculates this valuation adjustment based on modeled expected exposure profiles discounted for the funding risk premium inherent in these derivatives. FVA related to derivative assets and liabilities is the effect of funding costs on the fair value of these derivatives. The Corporation enters into risk management activities to offset market driven exposures. The Corporation often hedges the counterparty spread risk in CVA with CDS. The Corporation hedges other market risks in both CVA and DVA primarily with currency and interest rate swaps. In certain instances, the net-of-hedge amounts in the table below move in the same direction as the gross amount or may move in the opposite direction. This is a consequence of the complex interaction of the risks being hedged resulting in limitations in the ability to perfectly hedge all of the market exposures at all times. The table below presents CVA, DVA and FVA gains (losses) on derivatives, which are recorded in trading account profits, on a gross and net of hedge basis for 2015, 2014 and 2013. CVA gains reduce the cumulative CVA thereby increasing the derivative assets balance. DVA gains increase the cumulative DVA thereby decreasing the derivative liabilities balance. CVA and DVA losses have the opposite impact. FVA gains related to derivative assets reduce the cumulative FVA thereby increasing the derivative assets balance. FVA gains related to derivative liabilities increase the cumulative FVA thereby decreasing the derivative liabilities balance. 2015 2014 2013 Gross Net Gross Net Gross Net Derivative assets (CVA) (1) Derivative assets (FVA) (2) Derivative liabilities (DVA) (3) Derivative liabilities (FVA) (2) (1) At December 31, 2015, 2014 and 2013, the cumulative CVA reduced the derivative assets balance by $1.4 billion, $1.6 billion and $1.6 billion, respectively. (2) FVA was adopted in 2014 and the cumulative FVA reduced the net derivatives balance by $481 million and $497 million at December 31, 2015 and 2014. (3) At December 31, 2015, 2014 and 2013, the cumulative DVA reduced the derivative liabilities balance by $750 million, $769 million and $803 million, respectively. n/a = not applicable 255 $ (34) (18) 50 227 (34) (153) 50 (632) (28) 135 (22) $ $ 191 (632) (150) 135 $ $ 738 $ n/a (39) n/a (96) n/a (75) n/a 156 Bank of America 2015 Valuation Adjustments on Derivatives The Corporation records credit risk valuation adjustments on derivatives in order to properly reflect the credit quality of the counterparties and its own credit quality. The Corporation calculates valuation adjustments on derivatives based on a modeled expected exposure that incorporates current market risk factors. The exposure also takes into consideration credit mitigants such as enforceable master netting agreements and collateral. CDS spread data is used to estimate the default probabilities and severities that are applied to the exposures. Where no observable credit default data is available for counterparties, the Corporation uses proxies and other market data to estimate default probabilities and severity. Valuation adjustments on derivatives are affected by changes in market spreads, non-credit related market factors such as interest rate and currency changes that affect the expected exposure, and other factors like changes in collateral arrangements and partial payments. Credit spreads and non-credit factors can move independently. For example, for an interest rate swap, changes in interest rates may increase the expected exposure, which would increase the counterparty credit valuation adjustment (CVA). Independently, counterparty credit spreads may tighten, which would result in an offsetting decrease to CVA. The Corporation early adopted, retrospective to January 1, 2015, the provision of new accounting guidance issued in January 2016 that requires the Corporation to record unrealized DVA resulting from changes in the Corporation’s own credit spreads on liabilities accounted for under the fair value option in accumulated OCI. This new accounting guidance had no impact on the accounting for DVA on derivatives. For additional information, see New Accounting Pronouncements in Note 1 – Summary of Significant Accounting Principles. funding costs on uncollateralized derivatives and derivatives where the Corporation is not permitted to use the collateral it receives. The change in estimate resulted in a net pretax FVA charge of $497 million, at the time of implementation, including a charge of $632 million related to funding costs, partially offset by a funding benefit of $135 million, both related to derivative asset exposures. The net FVA charge was recorded as a reduction to sales and trading revenue in Global Markets. The Corporation calculates this valuation adjustment based on modeled expected exposure profiles discounted for the funding risk premium inherent in these derivatives. FVA related to derivative assets and liabilities is the effect of funding costs on the fair value of these derivatives. The Corporation enters into risk management activities to offset market driven exposures. The Corporation often hedges the counterparty spread risk in CVA with CDS. The Corporation hedges other market risks in both CVA and DVA primarily with currency and interest rate swaps. In certain instances, the net-of-hedge amounts in the table below move in the same direction as the gross amount or may move in the opposite direction. This is a consequence of the complex interaction of the risks being hedged resulting in limitations in the ability to perfectly hedge all of the market exposures at all times. The table below presents CVA, DVA and FVA gains (losses) on derivatives, which are recorded in trading account profits, on a gross and net of hedge basis for 2015, 2014 and 2013. CVA gains reduce the cumulative CVA thereby increasing the derivative assets balance. DVA gains increase the cumulative DVA thereby decreasing the derivative liabilities balance. CVA and DVA losses have the opposite impact. FVA gains related to derivative assets reduce the cumulative FVA thereby increasing the derivative assets balance. FVA gains related to derivative liabilities increase the cumulative FVA thereby decreasing the derivative liabilities In 2014, the Corporation implemented a funding valuation balance. adjustment (FVA) into valuation estimates primarily to include Valuation Adjustments on Derivatives Gains (Losses) (Dollars in millions) Derivative assets (CVA) (1) Derivative assets (FVA) (2) Derivative liabilities (DVA) (3) Derivative liabilities (FVA) (2) n/a = not applicable (1) At December 31, 2015, 2014 and 2013, the cumulative CVA reduced the derivative assets balance by $1.4 billion, $1.6 billion and $1.6 billion, respectively. (2) FVA was adopted in 2014 and the cumulative FVA reduced the net derivatives balance by $481 million and $497 million at December 31, 2015 and 2014. (3) At December 31, 2015, 2014 and 2013, the cumulative DVA reduced the derivative liabilities balance by $750 million, $769 million and $803 million, respectively. 2015 2014 2013 Gross Net Gross Net Gross Net $ 255 $ 227 $ (22) $ 191 $ 738 $ (34) (18) 50 (34) (153) 50 (632) (28) 135 (632) (150) 135 n/a (39) n/a (96) n/a (75) n/a NOTE 3 Securities The table below presents the amortized cost, gross unrealized gains and losses, and fair value of AFS debt securities, other debt securities carried at fair value, HTM debt securities and AFS marketable equity securities at December 31, 2015 and 2014. Debt Securities and Available-for-Sale Marketable Equity Securities (Dollars in millions) Available-for-sale debt securities Mortgage-backed securities: Agency Agency-collateralized mortgage obligations Commercial Non-agency residential (1) Total mortgage-backed securities U.S. Treasury and agency securities Non-U.S. securities Corporate/Agency bonds Other taxable securities, substantially all asset-backed securities Total taxable securities Tax-exempt securities Total available-for-sale debt securities Other debt securities carried at fair value Total debt securities carried at fair value (2) Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities Total debt securities Available-for-sale marketable equity securities (3) Available-for-sale debt securities Mortgage-backed securities: December 31, 2015 Gross Gross Unrealized Unrealized Losses Gains Fair Value Amortized Cost $ $ $ 229,847 10,930 7,176 3,031 250,984 25,075 5,743 243 10,238 292,283 13,978 306,261 16,678 322,939 84,625 407,564 326 $ $ $ 788 126 50 218 1,182 211 27 3 50 1,473 63 1,536 103 1,639 271 1,910 99 $ $ $ (1,688) $ (71) (61) (70) (1,890) (9) (3) (3) (86) (1,991) (33) (2,024) (174) (2,198) (850) (3,048) $ — $ 228,947 10,985 7,165 3,179 250,276 25,277 5,767 243 10,202 291,765 14,008 305,773 16,607 322,380 84,046 406,426 425 December 31, 2014 $ $ $ Total taxable securities Agency Agency-collateralized mortgage obligations Commercial Non-agency residential (1) Total mortgage-backed securities U.S. Treasury and agency securities Non-U.S. securities Corporate/Agency bonds Other taxable securities, substantially all asset-backed securities 165,039 14,248 4,000 4,454 187,741 69,595 6,230 368 10,791 274,725 9,549 284,274 36,421 320,695 59,641 380,336 Available-for-sale marketable equity securities (3) 363 (1) At December 31, 2015 and 2014, the underlying collateral type included approximately 71 percent and 76 percent prime, 15 percent and 14 percent Alt-A, and 14 percent and 10 percent subprime. (2) The Corporation had debt securities from FNMA and FHLMC that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $146.2 billion and $53.4 billion, and a fair value of $145.5 billion and $53.2 billion at December 31, 2015. Debt securities from FNMA and FHLMC that exceeded 10 percent of shareholders’ equity had an amortized cost of $130.7 billion and $28.3 billion, and a fair value of $131.4 billion and $28.6 billion at December 31, 2014. (593) $ (79) — (77) (749) (32) (11) (2) (22) (816) (19) (835) (364) (1,199) (611) (1,810) $ — $ 163,592 14,175 3,931 4,244 185,942 69,267 6,208 361 10,774 272,552 9,556 282,108 36,524 318,632 59,766 378,398 336 2,040 152 69 287 2,548 360 33 9 39 2,989 12 3,001 261 3,262 486 3,748 27 Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities Total debt securities carried at fair value (2) Other debt securities carried at fair value Total available-for-sale debt securities Tax-exempt securities Total debt securities $ $ $ $ $ $ (3) Classified in other assets on the Consolidated Balance Sheet. At December 31, 2015, the accumulated net unrealized loss on AFS debt securities included in accumulated OCI was $300 million, net of the related income tax benefit of $188 million. At December 31, 2015 and 2014, the Corporation had nonperforming AFS debt securities of $188 million and $161 million. 156 Bank of America 2015 Bank of America 2015 157 The gross realized gains and losses on sales of AFS debt securities for 2015, 2014 and 2013 are presented in the table below. Gains and Losses on Sales of AFS Debt Securities (Dollars in millions) Gross gains Gross losses Net gains on sales of AFS debt securities Income tax expense attributable to realized net gains on sales of AFS debt securities 2015 $ 1,118 (27) $ 1,091 2014 $ 1,366 (12) $ 1,354 2013 $ 1,302 (31) $ 1,271 $ 415 $ 515 $ 470 The table below presents the components of other debt securities carried at fair value where the changes in fair value are reported in other income. In 2015, the Corporation recorded unrealized mark-to-market net gains of $43 million and realized net losses of $313 million, compared to unrealized mark-to-market net gains of $1.2 billion and realized net gains of $275 million in 2014. These amounts exclude hedge results. Other Debt Securities Carried at Fair Value (Dollars in millions) Mortgage-backed securities: Agency Agency-collateralized mortgage obligations Non-agency residential $ Total mortgage-backed securities U.S. Treasury and agency securities Non-U.S. securities (1) Other taxable securities, substantially all asset-backed securities Total December 31 2015 2014 — $ 7 3,490 3,497 — 12,843 15,704 — 3,745 19,449 1,541 15,132 267 299 $ 16,607 $ 36,421 (1) These securities are primarily used to satisfy certain international regulatory liquidity requirements. 158 Bank of America 2015 The table below presents the components of other debt The gross realized gains and losses on sales of AFS debt The table below presents the fair value and the associated gross unrealized losses on AFS debt securities and whether these securities carried at fair value where the changes in fair value are securities for 2015, 2014 and 2013 are presented in the table securities have had gross unrealized losses for less than 12 months or for 12 months or longer at December 31, 2015 and 2014. Gains and Losses on Sales of AFS Debt Securities (Dollars in millions) Gross gains Gross losses 2015 2014 2013 $ 1,118 $ 1,366 $ 1,302 (27) (12) (31) Net gains on sales of AFS debt securities $ 1,091 $ 1,354 $ 1,271 Income tax expense attributable to realized net gains on sales of AFS debt securities $ 415 $ 515 $ 470 reported in other income. In 2015, the Corporation recorded below. unrealized mark-to-market net gains of $43 million and realized net losses of $313 million, compared to unrealized mark-to-market net gains of $1.2 billion and realized net gains of $275 million in 2014. These amounts exclude hedge results. Other Debt Securities Carried at Fair Value (Dollars in millions) Mortgage-backed securities: Agency Agency-collateralized mortgage obligations Non-agency residential Total mortgage-backed securities U.S. Treasury and agency securities Non-U.S. securities (1) Other taxable securities, substantially all asset-backed securities Total requirements. December 31 2015 2014 $ — $ 15,704 7 3,490 3,497 — 12,843 — 3,745 19,449 1,541 15,132 267 299 $ 16,607 $ 36,421 (1) These securities are primarily used to satisfy certain international regulatory liquidity Temporarily Impaired and Other-than-temporarily Impaired AFS Debt Securities (Dollars in millions) Temporarily impaired AFS debt securities Mortgage-backed securities: Agency Agency-collateralized mortgage obligations Commercial Non-agency residential Total mortgage-backed securities U.S. Treasury and agency securities Non-U.S. securities Corporate/Agency bonds Other taxable securities, substantially all asset-backed securities Total taxable securities Tax-exempt securities Total temporarily impaired AFS debt securities Other-than-temporarily impaired AFS debt securities (1) Non-agency residential mortgage-backed securities Total temporarily impaired and other-than-temporarily impaired Less than Twelve Months Fair Value Gross Unrealized Losses December 31, 2015 Twelve Months or Longer Fair Value Gross Unrealized Losses Total Fair Value Gross Unrealized Losses $ $ $ 131,511 1,271 4,066 553 137,401 1,172 — 107 5,071 143,751 4,400 148,151 (1,245) $ (9) (61) (5) (1,320) (5) — (3) (69) (1,397) (12) (1,409) 14,895 1,637 — 723 17,255 190 134 — 792 18,371 1,877 20,248 $ (443) $ 146,406 2,908 4,066 1,276 154,656 1,362 134 107 5,863 162,122 6,277 168,399 (62) — (32) (537) (4) (3) — (17) (561) (21) (582) (1,688) (71) (61) (37) (1,857) (9) (3) (3) (86) (1,958) (33) (1,991) 481 (19) 98 (14) 579 (33) AFS debt securities $ 148,632 $ (1,428) $ 20,346 $ (596) $ 168,978 $ (2,024) Temporarily impaired AFS debt securities Mortgage-backed securities: Agency Agency-collateralized mortgage obligations Non-agency residential Total mortgage-backed securities U.S. Treasury and agency securities Non-U.S. securities Corporate/Agency bonds Other taxable securities, substantially all asset-backed securities Total taxable securities Tax-exempt securities Total temporarily impaired AFS debt securities Other-than-temporarily impaired AFS debt securities (1) Non-agency residential mortgage-backed securities December 31, 2014 $ 1,366 2,242 307 3,915 10,121 157 43 575 14,811 980 15,791 555 $ (8) $ (19) (3) (30) (22) (9) (1) (3) (65) (1) (66) (33) 43,118 3,075 809 47,002 667 32 93 1,080 48,874 680 49,554 $ (585) $ (60) (41) (686) (10) (2) (1) (19) (718) (18) (736) $ 44,484 5,317 1,116 50,917 10,788 189 136 1,655 63,685 1,660 65,345 (593) (79) (44) (716) (32) (11) (2) (22) (783) (19) (802) — — 555 (33) Total temporarily impaired and other-than-temporarily impaired AFS debt securities $ 16,346 $ (99) $ 49,554 $ (736) $ 65,900 $ (835) (1) Includes other-than-temporarily impaired AFS debt securities on which an OTTI loss, primarily related to changes in interest rates, remains in accumulated OCI. 158 Bank of America 2015 Bank of America 2015 159 The Corporation recorded OTTI losses on AFS debt securities in 2015, 2014 and 2013 as presented in the Net Credit-related Impairment Losses Recognized in Earnings table. Substantially all OTTI losses in 2015, 2014 and 2013 consisted of credit losses on non-agency residential mortgage-backed securities (RMBS) and were recorded in other income in the Consolidated Statement of Income. The credit losses on the RMBS in 2015 were driven by decreases in the estimated RMBS cash flows primarily due to a model change resulting in the refinement of expected cash flows. A debt security is impaired when its fair value is less than its amortized cost. If the Corporation intends or will more-likely-than- not be required to sell a debt security prior to recovery, the entire impairment loss is recorded in the Consolidated Statement of Income. For AFS debt securities the Corporation does not intend or will not more-likely-than-not be required to sell, an analysis is performed to determine if any of the impairment is due to credit or whether it is due to other factors (e.g., interest rate). Credit losses are considered unrecoverable and are recorded in the Consolidated Statement of Income with the remaining unrealized losses recorded in OCI. In certain instances, the credit loss on a debt security may exceed the total impairment, in which case, the excess of the credit loss over the total impairment is recorded as an unrealized gain in OCI. Net Credit-related Impairment Losses Recognized in Earnings (Dollars in millions) Total OTTI losses Less: non-credit portion of total OTTI losses recognized in OCI Net credit-related impairment losses 2015 2014 2013 $ (111) $ (30) $ (21) 30 14 1 recognized in earnings $ (81) $ (16) $ (20) The table below presents a rollforward of the credit losses recognized in earnings in 2015, 2014 and 2013 on AFS debt securities that the Corporation does not have the intent to sell or will not more-likely-than-not be required to sell. Rollforward of OTTI Credit Losses Recognized (Dollars in millions) Balance, January 1 Additions for credit losses recognized on AFS debt securities that had no previous impairment losses Additions for credit losses recognized on AFS debt securities that had previously incurred impairment losses Reductions for AFS debt securities matured, sold or intended to be sold Balance, December 31 2015 2014 2013 $ $ 200 52 29 (15) 266 $ $ 184 14 2 — 200 $ $ 243 6 14 (79) 184 The Corporation estimates the portion of a loss on a security that is attributable to credit using a discounted cash flow model and estimates the expected cash flows of the underlying collateral using internal credit, interest rate and prepayment risk models that incorporate management’s best estimate of current key assumptions such as default rates, loss severity and prepayment rates. Assumptions used for the underlying loans that support the MBS can vary widely from loan to loan and are influenced by such factors as loan interest rate, geographic location of the borrower, borrower characteristics and collateral type. Based on these assumptions, the Corporation then determines how the underlying collateral cash flows will be distributed to each MBS issued from the applicable special purpose entity. Expected principal and interest cash flows on an impaired AFS debt security are discounted using the effective yield of each individual impaired AFS debt security. 160 Bank of America 2015 Significant assumptions used in estimating the expected cash flows for measuring credit losses on non-agency RMBS were as follows at December 31, 2015. Significant Assumptions Range (1) Weighted- average 10th Percentile (2) 90th Percentile (2) Prepayment speed Loss severity Life default rate (1) Represents the range of inputs/assumptions based upon the underlying collateral. (2) The value of a variable below which the indicated percentile of observations will fall. 12.6% 32.6 26.0 12.9 0.8 3.8% 25.5% 34.8 86.1 Constant prepayment speed and loss severity rates are projected considering collateral characteristics such as LTV, creditworthiness of borrowers as measured using FICO scores, and geographic concentrations. The weighted-average severity by collateral type was 29.2 percent for prime, 31.4 percent for Alt-A and 42.9 percent for subprime at December 31, 2015. Additionally, default rates are projected by considering collateral characteristics including, but not limited to, LTV, FICO and geographic concentration. Weighted-average life default rates by collateral type were 16.1 percent for prime, 28.0 percent for Alt- A and 27.2 percent for subprime at December 31, 2015. OTTI losses in 2015, 2014 and 2013 consisted of credit losses on non-agency residential mortgage-backed securities (RMBS) and were recorded in other income in the Consolidated Statement of Income. The credit losses on the RMBS in 2015 were driven by decreases in the estimated RMBS cash flows primarily due to a model change resulting in the refinement of expected cash flows. A debt security is impaired when its fair value is less than its Earnings (Dollars in millions) Total OTTI losses Less: non-credit portion of total OTTI not be required to sell a debt security prior to recovery, the entire Net credit-related impairment losses recognized in earnings $ (81) $ (16) $ (20) impairment loss is recorded in the Consolidated Statement of Income. For AFS debt securities the Corporation does not intend or will not more-likely-than-not be required to sell, an analysis is performed to determine if any of the impairment is due to credit or whether it is due to other factors (e.g., interest rate). Credit losses are considered unrecoverable and are recorded in the Consolidated Statement of Income with the remaining unrealized losses recorded in OCI. In certain instances, the credit loss on a The table below presents a rollforward of the credit losses recognized in earnings in 2015, 2014 and 2013 on AFS debt securities that the Corporation does not have the intent to sell or will not more-likely-than-not be required to sell. Rollforward of OTTI Credit Losses Recognized (Dollars in millions) Balance, January 1 Additions for credit losses recognized on AFS debt securities that had no previous impairment losses Additions for credit losses recognized on AFS debt securities that had previously incurred impairment losses Reductions for AFS debt securities matured, sold or intended to be sold Balance, December 31 2015 2014 2013 $ 200 $ 184 $ 52 29 (15) 14 2 — $ 266 $ 200 $ 243 6 14 (79) 184 The Corporation estimates the portion of a loss on a security that is attributable to credit using a discounted cash flow model and estimates the expected cash flows of the underlying collateral using internal credit, interest rate and prepayment risk models that incorporate management’s best estimate of current key assumptions such as default rates, loss severity and prepayment rates. Assumptions used for the underlying loans that support the MBS can vary widely from loan to loan and are influenced by such factors as loan interest rate, geographic location of the borrower, borrower characteristics and collateral type. Based on these assumptions, the Corporation then determines how the underlying collateral cash flows will be distributed to each MBS issued from the applicable special purpose entity. Expected principal and interest cash flows on an impaired AFS debt security are discounted using the effective yield of each individual impaired AFS debt security. Significant assumptions used in estimating the expected cash flows for measuring credit losses on non-agency RMBS were as follows at December 31, 2015. Significant Assumptions Prepayment speed Loss severity Life default rate Range (1) Weighted- average 10th 90th Percentile (2) Percentile (2) 12.6% 32.6 26.0 3.8% 12.9 0.8 25.5% 34.8 86.1 (1) Represents the range of inputs/assumptions based upon the underlying collateral. (2) The value of a variable below which the indicated percentile of observations will fall. Constant prepayment speed and loss severity rates are projected considering collateral characteristics such as LTV, creditworthiness of borrowers as measured using FICO scores, and geographic concentrations. The weighted-average severity by collateral type was 29.2 percent for prime, 31.4 percent for Alt-A and 42.9 percent for subprime at December 31, 2015. Additionally, default rates are projected by considering collateral characteristics including, but not limited to, LTV, FICO and geographic concentration. Weighted-average life default rates by collateral type were 16.1 percent for prime, 28.0 percent for Alt- A and 27.2 percent for subprime at December 31, 2015. The Corporation recorded OTTI losses on AFS debt securities debt security may exceed the total impairment, in which case, the in 2015, 2014 and 2013 as presented in the Net Credit-related excess of the credit loss over the total impairment is recorded as Impairment Losses Recognized in Earnings table. Substantially all an unrealized gain in OCI. The expected maturity distribution and yields of the Corporation’s debt securities carried at fair value and HTM debt securities at December 31, 2015 are summarized in the table below. Actual maturities may differ from the contractual or expected maturities since borrowers may have the right to prepay obligations with or without prepayment penalties. amortized cost. If the Corporation intends or will more-likely-than- losses recognized in OCI 30 14 1 Amortized cost of debt securities carried at fair value Net Credit-related Impairment Losses Recognized in Maturities of Debt Securities Carried at Fair Value and Held-to-maturity Debt Securities 2015 2014 2013 $ (111) $ (30) $ (21) (Dollars in millions) Amount Yield (1) Amount Yield (1) Amount Yield (1) Amount Yield (1) Amount Yield (1) Due in One Year or Less Due after One Year through Five Years December 31, 2015 Due after Five Years through Ten Years Due after Ten Years Total Mortgage-backed securities: Agency Agency-collateralized mortgage obligations Commercial Non-agency residential Total mortgage-backed securities U.S. Treasury and agency securities Non-U.S. securities Corporate/Agency bonds Other taxable securities, substantially all asset-backed securities Total taxable securities Tax-exempt securities Total amortized cost of debt securities carried at fair value Amortized cost of HTM debt securities (2) Debt securities carried at fair value Mortgage-backed securities: Agency Agency-collateralized mortgage obligations Commercial Non-agency residential Total mortgage-backed securities U.S. Treasury and agency securities Non-U.S. securities Corporate/Agency bonds Other taxable securities, substantially all asset-backed securities Total taxable securities Tax-exempt securities Total debt securities carried at fair value Fair value of HTM debt securities (2) $ 57 157 205 320 739 516 16,707 40 2,918 20,920 836 $ 21,756 $ 568 $ 59 157 223 354 793 516 16,720 41 3,102 21,172 836 $ 22,008 $ 569 4.40% $ 28,943 2.40% $197,797 2.80% $ 3,050 2.90% $229,847 2.75% 1.10 2.16 5.00 3.31 0.19 0.82 3.97 1.11 0.94 1.27 0.95 0.01 3,077 615 1,123 33,758 23,103 1,864 69 4,596 63,390 5,127 $ 68,517 $ 18,325 2.20 2.10 4.99 2.46 1.70 3.08 4.20 1.28 2.13 1.31 2.06 2.30 7,702 6,356 1,165 213,020 1,454 6 131 2,268 216,879 5,879 $ 222,758 $ 62,978 2.80 2.70 4.18 2.80 3.14 2.79 3.41 2.38 2.81 1.35 2.77 2.50 — — 3,989 7,039 2 — 3 728 7,772 2,136 $ $ 9,908 2,754 — — 7.90 5.73 4.57 — 3.67 3.96 5.57 1.55 4.70 2.82 10,936 7,176 6,597 254,556 25,075 18,577 243 10,510 308,961 13,978 $ 322,939 $ 84,625 2.61 2.63 6.60 3.03 1.75 1.04 3.93 1.67 2.61 1.36 2.56 2.45 $ 29,150 $196,720 $ 3,018 $228,947 3,056 618 1,102 33,926 23,266 1,884 70 4,349 63,495 5,161 $ 68,656 $ 18,356 7,779 6,324 1,263 212,086 1,493 6 128 2,296 216,009 5,882 $ 221,891 $ 62,360 — — 3,950 6,968 2 — 4 722 7,696 2,129 9,825 2,761 $ $ 10,992 7,165 6,669 253,773 25,277 18,610 243 10,469 308,372 14,008 $ 322,380 $ 84,046 (1) Average yield is computed using the effective yield of each security at the end of the period, weighted based on the amortized cost of each security. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and excludes the effect of related hedging derivatives. (2) Substantially all U.S. agency MBS. Certain Corporate and Strategic Investments The Corporation’s 49 percent investment in a merchant services joint venture, which is recorded in other assets on the Consolidated Balance Sheet and in All Other, had a carrying value of $3.0 billion and $3.1 billion at December 31, 2015 and 2014. For additional information, see Note 12 – Commitments and Contingencies. In 2013, the Corporation sold its remaining investment in China Construction Bank Corporation (CCB) and realized a pretax gain of $753 million in All Other reported in equity investment income in the Consolidated Statement of Income. The strategic assistance agreement between the Corporation and CCB, which includes cooperation in specific business areas, extends through 2016. The Corporation holds investments in partnerships that construct, own and operate real estate projects that qualify for low income housing tax credits. The Corporation earns a return primarily through the receipt of tax credits allocated to the real estate projects. Total low income housing tax credit investments were $7.1 billion and $6.6 billion at December 31, 2015 and 2014. These investments are reported in other assets on the Consolidated Balance Sheet. The Corporation had unfunded commitments to provide capital contributions of $2.4 billion and $2.2 billion to these partnerships at December 31, 2015 and 2014, which are expected to be paid over the next five years. These commitments are reported in accrued expenses and other liabilities on the Consolidated Balance Sheet. During 2015 and 2014, the Corporation recognized tax credits and other tax benefits from investments in affordable housing partnerships of $928 million and $920 million, partially offset by pretax losses recognized in other income of $629 million and $601 million. 160 Bank of America 2015 Bank of America 2015 161 NOTE 4 Outstanding Loans and Leases The following tables present total outstanding loans and leases and an aging analysis for the Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at December 31, 2015 and 2014. Total Outstandings $ 145,845 48,264 42,066 27,684 89,602 9,975 88,795 2,067 454,298 1,871 456,169 252,771 57,199 27,370 91,549 12,876 441,765 (Dollars in millions) Consumer real estate Core portfolio Residential mortgage Home equity Legacy Assets & Servicing portfolio Residential mortgage (5) Home equity Credit card and other consumer U.S. credit card Non-U.S. credit card Direct/Indirect consumer (6) Other consumer (7) Total consumer Consumer loans accounted for under the fair value option (8) 30-59 Days Past Due (1) 60-89 Days Past Due (1) 90 Days or More Past Due (2) $ $ 1,603 225 1,656 310 454 39 227 18 4,532 645 104 890 163 332 31 62 3 2,230 $ 3,834 719 6,019 1,030 789 76 42 4 12,513 December 31, 2015 Total Current or Less Than 30 Days Past Due (3) Total Past Due 30 Days or More Loans Accounted for Under the Fair Value Option Purchased Credit- impaired (4) $ 6,082 1,048 $ 139,763 47,216 8,565 1,503 1,575 146 331 25 19,275 21,435 21,562 $ 12,066 4,619 88,027 9,829 88,464 2,042 418,338 16,685 $ 1,871 1,871 Total consumer loans and leases 4,532 2,230 12,513 19,275 418,338 16,685 Commercial U.S. commercial Commercial real estate (9) Commercial lease financing Non-U.S. commercial U.S. small business commercial Total commercial Commercial loans accounted for under the fair value option (8) 444 36 169 6 83 738 148 11 32 1 41 233 332 82 22 1 72 509 924 129 223 8 196 1,480 251,847 57,070 27,147 91,541 12,680 440,285 5,067 5,067 Total commercial loans and leases Total loans and leases 100.00% Percentage of outstandings (1) Consumer real estate loans 30-59 days past due includes fully-insured loans of $1.7 billion and nonperforming loans of $379 million. Consumer real estate loans 60-89 days past due includes fully- 446,832 $ 903,001 440,285 $ 858,623 1,480 20,755 509 13,022 738 5,270 233 2,463 5,067 6,938 95.08% 16,685 0.77% 2.30% 1.85% 0.59% 1.44% 0.27% $ $ $ $ $ $ insured loans of $1.0 billion and nonperforming loans of $297 million. (2) Consumer real estate includes fully-insured loans of $7.2 billion. (3) Consumer real estate includes $3.0 billion and direct/indirect consumer includes $21 million of nonperforming loans. (4) PCI loan amounts are shown gross of the valuation allowance. (5) Total outstandings includes pay option loans of $2.3 billion. The Corporation no longer originates this product. (6) Total outstandings includes auto and specialty lending loans of $42.6 billion, unsecured consumer lending loans of $886 million, U.S. securities-based lending loans of $39.8 billion, non-U.S. consumer loans of $3.9 billion, student loans of $564 million and other consumer loans of $1.0 billion. (7) Total outstandings includes consumer finance loans of $564 million, consumer leases of $1.4 billion and consumer overdrafts of $146 million. (8) Consumer loans accounted for under the fair value option were residential mortgage loans of $1.6 billion and home equity loans of $250 million. Commercial loans accounted for under the fair value option were U.S. commercial loans of $2.3 billion and non-U.S. commercial loans of $2.8 billion. For additional information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option. (9) Total outstandings includes U.S. commercial real estate loans of $53.6 billion and non-U.S. commercial real estate loans of $3.5 billion. 162 Bank of America 2015 NOTE 4 Outstanding Loans and Leases The following tables present total outstanding loans and leases and an aging analysis for the Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at December 31, 2015 and 2014. December 31, 2015 90 Days or More Past Due (2) Total Past Due 30 Days or More Total Current or Less Than 30 Days Purchased Credit- Loans Accounted for Under the Fair Total Past Due (3) impaired (4) Value Option Outstandings 30-59 Days Past Due (1) 60-89 Days Past Due (1) $ 1,603 $ $ 3,834 $ 6,082 1,048 $ 139,763 47,216 $ 145,845 48,264 (Dollars in millions) Consumer real estate Core portfolio Residential mortgage Home equity Legacy Assets & Servicing portfolio Residential mortgage (5) Home equity Credit card and other consumer U.S. credit card Non-U.S. credit card Direct/Indirect consumer (6) Other consumer (7) Total consumer Consumer loans accounted for under the fair value option (8) Commercial U.S. commercial Commercial real estate (9) Commercial lease financing Non-U.S. commercial U.S. small business commercial Total commercial Commercial loans accounted for under the fair value option (8) 225 1,656 310 454 39 227 18 444 36 169 6 83 738 645 104 890 163 332 31 62 3 148 11 32 1 41 233 719 6,019 1,030 789 76 42 4 332 82 22 1 72 509 21,435 21,562 $ 12,066 4,619 8,565 1,503 1,575 146 331 25 88,027 9,829 88,464 2,042 924 129 223 8 196 251,847 57,070 27,147 91,541 12,680 1,480 440,285 4,532 2,230 12,513 19,275 418,338 16,685 Total consumer loans and leases 4,532 2,230 12,513 19,275 418,338 16,685 $ 1,871 1,871 Total commercial loans and leases 738 233 509 1,480 440,285 Total loans and leases $ 5,270 $ 2,463 $ 13,022 $ 20,755 $ 858,623 $ 16,685 $ $ 903,001 Percentage of outstandings 0.59% 0.27% 1.44% 2.30% 95.08% 1.85% 0.77% 100.00% (1) Consumer real estate loans 30-59 days past due includes fully-insured loans of $1.7 billion and nonperforming loans of $379 million. Consumer real estate loans 60-89 days past due includes fully- 5,067 5,067 6,938 insured loans of $1.0 billion and nonperforming loans of $297 million. (2) Consumer real estate includes fully-insured loans of $7.2 billion. (3) Consumer real estate includes $3.0 billion and direct/indirect consumer includes $21 million of nonperforming loans. (4) PCI loan amounts are shown gross of the valuation allowance. (5) Total outstandings includes pay option loans of $2.3 billion. The Corporation no longer originates this product. (6) Total outstandings includes auto and specialty lending loans of $42.6 billion, unsecured consumer lending loans of $886 million, U.S. securities-based lending loans of $39.8 billion, non-U.S. consumer loans of $3.9 billion, student loans of $564 million and other consumer loans of $1.0 billion. (7) Total outstandings includes consumer finance loans of $564 million, consumer leases of $1.4 billion and consumer overdrafts of $146 million. (8) Consumer loans accounted for under the fair value option were residential mortgage loans of $1.6 billion and home equity loans of $250 million. Commercial loans accounted for under the fair value option were U.S. commercial loans of $2.3 billion and non-U.S. commercial loans of $2.8 billion. For additional information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option. (9) Total outstandings includes U.S. commercial real estate loans of $53.6 billion and non-U.S. commercial real estate loans of $3.5 billion. 42,066 27,684 89,602 9,975 88,795 2,067 454,298 1,871 456,169 252,771 57,199 27,370 91,549 12,876 441,765 5,067 446,832 December 31, 2014 90 Days or More Past Due (2) Total Past Due 30 Days or More Total Current or Less Than 30 Days Past Due (3) Loans Accounted for Under the Fair Value Option Purchased Credit- impaired (4) 30-59 Days Past Due (1) 60-89 Days Past Due (1) $ 1,847 218 2,008 374 494 49 245 11 5,246 $ $ 700 105 5,561 744 $ 8,108 1,067 $ 154,112 50,820 1,060 174 341 39 71 2 2,492 10,513 1,166 866 95 65 2 19,012 13,581 1,714 1,701 183 381 15 26,750 25,244 26,507 $ 15,152 5,617 90,178 10,282 80,000 1,831 438,974 20,769 (Dollars in millions) Consumer real estate Core portfolio Residential mortgage Home equity Legacy Assets & Servicing portfolio Residential mortgage (5) Home equity Credit card and other consumer U.S. credit card Non-U.S. credit card Direct/Indirect consumer (6) Other consumer (7) Total consumer Consumer loans accounted for under the fair value option (8) Total consumer loans and leases 5,246 2,492 19,012 26,750 438,974 20,769 Commercial U.S. commercial Commercial real estate (9) Commercial lease financing Non-U.S. commercial U.S. small business commercial Total commercial Commercial loans accounted for under the fair value option (8) 320 138 121 5 88 672 151 16 41 4 45 257 318 288 42 — 94 742 789 442 204 9 227 1,671 219,504 47,240 24,662 80,074 13,066 384,546 Total Outstandings $ 162,220 51,887 53,977 33,838 91,879 10,465 80,381 1,846 486,493 2,077 488,570 220,293 47,682 24,866 80,083 13,293 386,217 6,604 6,604 $ 2,077 2,077 Total commercial loans and leases Total loans and leases Percentage of outstandings 100.00% (1) Consumer real estate loans 30-59 days past due includes fully-insured loans of $2.1 billion and nonperforming loans of $392 million. Consumer real estate loans 60-89 days past due includes fully- 392,821 $ 881,391 384,546 $ 823,520 742 19,754 1,671 28,421 6,604 8,681 672 5,918 257 2,749 93.44% 20,769 0.67% 2.36% 0.98% 2.24% 3.22% 0.31% $ $ $ $ $ $ insured loans of $1.1 billion and nonperforming loans of $332 million. (2) Consumer real estate includes fully-insured loans of $11.4 billion. (3) Consumer real estate includes $3.6 billion and direct/indirect consumer includes $27 million of nonperforming loans. (4) PCI loan amounts are shown gross of the valuation allowance. (5) Total outstandings includes pay option loans of $3.2 billion. The Corporation no longer originates this product. (6) Total outstandings includes auto and specialty lending loans of $37.7 billion, unsecured consumer lending loans of $1.5 billion, U.S. securities-based lending loans of $35.8 billion, non-U.S. consumer loans of $4.0 billion, student loans of $632 million and other consumer loans of $761 million. (7) Total outstandings includes consumer finance loans of $676 million, consumer leases of $1.0 billion and consumer overdrafts of $162 million. (8) Consumer loans accounted for under the fair value option were residential mortgage loans of $1.9 billion and home equity loans of $196 million. Commercial loans accounted for under the fair value option were U.S. commercial loans of $1.9 billion and non-U.S. commercial loans of $4.7 billion. For additional information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option. (9) Total outstandings includes U.S. commercial real estate loans of $45.2 billion and non-U.S. commercial real estate loans of $2.5 billion. The Corporation has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $3.7 billion and $17.2 billion at December 31, 2015 and 2014, providing full credit protection on residential mortgage loans that become severely delinquent. All of these loans are individually insured and therefore the Corporation does not record an allowance for credit losses related to these loans. Nonperforming Loans and Leases The Corporation classifies junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. At December 31, 2015 and 2014, $484 million and $800 million of such junior-lien home equity loans were included in nonperforming loans. The Corporation classifies consumer real estate loans that have been discharged in Chapter 7 bankruptcy and not reaffirmed by the borrower as TDRs, irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified. The Corporation continues to have a lien on the underlying collateral. At December 31, 2015, nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms were $785 million of which $457 million were current on their contractual payments, while $285 million were 90 days or more past due. Of the contractually current nonperforming loans, more than 80 percent were discharged in Chapter 7 bankruptcy more than 12 months ago, and more than 60 percent were discharged 24 months or more ago. As subsequent cash payments are received on these nonperforming loans that are contractually current, the interest component of the payments is generally recorded as interest income on a cash basis and the principal component is recorded as a reduction in the carrying value of the loan. 162 Bank of America 2015 Bank of America 2015 163 During 2015, the Corporation sold nonperforming and other delinquent consumer real estate loans with a carrying value of $3.2 billion, including $1.4 billion of PCI loans, compared to $6.7 billion, including $1.9 billion of PCI loans, in 2014. The Corporation recorded recoveries related to these sales of $133 million and $407 million during 2015 and 2014. Gains related to these sales of $173 million and $247 million were recorded in other income in the Consolidated Statement of Income during 2015 and 2014. The table below presents the Corporation’s nonperforming loans and leases including nonperforming TDRs, and loans accruing past due 90 days or more at December 31, 2015 and 2014. Nonperforming LHFS are excluded from nonperforming loans and leases as they are recorded at either fair value or the lower of cost or fair value. For more information on the criteria for classification as nonperforming, see Note 1 – Summary of Significant Accounting Principles. Credit Quality (Dollars in millions) Consumer real estate Core portfolio Residential mortgage (1) Home equity Legacy Assets & Servicing portfolio Residential mortgage (1) Home equity Credit card and other consumer U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total consumer Commercial U.S. commercial Commercial real estate Commercial lease financing Non-U.S. commercial U.S. small business commercial Total commercial Total loans and leases December 31 Nonperforming Loans and Leases Accruing Past Due 90 Days or More 2015 2014 2015 2014 $ $ 1,845 1,354 $ 2,398 1,496 $ 2,645 — 3,942 — 2,958 1,983 n/a n/a 24 1 8,165 867 93 12 158 82 1,212 9,377 4,491 2,405 n/a n/a 28 1 10,819 701 321 3 1 87 1,113 $ 11,932 $ 4,505 — 789 76 39 3 8,057 113 3 17 1 61 195 8,252 7,465 — 866 95 64 1 12,433 110 3 41 — 67 221 $ 12,654 $ (1) Residential mortgage loans in the Core and Legacy Assets & Servicing portfolios accruing past due 90 days or more are fully-insured loans. At December 31, 2015 and 2014, residential mortgage includes $4.3 billion and $7.3 billion of loans on which interest has been curtailed by the FHA, and therefore are no longer accruing interest, although principal is still insured, and $2.9 billion and $4.1 billion of loans on which interest is still accruing. n/a = not applicable Credit Quality Indicators The Corporation monitors credit quality within its Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments based on primary credit quality indicators. For more information on the portfolio segments, see Note 1 – Summary of Significant Accounting Principles. Within the Consumer Real Estate portfolio segment, the primary credit quality indicators are refreshed LTV and refreshed FICO score. Refreshed LTV measures the carrying value of the loan as a percentage of the value of the property securing the loan, refreshed quarterly. Home equity loans are evaluated using combined loan-to-value (CLTV) which measures the carrying value of the Corporation’s loan and available line of credit combined with any outstanding senior liens against the property as a percentage of the value of the property securing the loan, refreshed quarterly. FICO score measures the creditworthiness of the borrower based on the financial obligations of the borrower and the borrower’s credit history. At a minimum, FICO scores are refreshed quarterly, and in many cases, more frequently. FICO scores are also a primary credit quality indicator for the Credit Card and Other Consumer portfolio segment and the business card portfolio within U.S. small business commercial. Within the Commercial portfolio segment, loans are evaluated using the internal classifications of pass rated or reservable criticized as the primary credit quality indicators. The term reservable criticized refers to those commercial loans that are internally classified or listed by the Corporation as Special Mention, Substandard or Doubtful, which are asset quality categories defined by regulatory authorities. These assets have an elevated level of risk and may have a high probability of default or total loss. Pass rated refers to all loans not considered reservable criticized. In addition to these primary credit quality indicators, the Corporation uses other credit quality indicators for certain types of loans. 164 Bank of America 2015 During 2015, the Corporation sold nonperforming and other The table below presents the Corporation’s nonperforming The following tables present certain credit quality indicators for the Corporation’s Consumer Real Estate, Credit Card and Other delinquent consumer real estate loans with a carrying value of loans and leases including nonperforming TDRs, and loans Consumer, and Commercial portfolio segments, by class of financing receivables, at December 31, 2015 and 2014. $3.2 billion, including $1.4 billion of PCI loans, compared to $6.7 accruing past due 90 days or more at December 31, 2015 and billion, including $1.9 billion of PCI loans, in 2014. The Corporation 2014. Nonperforming LHFS are excluded from nonperforming recorded recoveries related to these sales of $133 million and loans and leases as they are recorded at either fair value or the $407 million during 2015 and 2014. Gains related to these sales lower of cost or fair value. For more information on the criteria for of $173 million and $247 million were recorded in other income classification as nonperforming, see Note 1 – Summary of in the Consolidated Statement of Income during 2015 and 2014. Significant Accounting Principles. Credit Quality (Dollars in millions) Consumer real estate Core portfolio Residential mortgage (1) Home equity Legacy Assets & Servicing portfolio Residential mortgage (1) Home equity Credit card and other consumer U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total consumer Commercial U.S. commercial Commercial real estate Commercial lease financing Non-U.S. commercial U.S. small business commercial Total commercial Total loans and leases December 31 Nonperforming Loans and Leases Accruing Past Due 90 Days or More 2015 2014 2015 2014 $ $ 1,845 1,354 2,398 1,496 $ 2,645 $ 3,942 — — 2,958 1,983 4,491 2,405 4,505 — 7,465 — 8,165 10,819 8,057 12,433 n/a n/a 24 1 867 93 12 158 82 n/a n/a 28 1 701 321 3 1 87 789 76 39 3 113 3 17 1 61 195 866 95 64 1 110 3 41 — 67 221 1,212 9,377 $ 1,113 $ 11,932 $ 8,252 $ 12,654 (1) Residential mortgage loans in the Core and Legacy Assets & Servicing portfolios accruing past due 90 days or more are fully-insured loans. At December 31, 2015 and 2014, residential mortgage includes $4.3 billion and $7.3 billion of loans on which interest has been curtailed by the FHA, and therefore are no longer accruing interest, although principal is still insured, and $2.9 billion and $4.1 billion of loans on which interest is still accruing. n/a = not applicable Credit Quality Indicators The Corporation monitors credit quality within its Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments based on primary credit quality indicators. For more information on the portfolio segments, see Note 1 – Summary of Significant Accounting Principles. Within the Consumer Real Estate portfolio segment, the primary credit quality indicators are refreshed LTV and refreshed FICO score. Refreshed LTV measures the carrying value of the loan as a percentage of the value of the property securing the loan, refreshed quarterly. Home equity loans are evaluated using combined loan-to-value (CLTV) which measures the carrying value of the Corporation’s loan and available line of credit combined with any outstanding senior liens against the property as a percentage of the value of the property securing the loan, refreshed quarterly. FICO score measures the creditworthiness of the borrower based on the financial obligations of the borrower and the borrower’s credit history. At a minimum, FICO scores are refreshed quarterly, and in many cases, more frequently. FICO scores are also a primary credit quality indicator for the Credit Card and Other Consumer portfolio segment and the business card portfolio within U.S. small business commercial. Within the Commercial portfolio segment, loans are evaluated using the internal classifications of pass rated or reservable criticized as the primary credit quality indicators. The term reservable criticized refers to those commercial loans that are internally classified or listed by the Corporation as Special Mention, Substandard or Doubtful, which are asset quality categories defined by regulatory authorities. These assets have an elevated level of risk and may have a high probability of default or total loss. Pass rated refers to all loans not considered reservable criticized. In addition to these primary credit quality indicators, the Corporation uses other credit quality indicators for certain types of loans. Consumer Real Estate – Credit Quality Indicators (1) (Dollars in millions) Refreshed LTV (4) December 31, 2015 Core Portfolio Residential Mortgage (2) Legacy Assets & Servicing Residential Mortgage (2) Residential Mortgage PCI (3) Core Portfolio Home Equity (2) Legacy Assets & Servicing Home Equity (2) Home Equity PCI Less than or equal to 90 percent $ 109,869 $ 16,646 $ 8,655 $ 44,006 $ 15,666 $ Greater than 90 percent but less than or equal to 100 percent Greater than 100 percent Fully-insured loans (5) Total consumer real estate Refreshed FICO score Less than 620 Greater than or equal to 620 and less than 680 Greater than or equal to 680 and less than 740 Greater than or equal to 740 Fully-insured loans (5) Total consumer real estate $ $ 4,251 2,783 28,942 145,845 3,465 5,792 22,017 85,629 28,942 $ $ $ $ 2,007 3,212 8,135 30,000 4,408 3,438 5,605 8,414 8,135 $ $ 1,403 2,008 — 12,066 3,798 2,586 3,187 2,495 — $ $ 1,652 2,606 — 48,264 1,898 3,242 9,203 33,921 — $ $ 2,382 5,017 — 23,065 2,785 3,817 6,527 9,936 — $ 145,845 $ 30,000 $ 12,066 $ 48,264 $ 23,065 $ 2,003 852 1,764 — 4,619 729 825 1,356 1,709 — 4,619 (1) Excludes $1.9 billion of loans accounted for under the fair value option. (2) Excludes PCI loans. (3) Includes $2.0 billion of pay option loans. The Corporation no longer originates this product. (4) Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance. (5) Credit quality indicators are not reported for fully-insured loans as principal repayment is insured. Credit Card and Other Consumer – Credit Quality Indicators (Dollars in millions) Refreshed FICO score Less than 620 Greater than or equal to 620 and less than 680 Greater than or equal to 680 and less than 740 Greater than or equal to 740 Other internal credit metrics (2, 3, 4) Total credit card and other consumer December 31, 2015 U.S. Credit Card Non-U.S. Credit Card Direct/Indirect Consumer Other Consumer (1) $ 4,196 $ — $ 1,244 $ 11,857 34,270 39,279 — — — — 9,975 1,698 10,955 29,581 45,317 $ 89,602 $ 9,975 $ 88,795 $ 217 214 337 1,149 150 2,067 (1) Twenty-seven percent of the other consumer portfolio is associated with portfolios from certain consumer finance businesses that the Corporation previously exited. (2) Other internal credit metrics may include delinquency status, geography or other factors. (3) Direct/indirect consumer includes $43.7 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $567 million of loans the Corporation no longer originates, primarily student loans. (4) Non-U.S. credit card represents the U.K. credit card portfolio which is evaluated using internal credit metrics, including delinquency status. At December 31, 2015, 98 percent of this portfolio was current or less than 30 days past due, one percent was 30-89 days past due and one percent was 90 days or more past due. Commercial – Credit Quality Indicators (1) (Dollars in millions) Risk ratings Pass rated Reservable criticized Refreshed FICO score (3) Less than 620 Greater than or equal to 620 and less than 680 Greater than or equal to 680 and less than 740 Greater than or equal to 740 Other internal credit metrics (3, 4) Total commercial December 31, 2015 U.S. Commercial Commercial Real Estate Commercial Lease Financing Non-U.S. Commercial U.S. Small Business Commercial (2) $ 243,922 $ 56,688 $ 26,050 $ 87,905 $ 8,849 511 1,320 3,644 571 96 184 543 1,627 3,027 6,828 $ 252,771 $ 57,199 $ 27,370 $ 91,549 $ 12,876 (1) Excludes $5.1 billion of loans accounted for under the fair value option. (2) U.S. small business commercial includes $670 million of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At December 31, 2015, 98 percent of the balances where internal credit metrics are used was current or less than 30 days past due. (3) Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio. (4) Other internal credit metrics may include delinquency status, application scores, geography or other factors. 164 Bank of America 2015 Bank of America 2015 165 Consumer Real Estate – Credit Quality Indicators (1) (Dollars in millions) Refreshed LTV (4) December 31, 2014 Core Portfolio Residential Mortgage (2) Legacy Assets & Servicing Residential Mortgage (2) Residential Mortgage PCI (3) Core Portfolio Home Equity (2) Legacy Assets & Servicing Home Equity (2) Home Equity PCI Less than or equal to 90 percent $ 100,255 $ 18,499 $ 9,972 $ 45,414 $ 17,453 $ Greater than 90 percent but less than or equal to 100 percent Greater than 100 percent Fully-insured loans (5) Total consumer real estate Refreshed FICO score Less than 620 Greater than or equal to 620 and less than 680 Greater than or equal to 680 and less than 740 Greater than or equal to 740 Fully-insured loans (5) Total consumer real estate $ $ 4,958 4,017 52,990 162,220 4,184 6,272 21,946 76,828 52,990 $ $ $ $ 3,081 5,265 11,980 38,825 6,313 4,032 6,463 10,037 11,980 $ $ 2,005 3,175 — 15,152 6,109 3,014 3,310 2,719 — $ $ 2,442 4,031 — 51,887 2,169 3,683 10,231 35,804 — $ $ 3,272 7,496 — 28,221 3,470 4,529 7,905 12,317 — $ 162,220 $ 38,825 $ 15,152 $ 51,887 $ 28,221 $ 2,046 1,048 2,523 — 5,617 864 995 1,651 2,107 — 5,617 (1) Excludes $2.1 billion of loans accounted for under the fair value option. (2) Excludes PCI loans. (3) Includes $2.8 billion of pay option loans. The Corporation no longer originates this product. (4) Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance. (5) Credit quality indicators are not reported for fully-insured loans as principal repayment is insured. Credit Card and Other Consumer – Credit Quality Indicators (Dollars in millions) Refreshed FICO score Less than 620 Greater than or equal to 620 and less than 680 Greater than or equal to 680 and less than 740 Greater than or equal to 740 Other internal credit metrics (2, 3, 4) Total credit card and other consumer December 31, 2014 U.S. Credit Card Non-U.S. Credit Card Direct/Indirect Consumer Other Consumer (1) $ 4,467 $ — $ 1,296 $ 12,177 34,986 40,249 — — — — 10,465 1,892 10,749 25,279 41,165 266 227 307 881 165 $ 91,879 $ 10,465 $ 80,381 $ 1,846 (1) Thirty-seven percent of the other consumer portfolio is associated with portfolios from certain consumer finance businesses that the Corporation previously exited. (2) Other internal credit metrics may include delinquency status, geography or other factors. (3) Direct/indirect consumer includes $39.7 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $632 million of loans the Corporation no longer originates, primarily student loans. (4) Non-U.S. credit card represents the U.K. credit card portfolio which is evaluated using internal credit metrics, including delinquency status. At December 31, 2014, 98 percent of this portfolio was current or less than 30 days past due, one percent was 30-89 days past due and one percent was 90 days or more past due. Commercial – Credit Quality Indicators (1) (Dollars in millions) Risk ratings Pass rated Reservable criticized Refreshed FICO score (3) Less than 620 Greater than or equal to 620 and less than 680 Greater than or equal to 680 and less than 740 Greater than or equal to 740 Other internal credit metrics (3, 4) Total commercial December 31, 2014 U.S. Commercial Commercial Real Estate Commercial Lease Financing Non-U.S. Commercial U.S. Small Business Commercial (2) $ 213,839 $ 46,632 $ 23,832 $ 79,367 $ 6,454 1,050 1,034 716 751 182 184 529 1,591 2,910 7,146 $ 220,293 $ 47,682 $ 24,866 $ 80,083 $ 13,293 (1) Excludes $6.6 billion of loans accounted for under the fair value option. (2) U.S. small business commercial includes $762 million of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At December 31, 2014, 98 percent of the balances where internal credit metrics are used was current or less than 30 days past due. (3) Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio. (4) Other internal credit metrics may include delinquency status, application scores, geography or other factors. 166 Bank of America 2015 Consumer Real Estate – Credit Quality Indicators (1) Less than or equal to 90 percent $ 100,255 $ 18,499 $ 9,972 $ 45,414 $ 17,453 $ Greater than 90 percent but less than or equal to 100 percent December 31, 2014 Core Portfolio Residential Mortgage (2) Legacy Assets & Servicing Residential Mortgage (2) Residential Mortgage PCI (3) Core Portfolio Home Equity (2) Legacy Assets & Servicing Home Equity (2) Home Equity PCI $ $ 4,958 4,017 52,990 162,220 4,184 6,272 21,946 76,828 52,990 $ $ $ $ 3,081 5,265 11,980 38,825 6,313 4,032 6,463 10,037 11,980 $ $ 2,005 3,175 — 15,152 6,109 3,014 3,310 2,719 — $ $ 2,442 4,031 — 51,887 2,169 3,683 10,231 35,804 — $ $ 3,272 7,496 — 28,221 3,470 4,529 7,905 12,317 — $ 162,220 $ 38,825 $ 15,152 $ 51,887 $ 28,221 $ (1) Excludes $2.1 billion of loans accounted for under the fair value option. (2) Excludes PCI loans. (3) Includes $2.8 billion of pay option loans. The Corporation no longer originates this product. (4) Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance. (5) Credit quality indicators are not reported for fully-insured loans as principal repayment is insured. Credit Card and Other Consumer – Credit Quality Indicators (Dollars in millions) Refreshed LTV (4) Greater than 100 percent Fully-insured loans (5) Total consumer real estate Refreshed FICO score Less than 620 Greater than or equal to 620 and less than 680 Greater than or equal to 680 and less than 740 Greater than or equal to 740 Fully-insured loans (5) Total consumer real estate (Dollars in millions) Refreshed FICO score Less than 620 Greater than or equal to 620 and less than 680 Greater than or equal to 680 and less than 740 Greater than or equal to 740 Other internal credit metrics (2, 3, 4) Total credit card and other consumer December 31, 2014 U.S. Credit Card Non-U.S. Credit Card Direct/Indirect Consumer Other Consumer (1) $ 4,467 $ — $ 1,296 $ 12,177 34,986 40,249 — — — — 10,465 1,892 10,749 25,279 41,165 266 227 307 881 165 $ 91,879 $ 10,465 $ 80,381 $ 1,846 (1) Thirty-seven percent of the other consumer portfolio is associated with portfolios from certain consumer finance businesses that the Corporation previously exited. (2) Other internal credit metrics may include delinquency status, geography or other factors. (3) Direct/indirect consumer includes $39.7 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $632 million of loans the Corporation no longer originates, primarily student loans. (4) Non-U.S. credit card represents the U.K. credit card portfolio which is evaluated using internal credit metrics, including delinquency status. At December 31, 2014, 98 percent of this portfolio was current or less than 30 days past due, one percent was 30-89 days past due and one percent was 90 days or more past due. Commercial – Credit Quality Indicators (1) (Dollars in millions) Risk ratings Pass rated Reservable criticized Refreshed FICO score (3) Less than 620 Greater than or equal to 620 and less than 680 Greater than or equal to 680 and less than 740 Greater than or equal to 740 Other internal credit metrics (3, 4) Total commercial December 31, 2014 U.S. Commercial Commercial Real Estate Commercial Lease Financing Non-U.S. Commercial U.S. Small Business Commercial (2) $ 213,839 $ 46,632 $ 23,832 $ 79,367 $ 6,454 1,050 1,034 716 (1) Excludes $6.6 billion of loans accounted for under the fair value option. (2) U.S. small business commercial includes $762 million of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At December 31, 2014, 98 percent of the balances where internal credit metrics are used was current or less than 30 days past due. (3) Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio. (4) Other internal credit metrics may include delinquency status, application scores, geography or other factors. $ 220,293 $ 47,682 $ 24,866 $ 80,083 $ 13,293 2,046 1,048 2,523 — 5,617 864 995 1,651 2,107 — 5,617 751 182 184 529 1,591 2,910 7,146 Impaired Loans and Troubled Debt Restructurings A loan is considered impaired when, based on current information, it is probable that the Corporation will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans and all consumer and commercial TDRs. Impaired loans exclude nonperforming consumer loans and nonperforming commercial leases unless they are classified as TDRs. Loans accounted for under the fair value option are also excluded. PCI loans are excluded and reported separately on page 176. For additional information, see Note 1 – Summary of Significant Accounting Principles. Consumer Real Estate Impaired consumer real estate loans within the Consumer Real Estate portfolio segment consist entirely of TDRs. Excluding PCI loans, most modifications of consumer real estate loans meet the definition of TDRs when a binding offer is extended to a borrower. Modifications of consumer real estate loans are done in accordance with the government’s Making Home Affordable Program (modifications under government programs) or the Corporation’s proprietary programs (modifications under proprietary programs). These modifications are considered to be TDRs if concessions have been granted to borrowers experiencing financial difficulties. Concessions may include reductions in interest rates, capitalization of past due amounts, principal and/ or interest forbearance, payment extensions, principal and/or interest forgiveness, or combinations thereof. Prior to permanently modifying a loan, the Corporation may enter into trial modifications with certain borrowers under both government and proprietary programs. Trial modifications generally represent a three- to four-month period during which the borrower makes monthly payments under the anticipated modified payment terms. Upon successful completion of the trial period, the Corporation and the borrower enter into a permanent modification. Binding trial modifications are classified as TDRs when the trial offer is made and continue to be classified as TDRs regardless of whether the borrower enters into a permanent modification. Consumer real estate loans that have been discharged in Chapter 7 bankruptcy with no change in repayment terms and not reaffirmed by the borrower of $1.8 billion were included in TDRs at December 31, 2015, of which $785 million were classified as nonperforming and $765 million were loans fully-insured by the FHA. For more information on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note. A consumer real estate loan, excluding PCI loans which are reported separately, is not classified as impaired unless it is a TDR. Once such a loan has been designated as a TDR, it is then individually assessed for impairment. Consumer real estate TDRs are measured primarily based on the net present value of the estimated cash flows discounted at the loan’s original effective interest rate, as discussed in the following paragraph. If the carrying value of a TDR exceeds this amount, a specific allowance is recorded as a component of the allowance for loan and lease losses. Alternatively, consumer real estate TDRs that are considered to be dependent solely on the collateral for repayment (e.g., due to the lack of income verification) are measured based on the estimated fair value of the collateral and a charge-off is recorded if the carrying value exceeds the fair value of the collateral. Consumer real estate loans that reached 180 days past due prior to modification had been charged off to their net realizable value, less costs to sell, before they were modified as TDRs in accordance with established policy. Therefore, modifications of consumer real estate loans that are 180 or more days past due as TDRs do not have an impact on the allowance for loan and lease losses nor are additional charge-offs required at the time of modification. Subsequent declines in the fair value of the collateral after a loan has reached 180 days past due are recorded as charge- offs. Fully-insured loans are protected against principal loss, and therefore, the Corporation does not record an allowance for loan and lease losses on the outstanding principal balance, even after they have been modified in a TDR. The net present value of the estimated cash flows used to measure impairment is based on model-driven estimates of projected payments, prepayments, defaults and loss-given-default (LGD). Using statistical modeling methodologies, the Corporation estimates the probability that a loan will default prior to maturity based on the attributes of each loan. The factors that are most relevant to the probability of default are the refreshed LTV, or in the case of a subordinated lien, refreshed CLTV, borrower credit score, months since origination (i.e., vintage) and geography. Each of these factors is further broken down by present collection status (whether the loan is current, delinquent, in default or in bankruptcy). Severity (or LGD) is estimated based on the refreshed LTV for first mortgages or CLTV for subordinated liens. The estimates are based on the Corporation’s historical experience as adjusted to reflect an assessment of environmental factors that may not be reflected in the historical data, such as changes in real estate values, local and national economies, underwriting standards and the regulatory environment. The probability of incorporate default models also recent experience with modification programs including redefaults subsequent to modification, a loan’s default history prior to modification and the change in borrower payments post-modification. foreclosure proceedings were At December 31, 2015 and 2014, remaining commitments to lend additional funds to debtors whose terms have been modified in a consumer real estate TDR were immaterial. Consumer real estate foreclosed properties totaled $444 million and $630 million at December 31, 2015 and 2014. The carrying value of consumer real estate loans, including fully-insured and PCI loans, for which formal in process as of December 31, 2015 was $5.8 billion. During 2015 and 2014, the Corporation reclassified $2.1 billion and $1.9 billion of consumer real estate loans to foreclosed properties or, for properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured to other assets. The loans), reclassifications represent non-cash investing activities and, accordingly, are not reflected on the Consolidated Statement of Cash Flows. 166 Bank of America 2015 Bank of America 2015 167 The table below provides the unpaid principal balance, carrying value and related allowance at December 31, 2015 and 2014, and the average carrying value and interest income recognized for 2015, 2014 and 2013 for impaired loans in the Corporation’s Consumer Real Estate portfolio segment, and includes primarily loans managed by Legacy Assets & Servicing (LAS). Certain impaired consumer real estate loans do not have a related allowance as the current valuation of these impaired loans exceeded the carrying value, which is net of previously recorded charge-offs. Impaired Loans – Consumer Real Estate (Dollars in millions) With no recorded allowance Residential mortgage Home equity With an allowance recorded Residential mortgage Home equity Total Residential mortgage Home equity With no recorded allowance Residential mortgage Home equity With an allowance recorded Residential mortgage Home equity Total December 31, 2015 December 31, 2014 Unpaid Principal Balance Carrying Value Related Allowance Unpaid Principal Balance Carrying Value Related Allowance $ $ $ $ $ 11,901 1,775 6,471 911 18,372 2,686 14,888 3,545 6,624 1,047 21,512 4,592 $ $ $ 2015 Average Carrying Value Interest Income Recognized (1) 13,867 1,777 7,290 785 $ $ 403 89 236 24 $ $ $ $ $ — $ — 19,710 3,540 7,861 852 27,571 4,392 $ $ 399 235 399 235 2014 Average Carrying Value Interest Income Recognized (1) 15,065 1,486 10,826 743 $ $ 490 87 411 25 $ $ $ $ $ 15,605 1,630 7,665 728 23,270 2,358 $ $ $ 2013 — — 531 196 531 196 Average Carrying Value Interest Income Recognized (1) 16,625 1,245 13,926 912 $ $ 621 76 616 41 Residential mortgage Home equity Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible. 25,891 2,229 30,551 2,157 21,157 2,562 1,237 117 901 112 639 113 $ $ $ $ $ $ (1) 168 Bank of America 2015 The table below provides the unpaid principal balance, carrying loans managed by Legacy Assets & Servicing (LAS). Certain value and related allowance at December 31, 2015 and 2014, impaired consumer real estate loans do not have a related and the average carrying value and interest income recognized for allowance as the current valuation of these impaired loans 2015, 2014 and 2013 for impaired loans in the Corporation’s exceeded the carrying value, which is net of previously recorded Consumer Real Estate portfolio segment, and includes primarily charge-offs. The table below presents the December 31, 2015, 2014 and 2013 unpaid principal balance, carrying value, and average pre- and post-modification interest rates on consumer real estate loans that were modified in TDRs during 2015, 2014 and 2013, and net charge-offs recorded during the period in which the modification occurred. The following Consumer Real Estate portfolio segment tables include loans that were initially classified as TDRs during the period and also loans that had previously been classified as TDRs and were modified again during the period. These TDRs are primarily managed by LAS. Impaired Loans – Consumer Real Estate Consumer Real Estate – TDRs Entered into During 2015, 2014 and 2013 (1) (Dollars in millions) With no recorded allowance Residential mortgage Home equity With an allowance recorded Residential mortgage Home equity Total Residential mortgage Home equity With no recorded allowance Residential mortgage Home equity With an allowance recorded Residential mortgage Home equity Total Residential mortgage Home equity December 31, 2015 December 31, 2014 Unpaid Principal Balance Carrying Value Related Allowance Carrying Value Related Allowance Unpaid Principal Balance 14,888 $ 11,901 $ — $ 19,710 $ 15,605 $ 3,545 6,624 1,047 1,775 911 $ 6,471 $ 3,540 1,630 7,861 $ 7,665 $ 852 728 21,512 $ 18,372 $ 4,592 2,686 27,571 $ 23,270 $ 4,392 2,358 — 399 235 399 235 $ $ 2015 2014 2013 Average Carrying Value Interest Income Recognized (1) Average Carrying Value Interest Income Recognized (1) Average Carrying Value Interest Income Recognized (1) 13,867 $ 1,777 7,290 $ 785 21,157 $ 2,562 $ $ $ 403 89 236 24 639 113 1,486 743 15,065 $ 490 $ 16,625 $ 10,826 $ 411 $ 13,926 $ 1,245 912 87 25 901 112 25,891 $ 2,229 $ 30,551 $ 2,157 1,237 117 — — 531 196 531 196 621 76 616 41 $ $ $ $ $ $ (1) Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible. (Dollars in millions) Residential mortgage Home equity Total Residential mortgage Home equity Total Residential mortgage Home equity $ $ $ $ $ December 31, 2015 2015 Unpaid Principal Balance Carrying Value Pre- Modification Interest Rate Post- Modification Interest Rate (2) Net Charge-offs (3) $ $ $ $ $ 2,986 1,019 4,005 5,940 863 6,803 11,233 878 12,111 2,655 775 3,430 December 31, 2014 5,120 592 5,712 4.98% 3.54 4.61 5.28% 4.00 5.12 4.43% $ 3.17 4.11 $ 4.93% $ 3.33 4.73 $ 97 84 181 72 99 171 2014 December 31, 2013 2013 10,016 521 10,537 5.30% 5.29 5.30 4.27% $ 3.92 4.24 235 192 427 Total $ (1) During 2015, 2014 and 2013, the Corporation forgave principal of $396 million, $53 million and $467 million, respectively, related to residential mortgage loans in connection with TDRs. (2) The post-modification interest rate reflects the interest rate applicable only to permanently completed modifications, which exclude loans that are in a trial modification period. (3) Net charge-offs include amounts recorded on loans modified during the period that are no longer held by the Corporation at December 31, 2015, 2014 and 2013 due to sales and other dispositions. $ $ 168 Bank of America 2015 Bank of America 2015 169 The table below presents the December 31, 2015, 2014 and 2013 carrying value for consumer real estate loans that were modified in a TDR during 2015, 2014 and 2013, by type of modification. Consumer Real Estate – Modification Programs TDRs Entered into During 2015 Residential Mortgage Home Equity Total Carrying Value $ $ $ $ $ $ 408 4 46 458 191 69 124 34 418 1,516 263 2,655 $ $ 23 7 — 30 28 10 44 95 177 452 116 775 $ $ TDRs Entered into During 2014 $ 643 16 98 757 244 71 66 40 421 3,421 521 5,120 $ 56 18 1 75 22 2 75 47 146 182 189 592 $ $ TDRs Entered into During 2013 1,815 35 100 1,950 2,799 132 469 105 3,505 3,410 1,151 10,016 $ $ 48 24 — 72 40 2 17 25 84 87 278 521 $ $ 431 11 46 488 219 79 168 129 595 1,968 379 3,430 699 34 99 832 266 73 141 87 567 3,603 710 5,712 1,863 59 100 2,022 2,839 134 486 130 3,589 3,497 1,429 10,537 (Dollars in millions) Modifications under government programs Contractual interest rate reduction Principal and/or interest forbearance Other modifications (1) Total modifications under government programs Modifications under proprietary programs Contractual interest rate reduction Capitalization of past due amounts Principal and/or interest forbearance Other modifications (1) Total modifications under proprietary programs Trial modifications Loans discharged in Chapter 7 bankruptcy (2) Total modifications Modifications under government programs Contractual interest rate reduction Principal and/or interest forbearance Other modifications (1) Total modifications under government programs Modifications under proprietary programs Contractual interest rate reduction Capitalization of past due amounts Principal and/or interest forbearance Other modifications (1) Total modifications under proprietary programs Trial modifications Loans discharged in Chapter 7 bankruptcy (2) Total modifications Modifications under government programs Contractual interest rate reduction Principal and/or interest forbearance Other modifications (1) Total modifications under government programs Modifications under proprietary programs Contractual interest rate reduction Capitalization of past due amounts Principal and/or interest forbearance Other modifications (1) Total modifications under proprietary programs Trial modifications Loans discharged in Chapter 7 bankruptcy (2) Total modifications (1) (2) Includes other modifications such as term or payment extensions and repayment plans. Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs. 170 Bank of America 2015 The table below presents the December 31, 2015, 2014 and 2013 carrying value for consumer real estate loans that were modified in a TDR during 2015, 2014 and 2013, by type of modification. Consumer Real Estate – Modification Programs The table below presents the carrying value of consumer real estate loans that entered into payment default during 2015, 2014 and 2013 that were modified in a TDR during the 12 months preceding payment default. A payment default for consumer real estate TDRs is recognized when a borrower has missed three (not necessarily consecutively) since monthly payments modification. Payment defaults on a trial modification where the borrower has not yet met the terms of the agreement are included in the table below if the borrower is 90 days or more past due three months after the offer to modify is made. Consumer Real Estate – TDRs Entering Payment Default That Were Modified During the Preceding 12 Months (Dollars in millions) Modifications under government programs Modifications under proprietary programs Loans discharged in Chapter 7 bankruptcy (2) Trial modifications (3) Total modifications Modifications under government programs Modifications under proprietary programs Loans discharged in Chapter 7 bankruptcy (2) Trial modifications Total modifications Modifications under government programs Modifications under proprietary programs Loans discharged in Chapter 7 bankruptcy (2) Trial modifications Residential Mortgage 2015 Home Equity Total Carrying Value (1) $ $ $ $ $ $ $ $ $ $ 452 263 238 2,997 3,950 696 714 481 2,231 4,122 454 1,117 964 4,376 6,911 $ $ $ $ $ 5 24 47 181 257 4 12 70 56 142 2014 2013 2 4 30 14 50 457 287 285 3,178 4,207 700 726 551 2,287 4,264 456 1,121 994 4,390 6,961 (Dollars in millions) Modifications under government programs Contractual interest rate reduction Principal and/or interest forbearance Other modifications (1) Total modifications under government programs Modifications under proprietary programs Contractual interest rate reduction Capitalization of past due amounts Principal and/or interest forbearance Other modifications (1) Total modifications under proprietary programs Trial modifications Loans discharged in Chapter 7 bankruptcy (2) Total modifications Modifications under government programs Contractual interest rate reduction Principal and/or interest forbearance Other modifications (1) Total modifications under government programs Modifications under proprietary programs Contractual interest rate reduction Capitalization of past due amounts Principal and/or interest forbearance Other modifications (1) Total modifications under proprietary programs Trial modifications Loans discharged in Chapter 7 bankruptcy (2) Total modifications Modifications under government programs Contractual interest rate reduction Principal and/or interest forbearance Other modifications (1) Total modifications under government programs Modifications under proprietary programs Contractual interest rate reduction Capitalization of past due amounts Principal and/or interest forbearance Other modifications (1) Total modifications under proprietary programs Trial modifications Loans discharged in Chapter 7 bankruptcy (2) Total modifications TDRs Entered into During 2014 TDRs Entered into During 2015 Residential Mortgage Home Equity Total Carrying Value $ 408 $ $ $ $ $ $ 4 46 458 191 69 124 34 418 16 98 757 244 71 66 40 1,516 263 2,655 $ 643 $ 421 3,421 521 5,120 $ 1,815 $ 35 100 1,950 2,799 132 469 105 3,505 3,410 1,151 23 7 — 30 28 10 44 95 177 452 116 775 56 18 1 75 22 2 75 47 146 182 189 592 48 24 — 72 40 2 17 25 84 87 278 521 $ $ $ $ 431 11 46 488 219 79 168 129 595 1,968 379 3,430 699 34 99 832 266 73 141 87 567 3,603 710 5,712 1,863 59 100 2,022 2,839 134 486 130 3,589 3,497 1,429 TDRs Entered into During 2013 (1) (2) Includes other modifications such as term or payment extensions and repayment plans. Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs. $ 10,016 $ $ 10,537 Total modifications Includes loans with a carrying value of $1.8 billion, $2.0 billion and $2.4 billion that entered into payment default during 2015, 2014 and 2013, respectively, but were no longer held by the Corporation as of December 31, 2015, 2014 and 2013 due to sales and other dispositions. Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs. Includes $1.7 billion of trial modification offers made in connection with the 2014 settlement with the U.S. Department of Justice to which the customer has not responded for 2015. $ $ $ (1) (2) (3) Credit Card and Other Consumer Impaired loans within the Credit Card and Other Consumer portfolio segment consist entirely of loans that have been modified in TDRs (the renegotiated credit card and other consumer TDR portfolio, collectively referred to as the renegotiated TDR portfolio). The Corporation seeks to assist customers that are experiencing financial difficulty by modifying loans while ensuring compliance with federal, local and international laws and guidelines. Credit card and other consumer loan modifications generally involve reducing the interest rate on the account and placing the customer on a fixed payment plan not exceeding 60 months, all of which are considered TDRs. In addition, the accounts of non-U.S. credit card customers who do not qualify for a fixed payment plan may have their interest rates reduced, as required by certain local jurisdictions. These modifications, which are also TDRs, tend to experience higher payment default rates given that the borrowers may lack the ability to repay even with the interest rate reduction. In substantially all cases, the customer’s available line of credit is canceled. The Corporation makes loan modifications directly with borrowers for debt held only by the Corporation (internal programs). Additionally, the Corporation makes loan modifications for borrowers working with third-party renegotiation agencies that provide solutions to customers’ entire unsecured debt structures (external programs). The Corporation classifies other secured consumer loans that have been discharged in Chapter 7 bankruptcy as TDRs which are written down to collateral value and placed on nonaccrual status no later than the time of discharge. For more information on the regulatory guidance on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note. All credit card and substantially all other consumer loans that have been modified in TDRs remain on accrual status until the loan is either paid in full or charged off, which occurs no later than the end of the month in which the loan becomes 180 days past due or generally at 120 days past due for a loan that has been placed on a fixed payment plan. The allowance for impaired credit card and substantially all other consumer loans is based on the present value of projected cash flows, which incorporates the Corporation’s historical payment default and loss experience on modified loans, discounted using the portfolio’s average contractual interest rate, excluding promotionally priced to restructuring. Credit card and other consumer loans are included in homogeneous pools which are collectively evaluated for impairment. For these portfolios, loss forecast models are utilized that consider a variety of factors including, but not limited to, historical loss experience, delinquency status, economic trends and credit scores. in effect prior loans, 170 Bank of America 2015 Bank of America 2015 171 The table below provides the unpaid principal balance, carrying value and related allowance at December 31, 2015 and 2014, and the average carrying value and interest income recognized for 2015, 2014 and 2013 on the Corporation’s renegotiated TDR portfolio in the Credit Card and Other Consumer portfolio segment. Impaired Loans – Credit Card and Other Consumer – Renegotiated TDRs (Dollars in millions) With no recorded allowance Direct/Indirect consumer With an allowance recorded U.S. credit card Non-U.S. credit card Direct/Indirect consumer Total U.S. credit card Non-U.S. credit card Direct/Indirect consumer With no recorded allowance Direct/Indirect consumer Other consumer With an allowance recorded U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total December 31, 2015 December 31, 2014 Unpaid Principal Balance Carrying Value (1) Related Allowance Unpaid Principal Balance Carrying Value (1) Related Allowance $ $ $ $ $ $ $ $ 50 598 109 17 598 109 67 $ $ $ 21 611 126 21 611 126 42 — $ $ $ 176 70 4 176 70 4 $ $ $ 59 804 132 76 804 132 135 $ $ $ 25 856 168 92 856 168 117 — 207 108 24 207 108 24 2015 2014 2013 Average Carrying Value Interest Income Recognized (2) Average Carrying Value Interest Income Recognized (2) Average Carrying Value Interest Income Recognized (2) $ $ 22 — 749 145 51 — — $ — $ 43 4 3 — $ $ 27 33 1,148 210 180 23 — $ 2 $ 71 6 9 1 $ $ 42 34 2,144 266 456 28 — 2 134 7 24 2 U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Includes accrued interest and fees. Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible. 2,144 266 498 62 1,148 210 207 56 134 7 24 4 749 145 73 — 71 6 9 3 43 4 3 — $ $ $ $ $ $ (1) (2) The table below provides information on the Corporation’s primary modification programs for the renegotiated TDR portfolio at December 31, 2015 and 2014. Credit Card and Other Consumer – Renegotiated TDRs by Program Type Internal Programs External Programs Other (1) Total Percent of Balances Current or Less Than 30 Days Past Due (Dollars in millions) 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 U.S. credit card Non-U.S. credit card Direct/Indirect consumer Total renegotiated TDRs $ $ 313 21 11 345 $ $ 450 41 50 541 $ $ 296 10 7 313 $ $ 397 16 34 447 $ $ 2 95 24 121 $ $ 9 111 33 153 $ $ 611 126 42 779 $ 856 168 117 $ 1,141 88.74% 44.25 89.12 81.55 84.99% 47.56 85.21 79.51 (1) Other TDRs for non-U.S. credit card include modifications of accounts that are ineligible for a fixed payment plan. December 31 172 Bank of America 2015 The table below provides the unpaid principal balance, carrying value and related allowance at December 31, 2015 and 2014, and the average carrying value and interest income recognized for 2015, 2014 and 2013 on the Corporation’s renegotiated TDR portfolio in the Credit Card and Other Consumer portfolio segment. The table below provides information on the Corporation’s renegotiated TDR portfolio including the December 31, 2015, 2014 and 2013 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of loans that were modified in TDRs during 2015, 2014 and 2013, and net charge-offs recorded during the period in which the modification occurred. Impaired Loans – Credit Card and Other Consumer – Renegotiated TDRs Credit Card and Other Consumer – Renegotiated TDRs Entered into During 2015, 2014 and 2013 (Dollars in millions) U.S. credit card Non-U.S. credit card Direct/Indirect consumer Total U.S. credit card Non-U.S. credit card Direct/Indirect consumer Total U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total Includes accrued interest and fees. (1) Unpaid Principal Balance December 31, 2015 Pre- Modification Interest Rate Carrying Value (1) Post- Modification Interest Rate 2015 Net Charge-offs $ $ $ $ $ $ 205 74 19 298 276 91 27 394 299 134 47 8 488 $ $ $ $ $ $ 218 86 12 316 17.07% 24.05 5.95 18.58 5.08% $ 0.53 5.19 3.84 $ December 31, 2014 2014 301 106 19 426 16.64% 24.90 8.66 18.32 5.15% $ 0.68 4.90 4.03 $ December 31, 2013 2013 329 147 38 8 522 16.84% 25.90 11.53 9.28 18.89 5.84% $ 0.95 4.74 5.25 4.37 $ 26 63 9 98 37 91 14 142 30 138 15 — 183 The table below provides information on the Corporation’s primary modification programs for the renegotiated TDR portfolio for loans that were modified in TDRs during 2015, 2014 and 2013. Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Period by Program Type (Dollars in millions) With no recorded allowance Direct/Indirect consumer With an allowance recorded U.S. credit card Non-U.S. credit card Direct/Indirect consumer Total U.S. credit card Non-U.S. credit card Direct/Indirect consumer With no recorded allowance Direct/Indirect consumer Other consumer With an allowance recorded U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer December 31, 2015 December 31, 2014 Unpaid Principal Balance Carrying Value (1) Related Allowance Carrying Value (1) Related Allowance Unpaid Principal Balance 2015 2014 2013 Average Carrying Value Interest Income Recognized (2) Average Carrying Value Interest Income Recognized (2) Average Carrying Value Interest Income Recognized (2) $ $ $ $ $ $ $ $ $ $ $ $ 50 598 109 17 598 109 67 22 — 749 145 51 — 749 145 73 — $ $ $ 21 611 126 21 611 126 42 — $ 176 $ 70 4 70 4 176 $ $ $ $ 59 804 132 76 804 132 135 $ $ $ 25 856 168 92 856 168 117 — $ — $ 27 33 — $ $ 42 34 43 $ 1,148 $ 71 $ 2,144 $ 4 3 — 4 3 — 210 180 23 210 207 56 2 6 9 1 6 9 3 266 456 28 266 498 62 43 $ 1,148 $ 71 $ 2,144 $ — 207 108 24 207 108 24 — 2 134 7 24 2 134 7 24 4 2015 Internal Programs External Programs Other (1) Total Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for The table below provides information on the Corporation’s primary modification programs for the renegotiated TDR portfolio at Includes accrued interest and fees. (1) (2) which the principal is considered collectible. December 31, 2015 and 2014. Credit Card and Other Consumer – Renegotiated TDRs by Program Type (Dollars in millions) U.S. credit card Non-U.S. credit card Direct/Indirect consumer Total renegotiated TDRs $ $ Internal Programs External Programs Other (1) Total 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 313 $ 450 $ 296 $ 397 $ $ 9 $ $ Percent of Balances Current or Less Than 30 Days Past Due 2 95 24 111 33 153 611 126 42 779 856 168 117 88.74% 44.25 89.12 81.55 84.99% 47.56 85.21 79.51 21 11 41 50 10 7 16 34 (1) Other TDRs for non-U.S. credit card include modifications of accounts that are ineligible for a fixed payment plan. 345 $ 541 $ 313 $ 447 $ 121 $ $ $ 1,141 December 31 (Dollars in millions) U.S. credit card Non-U.S. credit card Direct/Indirect consumer Total renegotiated TDRs U.S. credit card Non-U.S. credit card Direct/Indirect consumer Total renegotiated TDRs U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total renegotiated TDRs (1) Other TDRs for non-U.S. credit card include modifications of accounts that are ineligible for a fixed payment plan. $ $ $ $ $ $ 134 3 1 138 196 6 4 206 192 16 15 8 231 $ $ $ $ $ $ 84 4 — 88 $ $ 2014 $ 105 6 2 113 137 9 8 — 154 2013 $ $ $ — $ 79 11 90 $ — $ 94 13 107 $ — $ 122 15 — 137 $ 218 86 12 316 301 106 19 426 329 147 38 8 522 172 Bank of America 2015 Bank of America 2015 173 (below market) opportunity to work through financial difficulties, often to avoid foreclosure or bankruptcy. Each modification is unique and reflects the individual circumstances of the borrower. Modifications that result in a TDR may include extensions of maturity at a interest, payment concessionary forbearances or other actions designed to benefit the customer while mitigating the Corporation’s risk exposure. Reductions in interest rates are rare. Instead, the interest rates are typically increased, although the increased rate may not represent a market rate of interest. Infrequently, concessions may also include principal forgiveness in connection with foreclosure, short sale or other settlement agreements leading to termination or sale of the loan. rate of At the time of restructuring, the loans are remeasured to reflect the impact, if any, on projected cash flows resulting from the modified terms. If there was no forgiveness of principal and the interest rate was not decreased, the modification may have little or no impact on the allowance established for the loan. If a portion of the loan is deemed to be uncollectible, a charge-off may be recorded at the time of restructuring. Alternatively, a charge-off may have already been recorded in a previous period such that no charge-off is required at the time of modification. For more information on modifications for the U.S. small business commercial portfolio, see Credit Card and Other Consumer in this Note. At December 31, 2015 and 2014, remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were immaterial. Commercial foreclosed properties totaled $15 million and $67 million at December 31, 2015 and 2014. Credit card and other consumer loans are deemed to be in payment default during the quarter in which a borrower misses the second of two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows in the calculation of the allowance for loan and lease losses for impaired credit card and other consumer loans. Based on historical experience, the Corporation estimates that 14 percent of new U.S. credit card TDRs, 88 percent of new non-U.S. credit card TDRs and 12 percent of new direct/indirect consumer TDRs may be in payment default within 12 months after modification. Loans that entered into payment default during 2015, 2014 and 2013 that had been modified in a TDR during the preceding 12 months were $43 million, $56 million and $61 million for U.S. credit card, $152 million, $200 million and $236 million for non-U.S. credit card, and $3 million, $5 million and $12 million for direct/indirect consumer. Commercial Loans Impaired commercial loans, which include nonperforming loans and TDRs (both performing and nonperforming), are primarily measured based on the present value of payments expected to be received, discounted at the loan’s original effective interest rate. Commercial impaired loans may also be measured based on observable market prices or, for loans that are solely dependent on the collateral for repayment, the estimated fair value of collateral, less costs to sell. If the carrying value of a loan exceeds this amount, a specific allowance is recorded as a component of the allowance for loan and lease losses. Modifications of loans to commercial borrowers that are experiencing financial difficulty are designed to reduce the Corporation’s loss exposure while providing the borrower with an 174 Bank of America 2015 Credit card and other consumer loans are deemed to be in opportunity to work through financial difficulties, often to avoid payment default during the quarter in which a borrower misses the foreclosure or bankruptcy. Each modification is unique and reflects second of two consecutive payments. Payment defaults are one the individual circumstances of the borrower. Modifications that of the factors considered when projecting future cash flows in the result in a TDR may include extensions of maturity at a calculation of the allowance for loan and lease losses for impaired concessionary (below market) rate of interest, payment credit card and other consumer loans. Based on historical forbearances or other actions designed to benefit the customer experience, the Corporation estimates that 14 percent of new U.S. while mitigating the Corporation’s risk exposure. Reductions in credit card TDRs, 88 percent of new non-U.S. credit card TDRs and interest rates are rare. Instead, the interest rates are typically 12 percent of new direct/indirect consumer TDRs may be in increased, although the increased rate may not represent a market payment default within 12 months after modification. Loans that rate of interest. Infrequently, concessions may also include entered into payment default during 2015, 2014 and 2013 that principal forgiveness in connection with foreclosure, short sale or had been modified in a TDR during the preceding 12 months were other settlement agreements leading to termination or sale of the $43 million, $56 million and $61 million for U.S. credit card, $152 loan. million, $200 million and $236 million for non-U.S. credit card, At the time of restructuring, the loans are remeasured to reflect and $3 million, $5 million and $12 million for direct/indirect the impact, if any, on projected cash flows resulting from the consumer. Commercial Loans Impaired commercial loans, which include nonperforming loans and TDRs (both performing and nonperforming), are primarily measured based on the present value of payments expected to be received, discounted at the loan’s original effective interest rate. Commercial impaired loans may also be measured based on observable market prices or, for loans that are solely dependent on the collateral for repayment, the estimated fair value of Note. collateral, less costs to sell. If the carrying value of a loan exceeds this amount, a specific allowance is recorded as a component of the allowance for loan and lease losses. Modifications of loans to commercial borrowers that are experiencing financial difficulty are designed to reduce the Corporation’s loss exposure while providing the borrower with an modified terms. If there was no forgiveness of principal and the interest rate was not decreased, the modification may have little or no impact on the allowance established for the loan. If a portion of the loan is deemed to be uncollectible, a charge-off may be recorded at the time of restructuring. Alternatively, a charge-off may have already been recorded in a previous period such that no charge-off is required at the time of modification. For more information on modifications for the U.S. small business commercial portfolio, see Credit Card and Other Consumer in this At December 31, 2015 and 2014, remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were immaterial. Commercial foreclosed properties totaled $15 million and $67 million at December 31, 2015 and 2014. The table below provides the unpaid principal balance, carrying value and related allowance at December 31, 2015 and 2014, and the average carrying value and interest income recognized for 2015, 2014 and 2013 for impaired loans in the Corporation’s Commercial loan portfolio segment. Certain impaired commercial loans do not have a related allowance as the valuation of these impaired loans exceeded the carrying value, which is net of previously recorded charge-offs. Impaired Loans – Commercial (Dollars in millions) With no recorded allowance U.S. commercial Commercial real estate Non-U.S. commercial With an allowance recorded U.S. commercial Commercial real estate Non-U.S. commercial U.S. small business commercial (1) Total U.S. commercial Commercial real estate Non-U.S. commercial U.S. small business commercial (1) With no recorded allowance U.S. commercial Commercial real estate Non-U.S. commercial With an allowance recorded U.S. commercial Commercial real estate Non-U.S. commercial U.S. small business commercial (1) Total December 31, 2015 December 31, 2014 Unpaid Principal Balance Carrying Value Related Allowance Unpaid Principal Balance Carrying Value Related Allowance $ $ $ $ $ $ $ $ 566 82 4 1,350 328 531 105 1,916 410 535 105 541 77 4 1,157 107 381 101 1,698 184 385 101 2015 Average Carrying Value Interest Income Recognized (2) $ $ 688 75 29 953 216 125 109 14 1 1 48 7 7 1 $ $ $ $ $ — $ — — $ $ 115 11 56 35 115 11 56 35 668 60 — 1,139 678 47 133 1,807 738 47 133 2014 Average Carrying Value Interest Income Recognized (2) $ $ 546 166 15 1,198 632 52 151 12 3 — 51 16 3 3 $ $ $ $ $ $ $ $ 650 48 — 839 495 44 122 1,489 543 44 122 — — — 75 48 1 35 75 48 1 35 2013 Average Carrying Value Interest Income Recognized (2) $ $ 442 269 28 1,553 1,148 109 236 6 3 — 47 28 5 6 U.S. commercial Commercial real estate Non-U.S. commercial U.S. small business commercial (1) Includes U.S. small business commercial renegotiated TDR loans and related allowance. Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible. 1,744 798 67 151 1,995 1,417 137 236 1,641 291 154 109 63 19 3 3 53 31 5 6 62 8 8 1 $ $ $ $ $ $ (1) (2) 174 Bank of America 2015 Bank of America 2015 175 Purchased Credit-impaired Loans PCI loans are acquired loans with evidence of credit quality deterioration since origination for which it is probable at purchase date that the Corporation will be unable to collect all contractually required payments. The following table shows activity for the accretable yield on PCI loans, which include the Countrywide Financial Corporation (Countrywide) portfolio and loans repurchased in connection with the 2013 settlement with FNMA. The amount of accretable yield is affected by changes in credit outlooks, including metrics such as default rates and loss severities, prepayment speeds, which can change the amount and period of time over which interest payments are expected to be received, and the interest rates on variable rate loans. The reclassifications from nonaccretable difference during 2015 and 2014 were primarily due to lower expected loss rates and a decrease in the forecasted prepayment speeds. Changes in the prepayment assumption affect the expected remaining life of the portfolio which results in a change to the amount of future interest cash flows. Rollforward of Accretable Yield (Dollars in millions) Accretable yield, January 1, 2014 Accretion Disposals/transfers Reclassifications from nonaccretable difference Accretable yield, December 31, 2014 Accretion Disposals/transfers Reclassifications from nonaccretable difference Accretable yield, December 31, 2015 $ $ 6,694 (1,061) (506) 481 5,608 (861) (465) 287 4,569 During 2015, the Corporation sold PCI loans with a carrying value of $1.4 billion, which excludes the related allowance of $234 million. For more information on PCI loans, see Note 1 – Summary of Significant Accounting Principles, and for the carrying value and valuation allowance for PCI loans, see Note 5 – Allowance for Credit Losses. Loans Held-for-sale The Corporation had LHFS of $7.5 billion and $12.8 billion at December 31, 2015 and 2014. Cash and non-cash proceeds from sales and paydowns of loans originally classified as LHFS were $41.2 billion, $40.1 billion and $81.0 billion for 2015, 2014 and 2013, respectively. Cash used for originations and purchases of LHFS totaled $38.7 billion, $40.1 billion and $65.7 billion for 2015, 2014 and 2013, respectively. The table below presents the December 31, 2015, 2014 and 2013 unpaid principal balance and carrying value of commercial loans that were modified as TDRs during 2015, 2014 and 2013, and net charge-offs that were recorded during the period in which the modification occurred. The table below includes loans that were initially classified as TDRs during the period and also loans that had previously been classified as TDRs and were modified again during the period. Commercial – TDRs Entered into During 2015, 2014 and 2013 (Dollars in millions) U.S. commercial Commercial real estate Non-U.S. commercial U.S. small business commercial (1) Total U.S. commercial Commercial real estate Non-U.S. commercial U.S. small business commercial (1) Total U.S. commercial Commercial real estate Non-U.S. commercial U.S. small business commercial (1) $ $ $ $ $ December 31, 2015 Unpaid Principal Balance Carrying Value 2015 Net Charge-offs 853 42 329 14 1,238 $ $ 779 42 326 11 1,158 December 31, 2014 818 346 44 3 1,211 $ $ 785 346 43 3 1,177 December 31, 2013 $ 926 483 61 8 1,478 910 425 44 9 1,388 $ $ $ $ $ 28 — — 3 31 49 8 — — 57 2014 2013 33 3 7 1 44 Total $ (1) U.S. small business commercial TDRs are comprised of renegotiated small business card loans. $ $ A commercial TDR is generally deemed to be in payment default when the loan is 90 days or more past due, including delinquencies that were not resolved as part of the modification. U.S. small business commercial TDRs are deemed to be in payment default during the quarter in which a borrower misses the second of two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows, along with observable market prices or fair value of collateral when measuring the allowance for loan and lease losses. TDRs that were in payment default had a carrying value of $105 million, $103 million and $55 million for U.S. commercial and $25 million, $211 million and $128 million for commercial real estate at December 31, 2015, 2014 and 2013, respectively. 176 Bank of America 2015 The table below presents the December 31, 2015, 2014 and 2013 unpaid principal balance and carrying value of commercial loans that were modified as TDRs during 2015, 2014 and 2013, and net charge-offs that were recorded during the period in which the modification occurred. The table below includes loans that were initially classified as TDRs during the period and also loans that had previously been classified as TDRs and were modified again during the period. Commercial – TDRs Entered into During 2015, 2014 and 2013 (Dollars in millions) U.S. commercial Commercial real estate Non-U.S. commercial U.S. small business commercial (1) Total $ 1,238 $ 1,158 $ December 31, 2014 2014 December 31, 2015 2015 Unpaid Principal Balance Carrying Value Net Charge-offs $ 853 $ 779 $ 42 329 14 818 346 44 3 926 483 61 8 $ $ 42 326 11 785 346 43 3 910 425 44 9 $ $ December 31, 2013 2013 28 — — 3 31 49 8 — — 57 33 3 7 1 44 U.S. commercial Commercial real estate Non-U.S. commercial U.S. small business commercial (1) U.S. commercial Commercial real estate Non-U.S. commercial U.S. small business commercial (1) $ $ Total $ 1,478 $ 1,388 $ (1) U.S. small business commercial TDRs are comprised of renegotiated small business card loans. A commercial TDR is generally deemed to be in payment default when the loan is 90 days or more past due, including delinquencies that were not resolved as part of the modification. U.S. small business commercial TDRs are deemed to be in payment default during the quarter in which a borrower misses the second of two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows, along with observable market prices or fair value of collateral when measuring the allowance for loan and lease losses. TDRs that were in payment default had a carrying value of $105 million, $103 million and $55 million for U.S. commercial and $25 million, $211 million and $128 million for commercial real estate at December 31, 2015, 2014 and 2013, respectively. Purchased Credit-impaired Loans PCI loans are acquired loans with evidence of credit quality deterioration since origination for which it is probable at purchase date that the Corporation will be unable to collect all contractually required payments. The following table shows activity for the accretable yield on PCI loans, which include the Countrywide Financial Corporation (Countrywide) portfolio and loans repurchased in connection with the 2013 settlement with FNMA. The amount of accretable yield is affected by changes in credit outlooks, including metrics such as default rates and loss severities, prepayment speeds, which can change the amount and period of time over which interest payments are expected to be received, and the interest rates on variable rate loans. The reclassifications from nonaccretable difference during 2015 and 2014 were primarily due to lower expected loss rates and a decrease in the forecasted prepayment speeds. Changes in the prepayment assumption affect the expected remaining life of the portfolio which results in a change to the amount of future interest cash flows. Rollforward of Accretable Yield (Dollars in millions) Accretable yield, January 1, 2014 Accretion Disposals/transfers Accretable yield, December 31, 2014 Accretion Disposals/transfers $ 6,694 (1,061) (506) 481 5,608 (861) (465) 287 Reclassifications from nonaccretable difference Accretable yield, December 31, 2015 $ 4,569 During 2015, the Corporation sold PCI loans with a carrying value of $1.4 billion, which excludes the related allowance of $234 million. For more information on PCI loans, see Note 1 – Summary of Significant Accounting Principles, and for the carrying value and valuation allowance for PCI loans, see Note 5 – Allowance for Credit Losses. Loans Held-for-sale The Corporation had LHFS of $7.5 billion and $12.8 billion at December 31, 2015 and 2014. Cash and non-cash proceeds from sales and paydowns of loans originally classified as LHFS were $41.2 billion, $40.1 billion and $81.0 billion for 2015, 2014 and 2013, respectively. Cash used for originations and purchases of LHFS totaled $38.7 billion, $40.1 billion and $65.7 billion for 2015, 2014 and 2013, respectively. Total $ 1,211 $ 1,177 $ Reclassifications from nonaccretable difference NOTE 5 Allowance for Credit Losses The table below summarizes the changes in the allowance for credit losses by portfolio segment for 2015, 2014 and 2013. (Dollars in millions) Allowance for loan and lease losses, January 1 Loans and leases charged off Recoveries of loans and leases previously charged off Net charge-offs Write-offs of PCI loans Provision for loan and lease losses Other (1) Allowance for loan and lease losses, December 31 Reserve for unfunded lending commitments, January 1 Provision for unfunded lending commitments Reserve for unfunded lending commitments, December 31 Allowance for credit losses, December 31 Allowance for loan and lease losses, January 1 Loans and leases charged off Recoveries of loans and leases previously charged off Net charge-offs Write-offs of PCI loans Provision for loan and lease losses Other (1) Allowance for loan and lease losses, December 31 Reserve for unfunded lending commitments, January 1 Provision for unfunded lending commitments Reserve for unfunded lending commitments, December 31 Allowance for credit losses, December 31 Allowance for loan and lease losses, January 1 Loans and leases charged off Recoveries of loans and leases previously charged off Net charge-offs Write-offs of PCI loans Provision for loan and lease losses Other (1) Allowance for loan and lease losses, December 31 Reserve for unfunded lending commitments, January 1 Provision for unfunded lending commitments Other Reserve for unfunded lending commitments, December 31 Allowance for credit losses, December 31 2015 Consumer Real Estate Credit Card and Other Consumer Commercial Total Allowance $ $ $ $ $ $ 5,935 (1,841) 732 (1,109) (808) (70) (34) 3,914 — — — 3,914 8,518 (2,219) 1,426 (793) (810) (976) (4) 5,935 — — — 5,935 14,933 (3,766) 879 (2,887) (2,336) (1,124) (68) 8,518 — — — — 8,518 $ $ $ $ $ $ 4,047 (3,620) 813 (2,807) — 2,278 (47) 3,471 — — — 3,471 $ $ 2014 $ 4,905 (4,149) 871 (3,278) — 2,458 (38) 4,047 — — — 4,047 6,140 (5,495) 1,141 (4,354) — 3,139 (20) 4,905 — — — — 4,905 $ 2013 $ $ 4,437 (644) 222 (422) — 835 (1) 4,849 528 118 646 5,495 4,005 (658) 346 (312) — 749 (5) 4,437 484 44 528 4,965 3,106 (1,108) 452 (656) — 1,559 (4) 4,005 513 (18) (11) 484 4,489 $ $ $ $ $ $ 14,419 (6,105) 1,767 (4,338) (808) 3,043 (82) 12,234 528 118 646 12,880 17,428 (7,026) 2,643 (4,383) (810) 2,231 (47) 14,419 484 44 528 14,947 24,179 (10,369) 2,472 (7,897) (2,336) 3,574 (92) 17,428 513 (18) (11) 484 17,912 (1) Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, and foreign currency translation adjustments. In 2015, 2014 and 2013, for the PCI loan portfolio, the Corporation recorded a provision benefit of $40 million, $31 million and $707 million, respectively. Write-offs in the PCI loan portfolio totaled $808 million, $810 million and $2.3 billion during 2015, 2014 and 2013, respectively. Write-offs included $234 million, $317 million and $414 million associated with the sale of PCI loans during 2015, 2014 and 2013, respectively. Write-offs in 2013 also included certain PCI loans that were ineligible for the National Mortgage Settlement, but had characteristics similar to the eligible loans, and the expectation of future cash proceeds was considered remote. The valuation allowance associated with the PCI loan portfolio was $804 million, $1.7 billion and $2.5 billion at December 31, 2015, 2014 and 2013, respectively. 176 Bank of America 2015 Bank of America 2015 177 The table below presents the allowance and the carrying value of outstanding loans and leases by portfolio segment at December 31, 2015 and 2014. Allowance and Carrying Value by Portfolio Segment (Dollars in millions) Impaired loans and troubled debt restructurings (1) Allowance for loan and lease losses (2) Carrying value (3) Allowance as a percentage of carrying value Loans collectively evaluated for impairment Allowance for loan and lease losses Carrying value (3, 4) Allowance as a percentage of carrying value (4) Purchased credit-impaired loans Valuation allowance Carrying value gross of valuation allowance Valuation allowance as a percentage of carrying value Total Allowance for loan and lease losses Carrying value (3, 4) Allowance as a percentage of carrying value (4) Impaired loans and troubled debt restructurings (1) Allowance for loan and lease losses (2) Carrying value (3) Allowance as a percentage of carrying value Loans collectively evaluated for impairment Allowance for loan and lease losses Carrying value (3, 4) Allowance as a percentage of carrying value (4) Purchased credit-impaired loans Valuation allowance Carrying value gross of valuation allowance Valuation allowance as a percentage of carrying value Total December 31, 2015 Consumer Real Estate Credit Card and Other Consumer Commercial Total $ 634 21,058 $ 3.01% $ 250 779 32.09% 217 2,368 9.16% $ 1,101 24,205 4.55% $ 2,476 226,116 $ 3,221 189,660 $ 4,632 439,397 $ 10,329 855,173 1.10% 1.70% 1.05% 1.21% $ 804 16,685 4.82% n/a n/a n/a n/a n/a n/a $ 804 16,685 4.82% $ 3,914 263,859 $ 3,471 190,439 $ 4,849 441,765 $ 12,234 896,063 1.48% 1.82% 1.10% 1.37% December 31, 2014 $ 727 25,628 $ 2.84% $ 339 1,141 29.71% 159 2,198 7.23% $ 1,225 28,967 4.23% $ 3,556 255,525 $ 3,708 183,430 $ 4,278 384,019 $ 11,542 822,974 1.39% 2.02% 1.11% 1.40% $ 1,652 20,769 7.95% n/a n/a n/a n/a n/a n/a $ 1,652 20,769 7.95% Allowance for loan and lease losses Carrying value (3, 4) Allowance as a percentage of carrying value (4) 1.65% Impaired loans include nonperforming commercial loans and all TDRs, including both commercial and consumer TDRs. Impaired loans exclude nonperforming consumer loans unless they are TDRs, and all consumer and commercial loans accounted for under the fair value option. $ 14,419 872,710 4,437 386,217 4,047 184,571 5,935 301,922 2.19% 1.97% 1.15% $ $ $ (1) (2) Allowance for loan and lease losses includes $35 million related to impaired U.S. small business commercial at both December 31, 2015 and 2014. (3) Amounts are presented gross of the allowance for loan and lease losses. (4) Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $6.9 billion and $8.7 billion at December 31, 2015 and 2014. n/a = not applicable 178 Bank of America 2015 The table below presents the allowance and the carrying value of outstanding loans and leases by portfolio segment at December 31, 2015 and 2014. Allowance and Carrying Value by Portfolio Segment December 31, 2015 Consumer Real Estate Credit Card and Other Consumer Commercial Total $ 634 $ $ 217 $ 1,101 21,058 3.01% 32.09% 2,368 9.16% 24,205 4.55% 250 779 $ 2,476 $ 3,221 $ 4,632 $ 10,329 226,116 189,660 439,397 855,173 1.10% 1.70% 1.05% 1.21% $ 804 16,685 4.82% n/a n/a n/a n/a n/a n/a $ 804 16,685 4.82% $ 3,914 $ 3,471 $ 4,849 $ 12,234 263,859 190,439 441,765 896,063 1.48% 1.82% 1.10% 1.37% December 31, 2014 $ 727 $ 339 $ 159 $ 1,225 25,628 2.84% 1,141 29.71% 2,198 7.23% 28,967 4.23% $ 3,556 $ 3,708 $ 4,278 $ 11,542 255,525 183,430 384,019 822,974 1.39% 2.02% 1.11% 1.40% $ 1,652 20,769 7.95% n/a n/a n/a n/a n/a n/a $ 1,652 20,769 7.95% $ 5,935 $ 4,047 $ 4,437 $ 14,419 301,922 184,571 386,217 872,710 1.97% 2.19% 1.15% 1.65% NOTE 6 Securitizations and Other Variable Interest Entities The Corporation utilizes variable interest entities (VIEs) in the ordinary course of business to support its own and its customers’ investing needs. The Corporation routinely financing and securitizes loans and debt securities using VIEs as a source of funding for the Corporation and as a means of transferring the economic risk of the loans or debt securities to third parties. The assets are transferred into a trust or other securitization vehicle such that the assets are legally isolated from the creditors of the Corporation and are not available to satisfy its obligations. These assets can only be used to settle obligations of the trust or other securitization vehicle. The Corporation also administers, structures or invests in other VIEs including CDOs, investment vehicles and other entities. For more information on the Corporation’s utilization of VIEs, see Note 1 – Summary of Significant Accounting Principles. The tables in this Note present the assets and liabilities of consolidated and unconsolidated VIEs at December 31, 2015 and 2014, in situations where the Corporation has continuing involvement with transferred assets or if the Corporation otherwise has a variable interest in the VIE. The tables also present the Corporation’s maximum loss exposure at December 31, 2015 and 2014 resulting from its involvement with consolidated VIEs and unconsolidated VIEs in which the Corporation holds a variable interest. The Corporation’s maximum loss exposure is based on the unlikely event that all of the assets in the VIEs become worthless and incorporates not only potential losses associated with assets recorded on the Consolidated Balance Sheet but also potential losses associated with off-balance sheet commitments such as unfunded liquidity commitments and other contractual arrangements. The Corporation’s maximum loss exposure does not include losses previously recognized through write-downs of assets. The Corporation invests in ABS issued by third-party VIEs with which it has no other form of involvement and enters into certain commercial lending arrangements that may also incorporate the use of VIEs to hold collateral. These securities and loans are First-lien Mortgage Securitizations included in Note 3 – Securities or Note 4 – Outstanding Loans and Leases. In addition, the Corporation uses VIEs such as trust preferred securities trusts in connection with its funding activities. For additional information, see Note 11 – Long-term Debt. The Corporation uses VIEs, such as cash funds managed within Global Wealth & Investment Management (GWIM), to provide investment opportunities for clients. These VIEs, which are not consolidated by the Corporation, are not included in the tables in this Note. Except as described below, the Corporation did not provide financial support to consolidated or unconsolidated VIEs during 2015 or 2014 that it was not previously contractually required to provide, nor does it intend to do so. First-lien Mortgage Securitizations First-lien Mortgages As part of its mortgage banking activities, the Corporation securitizes a portion of the first-lien residential mortgage loans it originates or purchases from third parties, generally in the form of RMBS guaranteed by government-sponsored enterprises, FNMA and FHLMC (collectively the GSEs), or Government National Mortgage Association (GNMA) primarily in the case of FHA-insured and U.S. Department of Veterans Affairs (VA)-guaranteed mortgage loans. Securitization usually occurs in conjunction with or shortly after origination or purchase and the Corporation may also securitize loans held in its residential mortgage portfolio. In addition, the Corporation may, from time to time, securitize commercial mortgages it originates or purchases from other entities. The Corporation typically services the loans it securitizes. Further, the Corporation may retain beneficial interests in the securitization trusts including senior and subordinate securities and equity tranches issued by the trusts. Except as described below and in Note 7 – Representations and Warranties Obligations and Corporate Guarantees, the Corporation does not provide guarantees or recourse to the securitization trusts other than standard representations and warranties. The table below summarizes select information related to first- lien mortgage securitizations for 2015 and 2014. n/a = not applicable (Dollars in millions) Residential Mortgage Agency 2015 2014 Non-agency - Subprime 2015 2014 Commercial Mortgage 2015 2014 (1) Impaired loans include nonperforming commercial loans and all TDRs, including both commercial and consumer TDRs. Impaired loans exclude nonperforming consumer loans unless they are TDRs, and all consumer and commercial loans accounted for under the fair value option. (2) Allowance for loan and lease losses includes $35 million related to impaired U.S. small business commercial at both December 31, 2015 and 2014. (3) Amounts are presented gross of the allowance for loan and lease losses. (4) Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $6.9 billion and $8.7 billion at December 31, 2015 and 2014. Cash proceeds from new securitizations (1) Gain on securitizations (2) (1) The Corporation transfers residential mortgage loans to securitizations sponsored by the GSEs or GNMA in the normal course of business and receives RMBS in exchange which may then be sold 27,164 $ 894 7,945 $ 49 36,905 371 5,710 68 — $ — 809 49 $ $ $ into the market to third-party investors for cash proceeds. (2) A majority of the first-lien residential and commercial mortgage loans securitized are initially classified as LHFS and accounted for under the fair value option. Gains recognized on these LHFS prior to securitization, which totaled $750 million and $715 million, net of hedges, during 2015 and 2014, are not included in the table above. In addition to cash proceeds as reported in the table above, the Corporation received securities with an initial fair value of $22.3 billion and $5.4 billion in connection with first-lien mortgage securitizations in 2015 and 2014. The receipt of these securities represents non-cash operating and investing activities and, accordingly, is not reflected on the Consolidated Statement of Cash Flows. All of these securities were initially classified as Level 2 assets within the fair value hierarchy. During 2015 and 2014, there were no changes to the initial classification. The Corporation recognizes consumer MSRs from the sale or securitization of first-lien mortgage loans. Servicing fee and ancillary fee income on consumer mortgage loans serviced, including securitizations where the Corporation has continuing involvement, were $1.4 billion and $1.8 billion in 2015 and 2014. Servicing advances on consumer mortgage loans, including securitizations where the Corporation has continuing involvement, were $7.8 billion and $10.4 billion at December 31, 2015 and 2014. The Corporation may have the option to repurchase delinquent loans out of securitization trusts, which reduces the amount of servicing advances it is required to make. During 2015 and 2014, $3.7 billion and $5.2 billion of loans were repurchased from first-lien securitization trusts primarily as a result of loan delinquencies or to perform modifications. The majority of these loans repurchased were FHA-insured mortgages collateralizing Bank of America 2015 179 (Dollars in millions) Impaired loans and troubled debt restructurings (1) Allowance for loan and lease losses (2) Carrying value (3) Allowance as a percentage of carrying value Loans collectively evaluated for impairment Allowance for loan and lease losses Carrying value (3, 4) Allowance as a percentage of carrying value (4) Purchased credit-impaired loans Valuation allowance Carrying value gross of valuation allowance Valuation allowance as a percentage of carrying value Total Allowance for loan and lease losses Carrying value (3, 4) Allowance as a percentage of carrying value (4) Impaired loans and troubled debt restructurings (1) Allowance for loan and lease losses (2) Carrying value (3) Allowance as a percentage of carrying value Loans collectively evaluated for impairment Allowance for loan and lease losses Carrying value (3, 4) Allowance as a percentage of carrying value (4) Purchased credit-impaired loans Valuation allowance Carrying value gross of valuation allowance Valuation allowance as a percentage of carrying value Total Allowance for loan and lease losses Carrying value (3, 4) Allowance as a percentage of carrying value (4) 178 Bank of America 2015 GNMA securities. For more information on MSRs, see Note 23 – Mortgage Servicing Rights. liquidate the vehicles. Gains on sale of $287 million were recorded in other income in the Consolidated Statement of Income. During 2015, the Corporation deconsolidated agency residential mortgage securitization vehicles with total assets of $4.5 billion following the sale of retained interests to third parties, after which the Corporation no longer had the unilateral ability to The table below summarizes select information related to first- lien mortgage securitization trusts in which the Corporation held a variable interest at December 31, 2015 and 2014. First-lien Mortgage VIEs (Dollars in millions) Unconsolidated VIEs Maximum loss exposure (1) On-balance sheet assets Senior securities held (2): Trading account assets Debt securities carried at fair value Held-to-maturity securities Subordinate securities held (2): Trading account assets Debt securities carried at fair value Held-to-maturity securities Residual interests held All other assets (3) Total retained positions Principal balance outstanding (4) Consolidated VIEs Maximum loss exposure (1) On-balance sheet assets Trading account assets Loans and leases Allowance for loan and lease losses All other assets Total assets On-balance sheet liabilities Long-term debt All other liabilities Total liabilities $ $ $ $ $ $ $ $ $ Residential Mortgage Agency December 31 Prime Non-agency Subprime December 31 Alt-A Commercial Mortgage December 31 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 28,188 $ 14,918 $ 1,027 $ 1,288 $ 2,905 $ 3,167 $ 622 $ 710 $ 326 $ 352 1,297 $ 24,369 2,507 584 13,473 837 $ 42 $ 613 — 3 816 — $ 94 $ 2,479 — 14 2,811 — $ 99 $ 340 — $ 81 383 — 59 $ — 37 54 76 42 — — — — 15 28,188 $ — — — — 24 14,918 313,613 $ 397,055 1 12 — — 40 708 $ — 12 — 10 56 $ 897 $ 16,087 $ 20,167 37 3 — — — — 5 — — 1 $ 2,613 $ 2,831 $ 27,854 $ 32,592 2 28 — — 153 622 $ 1 — — — 245 $ 710 $ 40,848 $ 50,054 22 54 13 48 — 233 $ 58 58 15 22 — $ 325 $ 34,243 $ 20,593 26,878 $ 38,345 1,101 $ 25,328 — 449 26,878 $ 1,538 36,187 (2) 623 38,346 — $ 1 1 $ 1 — 1 $ $ $ $ $ 65 $ 77 $ 232 $ 206 — $ 111 — — 111 $ 46 $ — 46 $ — $ 130 — 6 136 56 3 59 $ $ $ 188 $ 675 — 54 917 $ 840 $ — 840 $ 30 768 — 15 813 770 13 783 $ $ $ $ $ — $ — $ — $ — $ — — — — $ — $ — — $ — $ — — — — $ — $ — — $ — $ — — — — $ — $ — — $ — — — — — — — — — (1) Maximum loss exposure includes obligations under loss-sharing reinsurance and other arrangements for non-agency residential mortgage and commercial mortgage securitizations, but excludes the liability for representations and warranties obligations and corporate guarantees and also excludes servicing advances and other servicing rights and obligations. For additional information, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees and Note 23 – Mortgage Servicing Rights. (2) As a holder of these securities, the Corporation receives scheduled principal and interest payments. During 2015 and 2014, there were no OTTI losses recorded on those securities classified as AFS debt securities. (3) Not included in the table above are all other assets of $222 million and $635 million, representing the unpaid principal balance of mortgage loans eligible for repurchase from unconsolidated residential mortgage securitization vehicles, principally guaranteed by GNMA, and all other liabilities of $222 million and $635 million, representing the principal amount that would be payable to the securitization vehicles if the Corporation was to exercise the repurchase option, at December 31, 2015 and 2014. (4) Principal balance outstanding includes loans the Corporation transferred with which it has continuing involvement, which may include servicing the loans. 180 Bank of America 2015 GNMA securities. For more information on MSRs, see Note 23 – liquidate the vehicles. Gains on sale of $287 million were recorded Mortgage Servicing Rights. in other income in the Consolidated Statement of Income. During 2015, the Corporation deconsolidated agency The table below summarizes select information related to first- residential mortgage securitization vehicles with total assets of lien mortgage securitization trusts in which the Corporation held $4.5 billion following the sale of retained interests to third parties, a variable interest at December 31, 2015 and 2014. after which the Corporation no longer had the unilateral ability to Other Asset-backed Securitizations The table below summarizes select information related to home equity loan, credit card and other asset-backed VIEs in which the Corporation held a variable interest at December 31, 2015 and 2014. Home Equity Loan, Credit Card and Other Asset-backed VIEs First-lien Mortgage VIEs (Dollars in millions) Unconsolidated VIEs Maximum loss exposure (1) On-balance sheet assets Senior securities held (2): Trading account assets Debt securities carried at fair value Held-to-maturity securities Subordinate securities held (2): Trading account assets Debt securities carried at fair value Held-to-maturity securities Residual interests held All other assets (3) 24,369 2,507 13,473 837 — — — — 15 — — — — 24 613 — 1 12 — — 40 816 — — 12 — 10 56 — 37 3 — — — 2,479 2,811 Agency December 31 Residential Mortgage Non-agency Subprime December 31 Prime Alt-A Commercial Mortgage December 31 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 28,188 $ 14,918 $ 1,027 $ 1,288 $ 2,905 $ 3,167 $ 622 $ 710 $ 326 $ 352 1,297 $ 584 $ 42 $ 3 $ 94 $ 14 $ 99 $ 81 $ 59 $ 340 — 2 28 — — 153 383 — 1 — — — 245 710 — — — — — — — 37 22 54 13 48 — — — — — — 5 — — 1 30 768 — 15 770 13 783 $ $ $ $ $ 54 76 42 58 58 15 22 — — — — — — — — — — 26,878 $ 38,345 65 $ 77 $ 232 $ 206 — $ — $ — $ 1,101 $ 25,328 1,538 36,187 — $ — $ 188 $ — $ — $ — $ $ $ $ $ $ (2) 623 1 — 1 — 449 — $ 1 1 $ 111 — — 46 $ — 46 $ 130 — 6 56 3 59 $ $ $ 675 — 54 840 $ — 840 $ 26,878 $ 38,346 111 $ 136 917 $ 813 — $ — $ — $ $ $ $ $ $ $ $ $ $ Total retained positions 28,188 $ 14,918 $ 708 $ 897 $ 2,613 $ 2,831 $ 622 $ $ 233 $ 325 Principal balance outstanding (4) 313,613 $ 397,055 $ 16,087 $ 20,167 $ 27,854 $ 32,592 $ 40,848 $ 50,054 $ 34,243 $ 20,593 Allowance for loan and lease losses Consolidated VIEs Maximum loss exposure (1) On-balance sheet assets Trading account assets Loans and leases All other assets Total assets On-balance sheet liabilities Long-term debt All other liabilities Total liabilities AFS debt securities. 7 – Representations and Warranties Obligations and Corporate Guarantees and Note 23 – Mortgage Servicing Rights. (2) As a holder of these securities, the Corporation receives scheduled principal and interest payments. During 2015 and 2014, there were no OTTI losses recorded on those securities classified as (3) Not included in the table above are all other assets of $222 million and $635 million, representing the unpaid principal balance of mortgage loans eligible for repurchase from unconsolidated residential mortgage securitization vehicles, principally guaranteed by GNMA, and all other liabilities of $222 million and $635 million, representing the principal amount that would be payable to the securitization vehicles if the Corporation was to exercise the repurchase option, at December 31, 2015 and 2014. (4) Principal balance outstanding includes loans the Corporation transferred with which it has continuing involvement, which may include servicing the loans. (Dollars in millions) Unconsolidated VIEs Maximum loss exposure On-balance sheet assets Senior securities held (4, 5): Trading account assets Debt securities carried at fair value Held-to-maturity securities Subordinate securities held (4, 5): Trading account assets Debt securities carried at fair value All other assets Total retained positions Total assets of VIEs (6) Consolidated VIEs Maximum loss exposure On-balance sheet assets Trading account assets Loans and leases Allowance for loan and lease losses Loans held-for-sale All other assets Total assets On-balance sheet liabilities Short-term borrowings Long-term debt All other liabilities Total liabilities Home Equity Loan (1) Credit Card (2, 3) Resecuritization Trusts December 31 Municipal Bond Trusts Automobile and Other Securitization Trusts 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 $ 3,988 $ 4,801 $ — $ — $ 13,043 $ 8,569 $ 1,572 $ 2,100 $ 63 $ 77 — $ — — 12 — — — 57 — 57 $ 2 39 — 53 5,883 $ 6,362 $ $ $ — $ — — — — — — $ — $ — $ — — 1,248 $ 4,341 7,367 767 6,945 740 17 44 — 70 73 — — — — — $ 13,043 $ 8,569 — $ 35,362 $ 28,065 231 $ 991 $ 32,678 $ 43,139 $ 354 $ 654 — $ 321 (18) — 20 323 $ — $ — $ — $ 1,014 (56) — 33 991 43,194 (1,293) — 342 53,068 (1,904) — 392 $ 42,243 $ 51,556 $ 771 $ 1,295 — — — — 771 $ 1,295 — — — — $ $ $ $ $ $ 2 $ — — 25 — — — — — 2 $ — — — 25 2,518 $ 3,314 1,973 $ 2,440 1,984 $ 2,452 — — — — 1,985 $ 2,452 — — — 1 $ $ $ $ $ $ $ $ $ $ $ $ $ $ — $ 53 — — — 10 63 $ 314 $ 6 61 — — — 10 77 1,276 — $ 92 — $ — — — — — $ — — — 555 54 609 — $ — — — $ — 516 1 517 8,401 16 9,565 $ 8,417 (1) For unconsolidated home equity loan VIEs, the maximum loss exposure includes outstanding trust certificates issued by trusts in rapid amortization, net of recorded reserves. For both consolidated and unconsolidated home equity loan VIEs, the maximum loss exposure excludes the liability for representations and warranties obligations and corporate guarantees. For additional information, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees. 1,076 — 183 $ 1,076 417 — 417 $ 641 — 641 9,550 15 183 — 12 — $ $ $ $ $ 681 $ 1,032 12 — 693 $ 1,044 — $ — $ — $ — $ — $ — $ (1) Maximum loss exposure includes obligations under loss-sharing reinsurance and other arrangements for non-agency residential mortgage and commercial mortgage securitizations, but excludes the liability for representations and warranties obligations and corporate guarantees and also excludes servicing advances and other servicing rights and obligations. For additional information, see Note (5) The retained senior and subordinate securities were valued using quoted market prices or observable market inputs (Level 2 of the fair value hierarchy). (6) Total assets include loans the Corporation transferred with which it has continuing involvement, which may include servicing the loan. — $ — — $ — $ — — $ — $ — — $ (2) At December 31, 2015 and 2014, loans and leases in the consolidated credit card trust included $24.7 billion and $36.9 billion of seller’s interest. (3) At December 31, 2015 and 2014, all other assets in the consolidated credit card trust included restricted cash, certain short-term investments, and unbilled accrued interest and fees. (4) As a holder of these securities, the Corporation receives scheduled principal and interest payments. During 2015 and 2014, there were no OTTI losses recorded on those securities classified as AFS or HTM debt securities. 180 Bank of America 2015 Bank of America 2015 181 Home Equity Loans The Corporation retains interests in home equity securitization trusts to which it transferred home equity loans. These retained interests include senior and subordinate securities and residual interests. In addition, the Corporation may be obligated to provide subordinate funding to the trusts during a rapid amortization event. The Corporation typically services the loans in the trusts. Except as described below and in Note 7 – Representations and Warranties Obligations and Corporate Guarantees, the Corporation does not provide guarantees or recourse to the securitization trusts other than standard representations and warranties. There were no securitizations of home equity loans during 2015 and 2014, and all of the home equity trusts that hold revolving home equity lines of credit (HELOCs) have entered the rapid amortization phase. The maximum loss exposure in the table above includes the Corporation’s obligation to provide subordinate funding to the consolidated and unconsolidated home equity loan securitizations that have entered a rapid amortization phase. During this period, cash payments from borrowers are accumulated to repay outstanding debt securities and the Corporation continues to make advances to borrowers when they draw on their lines of credit. At December 31, 2015 and 2014, home equity loan securitizations in rapid amortization for which the Corporation has a subordinate and funding unconsolidated trusts, had $4.0 billion and $5.8 billion of trust certificates outstanding. This amount is significantly greater than the amount the Corporation expects to fund. The charges that will ultimately be recorded as a result of the rapid amortization events depend on the undrawn available credit on the home equity lines, which totaled $7 million and $39 million at December 31, 2015 and 2014, as well as performance of the loans, the amount of subsequent draws and the timing of related cash flows. consolidated obligation, including both During 2015, the Corporation deconsolidated several home equity line of credit trusts with total assets of $488 million and total liabilities of $611 million as its obligation to provide subordinated funding is no longer considered to be a potentially significant variable interest in the trusts following a decline in the amount of credit available to be drawn by borrowers. In connection with deconsolidation, the Corporation recorded a gain of $123 million in other income in the Consolidated Statement of Income. The derecognition of assets and liabilities represents non-cash investing and financing activities and, accordingly, is not reflected on the Consolidated Statement of Cash Flows. Credit Card Securitizations The Corporation securitizes originated and purchased credit card loans. The Corporation’s continuing involvement with the securitization trust includes servicing the receivables, retaining an undivided interest (seller’s interest) in the receivables, and holding certain retained interests including senior and subordinate securities, subordinate interests in accrued interest and fees on the securitized receivables, and cash reserve accounts. The seller’s interest in the trust, which is pari passu to the investors’ interest, is classified in loans and leases. During 2015, $2.3 billion of new senior debt securities were issued to third-party investors from the credit card securitization trust compared to $4.1 billion issued during 2014. The Corporation held subordinate securities issued by the credit card securitization trust with a notional principal amount of $7.5 billion and $7.4 billion at December 31, 2015 and 2014. These securities serve as a form of credit enhancement to the senior debt securities and have a stated interest rate of zero 182 Bank of America 2015 percent. There were $371 million of these subordinate securities issued during 2015 and $662 million issued during 2014. Resecuritization Trusts The Corporation transfers existing securities, typically MBS, into resecuritization vehicles at the request of customers seeking securities with specific characteristics. The Corporation may also resecuritize securities within its investment portfolio for purposes of improving liquidity and capital, and managing credit or interest rate risk. Generally, there are no significant ongoing activities performed in a resecuritization trust and no single investor has the unilateral ability to liquidate the trust. The Corporation resecuritized $30.7 billion and $14.4 billion of securities in 2015 and 2014. Resecuritizations in 2014 included $1.5 billion of AFS debt securities, and gains on sale of $71 million were recorded. There were no resecuritizations of AFS debt securities during 2015. Other securities transferred into resecuritization vehicles during 2015 and 2014 were measured at fair value with changes in fair value recorded in trading account profits or other income prior to the resecuritization and no gain or loss on sale was recorded. Resecuritization proceeds included securities with an initial fair value of $9.8 billion and $4.6 billion, including $6.9 billion and $747 million which were subsequently classified as HTM during 2015 and 2014. All of these securities were classified as Level 2 within the fair value hierarchy. Municipal Bond Trusts The Corporation administers municipal bond trusts that hold highly- rated, long-term, fixed-rate municipal bonds. The trusts obtain financing by issuing floating-rate trust certificates that reprice on a weekly or other short-term basis to third-party investors. The Corporation may transfer assets into the trusts and may also serve as remarketing agent and/or liquidity provider for the trusts. The floating-rate investors have the right to tender the certificates at specified dates. Should the Corporation be unable to remarket the tendered certificates, it may be obligated to purchase them at par under standby liquidity facilities. The Corporation also provides credit enhancement to investors in certain municipal bond trusts whereby the Corporation guarantees the payment of interest and principal on floating-rate certificates issued by these trusts in the event of default by the issuer of the underlying municipal bond. The Corporation’s liquidity commitments to unconsolidated municipal bond trusts, including those for which the Corporation was transferor, totaled $1.6 billion and $2.1 billion at December 31, 2015 and 2014. The weighted-average remaining life of bonds held in the trusts at December 31, 2015 was 7.4 years. There were no material write-downs or downgrades of assets or issuers during 2015 and 2014. Automobile and Other Securitization Trusts The Corporation transfers automobile and other loans into securitization trusts, typically to improve liquidity or manage credit risk. At December 31, 2015 and 2014, the Corporation serviced assets or otherwise had continuing involvement with automobile and other securitization trusts with outstanding balances of $314 million and $1.9 billion, including trusts collateralized by automobile loans of $125 million and $400 million, other loans of $189 million and $876 million, and student loans of $0 and $609 million. During 2015, the Corporation deconsolidated a student loan trust with total assets of $515 million and total liabilities of $449 Home Equity Loans percent. There were $371 million of these subordinate securities The Corporation retains interests in home equity securitization issued during 2015 and $662 million issued during 2014. trusts to which it transferred home equity loans. These retained interests include senior and subordinate securities and residual interests. In addition, the Corporation may be obligated to provide subordinate funding to the trusts during a rapid amortization event. The Corporation typically services the loans in the trusts. Except as described below and in Note 7 – Representations and Warranties Obligations and Corporate Guarantees, the Corporation does not provide guarantees or recourse to the securitization trusts other than standard representations and warranties. There were no securitizations of home equity loans during 2015 and 2014, and all of the home equity trusts that hold revolving home equity lines of credit (HELOCs) have entered the rapid amortization phase. The maximum loss exposure in the table above includes the Corporation’s obligation to provide subordinate funding to the consolidated and unconsolidated home equity loan securitizations that have entered a rapid amortization phase. During this period, cash payments from borrowers are accumulated to repay outstanding debt securities and the Corporation continues to make advances to borrowers when they draw on their lines of credit. At December 31, 2015 and 2014, home equity loan securitizations in rapid amortization for which the Corporation has a subordinate funding obligation, including both consolidated and unconsolidated trusts, had $4.0 billion and $5.8 billion of trust certificates outstanding. This amount is significantly greater than the amount the Corporation expects to fund. The charges that will ultimately be recorded as a result of the rapid amortization events depend on the undrawn available credit on the home equity lines, which totaled $7 million and $39 million at December 31, 2015 and 2014, as well as performance of the loans, the amount of subsequent draws and the timing of related cash flows. During 2015, the Corporation deconsolidated several home equity line of credit trusts with total assets of $488 million and total liabilities of $611 million as its obligation to provide subordinated funding is no longer considered to be a potentially significant variable interest in the trusts following a decline in the amount of credit available to be drawn by borrowers. In connection with deconsolidation, the Corporation recorded a gain of $123 million in other income in the Consolidated Statement of Income. The derecognition of assets and liabilities represents non-cash investing and financing activities and, accordingly, is not reflected on the Consolidated Statement of Cash Flows. Credit Card Securitizations The Corporation securitizes originated and purchased credit card loans. The Corporation’s continuing involvement with the securitization trust includes servicing the receivables, retaining an undivided interest (seller’s interest) in the receivables, and holding certain retained interests including senior and subordinate securities, subordinate interests in accrued interest and fees on the securitized receivables, and cash reserve accounts. The seller’s interest in the trust, which is pari passu to the investors’ interest, is classified in loans and leases. During 2015, $2.3 billion of new senior debt securities were issued to third-party investors from the credit card securitization trust compared to $4.1 billion issued during 2014. The Corporation held subordinate securities issued by the credit card securitization trust with a notional principal amount of $7.5 billion and $7.4 billion at December 31, 2015 and 2014. These securities serve as a form of credit enhancement to the senior debt securities and have a stated interest rate of zero 182 Bank of America 2015 Resecuritization Trusts The Corporation transfers existing securities, typically MBS, into resecuritization vehicles at the request of customers seeking securities with specific characteristics. The Corporation may also resecuritize securities within its investment portfolio for purposes of improving liquidity and capital, and managing credit or interest rate risk. Generally, there are no significant ongoing activities performed in a resecuritization trust and no single investor has the unilateral ability to liquidate the trust. The Corporation resecuritized $30.7 billion and $14.4 billion of securities in 2015 and 2014. Resecuritizations in 2014 included $1.5 billion of AFS debt securities, and gains on sale of $71 million were recorded. There were no resecuritizations of AFS debt securities during 2015. Other securities transferred into resecuritization vehicles during 2015 and 2014 were measured at fair value with changes in fair value recorded in trading account profits or other income prior to the resecuritization and no gain or loss on sale was recorded. Resecuritization proceeds included securities with an initial fair value of $9.8 billion and $4.6 billion, including $6.9 billion and $747 million which were subsequently classified as HTM during 2015 and 2014. All of these securities were classified as Level 2 within the fair value hierarchy. Municipal Bond Trusts The Corporation administers municipal bond trusts that hold highly- rated, long-term, fixed-rate municipal bonds. The trusts obtain financing by issuing floating-rate trust certificates that reprice on a weekly or other short-term basis to third-party investors. The Corporation may transfer assets into the trusts and may also serve as remarketing agent and/or liquidity provider for the trusts. The floating-rate investors have the right to tender the certificates at specified dates. Should the Corporation be unable to remarket the tendered certificates, it may be obligated to purchase them at par under standby liquidity facilities. The Corporation also provides credit enhancement to investors in certain municipal bond trusts whereby the Corporation guarantees the payment of interest and principal on floating-rate certificates issued by these trusts in the event of default by the issuer of the underlying municipal bond. The Corporation’s liquidity commitments to unconsolidated municipal bond trusts, including those for which the Corporation was transferor, totaled $1.6 billion and $2.1 billion at December 31, 2015 and 2014. The weighted-average remaining life of bonds held in the trusts at December 31, 2015 was 7.4 years. There were no material write-downs or downgrades of assets or issuers during 2015 and 2014. Automobile and Other Securitization Trusts The Corporation transfers automobile and other loans into securitization trusts, typically to improve liquidity or manage credit risk. At December 31, 2015 and 2014, the Corporation serviced assets or otherwise had continuing involvement with automobile and other securitization trusts with outstanding balances of $314 million and $1.9 billion, including trusts collateralized by automobile loans of $125 million and $400 million, other loans of $189 million and $876 million, and student loans of $0 and $609 million. During 2015, the Corporation deconsolidated a student loan trust with total assets of $515 million and total liabilities of $449 million following the transfer of servicing and sale of retained interests to third parties. No gain or loss was recorded as a result of the deconsolidation. The derecognition of assets and liabilities represents non-cash investing and financing activities and, accordingly, is not reflected on the Consolidated Statement of Cash Flows. Other Variable Interest Entities The table below summarizes select information related to other VIEs in which the Corporation held a variable interest at December 31, 2015 and 2014. Other VIEs (Dollars in millions) Maximum loss exposure On-balance sheet assets Trading account assets Debt securities carried at fair value Loans and leases Allowance for loan and lease losses Loans held-for-sale All other assets Total On-balance sheet liabilities Long-term debt (1) All other liabilities Total Total assets of VIEs (1) 2015 Unconsolidated 12,916 $ December 31 Total Consolidated 19,211 2,666 126 6,706 (32) 1,309 7,589 18,364 3,025 2,702 5,727 47,450 $ $ $ $ $ $ 7,981 1,575 — 4,020 (6) 1,267 1,646 8,502 1,834 105 1,939 8,502 $ $ $ $ $ $ $ $ 366 126 3,389 (23) 1,025 6,925 11,808 — $ 2,697 2,697 40,894 $ $ Consolidated $ $ $ $ $ $ 6,295 2,300 — 3,317 (9) 284 664 6,556 3,025 5 3,030 6,556 $ $ $ $ $ 2014 Unconsolidated 12,391 $ $ $ $ 355 483 2,693 — 814 6,658 11,003 — $ 2,643 2,643 41,467 $ $ Total 20,372 1,930 483 6,713 (6) 2,081 8,304 19,505 1,834 2,748 4,582 49,969 Includes $2.8 billion and $1.4 billion of long-term debt at December 31, 2015 and 2014 issued by other consolidated VIEs, which has recourse to the general credit of the Corporation. During 2015, the Corporation consolidated certain customer vehicles after redeeming long-term debt owed to the vehicles and acquiring a controlling financial interest in the vehicles. The Corporation also deconsolidated certain investment vehicles following the sale or disposition of variable interests. These actions resulted in a net decrease in long-term debt of $1.2 billion which represents a non-cash financing activity and, accordingly, is not reflected on the Consolidated Statement of Cash Flows. No gain or loss was recorded as a result of the consolidation or deconsolidation of these VIEs. Customer Vehicles Customer vehicles include credit-linked, equity-linked and commodity-linked note vehicles, repackaging vehicles, and asset acquisition vehicles, which are typically created on behalf of customers who wish to obtain market or credit exposure to a specific company, index, commodity or financial instrument. The Corporation may transfer assets to and invest in securities issued by these vehicles. The Corporation typically enters into credit, equity, interest rate, commodity or foreign currency derivatives to synthetically create or alter the investment profile of the issued securities. The Corporation’s maximum loss exposure to consolidated and unconsolidated customer vehicles totaled $3.9 billion and $4.7 billion at December 31, 2015 and 2014, including the notional amount of derivatives to which the Corporation is a counterparty, net of losses previously recorded, and the Corporation’s investment, if any, in securities issued by the vehicles. The maximum loss exposure has not been reduced to reflect the benefit of offsetting swaps with the customers or collateral arrangements. The Corporation also had liquidity commitments, including written put options and collateral value guarantees, with certain unconsolidated vehicles of $691 million and $658 million at December 31, 2015 and 2014, that are included in the table above. Collateralized Debt Obligation Vehicles The Corporation receives fees for structuring CDO vehicles, which hold diversified pools of fixed-income securities, typically corporate debt or ABS, which the CDO vehicles fund by issuing multiple tranches of debt and equity securities. Synthetic CDOs enter into a portfolio of CDS to synthetically create exposure to fixed-income securities. CLOs, which are a subset of CDOs, hold pools of loans, typically corporate loans. CDOs are typically managed by third- party portfolio managers. The Corporation typically transfers assets to these CDOs, holds securities issued by the CDOs and may be a derivative counterparty to the CDOs, including a CDS counterparty for synthetic CDOs. The Corporation has also entered into total return swaps with certain CDOs whereby the Corporation absorbs the economic returns generated by specified assets held by the CDO. Bank of America 2015 183 The Corporation’s maximum loss exposure to consolidated and unconsolidated CDOs totaled $543 million and $780 million at December 31, 2015 and 2014. This exposure is calculated on a gross basis and does not reflect any benefit from insurance purchased from third parties. At December 31, 2015, the Corporation had $922 million of aggregate liquidity exposure, included in the Other VIEs table net of previously recorded losses, to unconsolidated CDOs which hold senior CDO debt securities or other debt securities on the Corporation’s behalf. For additional information, see Note 12 – Commitments and Contingencies. Investment Vehicles The Corporation sponsors, invests in or provides financing, which may be in connection with the sale of assets, to a variety of investment vehicles that hold loans, real estate, debt securities or other financial instruments and are designed to provide the desired investment profile to investors or the Corporation. At December 31, 2015 and 2014, the Corporation’s consolidated investment vehicles had total assets of $397 million and $1.1 billion. The Corporation also held investments in unconsolidated vehicles with total assets of $14.7 billion and $11.2 billion at December 31, 2015 and 2014. The Corporation’s maximum loss exposure associated with both consolidated and unconsolidated investment vehicles totaled $5.1 billion at both December 31, 2015 and 2014 comprised primarily of on-balance sheet assets less non-recourse liabilities. The Corporation transferred servicing advance receivables to independent third parties in connection with the sale of MSRs. Portions of the receivables were transferred into unconsolidated securitization trusts. The Corporation retained senior interests in such receivables with a maximum loss exposure and funding obligation of $150 million and $660 million, including a funded balance of $122 million and $431 million at December 31, 2015 and 2014, which were classified in other debt securities carried at fair value. Leveraged Lease Trusts The Corporation’s net investment in consolidated leveraged lease trusts totaled $2.8 billion and $3.3 billion at December 31, 2015 and 2014. The trusts hold long-lived equipment such as rail cars, power generation and distribution equipment, and commercial aircraft. The Corporation structures the trusts and holds a significant residual interest. The net investment represents the Corporation’s maximum loss exposure to the trusts in the unlikely event that the leveraged lease investments become worthless. Debt issued by the leveraged lease trusts is non-recourse to the Corporation. Real Estate Vehicles The Corporation held investments in unconsolidated real estate vehicles with total assets of $6.6 billion and $6.2 billion at December 31, 2015 and 2014, which primarily consisted of investments in unconsolidated limited partnerships that construct, own and operate affordable rental housing and commercial real estate projects. An unrelated third party is typically the general partner and has control over the significant activities of the partnership. The Corporation earns a return primarily through the receipt of tax credits allocated to the real estate projects. The Corporation’s risk of loss is mitigated by policies requiring that the project qualify for the expected tax credits prior to making its investment. The Corporation may from time to time be asked to invest additional amounts to support a troubled project. Such additional investments have not been and are not expected to be significant. 184 Bank of America 2015 The Corporation’s maximum loss exposure to consolidated and balance of $122 million and $431 million at December 31, 2015 unconsolidated CDOs totaled $543 million and $780 million at and 2014, which were classified in other debt securities carried December 31, 2015 and 2014. This exposure is calculated on a at fair value. gross basis and does not reflect any benefit from insurance purchased from third parties. At December 31, 2015, the Corporation had $922 million of aggregate liquidity exposure, included in the Other VIEs table net of previously recorded losses, to unconsolidated CDOs which hold senior CDO debt securities or other debt securities on the Corporation’s behalf. For additional information, see Note 12 – Commitments and Contingencies. Leveraged Lease Trusts The Corporation’s net investment in consolidated leveraged lease trusts totaled $2.8 billion and $3.3 billion at December 31, 2015 and 2014. The trusts hold long-lived equipment such as rail cars, power generation and distribution equipment, and commercial aircraft. The Corporation structures the trusts and holds a significant residual interest. The net investment represents the Corporation’s maximum loss exposure to the trusts in the unlikely event that the leveraged lease investments become worthless. Investment Vehicles The Corporation sponsors, invests in or provides financing, which Debt issued by the leveraged lease trusts is non-recourse to the may be in connection with the sale of assets, to a variety of Corporation. investment vehicles that hold loans, real estate, debt securities or other financial instruments and are designed to provide the desired investment profile to investors or the Corporation. At December 31, 2015 and 2014, the Corporation’s consolidated investment vehicles had total assets of $397 million and $1.1 billion. The Corporation also held investments in unconsolidated vehicles with total assets of $14.7 billion and $11.2 billion at December 31, 2015 and 2014. The Corporation’s maximum loss exposure associated with both consolidated and unconsolidated investment vehicles totaled $5.1 billion at both December 31, 2015 and 2014 comprised primarily of on-balance sheet assets less non-recourse liabilities. The Corporation transferred servicing advance receivables to independent third parties in connection with the sale of MSRs. Portions of the receivables were transferred into unconsolidated securitization trusts. The Corporation retained senior interests in such receivables with a maximum loss exposure and funding obligation of $150 million and $660 million, including a funded Real Estate Vehicles The Corporation held investments in unconsolidated real estate vehicles with total assets of $6.6 billion and $6.2 billion at December 31, 2015 and 2014, which primarily consisted of investments in unconsolidated limited partnerships that construct, own and operate affordable rental housing and commercial real estate projects. An unrelated third party is typically the general partner and has control over the significant activities of the partnership. The Corporation earns a return primarily through the receipt of tax credits allocated to the real estate projects. The Corporation’s risk of loss is mitigated by policies requiring that the project qualify for the expected tax credits prior to making its investment. The Corporation may from time to time be asked to invest additional amounts to support a troubled project. Such additional investments have not been and are not expected to be significant. NOTE 7 Representations and Warranties Obligations and Corporate Guarantees legacy companies made Background The Corporation securitizes first-lien residential mortgage loans generally in the form of RMBS guaranteed by the GSEs or by GNMA in the case of FHA-insured, VA-guaranteed and Rural Housing Service-guaranteed mortgage loans, and sells pools of first-lien residential mortgage loans in the form of whole loans. In addition, in prior years, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations (in certain of these securitizations, monoline insurers or other financial guarantee providers insured all or some of the securities) or in the form of whole loans. In connection with these transactions, the Corporation or certain of its subsidiaries or various representations and warranties. These representations and warranties, as set forth in the agreements, related to, among other things, the ownership of the loan, the validity of the lien securing the loan, the absence of delinquent taxes or liens against the property securing the loan, the process used to select the loan for inclusion in a transaction, the loan’s compliance with any applicable loan criteria, including underwriting standards, and the loan’s compliance with applicable federal, state and local laws. Breaches of these representations and warranties have resulted in and may continue to result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies to the GSEs, U.S. Department of Housing and Urban Development (HUD) with respect to FHA-insured loans, VA, whole- loan investors, securitization trusts, monoline insurers or other financial guarantors as applicable (collectively, repurchases). In all such cases, subsequent to repurchasing the loan, the Corporation would be exposed to any credit loss on the repurchased mortgage loans after accounting for any mortgage insurance (MI) or mortgage guarantee payments that it may receive. The liability for representations and warranties exposures and the corresponding estimated range of possible loss are based upon currently available information, significant judgment, and a number of factors and assumptions, including those discussed in Liability for Representations and Warranties and Corporate Guarantees in this Note, that are subject to change. Changes to any one of these factors could significantly impact the liability for representations and warranties exposures and the corresponding estimated range of possible loss and could have a material adverse impact on the Corporation’s results of operations for any particular period. Given that these factors vary by counterparty, the Corporation analyzes representations and warranties obligations based on the specific counterparty, or type of counterparty, with whom the sale was made. Settlement Actions The Corporation has vigorously contested any request for repurchase where it has concluded that a valid basis for repurchase does not exist and will continue to do so in the future. However, in an effort to resolve legacy mortgage-related issues, the Corporation has reached bulk settlements, including various settlements with the GSEs, and including settlement amounts which have been significant, with counterparties in lieu of a loan- by-loan review process. These bulk settlements generally did not cover all transactions with the relevant counterparties or all potential claims that may arise, including in some instances securities law, fraud and servicing claims, which may be addressed separately. The Corporation’s liability in connection with the transactions and claims not covered by these settlements could be material to the Corporation’s results of operations or liquidity for any particular reporting period. The Corporation may reach other settlements in the future if opportunities arise on terms it believes to be advantageous. However, there can be no assurance that the Corporation will reach future settlements or, if it does, that the terms of past settlements can be relied upon to predict the terms of future settlements. The following provides a summary of the settlement with The Bank of New York Mellon (BNY Mellon); the conditions of the settlement have now been fully satisfied. Settlement with the Bank of New York Mellon, as Trustee On April 22, 2015, the New York County Supreme Court entered final judgment approving the BNY Mellon Settlement. In October 2015, BNY Mellon obtained certain state tax opinions and an IRS private letter ruling confirming that the settlement will not impact the real estate mortgage investment conduit tax status of the trusts. The final conditions of the settlement have been satisfied and, accordingly, the Corporation made the settlement payment to BNY Mellon of $8.5 billion in February 2016. Pursuant to the settlement agreement, allocation and distribution of the $8.5 billion settlement payment is the responsibility of the RMBS trustee, BNY Mellon. On February 5, 2016, BNY Mellon filed an Article 77 proceeding in the New York County Supreme Court asking the court for instruction with respect to certain issues concerning the distribution of each trust’s allocable share of the settlement payment and asking that the settlement payment be ordered to be held in escrow pending the outcome of this Article 77 proceeding. The Corporation is not a party to this proceeding. Unresolved Repurchase Claims Unresolved representations and warranties repurchase claims represent the notional amount of repurchase claims made by counterparties, typically the outstanding principal balance or the unpaid principal balance at the time of default. In the case of first- lien mortgages, the claim amount is often significantly greater than the expected loss amount due to the benefit of collateral and, in some cases, MI or mortgage guarantee payments. Claims received from a counterparty remain outstanding until the underlying loan is repurchased, the claim is rescinded by the counterparty, the Corporation determines that the applicable statute of limitations has expired, or representations and warranties claims with respect to the applicable trust are settled, and fully and finally released. When a claim is denied and the Corporation does not receive a response from the counterparty, the claim remains in the unresolved repurchase claims balance until resolution in one of the ways described above. Certain of the claims that have been received are duplicate claims which represent more than one claim outstanding related to a particular loan, typically as the result of bulk claims submitted without individual file reviews. 184 Bank of America 2015 Bank of America 2015 185 The table below presents unresolved repurchase claims at December 31, 2015 and 2014. The unresolved repurchase claims include only claims where the Corporation believes that the counterparty has the contractual right to submit claims. The unresolved repurchase claims predominantly relate to subprime and pay option first-lien loans and home equity loans. For additional information, see Private-label Securitizations and Whole-loan Sales Experience in this Note and Note 12 – Commitments and Contingencies. Government-sponsored Enterprises Experience As a result of various bulk settlements with the GSEs, the Corporation has resolved substantially all outstanding and potential representations and warranties repurchase claims on whole loans sold by legacy Bank of America and Countrywide to FNMA and FHLMC through June 30, 2012 and December 31, 2009, respectively. As of December 31, 2015, the notional amount of unresolved repurchase claims submitted by the GSEs was $14 million for loans originated prior to 2009. Unresolved Repurchase Claims by Counterparty, net of duplicate claims (Dollars in millions) By counterparty Private-label securitization trustees, whole-loan investors, including third-party securitization sponsors and other (2, 3) Monolines (4) GSEs December 31 2015 2014 (1) $ 16,748 $ 21,276 1,599 17 1,511 59 Total unresolved repurchase claims by counterparty, net of duplicate claims $ 18,364 $ 22,846 (1) The December 31, 2014 amounts have been updated to reflect additional claims submitted in the fourth quarter of 2014 from a single monoline, currently pursuing litigation, and addressed by the Corporation in 2015 pursuant to an existing litigation schedule. For more information on bond insurance litigation, see Note 12 – Commitments and Contingencies. Includes $11.9 billion and $13.8 billion of claims based on individual file reviews and $4.8 billion and $7.5 billion of claims submitted without individual file reviews at December 31, 2015 and 2014. (2) (3) The total notional amount of unresolved repurchase claims does not include repurchase claims related to the trusts covered by the BNY Mellon Settlement. (4) At December 31, 2015, substantially all of the unresolved monoline claims are currently the subject of litigation with a single monoline insurer and predominately pertain to second-lien loans. During 2015, the Corporation received $3.7 billion in new repurchase claims including $2.9 billion of claims submitted without individual loan file reviews. During 2015, $8.1 billion in claims were resolved, including $7.4 billion which are deemed resolved as a result of the New York Court of Appeals decision in Ace Securities Corp. v. DB Structure Products, Inc. (ACE). Of the remaining unresolved monoline claims, substantially all of the claims pertain to second-lien loans and are currently the subject of litigation with a single monoline insurer. There may be additional claims or file requests in the future. In addition to the unresolved repurchase claims in the Unresolved Repurchase Claims by Counterparty, net of duplicate claims table, the Corporation has received notifications from sponsors of third-party securitizations with whom the Corporation engaged in whole-loan transactions indicating that the Corporation may have indemnity obligations with respect to loans for which the Corporation has not received a repurchase request. These outstanding notifications totaled $1.4 billion and $2.0 billion at December 31, 2015 and 2014. receives from The Corporation also correspondence purporting representations and to warranties breach issues from entities that do not have contractual standing or ability to bring such claims. The Corporation believes such communications to be procedurally and/or substantively invalid, and generally does not respond. raise time time to The presence of repurchase claims on a given trust, receipt of notices of indemnification obligations and receipt of other communications, as discussed above, are all factors that inform the Corporation’s liability for representations and warranties and the corresponding estimated range of possible loss. 186 Bank of America 2015 legacy companies made Private-label Securitizations and Whole-loan Sales Experience Prior to 2009, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations or in the form of whole loans. In connection with these transactions, the Corporation or certain of its subsidiaries or various representations and warranties. When the Corporation provided representations and warranties in connection with the sale of whole loans, the whole-loan investors may retain the right to make repurchase claims even when the loans were aggregated with other collateral into private-label securitizations sponsored by the whole- loan investors. In other third-party securitizations, the whole-loan investors’ rights to enforce the representations and warranties were transferred to the securitization trustees. Private-label securitization investors generally do not have the contractual right to demand repurchase of loans directly or the right to access loan files directly. In private-label securitizations, the applicable contracts provide that investors meet certain presentation thresholds to issue a binding direction to a trustee to assert repurchase claims. However, in certain circumstances, the Corporation believes that trustees have presented repurchase claims without requiring investors to meet contractual voting rights thresholds. New private- label claims are primarily related to repurchase requests received from trustees for private-label securitization transactions not included in the BNY Mellon Settlement. On June 11, 2015, the New York Court of Appeals, New York’s highest appellate court, issued its opinion in the ACE case, holding that, under New York law the six-year statute of limitations starts to run at the time the representations and warranties are made, not the date when the repurchase demand was denied. In addition, the Court of Appeals held that compliance with the contractual notice and cure period was a pre-condition to filing suit, and claims that did not comply with such contractual requirements prior to the expiration of the statute of limitations period were invalid. While no entity affiliated with the Corporation was a party to this litigation, the vast majority of the private-label RMBS trusts into which entities affiliated with the Corporation sold loans and made representations and warranties are governed by New York law, and the ACE decision should therefore apply to representations and warranties claims and litigation brought on those RMBS trusts. A significant number of representations and warranties claims and lawsuits brought against the Corporation have involved claims where the statute of limitations has expired under the ACE decision and are therefore time-barred. The Corporation treats time-barred claims as resolved and no longer outstanding; however, while post- ACE case law is in early stages, investors or trustees have sought to distinguish certain aspects of the ACE decision or to assert other claims against other RMBS counterparties seeking to avoid or circumvent the impact of the ACE decision. For example, The table below presents unresolved repurchase claims at December 31, 2015 and 2014. The unresolved repurchase claims include only claims where the Corporation believes that the counterparty has the contractual right to submit claims. The unresolved repurchase claims predominantly relate to subprime and pay option first-lien loans and home equity loans. For additional information, see Private-label Securitizations and Whole-loan Sales Experience in this Note and Note 12 – Commitments and Contingencies. Government-sponsored Enterprises Experience As a result of various bulk settlements with the GSEs, the Corporation has resolved substantially all outstanding and potential representations and warranties repurchase claims on whole loans sold by legacy Bank of America and Countrywide to FNMA and FHLMC through June 30, 2012 and December 31, 2009, respectively. As of December 31, 2015, the notional amount of unresolved repurchase claims submitted by the GSEs was $14 million for loans originated prior to 2009. institutional investors have filed lawsuits against trustees based upon alleged contractual, statutory and tort theories of liability and alleging failure to pursue representations and warranties claims and servicer defaults. The potential impact on the Corporation, if any, of such alternative legal theories or assertions, judicial limitations on the ACE decision, or claims seeking to distinguish or avoid the ACE decision is unclear at this time. For more information on repurchase demands, see Unresolved Repurchase Claims in this Note. Unresolved Repurchase Claims by Counterparty, net of Private-label Securitizations and Whole-loan Sales duplicate claims Experience Private-label securitization trustees, whole-loan investors, including third-party securitization sponsors and other (2, 3) (Dollars in millions) By counterparty Monolines (4) GSEs December 31 2015 2014 (1) $ 16,748 $ 21,276 1,599 17 1,511 59 Total unresolved repurchase claims by counterparty, net of duplicate claims $ 18,364 $ 22,846 (1) The December 31, 2014 amounts have been updated to reflect additional claims submitted in the fourth quarter of 2014 from a single monoline, currently pursuing litigation, and addressed by the Corporation in 2015 pursuant to an existing litigation schedule. For more information on bond insurance litigation, see Note 12 – Commitments and Contingencies. (2) Includes $11.9 billion and $13.8 billion of claims based on individual file reviews and $4.8 billion and $7.5 billion of claims submitted without individual file reviews at December 31, 2015 (3) The total notional amount of unresolved repurchase claims does not include repurchase claims related to the trusts covered by the BNY Mellon Settlement. (4) At December 31, 2015, substantially all of the unresolved monoline claims are currently the subject of litigation with a single monoline insurer and predominately pertain to second-lien files directly. and 2014. loans. During 2015, the Corporation received $3.7 billion in new repurchase claims including $2.9 billion of claims submitted without individual loan file reviews. During 2015, $8.1 billion in claims were resolved, including $7.4 billion which are deemed resolved as a result of the New York Court of Appeals decision in Ace Securities Corp. v. DB Structure Products, Inc. (ACE). Of the remaining unresolved monoline claims, substantially all of the claims pertain to second-lien loans and are currently the subject of litigation with a single monoline insurer. There may be additional claims or file requests in the future. In addition to the unresolved repurchase claims in the Unresolved Repurchase Claims by Counterparty, net of duplicate claims table, the Corporation has received notifications from sponsors of third-party securitizations with whom the Corporation engaged in whole-loan transactions indicating that the Corporation may have indemnity obligations with respect to loans for which the Corporation has not received a repurchase request. These outstanding notifications totaled $1.4 billion and $2.0 billion at December 31, 2015 and 2014. The Corporation also from time to time receives correspondence purporting to raise representations and warranties breach issues from entities that do not have contractual standing or ability to bring such claims. The Corporation believes such communications to be procedurally and/or substantively invalid, and generally does not respond. The presence of repurchase claims on a given trust, receipt of notices of indemnification obligations and receipt of other communications, as discussed above, are all factors that inform the Corporation’s liability for representations and warranties and the corresponding estimated range of possible loss. 186 Bank of America 2015 Prior to 2009, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations or in the form of whole loans. In connection with these transactions, the Corporation or certain of its subsidiaries or legacy companies made various representations and warranties. When the Corporation provided representations and warranties in connection with the sale of whole loans, the whole-loan investors may retain the right to make repurchase claims even when the loans were aggregated with other collateral into private-label securitizations sponsored by the whole- loan investors. In other third-party securitizations, the whole-loan investors’ rights to enforce the representations and warranties were transferred to the securitization trustees. Private-label securitization investors generally do not have the contractual right to demand repurchase of loans directly or the right to access loan In private-label securitizations, the applicable contracts provide that investors meet certain presentation thresholds to issue a binding direction to a trustee to assert repurchase claims. However, in certain circumstances, the Corporation believes that trustees have presented repurchase claims without requiring investors to meet contractual voting rights thresholds. New private- label claims are primarily related to repurchase requests received from trustees for private-label securitization transactions not included in the BNY Mellon Settlement. On June 11, 2015, the New York Court of Appeals, New York’s highest appellate court, issued its opinion in the ACE case, holding that, under New York law the six-year statute of limitations starts to run at the time the representations and warranties are made, not the date when the repurchase demand was denied. In addition, the Court of Appeals held that compliance with the contractual notice and cure period was a pre-condition to filing suit, and claims that did not comply with such contractual requirements prior to the expiration of the statute of limitations period were invalid. While no entity affiliated with the Corporation was a party to this litigation, the vast majority of the private-label RMBS trusts into which entities affiliated with the Corporation sold loans and made representations and warranties are governed by New York law, and the ACE decision should therefore apply to representations and warranties claims and litigation brought on those RMBS trusts. A significant number of representations and warranties claims and lawsuits brought against the Corporation have involved claims where the statute of limitations has expired under the ACE decision and are therefore time-barred. The Corporation treats time-barred claims as resolved and no longer outstanding; however, while post- ACE case law is in early stages, investors or trustees have sought to distinguish certain aspects of the ACE decision or to assert other claims against other RMBS counterparties seeking to avoid or circumvent the impact of the ACE decision. For example, than the ability The private-label securitization agreements generally require that counterparties have to both assert a representations and warranties claim and to actually prove that a loan has an actionable defect under the applicable contracts. While the Corporation believes the agreements for private-label securitizations generally contain less rigorous representations and warranties and place higher burdens on claimants seeking repurchases the express provisions of comparable agreements with the GSEs, the agreements generally include a representation that underwriting practices were prudent and customary. In the case of private-label securitization trustees and third-party sponsors, there is currently no established process in place for the parties to reach a conclusion on an individual loan if there is a disagreement on the resolution of the claim. Private- label securitization investors generally do not have the contractual right to demand repurchase of loans directly or the right to access loan files directly. For more information on repurchase demands, see Unresolved Repurchase Claims in this Note. At December 31, 2015 and 2014, for loans originated between 2004 and 2008, the notional amount of unresolved repurchase claims, net of duplicated claims, submitted by private-label securitization trustees, whole-loan investors, including third-party securitization sponsors, and others was $16.7 billion and $21.2 billion. These repurchase claims at December 31, 2015 exclude claims in the amount of $7.4 billion where the statute of limitations has expired without litigation being commenced. At December 31, 2014, time-barred claims of $5.2 billion were included in unresolved repurchase claims. The notional amount of unresolved repurchase claims at both December 31, 2015 and 2014 includes $3.5 billion of claims related to loans in specific private-label securitization groups or tranches where the Corporation owns substantially all of the outstanding securities. The overall decrease in the notional amount of outstanding unresolved repurchase claims in 2015 is primarily due to the impact of time-barred claims under the ACE decision, partially offset by new claims from private-label securitization trustees. Outstanding repurchase claims remain unresolved primarily due to (1) the level of detail, support and analysis accompanying such claims, which impact overall claim quality and, therefore, claims resolution and (2) the lack of an established process to resolve disputes related to these claims. The Corporation reviews properly presented repurchase claims on a loan-by-loan basis. Claims that are time-barred are treated as resolved. If, after the Corporation’s review of timely claims, it does not believe a claim is valid, it will deny the claim and generally indicate a reason for the denial. When the counterparty agrees with the Corporation’s denial of the claim, the counterparty may rescind the claim. When there is disagreement as to the resolution of the claim, meaningful dialogue and negotiation between the parties are generally necessary to reach a resolution on an individual claim. When a claim has been denied and the Corporation does not hear from the counterparty for six months, the Corporation views these claims as inactive; however, they remain in the outstanding claims balance until resolution in one of the manners described above. In the case of private-label securitization trustees and third-party sponsors, there is currently no established process in place for the parties to reach a conclusion on an individual loan if there is a disagreement on the resolution of the claim. The Corporation has performed an initial review with respect to substantially all of these claims and, although the Corporation does not believe a valid basis for repurchase has been established by the claimant, it considers such claims activity in the computation of its liability for representations and warranties. limited the Corporation had Monoline Insurers Experience During 2015, loan-level representations and warranties repurchase claims experience with the monoline insurers due to settlements with several monoline insurers and ongoing litigation with a single monoline insurer. To the extent the Corporation received repurchase claims from the monolines that were properly presented, it generally reviewed them on a loan-by-loan basis. Where the Corporation agrees that there has been a breach of representations and warranties given by the Corporation or subsidiaries or legacy companies that meets contractual requirements for repurchase, settlement is generally reached as to that loan within 60 to 90 days. For more information related to the monolines, see Note 12 – Commitments and Contingencies. Liability for Representations and Warranties and Corporate Guarantees The liability for representations and warranties and corporate guarantees is included in accrued expenses and other liabilities on the Consolidated Balance Sheet and the related provision is included in mortgage banking income in the Consolidated Statement of Income. The liability for representations and warranties is established when those obligations are both probable and reasonably estimable. Bank of America 2015 187 range of possible The Corporation’s representations and warranties liability and the corresponding estimated loss at December 31, 2015 considers, among other things, implied repurchase experience based on the BNY Mellon Settlement, adjusted to reflect differences between the trusts covered by the settlement and the remainder of the population of private-label securitizations where the statute of limitations for representations and warranties claims has not expired. Since the securitization trusts that were included in the BNY Mellon Settlement differ from those that were not included in the BNY Mellon Settlement, the Corporation adjusted the repurchase experience implied in the settlement in order to determine the representations and warranties liability and the corresponding estimated range of possible loss. The table below presents a rollforward of the liability for representations and warranties and corporate guarantees. Representations and Warranties and Corporate Guarantees (Dollars in millions) Liability for representations and warranties and corporate guarantees, January 1 Additions for new sales Net reductions Provision (benefit) 2015 2014 $ 12,081 $ 13,282 6 (722) (39) 8 (1,892) 683 Liability for representations and warranties and corporate guarantees, December 31 (1) $ 11,326 $ 12,081 (1) In February 2016, the Corporation made an $8.5 billion settlement payment to BNY Mellon as part of the BNY Mellon Settlement. The representations and warranties liability represents the Corporation’s estimate of probable incurred losses as of December 31, 2015. However, it is reasonably possible that future representations and warranties losses may occur in excess of the amounts recorded for these exposures. Estimated Range of Possible Loss The Corporation currently estimates that the range of possible loss for representations and warranties exposures could be up to $2 billion over existing accruals at December 31, 2015. The Corporation treats claims that are time-barred as resolved and does not consider such claims in the estimated range of possible loss. The estimated range of possible loss reflects principally exposures related to loans in private-label securitization trusts. It represents a reasonably possible loss, but does not represent a probable loss, and is based on currently available information, significant judgment and a number of assumptions that are subject to change. The liability for representations and warranties exposures and the corresponding estimated range of possible loss do not consider certain losses related to servicing (except as such losses are included as potential costs of the BNY Mellon Settlement), including foreclosure and related costs, fraud, indemnity, or claims (including for RMBS) related to securities law or monoline insurance litigation. Losses with respect to one or more of these matters could be material to the Corporation’s results of operations or liquidity for any particular reporting period. from Future provisions and/or ranges of possible loss for representations and warranties may be significantly impacted if actual experiences are different the Corporation’s assumptions in predictive models, including, without limitation, the actual repurchase rates on loans in trusts not settled as part of the BNY Mellon settlement which may be different than the implied repurchase experience, estimated MI rescission rates, economic conditions, estimated home prices, consumer and counterparty behavior, the applicable statute of limitations, potential indemnity obligations to third parties to whom the Corporation has sold loans subject to representations and warranties and a variety of other judgmental factors. Adverse developments with respect to one or more of the assumptions underlying the liability for representations and warranties and the corresponding estimated range of possible loss could result in significant increases to future provisions and/or the estimated range of possible loss. Cash Payments During 2015 and 2014, excluding amounts paid in bulk settlements, the Corporation made loan repurchases and indemnification payments totaling $229 million and $496 million, respectively for first-lien and home equity loan repurchases and indemnification payments to reimburse investors or securitization trusts. The payments resulted in realized losses of $128 million and $334 million in 2015 and 2014 on unpaid principal amounts of $587 million and $857 million, respectively. In February 2016, the Corporation made an $8.5 billion settlement payment to BNY Mellon as part of the BNY Mellon Settlement. 188 Bank of America 2015 The Corporation’s representations and warranties liability and represents a reasonably possible loss, but does not represent a the corresponding estimated range of possible loss at probable loss, and is based on currently available information, December 31, 2015 considers, among other things, implied significant judgment and a number of assumptions that are subject repurchase experience based on the BNY Mellon Settlement, to change. adjusted to reflect differences between the trusts covered by the The liability for representations and warranties exposures and settlement and the remainder of the population of private-label the corresponding estimated range of possible loss do not securitizations where the statute of limitations for representations consider certain losses related to servicing (except as such losses and warranties claims has not expired. Since the securitization are included as potential costs of the BNY Mellon Settlement), trusts that were included in the BNY Mellon Settlement differ from including foreclosure and related costs, fraud, indemnity, or claims those that were not included in the BNY Mellon Settlement, the (including for RMBS) related to securities law or monoline Corporation adjusted the repurchase experience implied in the insurance litigation. Losses with respect to one or more of these settlement in order to determine the representations and matters could be material to the Corporation’s results of warranties liability and the corresponding estimated range of operations or liquidity for any particular reporting period. possible loss. Future provisions and/or ranges of possible loss for The table below presents a rollforward of the liability for representations and warranties may be significantly impacted if representations and warranties and corporate guarantees. actual experiences are different from the Corporation’s (1) In February 2016, the Corporation made an $8.5 billion settlement payment to BNY Mellon as significant increases to future provisions and/or the estimated part of the BNY Mellon Settlement. $ 11,326 $ 12,081 corresponding estimated range of possible loss could result in Representations and Warranties and Corporate Guarantees (Dollars in millions) Liability for representations and warranties and corporate guarantees, January 1 Additions for new sales Net reductions Provision (benefit) Liability for representations and warranties and corporate guarantees, December 31 (1) 2015 2014 $ 12,081 $ 13,282 6 (722) (39) 8 (1,892) 683 The representations and warranties liability represents the Corporation’s estimate of probable incurred losses as of December 31, 2015. However, it is reasonably possible that future representations and warranties losses may occur in excess of the amounts recorded for these exposures. Estimated Range of Possible Loss The Corporation currently estimates that the range of possible loss for representations and warranties exposures could be up to $2 billion over existing accruals at December 31, 2015. The Corporation treats claims that are time-barred as resolved and does not consider such claims in the estimated range of possible loss. The estimated range of possible loss reflects principally exposures related to loans in private-label securitization trusts. It assumptions in predictive models, including, without limitation, the actual repurchase rates on loans in trusts not settled as part of the BNY Mellon settlement which may be different than the implied repurchase experience, estimated MI rescission rates, economic conditions, estimated home prices, consumer and counterparty behavior, the applicable statute of limitations, potential indemnity obligations to third parties to whom the Corporation has sold loans subject to representations and warranties and a variety of other judgmental factors. Adverse developments with respect to one or more of the assumptions underlying the liability for representations and warranties and the range of possible loss. Cash Payments During 2015 and 2014, excluding amounts paid in bulk settlements, the Corporation made loan repurchases and indemnification payments totaling $229 million and $496 million, respectively for first-lien and home equity loan repurchases and indemnification payments to reimburse investors or securitization trusts. The payments resulted in realized losses of $128 million and $334 million in 2015 and 2014 on unpaid principal amounts of $587 million and $857 million, respectively. In February 2016, the Corporation made an $8.5 billion settlement payment to BNY Mellon as part of the BNY Mellon Settlement. 188 Bank of America 2015 NOTE 8 Goodwill and Intangible Assets Goodwill The table below presents goodwill balances by business segment at December 31, 2015 and 2014. The reporting units utilized for goodwill impairment testing are the operating segments or one level below. Goodwill (1) (Dollars in millions) Consumer Banking Global Wealth & Investment Management Global Banking Global Markets All Other $ Total goodwill $ (1) There was no goodwill in LAS at December 31, 2015 and 2014. December 31 2015 30,123 9,698 23,923 5,197 820 69,761 2014 $ 30,123 9,698 23,923 5,197 836 $ 69,777 For purposes of goodwill impairment testing, the Corporation utilizes allocated equity as a proxy for the carrying value of its reporting units. Allocated equity in the reporting units is comprised of allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the reporting unit. The goodwill impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill, as measured by allocated equity. Annual Impairment Tests The Corporation completed its annual goodwill impairment tests as of June 30, 2015 and 2014 for all applicable reporting units. Based on the results of the annual goodwill impairment test, the Corporation determined there was no impairment. Effective January 1, 2015, the Corporation changed its basis of presentation related to its business segments. The realignment triggered a test for goodwill impairment, which was performed both immediately before and after the realignment. The fair value of the affected reporting units exceeded their carrying value and, accordingly, no goodwill impairment resulted from the realignment. Intangible Assets The table below presents the gross and net carrying values and accumulated amortization for intangible assets at December 31, 2015 and 2014. Intangible Assets (1, 2) (Dollars in millions) Purchased credit card relationships Core deposit intangibles Customer relationships Affinity relationships Other intangibles (3) Total intangible assets 2015 December 31 Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value 2014 Accumulated Amortization Net Carrying Value $ $ 5,450 1,779 3,927 1,556 2,143 14,855 $ $ 4,755 1,505 2,990 1,356 481 11,087 $ $ 695 274 937 200 1,662 3,768 $ $ 5,504 1,779 4,025 1,565 2,045 14,918 $ $ 4,527 1,382 2,648 1,283 466 10,306 $ $ 977 397 1,377 282 1,579 4,612 (1) Excludes fully amortized intangible assets. (2) At December 31, 2015 and 2014, none of the intangible assets were impaired. (3) Includes intangible assets associated with trade names that have an indefinite life and, accordingly, are not amortized. The tables below present intangible asset amortization expense for 2015, 2014 and 2013, and estimated future intangible asset amortization expense as of December 31, 2015. Amortization Expense (Dollars in millions) Purchased credit card and affinity relationships Core deposit intangibles Customer relationships Other intangibles Total amortization expense Estimated Future Amortization Expense (Dollars in millions) Purchased credit card and affinity relationships Core deposit intangibles Customer relationships Other intangibles Total estimated future amortization expense 2015 2014 2013 $ $ 2016 2017 2018 $ $ 298 104 325 10 737 $ $ 237 90 310 6 643 $ $ 356 122 340 16 834 179 80 302 4 565 $ $ $ $ 415 140 355 26 936 121 — — 2 123 $ $ $ $ 475 197 371 43 1,086 2020 60 — — — 60 2019 Bank of America 2015 189 NOTE 9 Deposits The Corporation had U.S. certificates of deposit and other U.S. time deposits of $100 thousand or more totaling $28.3 billion and $32.4 billion at December 31, 2015 and 2014. Non-U.S. certificates of deposit and other non-U.S. time deposits of $100 thousand or more totaled $14.1 billion and $14.0 billion at December 31, 2015 and 2014. The Corporation also had aggregate time deposits of $14.2 billion in denominations that met or exceeded the Federal Deposit Insurance Corporation (FDIC) insurance limit at December 31, 2015. The table below presents the contractual maturities for time deposits of $100 thousand or more at December 31, 2015. Time Deposits of $100 Thousand or More (Dollars in millions) U.S. certificates of deposit and other time deposits Non-U.S. certificates of deposit and other time deposits Three Months or Less Over Three Months to Twelve Months Thereafter Total $ 12,836 12,352 $ 12,834 1,517 $ $ 2,677 277 28,347 14,146 The scheduled contractual maturities for total time deposits at December 31, 2015 are presented in the table below. Contractual Maturities of Total Time Deposits (Dollars in millions) Due in 2016 Due in 2017 Due in 2018 Due in 2019 Due in 2020 Thereafter Total time deposits U.S. Non-U.S. Total $ $ 51,319 4,166 937 874 1,380 683 59,359 $ $ 14,248 103 1 5 258 — 14,615 $ $ 65,567 4,269 938 879 1,638 683 73,974 NOTE 10 Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings The table below presents federal funds sold or purchased, securities financing agreements, which include securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase, and short-term borrowings. The Corporation elects to account for certain securities financing agreements and short-term borrowings under the fair value option. For more information on the election of the fair value option, see Note 21 – Fair Value Option. (Dollars in millions) Federal funds sold and securities borrowed or purchased under agreements to resell At December 31 Average during year Maximum month-end balance during year Federal funds purchased and securities loaned or sold under agreements to repurchase At December 31 Average during year Maximum month-end balance during year Short-term borrowings At December 31 Average during year Maximum month-end balance during year n/a = not applicable 2015 2014 Amount Rate Amount Rate $ 192,482 211,471 226,502 0.44% $ 191,823 0.47 222,483 n/a 240,122 174,291 213,497 235,232 28,098 32,798 40,110 0.82 0.89 n/a 1.61 1.49 n/a 201,277 215,792 240,154 31,172 41,886 51,409 0.47% 0.47 n/a 0.98 0.99 n/a 1.47 1.08 n/a Bank of America, N.A. maintains a global program to offer up to a maximum of $75 billion outstanding at any one time, of bank notes with fixed or floating rates and maturities of at least seven days from the date of issue. Short-term bank notes outstanding under this program totaled $16.8 billion and $14.6 billion at December 31, 2015 and 2014. These short-term bank notes, along with Federal Home Loan Bank (FHLB) advances, U.S. Treasury tax and loan notes, and term federal funds purchased, are included in short-term borrowings on the Consolidated Balance Sheet. 190 Bank of America 2015 Offsetting of Securities Financing Agreements Substantially all of the Corporation’s securities financing activities are transacted under legally enforceable master repurchase agreements or legally enforceable master securities lending agreements that give the Corporation, in the event of default by the counterparty, the right to liquidate securities held and to offset receivables and payables with the same counterparty. The Corporation offsets securities financing transactions with the same counterparty on the Consolidated Balance Sheet where it has such a legally enforceable master netting agreement and the transactions have the same maturity date. The Securities Financing Agreements table presents securities financing agreements included on the Consolidated Balance Sheet in federal funds sold and securities borrowed or purchased under agreements to resell, and in federal funds purchased and securities loaned or sold under agreements to repurchase at December 31, 2015 and 2014. Balances are presented on a gross basis, prior to the application of counterparty netting. Gross assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements. For more information on the offsetting of derivatives, see Note 2 – Derivatives. Securities Financing Agreements The “Other” amount in the table, which is included on the Consolidated Balance Sheet in accrued expenses and other liabilities, relates to transactions where the Corporation acts as the lender in a securities lending agreement and receives securities that can be pledged as collateral or sold. In these transactions, the Corporation recognizes an asset at fair value, representing the securities received, and a liability, representing the obligation to return those securities. Gross assets and liabilities in the table include activity where uncertainty exists as to the enforceability of certain master netting agreements under bankruptcy laws in some countries or industries and, accordingly, these are reported on a gross basis. The column titled “Financial Instruments” in the table includes securities collateral received or pledged under repurchase or securities lending agreements where there is a legally enforceable master netting agreement. These amounts are not offset on the Consolidated Balance Sheet, but are shown as a reduction to the net balance sheet amount in this table to derive a net asset or liability. Securities collateral received or pledged where the legal enforceability of the master netting agreements is not certain is not included. NOTE 10 Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term The table below presents federal funds sold or purchased, securities financing agreements, which include securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase, and short-term borrowings. The Corporation elects to account for certain securities financing agreements and short-term borrowings under the fair value option. For more information on the election of the fair value option, see Note 21 – Fair Value Option. $ 59,359 $ 14,615 $ (Dollars in millions) Securities borrowed or purchased under agreements to resell (1) Securities loaned or sold under agreements to repurchase Other Total Securities borrowed or purchased under agreements to resell (1) Securities loaned or sold under agreements to repurchase Other Total December 31, 2015 Gross Assets/ Liabilities Amounts Offset Net Balance Sheet Amount Financial Instruments Net Assets/ Liabilities $ $ $ $ $ $ 347,281 329,078 13,235 342,313 316,567 326,007 11,641 337,648 $ $ $ $ $ $ (154,799) $ 192,482 (154,799) $ — (154,799) $ 174,279 13,235 187,514 December 31, 2014 (124,744) $ 191,823 (124,744) $ — (124,744) $ 201,263 11,641 212,904 $ $ $ $ $ $ (144,332) $ 48,150 (135,737) $ (13,235) (148,972) $ 38,542 — 38,542 (145,573) $ 46,250 (164,306) $ (11,641) (175,947) $ 36,957 — 36,957 Federal funds sold and securities borrowed or purchased under agreements to resell (1) Excludes repurchase activity of $9.3 billion and $5.6 billion reported in loans and leases on the Consolidated Balance Sheet at December 31, 2015 and 2014. NOTE 9 Deposits The Corporation had U.S. certificates of deposit and other U.S. aggregate time deposits of $14.2 billion in denominations that time deposits of $100 thousand or more totaling $28.3 billion met or exceeded the Federal Deposit Insurance Corporation (FDIC) and $32.4 billion at December 31, 2015 and 2014. Non-U.S. insurance limit at December 31, 2015. The table below presents certificates of deposit and other non-U.S. time deposits of $100 the contractual maturities for time deposits of $100 thousand or thousand or more totaled $14.1 billion and $14.0 billion at more at December 31, 2015. December 31, 2015 and 2014. The Corporation also had The scheduled contractual maturities for total time deposits at December 31, 2015 are presented in the table below. Three Months Over Three Months to or Less Twelve Months Thereafter Total $ 12,836 $ 12,834 $ 2,677 $ 12,352 1,517 277 28,347 14,146 Time Deposits of $100 Thousand or More (Dollars in millions) U.S. certificates of deposit and other time deposits Non-U.S. certificates of deposit and other time deposits Contractual Maturities of Total Time Deposits (Dollars in millions) Due in 2016 Due in 2017 Due in 2018 Due in 2019 Due in 2020 Thereafter Total time deposits Borrowings Maximum month-end balance during year Federal funds purchased and securities loaned or sold under agreements to repurchase (Dollars in millions) At December 31 Average during year At December 31 Average during year Short-term borrowings At December 31 Average during year Maximum month-end balance during year Maximum month-end balance during year n/a = not applicable Bank of America, N.A. maintains a global program to offer up December 31, 2015 and 2014. These short-term bank notes, to a maximum of $75 billion outstanding at any one time, of bank along with Federal Home Loan Bank (FHLB) advances, U.S. notes with fixed or floating rates and maturities of at least seven Treasury tax and loan notes, and term federal funds purchased, days from the date of issue. Short-term bank notes outstanding are included in short-term borrowings on the Consolidated Balance under this program totaled $16.8 billion and $14.6 billion at Sheet. U.S. Non-U.S. Total $ 51,319 $ 14,248 $ 4,166 937 874 1,380 683 103 1 5 258 — 65,567 4,269 938 879 1,638 683 73,974 2015 2014 Amount Rate Amount Rate $ 192,482 0.44% $ 191,823 211,471 226,502 174,291 213,497 235,232 28,098 32,798 40,110 0.47 n/a 0.82 0.89 n/a 1.61 1.49 n/a 222,483 240,122 201,277 215,792 240,154 31,172 41,886 51,409 0.47% 0.47 n/a 0.98 0.99 n/a 1.47 1.08 n/a 190 Bank of America 2015 Bank of America 2015 191 Repurchase Agreements and Securities Loaned Transactions Accounted for as Secured Borrowings The tables below present securities sold under agreements to repurchase and securities loaned by remaining contractual term to maturity and class of collateral pledged. Included in “Other” are transactions where the Corporation acts as the lender in a securities lending agreement and receives securities that can be Remaining Contractual Maturity pledged as collateral or sold. Certain agreements contain a right to substitute collateral and/or terminate the agreement prior to maturity at the option of the Corporation or the counterparty. Such agreements are included in the table below based on the remaining contractual term to maturity. At December 31, 2015, the Corporation repurchase-to-maturity outstanding transactions. had no (Dollars in millions) Securities sold under agreements to repurchase Securities loaned Other Total (1) No agreements have maturities greater than three years. Class of Collateral Pledged (Dollars in millions) U.S. government and agency securities Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total Overnight and Continuous 30 Days or Less December 31, 2015 After 30 Days Through 90 Days Greater than 90 Days (1) $ $ 126,694 39,772 13,235 179,701 $ $ 86,879 363 — 87,242 $ $ 43,216 2,352 — 45,568 $ $ 27,514 2,288 — 29,802 $ $ Total 284,303 44,775 13,235 342,313 December 31, 2015 Securities Sold Under Agreements to Repurchase $ $ 142,572 11,767 32,323 87,849 9,792 284,303 $ $ Securities Loaned — $ 265 13,350 31,160 — 44,775 $ Other Total 27 278 12,929 1 — 13,235 $ $ 142,599 12,310 58,602 119,010 9,792 342,313 The Corporation is required to post collateral with a market value equal to or in excess of the principal amount borrowed under repurchase agreements. For securities loaned transactions, the Corporation receives collateral in the form of cash, letters of credit or other securities. To ensure that the market value of the underlying collateral remains sufficient, collateral is generally valued daily and the Corporation may be required to deposit additional collateral or may receive or return collateral pledged when appropriate. Repurchase agreements and securities loaned transactions are generally either overnight, continuous (i.e., no stated term) or short-term. The Corporation manages liquidity risks related to these agreements by sourcing funding from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate. 192 Bank of America 2015 Repurchase Agreements and Securities Loaned Transactions Accounted for as Secured Borrowings The tables below present securities sold under agreements to repurchase and securities loaned by remaining contractual term to maturity and class of collateral pledged. Included in “Other” are transactions where the Corporation acts as the lender in a securities lending agreement and receives securities that can be pledged as collateral or sold. Certain agreements contain a right to substitute collateral and/or terminate the agreement prior to maturity at the option of the Corporation or the counterparty. Such agreements are included in the table below based on the remaining contractual term to maturity. At December 31, 2015, the Corporation had no outstanding repurchase-to-maturity transactions. Securities sold under agreements to repurchase $ 126,694 $ 86,879 $ 43,216 $ 27,514 $ 284,303 Overnight and 30 Days or Continuous Less Greater than 90 Days (1) Total December 31, 2015 After 30 Days Through 90 Days 39,772 13,235 363 — 2,352 — 2,288 — 44,775 13,235 $ 179,701 $ 87,242 $ 45,568 $ 29,802 $ 342,313 December 31, 2015 Securities Sold Under Agreements to Repurchase Securities Loaned $ 142,572 $ — $ $ 142,599 11,767 32,323 87,849 9,792 265 13,350 31,160 — Other Total 27 278 12,929 1 — 12,310 58,602 119,010 9,792 $ 284,303 $ 44,775 $ 13,235 $ 342,313 The Corporation is required to post collateral with a market additional collateral or may receive or return collateral pledged value equal to or in excess of the principal amount borrowed under when appropriate. Repurchase agreements and securities loaned repurchase agreements. For securities loaned transactions, the transactions are generally either overnight, continuous (i.e., no Corporation receives collateral in the form of cash, letters of credit stated term) or short-term. The Corporation manages liquidity risks or other securities. To ensure that the market value of the related to these agreements by sourcing funding from a diverse underlying collateral remains sufficient, collateral is generally group of counterparties, providing a range of securities collateral valued daily and the Corporation may be required to deposit and pursuing longer durations, when appropriate. Remaining Contractual Maturity (Dollars in millions) Securities loaned Other Total (1) No agreements have maturities greater than three years. Class of Collateral Pledged (Dollars in millions) U.S. government and agency securities Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total NOTE 11 Long-term Debt Long-term debt consists of borrowings having an original maturity of one year or more. The table below presents the balance of long- term debt at December 31, 2015 and 2014, and the related contractual rates and maturity dates as of December 31, 2015. (Dollars in millions) Notes issued by Bank of America Corporation Senior notes: Fixed, with a weighted-average rate of 4.55%, ranging from 1.25% to 8.40%, due 2016 to 2045 Floating, with a weighted-average rate of 1.38%, ranging from 0.11% to 5.07%, due 2016 to 2044 Senior structured notes Subordinated notes: Fixed, with a weighted-average rate of 5.19%, ranging from 2.40% to 8.57%, due 2016 to 2045 Floating, with a weighted-average rate of 0.94%, ranging from 0.43% to 2.68%, due 2016 to 2026 Junior subordinated notes (related to trust preferred securities): Fixed, with a weighted-average rate of 6.78%, ranging from 5.25% to 8.05%, due 2027 to 2067 Floating, with a weighted-average rate of 1.08%, ranging from 0.87% to 1.53%, due 2027 to 2056 Total notes issued by Bank of America Corporation Notes issued by Bank of America, N.A. Senior notes: Fixed, with a weighted-average rate of 1.57%, ranging from 1.13% to 2.05%, due 2016 to 2018 Floating, with a weighted-average rate of 1.13%, ranging from 0.43% to 3.30%, due 2016 to 2041 Subordinated notes: Fixed, with a weighted-average rate of 5.68%, ranging from 5.30% to 6.10%, due 2016 to 2036 Floating, with a weighted-average rate of 0.80%, ranging from 0.79% to 0.81%, due 2016 to 2019 Advances from Federal Home Loan Banks: Fixed, with a weighted-average rate of 5.34%, ranging from 0.01% to 7.72%, due 2016 to 2034 Floating, with a weighted-average rate of 0.41%, ranging from 0.35% to 0.63%, due 2016 Securitizations and other BANA VIEs Other Total notes issued by Bank of America, N.A. Other debt Senior notes: Fixed, with a rate of 5.50%, due 2017 to 2021 Floating Structured liabilities Junior subordinated notes (related to trust preferred securities): Fixed Floating Nonbank VIEs Other Total other debt Total long-term debt December 31 2015 2014 $ 109,861 13,900 17,548 $ 113,037 14,590 22,168 27,216 5,029 23,246 5,455 5,295 553 179,402 6,722 553 185,771 7,483 4,942 4,815 1,401 172 6,000 9,756 2,985 37,554 30 — 14,974 — — 2,740 3,028 4,921 1,401 183 10,500 9,882 2,811 35,466 1 21 15,971 340 66 4,317 487 19,808 $ 236,764 3,425 2,078 21,902 $ 243,139 Bank of America Corporation and Bank of America, N.A. maintain various U.S. and non-U.S. debt programs to offer both senior and subordinated notes. The notes may be denominated in U.S. Dollars or foreign currencies. At December 31, 2015 and 2014, the amount of foreign currency-denominated debt translated into U.S. Dollars included in total long-term debt was $46.4 billion and $51.9 billion. Foreign currency contracts may be used to convert certain foreign currency-denominated debt into U.S. Dollars. At December 31, 2015, long-term debt of consolidated VIEs in the table above included debt of credit card, home equity and all other VIEs of $9.6 billion, $183 million and $4.3 billion, respectively. Long-term debt of VIEs is collateralized by the assets of the VIEs. For additional information, see Note 6 – Securitizations and Other Variable Interest Entities. The weighted-average effective interest rates for total long-term debt (excluding senior structured notes), total fixed-rate debt and total floating-rate debt were 3.80 percent, 4.61 percent and 0.96 percent, respectively, at December 31, 2015 and 3.81 percent, 4.83 percent and 0.80 percent, respectively, at December 31, 2014. The Corporation’s ALM activities maintain an overall interest rate risk management strategy that incorporates the use of interest rate contracts to manage fluctuations in earnings 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 weighted-average rates are the contractual interest rates on the debt and do not reflect the impacts of derivative transactions. Certain senior structured notes and structured liabilities are accounted for under the fair value option. For more information on these notes, see Note 21 – Fair Value Option. The table below shows the carrying value for aggregate annual contractual maturities of long-term debt as of December 31, 2015. Included in the table are certain structured notes issued by the Corporation that contain provisions whereby the borrowings are redeemable at the option of the holder (put options) at specified dates prior to maturity. Other structured notes have coupon or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities, and the maturity may be accelerated based on the value of a referenced index or 192 Bank of America 2015 Bank of America 2015 193 security. In both cases, the Corporation or a subsidiary may be required to settle the obligation for cash or other securities prior to the contractual maturity date. These borrowings are reflected in the table as maturing at their contractual maturity date. During 2015, the Corporation had total long-term debt maturities and redemptions in the aggregate of $40.4 billion consisting of $25.3 billion for Bank of America Corporation, $6.6 billion for Bank of America, N.A. and $8.5 billion of other debt. During 2014, the Corporation had total long-term debt maturities and redemptions in the aggregate of $53.7 billion consisting of $33.9 billion for Bank of America Corporation, $8.9 billion for Bank of America, N.A. and $10.9 billion of other debt. Long-term Debt by Maturity (Dollars in millions) Bank of America Corporation Senior notes Senior structured notes Subordinated notes Junior subordinated notes Total Bank of America Corporation Bank of America, N.A. Senior notes Subordinated notes Advances from Federal Home Loan Banks Securitizations and other Bank VIEs (1) Other Total Bank of America, N.A. Other debt Senior notes Structured liabilities Nonbank VIEs (1) Other Total other debt Total long-term debt 2016 2017 2018 2019 2020 Thereafter Total $ 16,777 4,230 4,861 — 25,868 $ 18,303 2,352 4,885 — 25,540 $ 20,211 1,942 2,677 — 24,830 $ 16,820 1,374 1,479 — 19,673 $ 11,351 955 3 — 12,309 $ 40,299 6,695 18,340 5,848 71,182 $ 123,761 17,548 32,245 5,848 179,402 3,048 1,056 6,003 1,290 53 11,450 — 3,110 2,506 400 6,016 43,334 $ 3,648 3,447 10 3,550 2,713 13,368 1 2,029 240 57 2,327 41,235 $ 5,709 — 10 2,300 76 8,095 — 1,175 42 — 1,217 34,142 $ — 1 15 2,450 85 2,551 — 882 22 — 904 23,128 $ — — 12 — 30 42 — 1,034 — — 1,034 13,385 $ $ 20 1,712 122 166 28 2,048 29 6,744 1,507 30 8,310 81,540 12,425 6,216 6,172 9,756 2,985 37,554 30 14,974 4,317 487 19,808 $ 236,764 (1) Represents the total long-term debt included in the liabilities of consolidated VIEs on the Consolidated Balance Sheet. Trust Preferred and Hybrid Securities Trust preferred securities (Trust Securities) are primarily issued by trust companies (the Trusts) that are not consolidated. These Trust Securities are mandatorily redeemable preferred security obligations of the Trusts. The sole assets of the Trusts generally are junior subordinated deferrable interest notes of the Corporation or its subsidiaries (the Notes). The Trusts generally are 100 percent-owned finance subsidiaries of the Corporation. Obligations associated with the Notes are included in the long- term debt table on page 193. Certain of the Trust Securities were issued at a discount and may be redeemed prior to maturity at the option of the Corporation. The Trusts generally have invested the proceeds of such Trust Securities in the Notes. Each issue of the Notes has an interest rate equal to the corresponding Trust Securities distribution rate. The Corporation has the right to defer payment of interest on the Notes at any time or from time to time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the relevant Notes. During any such extension period, distributions on the Trust Securities will also be deferred and the Corporation’s ability to pay dividends on its common and preferred stock will be restricted. The Trust Securities generally are subject to mandatory redemption upon repayment of the related Notes at their stated maturity dates or their earlier redemption at a redemption price equal to their liquidation amount plus accrued distributions to the date fixed for redemption and the premium, if any, paid by the Corporation upon concurrent repayment of the related Notes. Periodic cash payments and payments upon liquidation or redemption with respect to Trust Securities are guaranteed by the Corporation or its subsidiaries to the extent of funds held by the Trusts (the Preferred Securities Guarantee). The Preferred Securities Guarantee, when taken together with the Corporation’s other obligations including its obligations under the Notes, generally will constitute a full and unconditional guarantee, on a subordinated basis, by the Corporation of payments due on the Trust Securities. On December 29, 2015, the Corporation provided notice of the redemption, which settled on January 29, 2016, of all trust preferred securities of Merrill Lynch Preferred Capital Trust III, Merrill Lynch Preferred Capital Trust IV and Merrill Lynch Preferred Capital Trust V with a total carrying value in the aggregate of $2.0 billion. In connection with the Corporation’s acquisition of Merrill Lynch & Co., Inc. (Merrill Lynch) in 2009, the Corporation recorded a discount to par value as purchase accounting adjustments associated with these Trust Preferred Securities. The Corporation recorded a charge to net interest income of $612 million in 2015 related to the discount on the securities. 194 Bank of America 2015 security. In both cases, the Corporation or a subsidiary may be consisting of $25.3 billion for Bank of America Corporation, $6.6 The Trust Securities Summary table details the outstanding Trust Securities and the related Notes previously issued which remained required to settle the obligation for cash or other securities prior billion for Bank of America, N.A. and $8.5 billion of other debt. outstanding at December 31, 2015. to the contractual maturity date. These borrowings are reflected During 2014, the Corporation had total long-term debt maturities in the table as maturing at their contractual maturity date. and redemptions in the aggregate of $53.7 billion consisting of During 2015, the Corporation had total long-term debt $33.9 billion for Bank of America Corporation, $8.9 billion for Bank maturities and redemptions in the aggregate of $40.4 billion of America, N.A. and $10.9 billion of other debt. Long-term Debt by Maturity (Dollars in millions) Bank of America Corporation Senior notes Senior structured notes Subordinated notes Junior subordinated notes Bank of America, N.A. Senior notes Subordinated notes Other Other debt Senior notes Structured liabilities Nonbank VIEs (1) Other Total other debt Total long-term debt Total Bank of America Corporation 25,868 25,540 24,830 19,673 12,309 Advances from Federal Home Loan Banks Securitizations and other Bank VIEs (1) 2,300 2,450 Total Bank of America, N.A. 11,450 13,368 8,095 2,551 2,048 37,554 2016 2017 2018 2019 2020 Thereafter Total $ 16,777 $ 18,303 $ 20,211 $ 16,820 $ 11,351 $ 40,299 $ 123,761 4,230 4,861 — 3,048 1,056 6,003 1,290 53 — 3,110 2,506 400 6,016 2,352 4,885 — 3,648 3,447 10 3,550 2,713 1 2,029 240 57 2,327 1,942 2,677 — 5,709 — 10 76 — 42 — 1,175 1,217 1,374 1,479 — — 1 15 85 — 882 22 — 904 955 3 — — — 12 — 30 42 — — — 1,034 1,034 6,695 18,340 5,848 71,182 17,548 32,245 5,848 179,402 20 1,712 122 166 28 29 6,744 1,507 30 8,310 12,425 6,216 6,172 9,756 2,985 30 14,974 4,317 487 19,808 $ 43,334 $ 41,235 $ 34,142 $ 23,128 $ 13,385 $ 81,540 $ 236,764 (1) Represents the total long-term debt included in the liabilities of consolidated VIEs on the Consolidated Balance Sheet. Trust Preferred and Hybrid Securities Trust preferred securities (Trust Securities) are primarily issued by trust companies (the Trusts) that are not consolidated. These Trust Securities are mandatorily redeemable preferred security obligations of the Trusts. The sole assets of the Trusts generally are junior subordinated deferrable interest notes of the Corporation or its subsidiaries (the Notes). The Trusts generally are 100 percent-owned finance subsidiaries of the Corporation. Obligations associated with the Notes are included in the long- term debt table on page 193. Certain of the Trust Securities were issued at a discount and may be redeemed prior to maturity at the option of the Corporation. The Trusts generally have invested the proceeds of such Trust Securities in the Notes. Each issue of the Notes has an interest rate equal to the corresponding Trust Securities distribution rate. The Corporation has the right to defer payment of interest on the Notes at any time or from time to time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the relevant Notes. During any such extension period, distributions on the Trust Securities will also be deferred and the Corporation’s ability to pay dividends on its common and preferred stock will be restricted. The Trust Securities generally are subject to mandatory redemption upon repayment of the related Notes at their stated maturity dates or their earlier redemption at a redemption price equal to their liquidation amount plus accrued distributions to the date fixed for redemption and the premium, if any, paid by the Corporation upon concurrent repayment of the related Notes. Periodic cash payments and payments upon liquidation or redemption with respect to Trust Securities are guaranteed by the Corporation or its subsidiaries to the extent of funds held by the Trusts (the Preferred Securities Guarantee). The Preferred Securities Guarantee, when taken together with the Corporation’s other obligations including its obligations under the Notes, generally will constitute a full and unconditional guarantee, on a subordinated basis, by the Corporation of payments due on the Trust Securities. On December 29, 2015, the Corporation provided notice of the redemption, which settled on January 29, 2016, of all trust preferred securities of Merrill Lynch Preferred Capital Trust III, Merrill Lynch Preferred Capital Trust IV and Merrill Lynch Preferred Capital Trust V with a total carrying value in the aggregate of $2.0 billion. In connection with the Corporation’s acquisition of Merrill Lynch & Co., Inc. (Merrill Lynch) in 2009, the Corporation recorded a discount to par value as purchase accounting adjustments associated with these Trust Preferred Securities. The Corporation recorded a charge to net interest income of $612 million in 2015 related to the discount on the securities. Trust Securities Summary (Dollars in millions) December 31, 2015 Aggregate Principal Amount of Trust Securities Aggregate Principal Amount of the Notes Stated Maturity of the Trust Securities Issuance Date Per Annum Interest Rate of the Notes Interest Payment Dates Redemption Period March 2005 $ August 2005 August 2005 May 2006 May 2007 February 1997 January 1997 December 1998 June 1997 June 1998 January 1997 June 1997 April 2003 November 2006 December 2006 May 2007 August 2007 27 6 524 658 1 131 103 79 53 102 70 200 500 1,495 1,050 950 750 $ 27 7 540 678 1 March 2035 August 2035 August 2035 May 2036 June 2056 5.63% 5.25 6.00 6.63 Semi-Annual Semi-Annual Any time Any time Quarterly On or after 8/25/10 Semi-Annual Any time 3-mo. LIBOR + 80 bps Quarterly On or after 6/01/37 136 January 2027 3-mo. LIBOR + 55 bps Quarterly On or after 1/15/07 106 January 2027 3-mo. LIBOR + 57 bps Quarterly On or after 1/15/02 82 December 2028 3-mo. LIBOR + 100 bps Quarterly On or after 12/18/03 55 106 June 2027 June 2028 3-mo. LIBOR + 75 bps 3-mo. LIBOR + 60 bps Quarterly Quarterly On or after 6/15/07 On or after 6/08/03 73 February 2027 3-mo. LIBOR + 80 bps Quarterly On or after 2/01/07 206 515 June 2027 April 2033 1,496 November 2036 1,051 December 2066 951 751 June 2067 September 2067 8.05 6.75 7.00 6.45 6.45 7.375 Semi-Annual Only under special event Quarterly Quarterly Quarterly Quarterly Quarterly On or after 4/11/08 On or after 11/01/11 On or after 12/11 On or after 6/12 On or after 9/12 $ 6,699 $ 6,781 Issuer Bank of America Capital Trust VI Capital Trust VII (1) Capital Trust VIII Capital Trust XI Capital Trust XV NationsBank Capital Trust III BankAmerica Capital III Fleet Capital Trust V BankBoston Capital Trust III Capital Trust IV MBNA Capital Trust B Countrywide Capital III Capital IV Capital V Merrill Lynch (2) Capital Trust I Capital Trust II Capital Trust III Total (1) Notes are denominated in British Pound. Presentation currency is U.S. Dollar. (2) Call notices for Merrill Lynch Preferred Capital Trust III, IV and V were sent on December 29, 2015 and settled on January 29, 2016. 194 Bank of America 2015 Bank of America 2015 195 NOTE 12 Commitments and Contingencies In the normal course of business, the Corporation enters into a number of off-balance sheet commitments. These commitments expose the Corporation to varying degrees of credit and market risk and are subject to the same credit and market risk limitation reviews as those instruments recorded on the Consolidated Balance Sheet. Credit Extension Commitments The Corporation enters into commitments to extend credit such as loan commitments, SBLCs and commercial letters of credit to meet the financing needs of its customers. The table below includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (e.g., syndicated) to other financial institutions of $14.3 billion and $15.7 billion at December 31, 2015 and 2014. At December 31, 2015, the carrying value of these commitments, excluding commitments Credit Extension Commitments accounted for under the fair value option, was $664 million, including deferred revenue of $18 million and a reserve for unfunded lending commitments of $646 million. At December 31, 2014, the comparable amounts were $546 million, $18 million and $528 million, respectively. The carrying value of these commitments is classified in accrued expenses and other liabilities on the Consolidated Balance Sheet. The table below also includes the notional amount of commitments of $10.9 billion and $9.9 billion at December 31, 2015 and 2014 that are accounted for under the fair value option. However, the table below excludes cumulative net fair value of $658 million and $405 million on these commitments, which is classified in accrued expenses and other liabilities. For more information regarding the Corporation’s loan commitments accounted for under the fair value option, see Note 21 – Fair Value Option. (Dollars in millions) Notional amount of credit extension commitments Loan commitments Home equity lines of credit Standby letters of credit and financial guarantees (1) Letters of credit Legally binding commitments Credit card lines (2) Total credit extension commitments Notional amount of credit extension commitments Loan commitments Home equity lines of credit Standby letters of credit and financial guarantees (1) Letters of credit Legally binding commitments Credit card lines (2) Total credit extension commitments December 31, 2015 Expire After One Year Through Three Years Expire After Three Years Through Five Years Expire After Five Years Expire in One Year or Less $ $ $ $ 87,873 7,074 19,584 1,650 116,181 370,127 486,308 79,897 6,292 19,259 1,883 107,331 363,989 471,320 $ $ $ $ 119,272 18,438 9,903 165 147,778 — 147,778 $ $ 158,920 5,126 3,385 258 167,689 — 167,689 December 31, 2014 97,583 19,679 9,106 157 126,525 — 126,525 $ $ 146,743 12,319 4,519 35 163,616 — 163,616 $ $ $ $ 37,112 19,697 1,218 54 58,081 — 58,081 18,942 15,417 1,807 88 36,254 — 36,254 $ $ $ $ Total 403,177 50,335 34,090 2,127 489,729 370,127 859,856 343,165 53,707 34,691 2,163 433,726 363,989 797,715 (1) The notional amounts of SBLCs and financial guarantees classified as investment grade and non-investment grade based on the credit quality of the underlying reference name within the instrument were $25.5 billion and $8.4 billion at December 31, 2015, and $26.1 billion and $8.2 billion at December 31, 2014. Amounts in the table include consumer SBLCs of $164 million and $396 million at December 31, 2015 and 2014. (2) Includes business card unused lines of credit. Legally binding commitments to extend credit generally have specified rates and maturities. Certain of these commitments have adverse change clauses that help to protect the Corporation against deterioration in the borrower’s ability to pay. Other Commitments At December 31, 2015 and 2014, the Corporation had commitments to purchase loans (e.g., residential mortgage and commercial real estate) of $729 million and $1.8 billion, which upon settlement will be included in loans or LHFS. At December 31, 2015 and 2014, the Corporation had commitments to purchase commodities, primarily liquefied natural gas of $1.9 billion and $241 million, which upon settlement will be included in trading account assets. 196 Bank of America 2015 At December 31, 2015 and 2014, the Corporation had commitments to enter into forward-dated resale and securities borrowing agreements of $92.6 billion and $73.2 billion, and commitments to enter into forward-dated repurchase and securities lending agreements of $59.2 billion and $55.8 billion. These commitments expire within the next 12 months. The Corporation is a party to operating leases for certain of its premises and equipment. Commitments under these leases are approximately $2.5 billion, $2.1 billion, $1.7 billion, $1.5 billion and $1.3 billion for 2016 through 2020, respectively, and $4.6 billion in the aggregate for all years thereafter. NOTE 12 Commitments and Contingencies In the normal course of business, the Corporation enters into a number of off-balance sheet commitments. These commitments expose the Corporation to varying degrees of credit and market risk and are subject to the same credit and market risk limitation reviews as those instruments recorded on the Consolidated Balance Sheet. Credit Extension Commitments The Corporation enters into commitments to extend credit such as loan commitments, SBLCs and commercial letters of credit to meet the financing needs of its customers. The table below includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (e.g., syndicated) to other financial institutions of $14.3 billion and $15.7 billion at December 31, 2015 and 2014. At December 31, 2015, the carrying value of these commitments, excluding commitments Credit Extension Commitments accounted for under the fair value option, was $664 million, including deferred revenue of $18 million and a reserve for unfunded lending commitments of $646 million. At December 31, 2014, the comparable amounts were $546 million, $18 million and $528 million, respectively. The carrying value of these commitments is classified in accrued expenses and other liabilities on the Consolidated Balance Sheet. The table below also includes the notional amount of commitments of $10.9 billion and $9.9 billion at December 31, 2015 and 2014 that are accounted for under the fair value option. However, the table below excludes cumulative net fair value of $658 million and $405 million on these commitments, which is classified in accrued expenses and other liabilities. For more information regarding the Corporation’s loan commitments accounted for under the fair value option, see Note 21 – Fair Value Option. Total credit extension commitments $ 486,308 $ 147,778 $ 167,689 $ 58,081 $ (Dollars in millions) Notional amount of credit extension commitments Standby letters of credit and financial guarantees (1) Loan commitments Home equity lines of credit Letters of credit Legally binding commitments Credit card lines (2) Notional amount of credit extension commitments Standby letters of credit and financial guarantees (1) Loan commitments Home equity lines of credit Letters of credit Legally binding commitments Credit card lines (2) at December 31, 2015 and 2014. (2) Includes business card unused lines of credit. December 31, 2015 Expire After Expire After One Year Through Three Years Three Expire After Years Through Five Years Five Years Expire in One Year or Less $ 87,873 $ 119,272 $ 158,920 $ 37,112 $ 403,177 7,074 19,584 1,650 116,181 370,127 18,438 9,903 165 147,778 — 5,126 3,385 258 167,689 — December 31, 2014 6,292 19,259 1,883 107,331 363,989 19,679 9,106 157 126,525 — 12,319 4,519 163,616 35 — 19,697 1,218 58,081 54 — 15,417 1,807 36,254 88 — $ 79,897 $ 97,583 $ 146,743 $ 18,942 $ 343,165 Total 50,335 34,090 2,127 489,729 370,127 859,856 53,707 34,691 2,163 433,726 363,989 797,715 Total credit extension commitments $ 471,320 $ 126,525 $ 163,616 $ 36,254 $ (1) The notional amounts of SBLCs and financial guarantees classified as investment grade and non-investment grade based on the credit quality of the underlying reference name within the instrument were $25.5 billion and $8.4 billion at December 31, 2015, and $26.1 billion and $8.2 billion at December 31, 2014. Amounts in the table include consumer SBLCs of $164 million and $396 million Legally binding commitments to extend credit generally have At December 31, 2015 and 2014, the Corporation had specified rates and maturities. Certain of these commitments have commitments to enter into forward-dated resale and securities adverse change clauses that help to protect the Corporation borrowing agreements of $92.6 billion and $73.2 billion, and against deterioration in the borrower’s ability to pay. Other Commitments At December 31, 2015 and 2014, the Corporation had commitments to purchase loans (e.g., residential mortgage and commercial real estate) of $729 million and $1.8 billion, which upon settlement will be included in loans or LHFS. At December 31, 2015 and 2014, the Corporation had commitments to purchase commodities, primarily liquefied natural gas of $1.9 billion and $241 million, which upon settlement will be included in trading account assets. commitments to enter into forward-dated repurchase and securities lending agreements of $59.2 billion and $55.8 billion. These commitments expire within the next 12 months. The Corporation is a party to operating leases for certain of its premises and equipment. Commitments under these leases are approximately $2.5 billion, $2.1 billion, $1.7 billion, $1.5 billion and $1.3 billion for 2016 through 2020, respectively, and $4.6 billion in the aggregate for all years thereafter. Other Guarantees Bank-owned Life Insurance Book Value Protection The Corporation sells products that offer book value protection to insurance carriers who offer group life insurance policies to corporations, primarily banks. The book value protection is provided on portfolios of intermediate investment-grade fixed- income securities and is intended to cover any shortfall in the event that policyholders surrender their policies and market value is below book value. These guarantees are recorded as derivatives and carried at fair value in the trading portfolio. At December 31, 2015 and 2014, the notional amount of these guarantees totaled $13.8 billion and $13.6 billion. At both December 31, 2015 and 2014, the Corporation’s maximum exposure related to these guarantees totaled $3.1 billion with estimated maturity dates between 2031 and 2039. The net fair value including the fee receivable associated with these guarantees was $12 million and $25 million at December 31, 2015 and 2014, and reflects the probability of surrender as well as the multiple structural protection features in the contracts. Indemnifications In the ordinary course of business, the Corporation enters into various agreements that contain indemnifications, such as tax indemnifications, whereupon payment may become due if certain external events occur, such as a change in tax law. The indemnification clauses are often standard contractual terms and were entered into in the normal course of business based on an assessment that the risk of loss would be remote. These agreements typically contain an early termination clause that permits the Corporation to exit the agreement upon these events. The maximum potential future payment under indemnification agreements is difficult to assess for several reasons, including the occurrence of an external event, the inability to predict future changes in tax and other laws, the difficulty in determining how such laws would apply to parties in contracts, the absence of exposure limits contained in standard contract language and the timing of the early termination clause. Historically, any payments made under these guarantees have been de minimis. The Corporation has assessed the probability of making such payments in the future as remote. Merchant Services In accordance with credit and debit card association rules, the Corporation sponsors merchant processing servicers that process credit and debit card transactions on behalf of various merchants. In connection with these services, a liability may arise in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder’s favor. If the merchant defaults on its obligation to reimburse the cardholder, the cardholder, through its issuing bank, generally has until six months after the date of the transaction to present a chargeback to the merchant processor, which is primarily liable for any losses on covered transactions. However, if the merchant processor fails to meet its obligation to reimburse the cardholder for disputed transactions, then the Corporation, as the sponsor, could be held liable for the disputed amount. In 2015 and 2014, the sponsored entities processed and settled $669.0 billion and $647.1 billion of transactions and recorded losses of $22 million and $16 million. A significant portion of this activity was processed by a joint venture in which the Corporation holds a 49 percent ownership. At December 31, 2015 and 2014, the sponsored merchant processing servicers held as collateral $181 million and $130 million of merchant escrow deposits which may be used to offset amounts due from the individual merchants. The Corporation believes the maximum potential exposure for chargebacks would not exceed the total amount of merchant transactions processed through Visa and MasterCard for the last six months, which represents the claim period for the cardholder, plus any outstanding delayed-delivery transactions. As of December 31, 2015 and 2014, the maximum potential exposure for sponsored transactions totaled $277.1 billion and $269.3 billion. However, the Corporation believes that the maximum potential exposure is not representative of the actual potential loss exposure and does not expect to make material payments in connection with these guarantees. Exchange and Clearing House Member Guarantees The Corporation is a member of various securities and derivative exchanges and clearinghouses, both in the U.S. and other countries. As a member, the Corporation may be required to pay a pro-rata share of the losses incurred by some of these organizations as a result of another member default and under other loss scenarios. The Corporation’s potential obligations may be limited to its membership interests in such exchanges and clearinghouses, to the amount (or multiple) of the Corporation’s contribution to the guarantee fund or, in limited instances, to the full pro-rata share of the residual losses after applying the guarantee fund. The Corporation’s maximum potential exposure under these membership agreements is difficult to estimate; however, the potential for the Corporation to be required to make these payments is remote. Prime Brokerage and Securities Clearing Services In connection with its prime brokerage and clearing businesses, the Corporation performs securities clearance and settlement services with other brokerage firms and clearinghouses on behalf of its clients. Under these arrangements, the Corporation stands ready to meet the obligations of its clients with respect to securities transactions. The Corporation’s obligations in this respect are secured by the assets in the clients’ accounts and the accounts of their customers as well as by any proceeds received from the transactions cleared and settled by the firm on behalf of clients or their customers. The Corporation’s maximum potential exposure under these arrangements is difficult to estimate; however, the potential for the Corporation to incur material losses pursuant to these arrangements is remote. 196 Bank of America 2015 Bank of America 2015 197 Other Derivative Contracts The Corporation funds selected assets, including securities issued by CDOs and CLOs, through derivative contracts, typically total return swaps, with third parties and VIEs that are not consolidated by the Corporation. The total notional amount of these derivative contracts was $371 million and $527 million with commercial banks and $921 million and $1.2 billion with VIEs at December 31, 2015 and 2014. The underlying securities are senior securities and substantially all of the Corporation’s exposures are insured. Accordingly, the Corporation’s exposure to loss consists principally of counterparty risk to the insurers. In certain circumstances, generally as a result of ratings downgrades, the Corporation may be required to purchase the underlying assets, which would not result in additional gain or loss to the Corporation as such exposure is already reflected in the fair value of the derivative contracts. Other Guarantees The Corporation has entered into additional guarantee agreements and commitments, including sold risk participation swaps, liquidity facilities, lease-end obligation agreements, partial credit guarantees on certain leases, real estate joint venture guarantees, divested business commitments and sold put options that require gross settlement. The maximum potential future payment under these agreements was approximately $6.0 billion and $6.2 billion at December 31, 2015 and 2014. The estimated maturity dates of these obligations extend up to 2040. The Corporation has made no material payments under these guarantees. In the normal course of business, the Corporation periodically guarantees the obligations of its affiliates in a variety of transactions including ISDA-related transactions and non-ISDA related transactions such as commodities trading, repurchase agreements, prime brokerage agreements and other transactions. Payment Protection Insurance Claims Matter In the U.K., the Corporation previously sold payment protection insurance (PPI) through its international card services business to credit card customers and consumer loan customers. PPI covers a consumer’s loan or debt repayment if certain events occur such as loss of job or illness. In response to an elevated level of customer complaints across the industry, heightened media coverage and pressure from consumer advocacy groups, the Prudential Regulation Authority and the Financial Conduct Authority (FCA) investigated and raised concerns about the way some companies have handled complaints related to the sale of these insurance policies. In November 2015, the FCA issued proposed guidance on the treatment of certain PPI claims. The reserve was $360 million and $378 million at December 31, 2015 and 2014. The Corporation recorded expense of $319 million and $621 million in 2015 and 2014. It is possible that the Corporation will incur additional expense related to PPI claims; however, the amount of such additional expense cannot be reasonably estimated. Litigation and Regulatory Matters In the ordinary course of business, the Corporation and its subsidiaries are routinely defendants in or parties to many pending and threatened legal, regulatory and governmental actions and proceedings. In view of the inherent difficulty of predicting the outcome of such matters, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal 198 Bank of America 2015 theories or involve a large number of parties, the Corporation generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter may be. In accordance with applicable accounting guidance, the Corporation establishes an accrued liability when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. As a matter develops, the Corporation, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. Once the loss contingency is deemed to be both probable and estimable, the Corporation will establish an accrued liability and record a litigation-related expense. The corresponding amount of Corporation continues to monitor the matter further developments that could affect the amount of the accrued liability that has been previously established. Excluding expenses of internal and external legal service providers, litigation-related expense of $1.2 billion was recognized for 2015 compared to $16.4 billion for 2014. for For a limited number of the matters disclosed in this Note, for which a loss, whether in excess of a related accrued liability or where there is no accrued liability, is reasonably possible in future periods, the Corporation is able to estimate a range of possible loss. In determining whether it is possible to estimate a range of possible loss, the Corporation reviews and evaluates its matters on an ongoing basis, in conjunction with any outside counsel handling the matter, in light of potentially relevant factual and legal developments. In cases in which the Corporation possesses sufficient appropriate information to estimate a range of possible loss, that estimate is aggregated and disclosed below. There may be other disclosed matters for which a loss is probable or reasonably possible but such an estimate of the range of possible loss may not be possible. For those matters where an estimate of the range of possible loss is possible, management currently estimates the aggregate range of possible loss is $0 to $2.4 billion in excess of the accrued liability (if any) related to those matters. This estimated range of possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate. Therefore, this estimated range of possible loss represents what the Corporation believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Corporation’s maximum loss exposure. Information is provided below regarding the nature of all of these contingencies and, where specified, the amount of the claim associated with these loss contingencies. Based on current knowledge, management does not believe that loss contingencies arising from pending matters, including the matters described herein, will have a material adverse effect on the consolidated financial position or liquidity of the Corporation. However, in light of the inherent uncertainties involved in these matters, some of which are beyond the Corporation’s control, and the very large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to the Corporation’s results of operations or liquidity for any particular reporting period. Other Derivative Contracts The Corporation funds selected assets, including securities issued by CDOs and CLOs, through derivative contracts, typically total return swaps, with third parties and VIEs that are not consolidated theories or involve a large number of parties, the Corporation generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related by the Corporation. The total notional amount of these derivative to each pending matter may be. contracts was $371 million and $527 million with commercial banks and $921 million and $1.2 billion with VIEs at December 31, 2015 and 2014. The underlying securities are senior securities and substantially all of the Corporation’s exposures are insured. Accordingly, the Corporation’s exposure to loss consists principally of counterparty risk to the insurers. In certain circumstances, generally as a result of ratings downgrades, the Corporation may be required to purchase the underlying assets, which would not result in additional gain or loss to the Corporation as such exposure is already reflected in the fair value of the derivative contracts. Other Guarantees The Corporation has entered into additional guarantee agreements and commitments, including sold risk participation swaps, liquidity facilities, lease-end obligation agreements, partial credit guarantees on certain leases, real estate joint venture guarantees, divested business commitments and sold put options that require gross settlement. The maximum potential future payment under these agreements was approximately $6.0 billion and $6.2 billion at December 31, 2015 and 2014. The estimated maturity dates of these obligations extend up to 2040. The Corporation has made no material payments under these guarantees. In the normal course of business, the Corporation periodically guarantees the obligations of its affiliates in a variety of transactions including ISDA-related transactions and non-ISDA related transactions such as commodities trading, repurchase agreements, prime brokerage agreements and other transactions. Payment Protection Insurance Claims Matter In the U.K., the Corporation previously sold payment protection insurance (PPI) through its international card services business to credit card customers and consumer loan customers. PPI covers a consumer’s loan or debt repayment if certain events occur such as loss of job or illness. In response to an elevated level of customer complaints across the industry, heightened media coverage and pressure from consumer advocacy groups, the Prudential Regulation Authority and the Financial Conduct Authority (FCA) investigated and raised concerns about the way some companies have handled complaints related to the sale of these insurance policies. In November 2015, the FCA issued proposed guidance on the treatment of certain PPI claims. The reserve was $360 million and $378 million at December 31, 2015 and 2014. The Corporation recorded expense of $319 million and $621 million in 2015 and 2014. It is possible that the Corporation will incur additional expense related to PPI claims; however, the amount of such additional expense cannot be reasonably estimated. Litigation and Regulatory Matters In the ordinary course of business, the Corporation and its subsidiaries are routinely defendants in or parties to many pending and threatened legal, regulatory and governmental actions and proceedings. In view of the inherent difficulty of predicting the outcome of such matters, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal 198 Bank of America 2015 In accordance with applicable accounting guidance, the Corporation establishes an accrued liability when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. As a matter develops, the Corporation, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. Once the loss contingency is deemed to be both probable and estimable, the Corporation will establish an accrued liability and record a corresponding amount of litigation-related expense. The Corporation continues to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Excluding expenses of internal and external legal service providers, litigation-related expense of $1.2 billion was recognized for 2015 compared to $16.4 billion for 2014. For a limited number of the matters disclosed in this Note, for which a loss, whether in excess of a related accrued liability or where there is no accrued liability, is reasonably possible in future periods, the Corporation is able to estimate a range of possible loss. In determining whether it is possible to estimate a range of possible loss, the Corporation reviews and evaluates its matters on an ongoing basis, in conjunction with any outside counsel handling the matter, in light of potentially relevant factual and legal developments. In cases in which the Corporation possesses sufficient appropriate information to estimate a range of possible loss, that estimate is aggregated and disclosed below. There may be other disclosed matters for which a loss is probable or reasonably possible but such an estimate of the range of possible loss may not be possible. For those matters where an estimate of the range of possible loss is possible, management currently estimates the aggregate range of possible loss is $0 to $2.4 billion in excess of the accrued liability (if any) related to those matters. This estimated range of possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate. Therefore, this estimated range of possible loss represents what the Corporation believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Corporation’s maximum loss exposure. Information is provided below regarding the nature of all of these contingencies and, where specified, the amount of the claim associated with these loss contingencies. Based on current knowledge, management does not believe that loss contingencies arising from pending matters, including the matters described herein, will have a material adverse effect on the consolidated financial position or liquidity of the Corporation. However, in light of the inherent uncertainties involved in these matters, some of which are beyond the Corporation’s control, and the very large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to the Corporation’s results of operations or liquidity for any particular reporting period. Bond Insurance Litigation Ambac Countrywide Litigation The Corporation, Countrywide and other Countrywide entities are named as defendants in an action filed on September 29, 2010, and as amended on May 28, 2013, by Ambac Assurance Corporation and the Segregated Account of Ambac Assurance Corporation (together, Ambac), entitled Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. Countrywide Home Loans, Inc., et al. This action, currently pending in New York Supreme Court, relates to bond insurance policies provided by Ambac on certain securitized pools of second-lien (and in one pool, first-lien) HELOCs, first-lien subprime home equity loans and fixed-rate second-lien mortgage loans. Plaintiffs allege that they have paid claims as a result of defaults in the underlying loans and assert that the Countrywide defendants misrepresented the characteristics of the underlying loans and breached certain contractual representations and warranties regarding the underwriting and servicing of the loans. Plaintiffs also allege that the Corporation is liable based on successor liability theories. Damages claimed by Ambac are in excess of $2.2 billion and include the amount of payments for current and future claims it has paid or claims it will be obligated to pay under the policies, increasing over time as it pays claims under relevant policies, plus unspecified punitive damages. On October 22, 2015, the New York Supreme Court granted in part and denied in part Countrywide’s motion for summary judgment and Ambac’s motion for partial summary judgment. Among other things, the court granted summary judgment dismissing Ambac’s claim for rescissory damages and denied summary judgment regarding Ambac’s claims for fraud and breach of the insurance agreements. The court also denied the Corporation’s motion for summary judgment and granted in part Ambac’s motion for partial summary judgment on Ambac’s successor-liability claims with respect to a single element of its de facto merger claim. The court denied summary judgment on the other elements of Ambac’s de facto merger claim and the other successor-liability claims. Ambac filed its notice of appeal on October 27, 2015. The Corporation filed its notice of appeal on November 16, 2015. Countrywide filed its notice of cross-appeal on November 18, 2015. On December 30, 2014, Ambac filed a second complaint in the same New York Supreme Court against the same defendants, entitled Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. Countrywide Home Loans, Inc., et al., claiming fraudulent inducement against Countrywide, and successor and vicarious liability against the Corporation relating to eight partially Ambac-insured RMBS transactions that closed between 2005 and 2007, all backed by negative amortization pay option adjustable-rate mortgage (ARM) loans that were originated in whole or in part by Countrywide. Seven of the eight securitizations were issued and underwritten by non-parties to the litigation. Ambac claims damages in excess of $600 million consisting of all alleged past and future claims against its policies, plus other unspecified compensatory and punitive damages. Also on December 30, 2014, Ambac filed a third action in Wisconsin Circuit Court, Dane County, against Countrywide Home Loans, Inc., entitled The Segregated Account of Ambac Assurance Corporation and Ambac Assurance Corporation v. Countrywide Home Loans, Inc., claiming that Ambac was fraudulently induced to insure portions of five securitizations issued and underwritten in 2005 by a non-party that included Countrywide-originated first- lien negative amortization pay option ARM loans. The complaint seeks damages in excess of $350 million for all alleged past and future Ambac insured claims payment obligations, plus other unspecified compensatory and punitive damages. Countrywide filed a motion to dismiss the complaint on February 20, 2015. On July 2, 2015, the court dismissed the complaint for lack of personal jurisdiction. Ambac appealed the dismissal to the Court of Appeals of Wisconsin, District IV, on July 21, 2015. The appeal remains under consideration. On July 21, 2015, Ambac filed a fourth action in New York Supreme Court against Countrywide Home Loans, Inc., entitled Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. Countrywide Home Loans, Inc. asserting the same claims for fraudulent inducement that were asserted in the Wisconsin complaint. Ambac simultaneously moved to stay the action pending resolution of its appeal in the Wisconsin action. Countrywide opposed the motion to stay and on August 10, 2015, moved to dismiss the complaint. The court heard argument on the motions on November 18, 2015. Both motions remain under consideration. Ambac First Franklin Litigation On April 16, 2012, Ambac sued First Franklin Financial Corporation (First Franklin), BANA, Merrill Lynch, Pierce, Fenner & Smith, Inc. (MLPF&S), Merrill Lynch Mortgage Lending, Inc. (MLML), and Merrill Lynch Mortgage Investors, Inc. (MLMI) in New York Supreme Court. Ambac’s claims relate to guaranty insurance Ambac provided on a First Franklin securitization (Franklin Mortgage Loan Trust, Series 2007-FFC). MLML sponsored and Ambac insured certain certificates in the securitization. The complaint alleges that defendants breached representations and warranties concerning, among other things, First Franklin’s lending practices, the characteristics of the underlying mortgage loans, the underwriting guidelines followed in originating those loans, and the due diligence conducted with respect to those loans. The complaint asserts claims for fraudulent inducement, breach of contract, indemnification and attorneys’ fees. Ambac also asserts breach of contract claims against BANA based upon its servicing of the loans in the securitization. The complaint alleges that Ambac has paid hundreds of millions of dollars in claims and has accrued and continues to accrue tens of millions of dollars in additional claims, and Ambac seeks as damages the total claims it has paid and its projected future claims payment obligations, as well as specific performance of defendants’ contractual repurchase obligations. On July 19, 2013, the court denied defendants’ motion to dismiss Ambac’s contract and fraud causes of action but dismissed Ambac’s indemnification cause of action. In addition, the court denied defendants’ motion to dismiss Ambac’s claims for attorneys’ fees and punitive damages. On September 17, 2015, the court denied Ambac’s motion to strike defendants’ affirmative defense of in pari delicto and granted Ambac’s motion to strike defendants’ affirmative defense of unclean hands. Bank of America 2015 199 European Commission - Credit Default Swaps Antitrust Investigation On July 1, 2013, the European Commission (Commission) announced that it had addressed a Statement of Objections (SO) to the Corporation, BANA and Banc of America Securities LLC (together, the Bank of America Entities), a number of other financial institutions, Markit Group Limited, and the International Swaps and Derivatives Association (together, the Parties). The SO set forth the Commission’s preliminary conclusion that the Parties infringed European Union competition law by participating in alleged collusion to prevent exchange trading of CDS and futures. According to the SO, the conduct of the Bank of America Entities took place between August 2007 and April 2009. On December 4, 2015, the Commission announced that it was closing its investigation against the Bank of America Entities and the other financial institutions involved in the investigation. Interchange and Related Litigation In 2005, a group of merchants filed a series of putative class actions and individual actions directed at interchange fees associated with Visa and MasterCard payment card transactions. These actions, which were consolidated in the U.S. District Court for the Eastern District of New York under the caption In Re Payment Card Interchange Fee and Merchant Discount Anti-Trust Litigation (Interchange), named Visa, MasterCard and several banks and BHCs, including the Corporation, as defendants. Plaintiffs allege that defendants conspired to fix the level of default interchange rates and that certain rules of Visa and MasterCard related to merchant acceptance of payment cards at the point of sale were unreasonable restraints of trade. Plaintiffs sought unspecified damages and injunctive relief. On October 19, 2012, defendants settled the matter. The settlement provided for, among other things, (i) payments by defendants to the class and individual plaintiffs totaling approximately $6.6 billion, allocated proportionately to each defendant based upon various loss-sharing agreements; (ii) distribution to class merchants of an amount equal to 10 basis points (bps) of default interchange across all Visa and MasterCard credit card transactions for a period of eight consecutive months, which otherwise would have been paid to issuers and which effectively reduces credit interchange for that period of time; and (iii) modifications to certain Visa and MasterCard rules regarding merchant point of sale practices. The court granted final approval of the class settlement agreement on December 13, 2013. Several class members appealed to the U.S. Court of Appeals for the Second Circuit and the court held oral argument on September 28, 2015. On July 28, 2015, certain objectors to the class settlement filed motions asking the district court to vacate or set aside its final judgment approving the settlement, or in the alternative, to grant further discovery, in light of communications between one of MasterCard’s former lawyers and one of the lawyers for the class plaintiffs. The defendants and the class plaintiffs filed responses to the motions on August 18, 2015 and the objectors filed replies on September 2, 2015. The court has not set oral argument. Following approval of the class settlement agreement, a number of class members opted out of the settlement. As a result of various loss-sharing agreements from the main Interchange litigation, the Corporation remains liable for any settlement or judgment in opt-out suits where it is not named as a defendant. 200 Bank of America 2015 The Corporation has pending one opt-out suit, as well as an action brought by cardholders. All of the opt-out suits filed to date have been consolidated in the U.S. District Court for the Eastern District of New York. On July 18, 2014, the court denied defendants’ motion to dismiss opt-out complaints filed by merchants, and on November 26, 2014, the court granted defendants’ motion to dismiss the Sherman Act claim in the cardholder complaint. In the cardholder action, the parties have moved for reconsideration of the court’s November 26, 2014 decision dismissing the Sherman Act claim, and have also appealed the decision to the U.S. Court of Appeals for the Second Circuit. LIBOR, Other Reference Rate and Foreign Exchange (FX) Inquiries and Litigation Government authorities in the Americas, Europe and the Asia Pacific region continue to conduct investigations and make inquiries of a significant number of FX market participants, including the Corporation, regarding FX market participants’ conduct and systems and controls. Government authorities in these regions also continue to conduct investigations concerning submissions made by panel banks in connection with the setting of LIBOR and other reference rates. The Corporation is responding to and cooperating with these investigations. In addition, the Corporation, BANA and certain Merrill Lynch affiliates have been named as defendants along with most of the other LIBOR panel banks in a series of individual and putative class actions relating to defendants’ U.S. Dollar LIBOR contributions. All cases naming the Corporation and its affiliates relating to U.S. Dollar LIBOR have been or are in the process of being consolidated for pre-trial purposes in the U.S. District Court for the Southern District of New York by the Judicial Panel on Multidistrict Litigation. The Corporation expects that any future U.S. Dollar LIBOR cases naming it or its affiliates will similarly be consolidated for pre-trial purposes. Plaintiffs allege that they held or transacted in U.S. Dollar LIBOR-based financial instruments and sustained losses as a result of collusion or manipulation by defendants regarding the setting of U.S. Dollar LIBOR. Plaintiffs assert a variety of claims, including antitrust, Commodity Exchange Act (CEA), Racketeer Influenced and Corrupt Organizations (RICO), common law fraud, and breach of contract claims, and seek compensatory, treble and punitive damages, and injunctive relief. In a series of rulings, the court dismissed antitrust, RICO and certain state law claims, and substantially limited the scope of CEA and various other claims. As to the Corporation and BANA, the court also dismissed manipulation claims based on alleged trader conduct. Some claims against the Corporation, BANA and certain Merrill Lynch affiliates remain pending, however, and the court is continuing to consider motions regarding them. Certain plaintiffs are also pursuing an appeal in the Second Circuit of the dismissal of their antitrust claims. In addition, in a consolidated amended complaint filed on March 31, 2014, the Corporation and BANA were named as defendants along with other FX market participants in a putative class action filed in the U.S. District Court for the Southern District of New York on behalf of plaintiffs and a putative class who allegedly transacted in FX and are domiciled in the U.S. or transacted in FX in the U.S. The complaint alleges that class members sustained losses as a result of the defendants’ alleged conspiracy to manipulate the WM/Reuters Closing Spot Rates. Plaintiffs assert a single claim for violations of Sections 1 and 3 for the Eastern District of New York under the caption In Re Payment to and cooperating with these investigations. European Commission - Credit Default Swaps Antitrust Investigation On July 1, 2013, the European Commission (Commission) announced that it had addressed a Statement of Objections (SO) to the Corporation, BANA and Banc of America Securities LLC (together, the Bank of America Entities), a number of other financial institutions, Markit Group Limited, and the International Swaps and Derivatives Association (together, the Parties). The SO set forth the Commission’s preliminary conclusion that the Parties infringed European Union competition law by participating in alleged collusion to prevent exchange trading of CDS and futures. According to the SO, the conduct of the Bank of America Entities took place between August 2007 and April 2009. On December 4, 2015, the Commission announced that it was closing its investigation against the Bank of America Entities and the other financial institutions involved in the investigation. Interchange and Related Litigation In 2005, a group of merchants filed a series of putative class actions and individual actions directed at interchange fees associated with Visa and MasterCard payment card transactions. These actions, which were consolidated in the U.S. District Court Card Interchange Fee and Merchant Discount Anti-Trust Litigation (Interchange), named Visa, MasterCard and several banks and BHCs, including the Corporation, as defendants. Plaintiffs allege that defendants conspired to fix the level of default interchange rates and that certain rules of Visa and MasterCard related to merchant acceptance of payment cards at the point of sale were unreasonable restraints of trade. Plaintiffs sought unspecified damages and injunctive relief. On October 19, 2012, defendants settled the matter. The settlement provided for, among other things, (i) payments by defendants to the class and individual plaintiffs totaling approximately $6.6 billion, allocated proportionately to each defendant based upon various loss-sharing agreements; (ii) distribution to class merchants of an amount equal to 10 basis points (bps) of default interchange across all Visa and MasterCard credit card transactions for a period of eight consecutive months, which otherwise would have been paid to issuers and which effectively reduces credit interchange for that period of time; and (iii) modifications to certain Visa and MasterCard rules regarding merchant point of sale practices. The court granted final approval of the class settlement agreement on December 13, 2013. Several class members appealed to the U.S. Court of Appeals for the Second Circuit and the court held oral argument on September 28, 2015. On July 28, 2015, certain objectors to the class settlement filed motions asking the district court to vacate or set aside its grant further discovery, in light of communications between one of MasterCard’s former lawyers and one of the lawyers for the class plaintiffs. The defendants and the class plaintiffs filed responses to the motions on August 18, 2015 and the objectors filed replies on September 2, 2015. The court has not set oral argument. Following approval of the class settlement agreement, a number of class members opted out of the settlement. As a result of various loss-sharing agreements from the main Interchange litigation, the Corporation remains liable for any settlement or judgment in opt-out suits where it is not named as a defendant. 200 Bank of America 2015 The Corporation has pending one opt-out suit, as well as an action brought by cardholders. All of the opt-out suits filed to date have been consolidated in the U.S. District Court for the Eastern District of New York. On July 18, 2014, the court denied defendants’ motion to dismiss opt-out complaints filed by merchants, and on November 26, 2014, the court granted defendants’ motion to dismiss the Sherman Act claim in the cardholder complaint. In the cardholder action, the parties have moved for reconsideration of the court’s November 26, 2014 decision dismissing the Sherman Act claim, and have also appealed the decision to the U.S. Court of Appeals for the Second Circuit. LIBOR, Other Reference Rate and Foreign Exchange (FX) Inquiries and Litigation Government authorities in the Americas, Europe and the Asia Pacific region continue to conduct investigations and make inquiries of a significant number of FX market participants, including the Corporation, regarding FX market participants’ conduct and systems and controls. Government authorities in these regions also continue to conduct investigations concerning submissions made by panel banks in connection with the setting of LIBOR and other reference rates. The Corporation is responding In addition, the Corporation, BANA and certain Merrill Lynch affiliates have been named as defendants along with most of the other LIBOR panel banks in a series of individual and putative class actions relating to defendants’ U.S. Dollar LIBOR contributions. All cases naming the Corporation and its affiliates relating to U.S. Dollar LIBOR have been or are in the process of being consolidated for pre-trial purposes in the U.S. District Court for the Southern District of New York by the Judicial Panel on Multidistrict Litigation. The Corporation expects that any future U.S. Dollar LIBOR cases naming it or its affiliates will similarly be consolidated for pre-trial purposes. Plaintiffs allege that they held or transacted in U.S. Dollar LIBOR-based financial instruments and sustained losses as a result of collusion or manipulation by defendants regarding the setting of U.S. Dollar LIBOR. Plaintiffs assert a variety of claims, including antitrust, Commodity Exchange Act (CEA), Racketeer Influenced and Corrupt Organizations (RICO), common law fraud, and breach of contract claims, and seek compensatory, treble and punitive damages, and injunctive relief. In a series of rulings, the court dismissed antitrust, RICO and certain state law claims, and substantially limited the scope of CEA and various other claims. As to the Corporation and BANA, the court also dismissed manipulation claims based on alleged trader conduct. Some claims against the Corporation, BANA and certain Merrill Lynch affiliates remain pending, however, and the court is continuing to consider motions regarding them. Certain plaintiffs are also pursuing an appeal in the Second Circuit of the In addition, in a consolidated amended complaint filed on March 31, 2014, the Corporation and BANA were named as defendants along with other FX market participants in a putative class action filed in the U.S. District Court for the Southern District of New York on behalf of plaintiffs and a putative class who allegedly transacted in FX and are domiciled in the U.S. or transacted in FX in the U.S. The complaint alleges that class members sustained losses as a result of the defendants’ alleged conspiracy to manipulate the WM/Reuters Closing Spot Rates. Plaintiffs assert a single claim for violations of Sections 1 and 3 final judgment approving the settlement, or in the alternative, to dismissal of their antitrust claims. of the Sherman Act and seek compensatory and treble damages, as well as declaratory and injunctive relief. On January 28, 2015, the court denied defendants’ motion to dismiss. In April 2015, the Corporation and BANA agreed to settle the class action for $180 million. On September 21, 2015, plaintiffs filed a second consolidated amended complaint, in which they named additional defendants, including MLPF&S, added claims for violations of the CEA, and expanded the scope of the FX transactions purportedly affected by the alleged conspiracy to include additional over-the-counter FX transactions and FX transactions on an exchange. On October 1, 2015, the Corporation, BANA and MLPF&S executed a final settlement agreement, which included the previously-referenced $180 million settlement for persons who transacted in FX over-the-counter and a $7.5 million settlement for persons who transacted in FX on an exchange only. The settlement is subject to final court approval. Montgomery The Corporation, several current and former officers and directors, Banc of America Securities LLC (BAS), MLPF&S and other unaffiliated underwriters have been named as defendants in a putative class action filed in the U.S. District Court for the Southern District of New York entitled Montgomery v. Bank of America, et al. Plaintiff filed an amended complaint on January 14, 2011. Plaintiff seeks to represent all persons who acquired certain series of preferred stock offered by the Corporation pursuant to a shelf registration statement dated May 5, 2006. Plaintiff’s claims arise from three offerings dated January 24, 2008, January 28, 2008 and May 20, 2008, from which the Corporation allegedly received proceeds of $15.8 billion. The amended complaint asserts claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, and alleges that the prospectus supplements associated with the offerings: (i) failed to disclose that the Corporation’s loans, leases, CDOs and commercial MBS were impaired to a greater extent than disclosed; (ii) misrepresented the extent of the impaired assets by failing to establish adequate reserves or properly record losses for its impaired assets; (iii) misrepresented the adequacy of the Corporation’s internal controls in light of the alleged impairment of its assets; (iv) misrepresented the Corporation’s capital base and Tier 1 leverage ratio for risk-based capital in light of the allegedly the thoroughness and adequacy of the Corporation’s due diligence in connection with its acquisition of Countrywide. The amended complaint seeks rescission, compensatory and other damages. On March 16, 2012, the court granted defendants’ motion to dismiss the first amended complaint. On December 3, 2013, the court denied plaintiffs’ motion to file a second amended complaint. On June 15, 2015, the U.S. Court of Appeals for the Second Circuit affirmed the district court’s denial of plaintiff’s motion to amend. On June 29, 2015, plaintiff filed a petition for rehearing en banc. impaired assets; and (v) misrepresented On July 31, 2015, the U.S. Court of Appeals denied plaintiff’s petition for rehearing en banc. On January 11, 2016, the U.S. Supreme Court denied plaintiff’s petition for a writ of certiorari, thereby exhausting plaintiff’s appellate options. and/or controlling entity in MBS offerings, pursuant to which the MBS investors were entitled to a portion of the cash flow from the underlying pools of mortgages. These cases generally include purported class action suits and actions by individual MBS purchasers. Although the allegations vary by lawsuit, these cases generally allege that the registration statements, prospectuses and prospectus supplements issued by securitization trusts contained material misrepresentations and omissions, in violation of the Securities Act of 1933 and/or state securities laws and other state statutory and common laws. for securities These cases generally involve allegations of false and misleading statements regarding: (i) the process by which the properties that served as collateral for the mortgage loans underlying the MBS were appraised; (ii) the percentage of equity that mortgage borrowers had in their homes; (iii) the borrowers’ ability to repay their mortgage loans; (iv) the underwriting practices by which those mortgage loans were originated; (v) the ratings given to the different tranches of MBS by rating agencies; and (vi) the validity of each issuing trust’s title to the mortgage loans comprising the pool for that securitization (collectively, MBS Claims). Plaintiffs in these cases generally seek unspecified compensatory damages, unspecified costs and legal fees and, in some instances, seek rescission. The Corporation, Countrywide, Merrill Lynch and their affiliates may have claims for or may be subject to claims for contractual indemnification in connection with their various roles in regard to MBS. Certain of these entities have received claims for indemnification related to MBS securities actions, including claims from underwriters of MBS that were issued by these entities, and from underwriters and issuers of MBS backed by loans originated by these entities. FHLB Seattle Litigation On December 23, 2009, the Federal Home Loan Bank of Seattle (FHLB Seattle) filed four separate complaints, each against different defendants, including the Corporation and its affiliates, Countrywide and its affiliates, and MLPF&S and its affiliates, as well as certain other defendants, in the Superior Court of Washington for King County entitled Federal Home Loan Bank of Seattle v. UBS Securities LLC, et al.; Federal Home Loan Bank of Seattle v. Countrywide Securities Corp., et al.; Federal Home Loan Bank of Seattle v. Banc of America Securities LLC, et al. and Federal Home Loan Bank of Seattle v. Merrill Lynch, Pierce, Fenner & Smith, Inc., et al. FHLB Seattle asserts certain MBS Claims pertaining to its alleged purchases in 12 MBS offerings between 2005 and 2007. In those complaints, FHLB Seattle seeks, among other relief, unspecified damages under the Securities Act of Washington. On July 19, 2011, the Court denied the defendants’ motions to dismiss the complaints. In November 2015, the Court denied motions for summary judgment filed by all defendants that addressed certain common issues, including the method for calculating pre-judgment interest in the event an award of interest is ultimately made under the Securities Act of Washington. Motions for summary judgment filed by defendants addressing issues specific to each complaint and defendant, as well as additional issues common to all defendants, remain pending. Mortgage-backed Securities Litigation The Corporation and its affiliates, Countrywide entities and their affiliates, and Merrill Lynch entities and their affiliates have been named as defendants in a number of cases relating to their various roles as issuer, originator, seller, depositor, sponsor, underwriter Luther Class Action Litigation and Related Actions Beginning in 2007, a number of pension funds and other investors filed putative class action lawsuits alleging certain MBS Claims against Countrywide, several of its affiliates, MLPF&S, the Bank of America 2015 201 Corporation, NB Holdings Corporation and certain other defendants. Those class action lawsuits concerned a total of 429 MBS offerings involving over $350 billion in securities issued by subsidiaries of Countrywide between 2005 and 2007. The actions, entitled Luther v. Countrywide Financial Corporation, et al., Maine State Retirement System v. Countrywide Financial Corporation, et al., Western Conference of Teamsters Pension Trust Fund v. Countrywide Financial Corporation, et al., and Putnam Bank v. Countrywide Financial Corporation, et al., were all assigned to the Countrywide RMBS MDL court. On December 6, 2013, the court granted final approval to a settlement of these actions in the amount of $500 million. Beginning on January 14, 2014, a number of class members appealed to the U.S. Court of Appeals for the Ninth Circuit. Oral argument is expected to be held in the second quarter of 2016. Mortgage Repurchase Litigation U.S. Bank Litigation On August 29, 2011, U.S. Bank, National Association (U.S. Bank), as trustee for the HarborView Mortgage Loan Trust 2005-10 (the Trust), a mortgage pool backed by loans originated by Countrywide Home Loans, Inc. (CHL), filed a complaint in New York Supreme Court, in a case entitled U.S. Bank National Association, as Trustee for HarborView Mortgage Loan Trust, Series 2005-10 v. Countrywide Home Loans, Inc. (dba Bank of America Home Loans), Bank of America Corporation, Countrywide Financial Corporation, Bank of America, N.A. and NB Holdings Corporation. U.S. Bank asserts that, as a result of alleged misrepresentations by CHL in connection with its sale of the loans, defendants must repurchase all the loans in the pool, or in the alternative that it must repurchase a subset of those loans as to which U.S. Bank alleges that defendants have refused specific repurchase demands. U.S. Bank asserts claims for breach of contract and seeks specific performance of defendants’ alleged obligation to repurchase the entire pool of loans (alleged to have an original aggregate principal balance of $1.75 billion) or alternatively the aforementioned subset (alleged to have an aggregate principal balance of “over $100 million”), together with reimbursement of costs and expenses and other unspecified relief. On May 29, 2013, the New York Supreme Court dismissed U.S. Bank’s claim for repurchase of all the mortgage loans in the Trust. The court granted U.S. Bank leave to amend this claim. On June 18, 2013, U.S. Bank filed its second amended complaint seeking to replead its claim for repurchase of all loans in the Trust. On February 13, 2014, the court granted defendants’ motion to dismiss the repleaded claim seeking repurchase of all mortgage loans in the Trust; plaintiff appealed that order. On November 13, 2014, the court granted U.S. Bank’s motion for leave to amend the complaint; defendants appealed that order. The amended complaint alleges breach of contract based upon defendants’ failure to repurchase loans that were the subject of specific repurchase demands and also alleges breach of contract based upon defendants’ discovery, during origination and servicing, of loans with material breaches of representations and warranties. On September 16, 2015, defendants (i) withdrew the appeal that had been noticed, but not briefed, regarding the court’s November 13, 2014 order that had granted U.S. Bank’s motion for leave to amend, and (ii) moved, on the ground of failure to perfect, for dismissal of U.S. Bank’s appeal from the court’s February 13, 2014 order that had dismissed a claim seeking 202 Bank of America 2015 repurchase of all mortgage loans and sought clarification of a prior dismissal order. On September 30, 2015, U.S. Bank advised the court that it did not oppose dismissal of its appeal from the February 13, 2014 order. On December 15, 2015, defendants’ motion to dismiss U.S. Bank’s appeal was granted. U.S. Bank Summonses with Notice On August 29, 2014 and September 2, 2014, U.S. Bank National Association (U.S. Bank), solely in its capacity as Trustee for seven securitization trusts (the Trusts), served seven summonses with notice commencing actions against First Franklin Financial Corporation, Merrill Lynch Mortgage Lending, Inc., Merrill Lynch Mortgage Investors, Inc. (MLMI), and Ownit Mortgage Solutions Inc. in New York Supreme Court. The summonses advance breach of contract claims alleging that defendants breached representations and warranties related to loans securitized in the Trusts. The summonses allege that defendants failed to repurchase breaching mortgage loans from the Trusts, and seek specific performance of defendants’ alleged obligation to repurchase breaching loans, declaratory judgment, compensatory, rescissory and other damages, and indemnity. U.S. Bank has served complaints on four of the seven Trusts. On December 7, 2015, the court granted in part and denied in part defendants’ motion to dismiss the complaints. The court dismissed claims for breach of representations and warranties against MLMI, dismissed U.S. Bank’s claims for indemnity and attorneys’ fees, and deferred a ruling regarding defendants’ alleged failure to provide notice of alleged representation and warranty breaches, but upheld the complaints in all other respects. Defendants have until June 8, 2016 to demand complaints relating to the remaining three Trusts. O’Donnell Litigation On February 24, 2012, Edward O’Donnell filed a sealed qui tam complaint under the False Claims Act against the Corporation, individually, and as successor to Countrywide, CHL and a Countrywide business division known as Full Spectrum Lending. On October 24, 2012, the Department of Justice filed a complaint- in-intervention to join the matter, adding a claim under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and adding BANA as a defendant. The action is entitled United States of America, ex rel, Edward O’Donnell, appearing Qui Tam v. Bank of America Corp., et al., and was filed in the U.S. District Court for the Southern District of New York. The complaint-in- intervention asserted certain fraud claims in connection with the sale of loans to FNMA and FHLMC by Full Spectrum Lending and by the Corporation and BANA. On January 11, 2013, the government filed an amended complaint which added Countrywide Bank, FSB (CFSB) and a former officer of the Corporation as defendants. The court dismissed False Claims Act counts on May 8, 2013. On September 6, 2013, the government filed a second amended complaint alleging claims under FIRREA concerning allegedly fraudulent loan sales to the GSEs between August 2007 and May 2008. On September 24, 2013, the government dismissed the Corporation as a defendant. Following a trial, on October 23, 2013, a verdict of liability was returned against CHL, CFSB, BANA and the former officer. On July 30, 2014, the court imposed a civil penalty of $1.3 billion on BANA. On February 3, 2015, the court denied the Corporation’s motions for judgment as a matter of law, or in the alternative, a new trial. Corporation, NB Holdings Corporation and certain other repurchase of all mortgage loans and sought clarification of a prior defendants. Those class action lawsuits concerned a total of 429 dismissal order. On September 30, 2015, U.S. Bank advised the MBS offerings involving over $350 billion in securities issued by court that it did not oppose dismissal of its appeal from the subsidiaries of Countrywide between 2005 and 2007. The actions, February 13, 2014 order. On December 15, 2015, defendants’ entitled Luther v. Countrywide Financial Corporation, et al., Maine motion to dismiss U.S. Bank’s appeal was granted. State Retirement System v. Countrywide Financial Corporation, et al., Western Conference of Teamsters Pension Trust Fund v. Countrywide Financial Corporation, et al., and Putnam Bank v. Countrywide Financial Corporation, et al., were all assigned to the Countrywide RMBS MDL court. On December 6, 2013, the court granted final approval to a settlement of these actions in the amount of $500 million. Beginning on January 14, 2014, a number of class members appealed to the U.S. Court of Appeals for the Ninth Circuit. Oral argument is expected to be held in the second quarter of 2016. Mortgage Repurchase Litigation U.S. Bank Litigation On August 29, 2011, U.S. Bank, National Association (U.S. Bank), as trustee for the HarborView Mortgage Loan Trust 2005-10 (the Trust), a mortgage pool backed by loans originated by Countrywide Home Loans, Inc. (CHL), filed a complaint in New York Supreme Court, in a case entitled U.S. Bank National Association, as Trustee for HarborView Mortgage Loan Trust, Series 2005-10 v. Countrywide Home Loans, Inc. (dba Bank of America Home Loans), Bank of America Corporation, Countrywide Financial Corporation, Bank of America, N.A. and NB Holdings Corporation. U.S. Bank asserts that, as a result of alleged misrepresentations by CHL in connection with its sale of the loans, defendants must repurchase all the loans in the pool, or in the alternative that it must repurchase a subset of those loans as to which U.S. Bank alleges that defendants have refused specific repurchase demands. U.S. Bank asserts claims for breach of contract and seeks specific performance of defendants’ alleged obligation to repurchase the entire pool of loans (alleged to have an original aggregate principal balance of $1.75 billion) or alternatively the aforementioned subset (alleged to have an aggregate principal balance of “over $100 million”), together with reimbursement of costs and expenses and other unspecified relief. On May 29, 2013, the New York Supreme Court dismissed U.S. Bank’s claim for repurchase of all the mortgage loans in the Trust. The court granted U.S. Bank leave to amend this claim. On June 18, 2013, U.S. Bank filed its second amended complaint seeking to replead its claim for repurchase of all loans in the Trust. On February 13, 2014, the court granted defendants’ motion to dismiss the repleaded claim seeking repurchase of all mortgage loans in the Trust; plaintiff appealed that order. On November 13, 2014, the court granted U.S. Bank’s motion for leave to amend the complaint; defendants appealed that order. The amended complaint alleges breach of contract based upon defendants’ failure to repurchase loans that were the subject of specific repurchase demands and also alleges breach of contract based upon defendants’ discovery, during origination and servicing, of loans with material breaches of representations and warranties. On September 16, 2015, defendants (i) withdrew the appeal that had been noticed, but not briefed, regarding the court’s November 13, 2014 order that had granted U.S. Bank’s motion for leave to amend, and (ii) moved, on the ground of failure to perfect, for dismissal of U.S. Bank’s appeal from the court’s February 13, 2014 order that had dismissed a claim seeking 202 Bank of America 2015 U.S. Bank Summonses with Notice On August 29, 2014 and September 2, 2014, U.S. Bank National Association (U.S. Bank), solely in its capacity as Trustee for seven securitization trusts (the Trusts), served seven summonses with notice commencing actions against First Franklin Financial Corporation, Merrill Lynch Mortgage Lending, Inc., Merrill Lynch Mortgage Investors, Inc. (MLMI), and Ownit Mortgage Solutions Inc. in New York Supreme Court. The summonses advance breach of contract claims alleging that defendants breached representations and warranties related to loans securitized in the Trusts. The summonses allege that defendants failed to repurchase breaching mortgage loans from the Trusts, and seek specific performance of defendants’ alleged obligation to repurchase breaching loans, declaratory judgment, compensatory, rescissory and other damages, and indemnity. U.S. Bank has served complaints on four of the seven Trusts. On December 7, 2015, the court granted in part and denied in part defendants’ motion to dismiss the complaints. The court dismissed claims for breach of representations and warranties against MLMI, dismissed U.S. Bank’s claims for indemnity and attorneys’ fees, and deferred a ruling regarding defendants’ alleged failure to provide notice of alleged representation and warranty breaches, but upheld the complaints in all other respects. Defendants have until June 8, 2016 to demand complaints relating to the remaining three Trusts. O’Donnell Litigation On February 24, 2012, Edward O’Donnell filed a sealed qui tam complaint under the False Claims Act against the Corporation, individually, and as successor to Countrywide, CHL and a Countrywide business division known as Full Spectrum Lending. On October 24, 2012, the Department of Justice filed a complaint- in-intervention to join the matter, adding a claim under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and adding BANA as a defendant. The action is entitled United States of America, ex rel, Edward O’Donnell, appearing Qui Tam v. Bank of America Corp., et al., and was filed in the U.S. District Court for the Southern District of New York. The complaint-in- intervention asserted certain fraud claims in connection with the sale of loans to FNMA and FHLMC by Full Spectrum Lending and by the Corporation and BANA. On January 11, 2013, the government filed an amended complaint which added Countrywide Bank, FSB (CFSB) and a former officer of the Corporation as defendants. The court dismissed False Claims Act counts on May 8, 2013. On September 6, 2013, the government filed a second amended complaint alleging claims under FIRREA concerning allegedly fraudulent loan sales to the GSEs between August 2007 and May 2008. On September 24, 2013, the government dismissed the Corporation as a defendant. Following a trial, on October 23, 2013, a verdict of liability was returned against CHL, CFSB, BANA and the former officer. On July 30, 2014, the court imposed a civil penalty of $1.3 billion on BANA. On February 3, 2015, the court denied the Corporation’s motions for judgment as a matter of law, or in the alternative, a new trial. On February 20, 2015, CHL, CFSB and BANA filed an appeal. The Second Circuit held oral argument on December 16, 2015, but has not issued a decision on the appeal. Pennsylvania Public School Employees’ Retirement System The Corporation and several current and former officers were named as defendants in a putative class action filed in the U.S. District Court for the Southern District of New York entitled Pennsylvania Public School Employees’ Retirement System v. Bank of America, et al. Following the filing of a complaint on February 2, 2011, plaintiff subsequently filed an amended complaint on September 23, 2011 in which plaintiff sought to sue on behalf of all persons who acquired the Corporation’s common stock between February 27, 2009 and October 19, 2010 and “Common Equivalent Securities” sold in a December 2009 offering. The amended complaint asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Sections 11 and 15 of the Securities Act of 1933, and alleged that the Corporation’s public statements: (i) concealed problems in the Corporation’s mortgage servicing business resulting from the widespread use of the Mortgage the Electronic Recording System; Corporation’s exposure to mortgage repurchase claims; (iii) misrepresented the adequacy of internal controls; and (iv) violated certain Generally Accepted Accounting Principles. The amended complaint sought unspecified damages. to disclose failed (ii) On July 11, 2012, the court granted in part and denied in part defendants’ motions to dismiss the amended complaint. All claims under the Securities Act were dismissed against all defendants, with prejudice. The motion to dismiss the claim against the Corporation under Section 10(b) of the Exchange Act was denied. All claims under the Exchange Act against the officers were dismissed, with leave to replead. Defendants moved to dismiss a second amended complaint in which plaintiff sought to replead claims against certain current and former officers under Sections 10(b) and 20(a). On April 17, 2013, the court granted in part and denied in part the motion to dismiss, sustaining Sections 10(b) and 20(a) claims against the current and former officers. On August 12, 2015, the parties agreed to settle the claims for $335 million. The agreement is subject to final documentation and court approval. Takefuji Litigation In April 2010, Takefuji Corporation (Takefuji) filed a claim against Merrill Lynch International and Merrill Lynch Japan Securities (MLJS) in Tokyo District Court. The claim concerns Takefuji’s purchase in 2007 of credit-linked notes structured and sold by defendants that resulted in a loss to Takefuji of approximately JPY29.0 billion (approximately $270 million) following an event of default. Takefuji alleges that defendants failed to meet certain disclosure obligations concerning the notes. On July 19, 2013, the Tokyo District Court issued a judgment in defendants’ favor, a decision that Takefuji subsequently appealed to the Tokyo High Court. On August 27, 2014, the Tokyo High Court vacated the decision of the District Court and issued a judgment awarding Takefuji JPY14.5 billion (approximately $135 million) in damages, plus interest at a rate of five percent from March 18, 2008. On September 10, 2014, defendants filed an appeal with the Japanese Supreme Court. The appeal hearing occurred on February 16, 2016. The Corporation expects a judgment to be issued in the coming months. U.S. Securities and Exchange Commission (SEC) Investigations The SEC has been conducting investigations of the Corporation’s U.S. broker-dealer subsidiary, MLPF&S, regarding compliance with SEC Rule 15c3-3. The Corporation is cooperating with these investigations and is in discussions with the SEC regarding the possibility of resolving these matters. There can be no assurances that these discussions will lead to a resolution or whether the SEC will institute administrative or civil proceedings. The timing, amount and impact of these matters is uncertain. Bank of America 2015 203 NOTE 13 Shareholders’ Equity Common Stock Declared Quarterly Cash Dividends on Common Stock (1) Declaration Date Record Date Payment Date Dividend Per Share January 21, 2016 October 22, 2015 July 23, 2015 April 16, 2015 February 10, 2015 (1) March 4, 2016 December 4, 2015 September 4, 2015 June 5, 2015 March 6, 2015 In 2015 and through February 24, 2016. $ March 25, 2016 December 24, 2015 September 25, 2015 June 26, 2015 March 27, 2015 0.05 0.05 0.05 0.05 0.05 On March 11, 2015, the Corporation announced that the Federal Reserve completed its 2015 Comprehensive Capital Analysis and Review (CCAR) and advised that it did not object to the 2015 capital plan but gave a conditional non-objection under which the Corporation was required to resubmit its CCAR capital plan by September 30, 2015 and address certain weaknesses the Federal Reserve identified in the Corporation’s capital planning process. The requested capital actions included a request to repurchase $4.0 billion of common stock over five quarters beginning in the second quarter of 2015, and to maintain the quarterly common stock dividend at the current rate of $0.05 per share. The Corporation resubmitted its CCAR capital plan on September 30, 2015 and on December 10, 2015, the Federal Reserve announced that it did not object to the resubmitted CCAR capital plan. In 2015, the Corporation repurchased and retired 140.3 million shares of common stock in connection with the 2015 capital plan, which reduced shareholders’ equity by $2.4 billion. In 2014 and 2013, the Corporation repurchased and retired 101.1 million and 231.7 million shares of common stock, which reduced shareholders’ equity by $1.7 billion and $3.2 billion. At December 31, 2015, the Corporation had warrants outstanding and exercisable to purchase 121.8 million shares of its common stock at an exercise price of $30.79 per share expiring on October 28, 2018, and warrants outstanding and exercisable to purchase 150.4 million shares of common stock at an exercise price of $13.107 per share expiring on January 16, 2019. These warrants were originally issued in connection with preferred stock issuances to the U.S. Department of the Treasury in 2009 and 2008, and are listed on the New York Stock Exchange. The exercise price of the warrants expiring on January 16, 2019 is subject to continued adjustment each time the quarterly cash dividend is in excess of $0.01 per common share to compensate the holders of the warrants for dilution resulting from an increased dividend. The Corporation had cash dividends of $0.05 per share per quarter, or $0.20 per share for the year, in 2015 resulting in an adjustment to the exercise price of these warrants in each quarter. As a result of the Corporation’s 2015 dividends of $0.20 per common share, the exercise price of these warrants was adjusted to $13.107. The warrants expiring on October 28, 2018 also contain this anti- dilution provision except the adjustment is triggered only when the Corporation declares quarterly dividends at a level greater than $0.32 per common share. In connection with the issuance of the Corporation’s 6% Cumulative Perpetual Preferred Stock, Series T (the Series T Preferred Stock), the Corporation issued a warrant to purchase 700 million shares of the Corporation’s common stock. The warrant is exercisable at the holder’s option at any time, in whole or in part, until September 1, 2021, at an exercise price of $7.142857 per share of common stock. The warrant may be settled in cash or by exchanging all or a portion of the Series T Preferred Stock. For more information on the Series T Preferred Stock, see Preferred Stock in this Note. In connection with employee stock plans, in 2015, the Corporation issued approximately 7 million shares and repurchased approximately 3 million shares of its common stock to satisfy tax withholding obligations. At December 31, 2015, the Corporation had reserved 1.6 billion unissued shares of common stock for future issuances under employee stock plans, common stock warrants, convertible notes and preferred stock. 204 Bank of America 2015 NOTE 13 Shareholders’ Equity Common Stock Declared Quarterly Cash Dividends on Common Stock (1) Declaration Date Record Date Payment Date January 21, 2016 March 4, 2016 March 25, 2016 $ October 22, 2015 December 4, 2015 December 24, 2015 July 23, 2015 April 16, 2015 September 4, 2015 September 25, 2015 June 5, 2015 June 26, 2015 February 10, 2015 March 6, 2015 March 27, 2015 (1) In 2015 and through February 24, 2016. Dividend Per Share 0.05 0.05 0.05 0.05 0.05 its common stock at an exercise price of $30.79 per share expiring on October 28, 2018, and warrants outstanding and exercisable to purchase 150.4 million shares of common stock at an exercise price of $13.107 per share expiring on January 16, 2019. These warrants were originally issued in connection with preferred stock issuances to the U.S. Department of the Treasury in 2009 and 2008, and are listed on the New York Stock Exchange. The exercise price of the warrants expiring on January 16, 2019 is subject to continued adjustment each time the quarterly cash dividend is in excess of $0.01 per common share to compensate the holders of the warrants for dilution resulting from an increased dividend. The Corporation had cash dividends of $0.05 per share per quarter, or $0.20 per share for the year, in 2015 resulting in an adjustment to the exercise price of these warrants in each quarter. As a result of the Corporation’s 2015 dividends of $0.20 per common share, On March 11, 2015, the Corporation announced that the the exercise price of these warrants was adjusted to $13.107. Federal Reserve completed its 2015 Comprehensive Capital The warrants expiring on October 28, 2018 also contain this anti- Analysis and Review (CCAR) and advised that it did not object to dilution provision except the adjustment is triggered only when the the 2015 capital plan but gave a conditional non-objection under Corporation declares quarterly dividends at a level greater than which the Corporation was required to resubmit its CCAR capital $0.32 per common share. plan by September 30, 2015 and address certain weaknesses the In connection with the issuance of the Corporation’s 6% Federal Reserve identified in the Corporation’s capital planning Cumulative Perpetual Preferred Stock, Series T (the Series T process. The requested capital actions included a request to Preferred Stock), the Corporation issued a warrant to purchase repurchase $4.0 billion of common stock over five quarters 700 million shares of the Corporation’s common stock. The beginning in the second quarter of 2015, and to maintain the warrant is exercisable at the holder’s option at any time, in whole quarterly common stock dividend at the current rate of $0.05 per or in part, until September 1, 2021, at an exercise price of share. The Corporation resubmitted its CCAR capital plan on $7.142857 per share of common stock. The warrant may be September 30, 2015 and on December 10, 2015, the Federal settled in cash or by exchanging all or a portion of the Series T Reserve announced that it did not object to the resubmitted CCAR Preferred Stock. For more information on the Series T Preferred capital plan. Stock, see Preferred Stock in this Note. In 2015, the Corporation repurchased and retired 140.3 million In connection with employee stock plans, in 2015, the shares of common stock in connection with the 2015 capital plan, Corporation issued approximately 7 million shares and which reduced shareholders’ equity by $2.4 billion. In 2014 and repurchased approximately 3 million shares of its common stock 2013, the Corporation repurchased and retired 101.1 million and to satisfy tax withholding obligations. At December 31, 2015, the 231.7 million shares of common stock, which reduced Corporation had reserved 1.6 billion unissued shares of common shareholders’ equity by $1.7 billion and $3.2 billion. stock for future issuances under employee stock plans, common At December 31, 2015, the Corporation had warrants stock warrants, convertible notes and preferred stock. outstanding and exercisable to purchase 121.8 million shares of Preferred Stock The cash dividends declared on preferred stock were $1.5 billion, $1.0 billion and $1.2 billion for 2015, 2014 and 2013, respectively. On January 29, 2016, the Corporation issued 44,000 shares of its 6.200% Non-Cumulative Preferred Stock, Series CC for $1.1 billion. Dividends are paid quarterly commencing on April 29, 2016. Series CC preferred stock has a liquidation preference of $25,000 per share and is subject to certain restrictions in the event that the Corporation fails to declare and pay full dividends. On January 27, 2015, the Corporation issued 44,000 shares of its 6.500% Non-Cumulative Preferred Stock, Series Y for $1.1 billion. Dividends are paid quarterly commencing on April 27, 2015. On March 17, 2015, the corporation issued 76,000 shares of its Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series AA for $1.9 billion. Dividends are paid semi-annually commencing on September 17, 2015. Series Y and AA preferred stock have a liquidation preference of $25,000 per share and are subject to certain restrictions in the event that the Corporation fails to declare and pay full dividends. At the Corporation’s annual meeting of stockholders on May 7, 2014, the stockholders approved an amendment to the Series T Preferred Stock such that it qualifies as Tier 1 capital, and the amendment became effective in the three months ended June 30, 2014. The more significant changes to the terms of the Series T Preferred Stock in the amendment were: (1) dividends are no longer cumulative; (2) the dividend rate is fixed at 6%; and (3) the Corporation may redeem the Series T Preferred Stock only after the fifth anniversary of the effective date of the amendment. In 2014, the Corporation issued $6.0 billion of its Preferred Stock, Series V, X, W and Z. On June 17, 2014, the Corporation issued 60,000 shares of its Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series V for $1.5 billion. Dividends are paid semi- annually commencing on December 17, 2014. On September 5, 2014, the Corporation issued 80,000 shares of its Fixed-to- Floating Rate Non-Cumulative Preferred Stock, Series X for $2.0 billion. Dividends are paid semi-annually commencing on March 5, 2015. On September 9, 2014, the Corporation issued 44,000 shares of its 6.625% Non-Cumulative Preferred Stock, Series W for $1.1 billion. Dividends are paid quarterly commencing on December 9, 2014. On October 23, 2014, the Corporation issued 56,000 shares of its Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series Z for $1.4 billion. Dividends are paid semi- annually commencing on April 23, 2015. Series V, X, W and Z preferred stock have a liquidation preference of $25,000 per share and are subject to certain restrictions in the event that the Corporation fails to declare and pay full dividends. In 2013, the Corporation redeemed for $6.6 billion its Non- Cumulative Preferred Stock, Series H, J, 6, 7 and 8. The $100 million difference between the carrying value of $6.5 billion and the redemption price of the preferred stock was recorded as a preferred stock dividend. In addition, the Corporation issued $1.0 billion of its Fixed-to-Floating Rate Semi-annual Non-Cumulative Preferred Stock, Series U. 204 Bank of America 2015 Bank of America 2015 205 The table below presents a summary of perpetual preferred stock outstanding at December 31, 2015. Preferred Stock Summary (Dollars in millions, except as noted) Series Description Series B 7% Cumulative Redeemable Series D (3) 6.204% Non-Cumulative Series E (3) Series F Series G Floating Rate Non- Cumulative Floating Rate Non- Cumulative Adjustable Rate Non- Cumulative Series I (3) 6.625% Non-Cumulative Series K (5) Series L Series M (5) Fixed-to-Floating Rate Non- Cumulative 7.25% Non-Cumulative Perpetual Convertible Fixed-to-Floating Rate Non- Cumulative Series T 6% Non-Cumulative Series U (5) Series V (5) Fixed-to-Floating Rate Non- Cumulative Fixed-to-Floating Rate Non- Cumulative Series W (3) 6.625% Non-Cumulative Series X (5) Fixed-to-Floating Rate Non- Cumulative Series Y (3) 6.500% Non-Cumulative Series Z (5) Series AA (5) Series 1 (6) Series 2 (6) Fixed-to-Floating Rate Non- Cumulative Fixed-to-Floating Rate Non- Cumulative Floating Rate Non- Cumulative Floating Rate Non- Cumulative Series 3 (6) 6.375% Non-Cumulative Series 4 (6) Series 5 (6) Total Floating Rate Non- Cumulative Floating Rate Non- Cumulative Initial Issuance Date June 1997 September 2006 November 2006 March 2012 March 2012 September 2007 January 2008 January 2008 April 2008 September 2011 May 2013 June 2014 September 2014 September 2014 January 2015 October 2014 March 2015 November 2004 March 2005 November 2005 November 2005 March 2007 Total Shares Outstanding Liquidation Preference per Share (in dollars) Carrying Value (1) Per Annum Dividend Rate Redemption Period (2) 7,571 $ 100 $ 1 26,174 25,000 12,691 25,000 1,409 100,000 4,926 100,000 14,584 25,000 654 317 141 493 365 61,773 25,000 1,544 7.00% 6.204% 3-mo. LIBOR + 35 bps (4) 3-mo. LIBOR + 40 bps (4) 3-mo. LIBOR + 40 bps (4) 6.625% 8.00% to, but excluding, 1/30/18; 3-mo. LIBOR + 363 bps thereafter 3,080,182 1,000 3,080 7.25% 52,399 25,000 1,310 8.125% to, but excluding, 5/15/18; 3-mo. LIBOR + 364 bps thereafter n/a On or after September 14, 2011 On or after November 15, 2011 On or after March 15, 2012 On or after March 15, 2012 On or after October 1, 2017 On or after January 30, 2018 n/a On or after May 15, 2018 6.00% See description in Preferred Stock in this Note 50,000 100,000 2,918 40,000 25,000 1,000 60,000 25,000 1,500 5.2% to, but excluding, 6/1/23; 3-mo. LIBOR + 313.5 bps thereafter 5.125% to, but excluding, 6/17/19; 3-mo. LIBOR + 338.7 bps thereafter 44,000 25,000 1,100 6.625% 80,000 25,000 2,000 6.250% to, but excluding, 9/5/24; 3-mo. LIBOR + 370.5 bps thereafter 44,000 25,000 1,100 6.500% 56,000 25,000 1,400 76,000 25,000 1,900 6.500% to, but excluding, 10/23/24; 3-mo. LIBOR + 417.4 bps thereafter 6.100% to, but excluding, 3/17/25; 3-mo. LIBOR + 389.8 bps thereafter 3,275 30,000 9,967 30,000 21,773 30,000 7,010 30,000 14,056 3,767,790 30,000 98 299 653 210 422 $ 22,505 3-mo. LIBOR + 75 bps (7) 3-mo. LIBOR + 65 bps (7) 6.375% 3-mo. LIBOR + 75 bps (4) 3-mo. LIBOR + 50 bps (4) On or after June 1, 2023 On or after June 17, 2019 On or after September 9, 2019 On or after September 5, 2024 On or after January 27, 2020 On or after October 23, 2024 On or after March 17, 2025 On or after November 28, 2009 On or after November 28, 2009 On or after November 28, 2010 On or after November 28, 2010 On or after May 21, 2012 (1) Amounts shown are before third-party issuance costs and certain book value adjustments of $232 million. (2) The Corporation may redeem series of preferred stock on or after the redemption date, in whole or in part, at its option, at the liquidation preference plus declared and unpaid dividends. Series B and Series L Preferred Stock do not have early redemption/call rights. (3) Ownership is held in the form of depositary shares, each representing a 1/1,000th interest in a share of preferred stock, paying a quarterly cash dividend, if and when declared. (4) Subject to 4.00% minimum rate per annum. (5) Ownership is held in the form of depositary shares, each representing a 1/25th interest in a share of preferred stock, paying a semi-annual cash dividend, if and when declared, until the first redemption date at which time, it adjusts to a quarterly cash dividend, if and when declared, thereafter. (6) Ownership is held in the form of depositary shares, each representing a 1/1,200th interest in a share of preferred stock, paying a quarterly cash dividend, if and when declared. (7) Subject to 3.00% minimum rate per annum. n/a = not applicable 206 Bank of America 2015 The 7.25% Non-Cumulative Perpetual Convertible Preferred Stock, Series L (Series L Preferred Stock) listed in the Preferred Stock Summary table does not have early redemption/call rights. Each share of the Series L Preferred Stock may be converted at any time, at the option of the holder, into 20 shares of the Corporation’s common stock plus cash in lieu of fractional shares. The Corporation may cause some or all of the Series L Preferred Stock, at its option, at any time or from time to time, to be converted into shares of common stock at the then-applicable conversion rate if, for 20 trading days during any period of 30 consecutive trading days, the closing price of common stock exceeds 130 percent of the then-applicable conversion price of the Series L Preferred Stock. If a conversion of Series L Preferred Stock occurs at the option of the holder, subsequent to a dividend record date but prior to the dividend payment date, the Corporation will still pay any accrued dividends payable. All series of preferred stock in the Preferred Stock Summary table have a par value of $0.01 per share, are not subject to the operation of a sinking fund, have no participation rights, and with the exception of the Series L Preferred Stock, are not convertible. The holders of the Series B Preferred Stock and Series 1 through 5 Preferred Stock have general voting rights, and the holders of the other series included in the table have no general voting rights. All outstanding series of preferred stock of the Corporation have preference over the Corporation’s common stock with respect to the payment of dividends and distribution of the Corporation’s assets in the event of a liquidation or dissolution. With the exception of the Series B, F, G and T Preferred Stock, if any dividend payable on these series is in arrears for three or more semi-annual or six or more quarterly dividend periods, as applicable (whether consecutive or not), the holders of these series and any other class or series of preferred stock ranking equally as to payment of dividends and upon which equivalent voting rights have been conferred and are exercisable (voting as a single class) will be entitled to vote for the election of two additional directors. These voting rights terminate when the Corporation has paid in full dividends on these series for at least two semi-annual or four quarterly dividend periods, as applicable, following the dividend arrearage. The table below presents a summary of perpetual preferred stock outstanding at December 31, 2015. Series I (3) 6.625% Non-Cumulative 14,584 25,000 6.625% Series Description Carrying Value (1) Per Annum Dividend Rate Redemption Period (2) Total Shares Outstanding Liquidation Preference per Share (in dollars) 7,571 $ 100 $ 1 7.00% Series D (3) 6.204% Non-Cumulative 26,174 25,000 6.204% September 14, 2011 12,691 25,000 3-mo. LIBOR + 35 bps (4) November 15, 2011 Preferred Stock Summary (Dollars in millions, except as noted) 7% Cumulative Redeemable Floating Rate Non- Cumulative Floating Rate Non- Cumulative Adjustable Rate Non- Cumulative Fixed-to-Floating Rate Non- Cumulative 7.25% Non-Cumulative Perpetual Convertible Fixed-to-Floating Rate Non- Cumulative Fixed-to-Floating Rate Non- Cumulative Fixed-to-Floating Rate Non- Cumulative Fixed-to-Floating Rate Non- Cumulative Fixed-to-Floating Rate Non- Cumulative Floating Rate Non- Cumulative Floating Rate Non- Cumulative Floating Rate Non- Cumulative Floating Rate Non- Cumulative Initial Issuance Date June 1997 September 2006 November 2006 March 2012 March 2012 September 2007 January 2008 January 2008 April 2008 2011 May 2013 June 2014 September September 2014 September 2014 January 2015 October 2014 March 2015 November 2004 March 2005 November 2005 November 2005 March 2007 Series B Series E (3) Series F Series G Series K (5) Series L Series M (5) Series U (5) Series V (5) Series Z (5) Series AA (5) Series 1 (6) Series 2 (6) Series 4 (6) Series 5 (6) Total 1,409 100,000 3-mo. LIBOR + 40 bps (4) 4,926 100,000 3-mo. LIBOR + 40 bps (4) 61,773 25,000 1,544 3-mo. LIBOR + 363 bps thereafter 8.00% to, but excluding, 1/30/18; 3,080,182 1,000 3,080 7.25% 52,399 25,000 1,310 3-mo. LIBOR + 364 bps thereafter 8.125% to, but excluding, 5/15/18; 40,000 25,000 1,000 3-mo. LIBOR + 313.5 bps thereafter 5.2% to, but excluding, 6/1/23; 60,000 25,000 1,500 3-mo. LIBOR + 338.7 bps thereafter 5.125% to, but excluding, 6/17/19; Series T 6% Non-Cumulative 50,000 100,000 2,918 6.00% Preferred Stock in this Note See description in Series W (3) 6.625% Non-Cumulative 44,000 25,000 1,100 6.625% September 9, 2019 Series X (5) Fixed-to-Floating Rate Non- Cumulative 80,000 25,000 2,000 3-mo. LIBOR + 370.5 bps thereafter September 5, 2024 6.250% to, but excluding, 9/5/24; On or after Series Y (3) 6.500% Non-Cumulative 44,000 25,000 1,100 6.500% 56,000 25,000 1,400 3-mo. LIBOR + 417.4 bps thereafter 6.500% to, but excluding, 10/23/24; 76,000 25,000 1,900 3-mo. LIBOR + 389.8 bps thereafter 6.100% to, but excluding, 3/17/25; 3,275 30,000 3-mo. LIBOR + 75 bps (7) November 28, 2009 9,967 30,000 3-mo. LIBOR + 65 bps (7) November 28, 2009 Series 3 (6) 6.375% Non-Cumulative 21,773 30,000 6.375% November 28, 2010 7,010 30,000 3-mo. LIBOR + 75 bps (4) November 28, 2010 14,056 3,767,790 $ 22,505 30,000 3-mo. LIBOR + 50 bps (4) (1) Amounts shown are before third-party issuance costs and certain book value adjustments of $232 million. (2) The Corporation may redeem series of preferred stock on or after the redemption date, in whole or in part, at its option, at the liquidation preference plus declared and unpaid dividends. Series B and Series L Preferred Stock do not have early redemption/call rights. (4) Subject to 4.00% minimum rate per annum. (3) Ownership is held in the form of depositary shares, each representing a 1/1,000th interest in a share of preferred stock, paying a quarterly cash dividend, if and when declared. (5) Ownership is held in the form of depositary shares, each representing a 1/25th interest in a share of preferred stock, paying a semi-annual cash dividend, if and when declared, until the first redemption date at which time, it adjusts to a quarterly cash dividend, if and when declared, thereafter. (6) Ownership is held in the form of depositary shares, each representing a 1/1,200th interest in a share of preferred stock, paying a quarterly cash dividend, if and when declared. (7) Subject to 3.00% minimum rate per annum. n/a = not applicable n/a On or after On or after On or after March 15, 2012 On or after March 15, 2012 On or after October 1, 2017 On or after January 30, 2018 n/a On or after May 15, 2018 On or after June 1, 2023 On or after June 17, 2019 On or after On or after January 27, 2020 On or after October 23, 2024 On or after March 17, 2025 On or after On or after On or after On or after On or after May 21, 2012 654 317 141 493 365 98 299 653 210 422 206 Bank of America 2015 Bank of America 2015 207 NOTE 14 Accumulated Other Comprehensive Income (Loss) The table below presents the changes in accumulated OCI after-tax for 2013, 2014 and 2015. (Dollars in millions) Available-for- Sale Debt Securities Available-for- Sale Marketable Equity Securities Debit Valuation Adjustments (1) Derivatives Employee Benefit Plans Foreign Currency (2) Total $ $ $ Net change Net change Balance, December 31, 2012 Balance, December 31, 2013 Balance, December 31, 2014 462 (466) (4) 21 17 — $ 45 62 Balance, December 31, 2015 (1) For information on the impact of early adoption of new accounting guidance on recognition and measurement of financial instruments, see Note 1 – Summary of Significant Accounting Principles. (2) The net change in fair value represents the impact of changes in spot foreign exchange rates on the Corporation’s net investment in non-U.S. operations and related hedges. n/a = not applicable (2,869) $ 592 (2,277) $ 616 (1,661) $ — 584 (1,077) $ (4,456) $ 2,049 (2,407) $ (943) (3,350) $ — 394 (2,956) $ n/a n/a n/a n/a n/a (1,226) 615 (611) $ Cumulative adjustment for accounting change Net change 4,443 (7,700) (3,257) $ 4,600 1,343 — (1,643) (377) $ (135) (512) $ (157) (669) $ — (123) (792) $ (2,797) (5,660) (8,457) 4,137 (4,320) (1,226) (128) (5,674) (300) $ $ $ $ $ $ $ $ The table below presents the net change in fair value recorded in accumulated OCI, net realized gains and losses reclassified into earnings and other changes for each component of OCI before- and after-tax for 2015, 2014 and 2013. Changes in OCI Components Before- and After-tax (Dollars in millions) Available-for-sale debt securities: Net increase (decrease) in fair value Net realized gains reclassified into earnings Net change Available-for-sale marketable equity securities: Net increase in fair value Net realized gains reclassified into earnings Net change Debit valuation adjustments: Net increase in fair value Net realized losses reclassified into earnings Net change Derivatives: Net increase in fair value Net realized losses reclassified into earnings Net change Employee benefit plans: Net increase (decrease) in fair value Net realized losses reclassified into earnings Settlements, curtailments and other Net change Foreign currency: Before-tax 2015 Tax effect After-tax Before-tax 2014 Tax effect After-tax Before-tax 2013 Tax effect After-tax $ (1,644) $ (1,010) (2,654) 627 384 1,011 $ (1,017) $ (626) (1,643) 8,698 (1,338) 7,360 $ (3,268) $ 5,430 (830) 4,600 508 (2,760) $ (10,989) $ 4,077 463 4,540 (1,251) (12,240) $ (6,912) (788) (7,700) 72 — 72 436 556 992 55 883 938 408 169 1 578 (27) — (27) (166) (211) (377) (22) (332) (354) (121) (62) (1) (184) 45 — 45 270 345 615 33 551 584 287 107 — 394 34 — 34 n/a n/a n/a 195 760 955 (1,629) 55 (1) (1,575) (13) — (13) n/a n/a n/a (54) (285) (339) 614 (23) 41 632 21 — 21 n/a n/a n/a 141 475 616 32 (771) (739) n/a n/a n/a 156 773 929 (12) 285 273 n/a n/a n/a (51) (286) (337) 20 (486) (466) n/a n/a n/a 105 487 592 (1,015) 32 40 (943) 2,985 237 46 3,268 (1,128) (79) (12) (1,219) 1,857 158 34 2,049 Net decrease in fair value Net realized losses reclassified into earnings Net change Total other comprehensive income (loss) $ 600 (38) 562 488 $ (723) 38 (685) (616) $ (128) $ (123) — (123) 714 20 734 7,508 (879) (12) (891) (165) 8 (157) $ (3,371) $ 4,137 244 138 382 (384) (133) (517) $ (8,400) $ 2,740 (140) 5 (135) $ (5,660) n/a = not applicable 208 Bank of America 2015 The table below presents impacts on net income of significant amounts reclassified out of each component of accumulated OCI before- and after-tax for 2015, 2014 and 2013. Reclassifications Out of Accumulated OCI (Dollars in millions) Accumulated OCI Components Available-for-sale debt securities: Income Statement Line Item Impacted 2015 2014 2013 (1) For information on the impact of early adoption of new accounting guidance on recognition and measurement of financial instruments, see Note 1 – Summary of Significant Accounting Principles. (2) The net change in fair value represents the impact of changes in spot foreign exchange rates on the Corporation’s net investment in non-U.S. operations and related hedges. $ (611) $ (1,077) $ (2,956) $ (792) $ Available-for-sale marketable equity securities: The table below presents the net change in fair value recorded in accumulated OCI, net realized gains and losses reclassified into earnings and other changes for each component of OCI before- and after-tax for 2015, 2014 and 2013. Debit valuation adjustments: Derivatives: Interest rate contracts Commodity contracts Interest rate contracts Equity compensation contracts Employee benefit plans: Prior service cost Net actuarial losses Settlements and curtailments Foreign currency: Total reclassification adjustments n/a = not applicable Gains on sales of debt securities Other loss Income before income taxes Income tax expense Reclassification to net income Equity investment income Income before income taxes Income tax expense Reclassification to net income Other loss Loss before income taxes Income tax benefit Reclassification to net income Net interest income Trading account losses Other income Personnel Loss before income taxes Income tax benefit Reclassification to net income Personnel Personnel Personnel Loss before income taxes Income tax benefit Reclassification to net income Other income (loss) Income (loss) before income taxes Income tax expense (benefit) Reclassification to net income $ $ $ 1,091 (81) 1,010 384 626 1,354 (16) 1,338 508 830 1,271 (20) 1,251 463 788 — — — — (556) (556) (211) (345) (974) — — 91 (883) (332) (551) (5) (164) — (169) (62) (107) 38 38 38 — (377) $ $ — — — — n/a n/a n/a n/a (1,119) — — 359 (760) (285) (475) (5) (50) — (55) (23) (32) (20) (20) (12) (8) 315 $ 771 771 285 486 n/a n/a n/a n/a (1,119) (1) 18 329 (773) (286) (487) (4) (225) (8) (237) (79) (158) (138) (138) (133) (5) 624 NOTE 14 Accumulated Other Comprehensive Income (Loss) The table below presents the changes in accumulated OCI after-tax for 2013, 2014 and 2015. (Dollars in millions) Balance, December 31, 2012 Balance, December 31, 2013 Net change Net change Balance, December 31, 2014 Net change Balance, December 31, 2015 n/a = not applicable Cumulative adjustment for accounting change Available-for- Available-for- Sale Debt Securities Sale Marketable Debit Valuation Employee Foreign Equity Securities Adjustments (1) Derivatives Benefit Plans Currency (2) Total $ $ $ $ 4,443 $ (7,700) (3,257) $ $ 4,600 1,343 — (1,643) (300) $ n/a n/a n/a n/a n/a $ $ $ (2,869) $ (4,456) $ (377) $ (2,277) $ (2,407) $ (512) $ (1,661) $ (3,350) $ (669) $ 592 616 — 584 2,049 (943) — 394 (135) (157) — (123) — $ (1,226) 615 462 (466) (4) 21 17 45 62 (2,797) (5,660) (8,457) 4,137 (4,320) (1,226) (128) (5,674) Changes in OCI Components Before- and After-tax 2015 2014 2013 Before-tax Tax effect After-tax Before-tax Tax effect After-tax Before-tax Tax effect After-tax Net increase (decrease) in fair value $ (1,644) $ $ (1,017) $ 8,698 $ (3,268) $ 5,430 $ (10,989) $ 4,077 $ (6,912) (1,010) (2,654) 627 384 1,011 (626) (1,643) (1,338) 7,360 508 (830) (1,251) (2,760) 4,600 (12,240) 463 4,540 (788) (7,700) (Dollars in millions) Available-for-sale debt securities: Net realized gains reclassified into earnings Net change Available-for-sale marketable equity securities: Net increase in fair value Net realized gains reclassified into earnings Net realized losses reclassified into earnings Net change Debit valuation adjustments: Net increase in fair value Net change Derivatives: Net increase in fair value Net change Employee benefit plans: Net realized losses reclassified into earnings Net increase (decrease) in fair value Net realized losses reclassified into earnings Settlements, curtailments and other Net decrease in fair value Net realized losses reclassified into earnings Net change Foreign currency: Net change n/a = not applicable 72 — 72 436 556 992 55 883 938 408 169 1 578 600 (38) 562 488 (27) — (27) (166) (211) (377) (22) (332) (354) (121) (62) (1) (184) (723) 38 (685) 45 — 45 270 345 615 33 551 584 287 107 — 394 (123) — (123) 34 — 34 n/a n/a n/a 195 760 955 (1,629) 55 (1) (1,575) 714 20 734 (13) — (13) n/a n/a n/a (54) (285) (339) 614 (23) 41 632 (879) (12) (891) 21 — 21 n/a n/a n/a 141 475 616 32 40 (165) 8 (157) 32 (771) (739) n/a n/a n/a 156 773 929 237 46 244 138 382 (12) 285 273 n/a n/a n/a (51) (286) (337) (79) (12) (384) (133) (517) 20 (486) (466) n/a n/a n/a 105 487 592 158 34 (140) 5 (135) (1,015) 2,985 (1,128) 1,857 (943) 3,268 (1,219) 2,049 Total other comprehensive income (loss) $ $ (616) $ (128) $ 7,508 $ (3,371) $ 4,137 $ (8,400) $ 2,740 $ (5,660) 208 Bank of America 2015 Bank of America 2015 209 NOTE 15 Earnings Per Common Share The calculation of earnings per common share (EPS) and diluted EPS for 2015, 2014 and 2013 is presented below. For more information on the calculation of EPS, see Note 1 – Summary of Significant Accounting Principles. (Dollars in millions, except per share information; shares in thousands) 2015 2014 2013 Earnings per common share Net income Preferred stock dividends Net income applicable to common shareholders Dividends and undistributed earnings allocated to participating securities Net income allocated to common shareholders Average common shares issued and outstanding Earnings per common share Diluted earnings per common share Net income applicable to common shareholders Add preferred stock dividends due to assumed conversions Dividends and undistributed earnings allocated to participating securities Net income allocated to common shareholders Average common shares issued and outstanding Dilutive potential common shares (1) Total diluted average common shares issued and outstanding Diluted earnings per common share (1) Includes incremental dilutive shares from restricted stock units, restricted stock, stock options and warrants. $ $ $ $ $ $ 15,888 (1,483) 14,405 — 14,405 10,462,282 1.38 14,405 300 — 14,705 10,462,282 751,710 11,213,992 1.31 $ $ $ $ $ $ 4,833 (1,044) 3,789 — 3,789 10,527,818 0.36 3,789 — — 3,789 10,527,818 56,717 10,584,535 0.36 $ $ $ $ $ $ 11,431 (1,349) 10,082 (2) 10,080 10,731,165 0.94 10,082 300 (2) 10,380 10,731,165 760,253 11,491,418 0.90 The Corporation previously issued a warrant to purchase 700 million shares of the Corporation’s common stock to the holder of the Series T Preferred Stock. The warrant may be exercised, at the option of the holder, through tendering the Series T Preferred Stock or paying cash. For 2015 and 2013, the 700 million average dilutive potential common shares were included in the diluted share count under the “if-converted” method. For 2014, the 700 million average dilutive potential common shares were not included in the diluted share count because the result would have been antidilutive under the “if-converted” method. For additional information, see Note 13 – Shareholders’ Equity. For 2015, 2014 and 2013, 62 million average dilutive potential common shares associated with the Series L Preferred Stock were not included in the diluted share count because the result would have been antidilutive under the “if-converted” method. For 2015, 2014 and 2013, average options to purchase 66 million, 91 million and 126 million shares of common stock, respectively, were outstanding but not included in the computation of EPS because the result would have been antidilutive under the treasury stock method. For 2015 and 2014, average warrants to purchase 122 million shares of common stock were outstanding but not included in the computation of EPS because the result would have been antidilutive under the treasury stock method compared to 272 million shares for 2013. For 2015 and 2014, average warrants to purchase 150 million shares of common stock were included in the diluted EPS calculation under the treasury stock method. In connection with the preferred stock actions described in Note 13 – Shareholders’ Equity, the Corporation recorded a $100 million non-cash preferred stock dividend in 2013, which is included in the calculation of net income allocated to common shareholders. 210 Bank of America 2015 NOTE 15 Earnings Per Common Share The calculation of earnings per common share (EPS) and diluted EPS for 2015, 2014 and 2013 is presented below. For more information on the calculation of EPS, see Note 1 – Summary of Significant Accounting Principles. (Dollars in millions, except per share information; shares in thousands) 2015 2014 2013 Earnings per common share Net income Preferred stock dividends Net income applicable to common shareholders Dividends and undistributed earnings allocated to participating securities Net income allocated to common shareholders Average common shares issued and outstanding Earnings per common share Diluted earnings per common share Net income applicable to common shareholders Add preferred stock dividends due to assumed conversions Dividends and undistributed earnings allocated to participating securities Net income allocated to common shareholders Average common shares issued and outstanding Dilutive potential common shares (1) Total diluted average common shares issued and outstanding Diluted earnings per common share $ 15,888 $ 4,833 $ (1,483) 14,405 — 14,405 $ $ (1,044) 3,789 — 3,789 $ $ 10,462,282 10,527,818 10,731,165 1.38 0.36 0.94 11,431 (1,349) 10,082 (2) 10,080 14,405 $ 3,789 $ 10,082 300 — — — 300 (2) 14,705 $ 3,789 $ 10,380 10,462,282 10,527,818 10,731,165 751,710 56,717 760,253 11,213,992 10,584,535 11,491,418 1.31 $ 0.36 $ 0.90 $ $ $ $ $ (1) Includes incremental dilutive shares from restricted stock units, restricted stock, stock options and warrants. The Corporation previously issued a warrant to purchase 700 2014 and 2013, average options to purchase 66 million, 91 million million shares of the Corporation’s common stock to the holder of and 126 million shares of common stock, respectively, were the Series T Preferred Stock. The warrant may be exercised, at the outstanding but not included in the computation of EPS because option of the holder, through tendering the Series T Preferred Stock the result would have been antidilutive under the treasury stock or paying cash. For 2015 and 2013, the 700 million average dilutive method. For 2015 and 2014, average warrants to purchase 122 potential common shares were included in the diluted share count million shares of common stock were outstanding but not included under the “if-converted” method. For 2014, the 700 million in the computation of EPS because the result would have been average dilutive potential common shares were not included in the antidilutive under the treasury stock method compared to 272 diluted share count because the result would have been million shares for 2013. For 2015 and 2014, average warrants to antidilutive under the “if-converted” method. For additional purchase 150 million shares of common stock were included in information, see Note 13 – Shareholders’ Equity. the diluted EPS calculation under the treasury stock method. For 2015, 2014 and 2013, 62 million average dilutive potential In connection with the preferred stock actions described in Note common shares associated with the Series L Preferred Stock were 13 – Shareholders’ Equity, the Corporation recorded a $100 million not included in the diluted share count because the result would non-cash preferred stock dividend in 2013, which is included in have been antidilutive under the “if-converted” method. For 2015, the calculation of net income allocated to common shareholders. NOTE 16 Regulatory Requirements and Restrictions The Federal Reserve, Office of the Comptroller of the Currency (OCC) and FDIC (collectively, U.S. banking regulators) jointly establish regulatory capital adequacy guidelines for U.S. banking organizations. As a financial holding company, the Corporation is subject to capital adequacy rules issued by the Federal Reserve, and its banking entity affiliates, including BANA and Bank of America California, N.A., are subject to capital adequacy rules issued by their respective primary regulators. On January 1, 2014, the Corporation and its affiliates became subject to Basel 3, which includes certain transition provisions through January 1, 2019. The Corporation and its primary banking entity affiliate, BANA, are Advanced approaches institutions under Basel 3. Basel 3 updated the composition of capital and established a Common equity tier 1 capital ratio. Common equity tier 1 capital primarily includes common stock, retained earnings and accumulated OCI. Basel 3 revised minimum capital ratios and buffer requirements, added a supplementary leverage ratio, and addressed the adequately capitalized minimum requirements under the PCA framework. Finally, Basel 3 established two methods Regulatory Capital under Basel 3 – Transition (1) of calculating risk-weighted assets, the Standardized approach and the Advanced approaches. As an Advanced approaches institution, under Basel 3, the Corporation was required to complete a qualification period (parallel run) to demonstrate compliance with the Basel 3 Advanced approaches to the satisfaction of U.S. banking regulators. The Corporation received approval to begin using the Advanced approaches capital framework to determine risk-based capital requirements in the fourth quarter of 2015. Having exited parallel run on October 1, 2015, the Corporation is required to report regulatory risk-based capital ratios and risk-weighted assets under both the Standardized and Advanced approaches. The approach that yields the lower ratio is used to assess capital adequacy including under the PCA framework, and was the Advanced approaches in the fourth quarter of 2015. Prior to the fourth quarter of 2015, the Corporation was required to report its capital adequacy under the Standardized approach only. The table below presents capital ratios and related information in accordance with Basel 3 Standardized and Advanced approaches – Transition as measured at December 31, 2015 and 2014 for the Corporation and BANA. (Dollars in millions) Risk-based capital metrics: Common equity tier 1 capital Tier 1 capital Total capital (3) Risk-weighted assets (in billions) Common equity tier 1 capital ratio Tier 1 capital ratio Total capital ratio Bank of America Corporation Bank of America, N.A. Standardized Approach Advanced Approaches Regulatory Minimum Well- capitalized (2) Standardized Approach Advanced Approaches Regulatory Minimum Well- capitalized (2) December 31, 2015 $ 163,026 180,778 220,676 1,403 $ 163,026 180,778 210,912 1,602 $ 144,869 144,869 159,871 1,183 $ 144,869 144,869 150,624 1,104 11.6% 12.9 15.7 10.2% 11.3 13.2 4.5% 6.0 8.0 n/a 6.0% 10.0 12.2% 12.2 13.5 13.1% 13.1 13.6 4.5% 6.0 8.0 6.5% 8.0 10.0 Leverage-based metrics: Adjusted quarterly average assets (in billions) (4) $ Tier 1 leverage ratio 2,103 $ 2,103 $ 1,575 $ 1,575 8.6% 8.6% 4.0 n/a 9.2% 9.2% 4.0 5.0 Risk-based capital metrics: Common equity tier 1 capital Tier 1 capital Total capital (3) Risk-weighted assets (in billions) Common equity tier 1 capital ratio Tier 1 capital ratio Total capital ratio $ 155,361 168,973 208,670 1,262 12.3% 13.4 16.5 n/a n/a n/a n/a n/a n/a n/a December 31, 2014 $ 145,150 145,150 161,623 1,105 4.0% 5.5 8.0 n/a 6.0% 10.0 13.1% 13.1 14.6 n/a n/a n/a n/a n/a n/a n/a 4.0% 5.5 8.0 n/a 6.0% 10.0 Leverage-based metrics: Adjusted quarterly average assets (in billions) (4) $ Tier 1 leverage ratio 2,060 $ 2,060 $ 1,509 $ 1,509 8.2% 8.2% 4.0 n/a 9.6% 9.6% 4.0 5.0 (1) The Corporation received approval to begin using the Advanced approaches capital framework to determine risk-based capital requirements in the fourth quarter of 2015. With the approval to exit parallel run, the Corporation is required to report regulatory capital risk-weighted assets and ratios under both the Standardized and Advanced approaches. The approach that yields the lower ratio is to be used to assess capital adequacy and was the Advanced approaches at December 31, 2015. Prior to exiting parallel run, the Corporation was required to report regulatory capital risk-weighted assets and ratios under the Standardized approach only. As previously disclosed, with the approval to exit parallel run, U.S. banking regulators requested modifications to certain internal analytical models including the wholesale (e.g., commercial) credit models which increased the Corporation’s risk-weighted assets in the fourth quarter of 2015. (2) To be “well capitalized” under the current U.S. banking regulatory agency definitions, a bank holding company or national bank must maintain these or higher ratios and not be subject to a Federal Reserve order or directive to maintain higher capital levels. (3) Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses. (4) Reflects adjusted average assets for the three months ended December 31, 2015 and 2014. n/a = not applicable 210 Bank of America 2015 Bank of America 2015 211 The capital adequacy rules issued by the U.S. banking regulators require institutions to meet the established minimums outlined in the Regulatory Capital under Basel 3 – Transition table. Failure to meet the minimum requirements can lead to certain mandatory and discretionary actions by regulators that could have a material adverse impact on the Corporation’s financial position. At December 31, 2015 and 2014, the Corporation and its banking entity affiliates were "well capitalized." Other Regulatory Matters On February 18, 2014, the Federal Reserve approved a final rule implementing certain enhanced supervisory and prudential requirements established under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The final rule formalizes risk management requirements primarily related to governance and liquidity risk management and reiterates the provisions of previously issued final rules related to risk-based and leverage capital and stress test requirements. Also, a debt-to-equity limit may be enacted for an individual BHC if it is determined to pose a grave threat to the financial stability of the U.S. Such limit is at the discretion of the Financial Stability Oversight Council (FSOC) or the Federal Reserve on behalf of the FSOC. The Federal Reserve requires the Corporation’s banking subsidiaries to maintain reserve requirements based on a percentage of certain deposits. The average daily reserve balance requirements, in excess of vault cash, maintained by the Corporation with the Federal Reserve were $9.8 billion and $9.1 billion for 2015 and 2014. At December 31, 2015 and 2014, the Corporation had cash in the amount of $12.1 billion and $7.7 billion, and securities with a fair value of $17.5 billion and $19.2 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. The primary sources of funds for cash distributions by the Corporation to its shareholders are capital distributions received from its banking subsidiaries, BANA and Bank of America California, N.A. In 2015, the Corporation received dividends of $18.8 billion from BANA and none from Bank of America California, N.A. The amount of dividends that a subsidiary bank may declare in a calendar year is the subsidiary bank’s net profits for that year combined with its retained net profits for the preceding two years. Retained net profits, as defined by the OCC, consist of net income less dividends declared during the period. In 2016, BANA can declare and pay dividends of approximately $5.0 billion to the Corporation plus an additional amount equal to its retained net profits for 2016 up to the date of any such dividend declaration. Bank of America California, N.A. can pay dividends of $895 million in 2016 plus an additional amount equal to its retained net profits for 2016 up to the date of any such dividend declaration. 212 Bank of America 2015 The capital adequacy rules issued by the U.S. banking percentage of certain deposits. The average daily reserve balance regulators require institutions to meet the established minimums requirements, in excess of vault cash, maintained by the outlined in the Regulatory Capital under Basel 3 – Transition table. Corporation with the Federal Reserve were $9.8 billion and $9.1 Failure to meet the minimum requirements can lead to certain billion for 2015 and 2014. At December 31, 2015 and 2014, the mandatory and discretionary actions by regulators that could have Corporation had cash in the amount of $12.1 billion and $7.7 a material adverse impact on the Corporation’s financial position. billion, and securities with a fair value of $17.5 billion and $19.2 At December 31, 2015 and 2014, the Corporation and its banking billion that were segregated in compliance with securities entity affiliates were "well capitalized." Other Regulatory Matters On February 18, 2014, the Federal Reserve approved a final rule implementing certain enhanced supervisory and prudential requirements established under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The final rule formalizes risk management requirements primarily related to governance and liquidity risk management and reiterates the provisions of previously issued final rules related to risk-based and leverage capital and stress test requirements. Also, a debt-to-equity limit may be enacted for an individual BHC if it is determined to pose a grave threat to the financial stability of the U.S. Such limit is at the discretion of the Financial Stability Oversight Council (FSOC) or the Federal Reserve on behalf of the FSOC. The Federal Reserve requires the Corporation’s banking subsidiaries to maintain reserve requirements based on a regulations or deposited with clearing organizations. The primary sources of funds for cash distributions by the Corporation to its shareholders are capital distributions received from its banking subsidiaries, BANA and Bank of America California, N.A. In 2015, the Corporation received dividends of $18.8 billion from BANA and none from Bank of America California, N.A. The amount of dividends that a subsidiary bank may declare in a calendar year is the subsidiary bank’s net profits for that year combined with its retained net profits for the preceding two years. Retained net profits, as defined by the OCC, consist of net income less dividends declared during the period. In 2016, BANA can declare and pay dividends of approximately $5.0 billion to the Corporation plus an additional amount equal to its retained net profits for 2016 up to the date of any such dividend declaration. Bank of America California, N.A. can pay dividends of $895 million in 2016 plus an additional amount equal to its retained net profits for 2016 up to the date of any such dividend declaration. NOTE 17 Employee Benefit Plans Pension and Postretirement Plans The Corporation sponsors a qualified noncontributory trusteed pension plan, a number of noncontributory nonqualified pension plans, and postretirement health and life plans that cover eligible employees. Non-U.S. pension plans sponsored by the Corporation vary based on the country and local practices. In 2013, the Corporation merged a defined benefit pension plan, which covered eligible employees of certain legacy companies, into the legacy Bank of America Pension Plan (the Pension Plan). This merged plan is referred to as the Qualified Pension Plan. The merger resulted in a remeasurement of the qualified pension obligations and plan assets at fair value as of the merger date which increased accumulated OCI by $2.0 billion, net-of-tax. The benefit structures under the merged legacy plans have not changed and remain intact in the Qualified Pension Plan. Benefits earned under the Qualified Pension Plan have been frozen. Thereafter, the cash balance accounts continue to earn investment credits or interest credits in accordance with the terms of the plan document. It is the policy of the Corporation to fund no less than the minimum funding amount required by the Employee Retirement Income Security Act of 1974 (ERISA). The Pension Plan has a balance guarantee feature for account balances with participant-selected earnings, applied at the time a benefit payment is made from the plan that effectively provides principal protection for participant balances transferred and certain compensation credits. The Corporation is responsible for funding any shortfall on the guarantee feature. The Corporation has an annuity contract that guarantees the payment of benefits vested under a terminated U.S. pension plan (the Other Pension Plan). The Corporation, under a supplemental agreement, may be responsible for, or benefit from actual experience and investment performance of the annuity assets. The Corporation made no contribution under this agreement in 2015 or 2014. Contributions may be required in the future under this agreement. The Corporation’s noncontributory, nonqualified pension plans are unfunded and provide supplemental defined pension benefits to certain eligible employees. In addition to retirement pension benefits, certain benefits eligible to employees may become eligible to continue participation as retirees in health care and/or life insurance plans sponsored by the Corporation. Based on the other provisions of the individual plans, certain retirees may also have the cost of these benefits partially paid by the Corporation. These plans are referred to as the Postretirement Health and Life Plans. The Pension and Postretirement Plans table summarizes the changes in the fair value of plan assets, changes in the projected benefit obligation (PBO), the funded status of both the accumulated benefit obligation (ABO) and the PBO, and the weighted-average assumptions used to determine benefit obligations for the pension plans and postretirement plans at December 31, 2015 and 2014. Amounts recognized at December 31, 2015 and 2014 are reflected in other assets, and in accrued expenses and other liabilities on the Consolidated Balance Sheet. The estimate of the Corporation’s PBO associated with these plans considers various actuarial assumptions, including assumptions for mortality rates and discount rates. As of December 31, 2014, the Corporation adopted mortality assumptions published by the Society of Actuaries in October 2014, adjusted to reflect observed and anticipated future mortality experience of the participants in the Corporation’s U.S. plans. The adoption of the new mortality assumptions resulted in an increase of the PBO of approximately $580 million at December 31, 2014. The discount rate assumptions are derived from a cash flow matching technique that utilizes rates that are based on Aa-rated corporate bonds with cash flows that match estimated benefit payments of each of the plans. The increase in the weighted-average discount rates in 2015 resulted in a decrease to the PBO of approximately $930 million at December 31, 2015. The decrease in the weighted-average discount rates in 2014 resulted in an increase to the PBO of approximately $1.9 billion at December 31, 2014. 212 Bank of America 2015 Bank of America 2015 213 The Corporation’s best estimate of its contributions to be made to the Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans in 2016 is $50 million, $103 million and $108 million, respectively. The Corporation does not expect to make a contribution to the Qualified Pension Plan in 2016. Pension and Postretirement Plans (Dollars in millions) Change in fair value of plan assets Fair value, January 1 Actual return on plan assets Company contributions Plan participant contributions Settlements and curtailments Benefits paid Federal subsidy on benefits paid Foreign currency exchange rate changes Fair value, December 31 Change in projected benefit obligation Projected benefit obligation, January 1 Service cost Interest cost Plan participant contributions Plan amendments Settlements and curtailments Actuarial loss (gain) Benefits paid Federal subsidy on benefits paid Foreign currency exchange rate changes Projected benefit obligation, December 31 Amount recognized, December 31 Funded status, December 31 Accumulated benefit obligation Overfunded (unfunded) status of ABO Provision for future salaries Projected benefit obligation Weighted-average assumptions, December 31 Discount rate Rate of compensation increase Qualified Pension Plan (1) Non-U.S. Pension Plans (1) Nonqualified and Other Pension Plans (1) Postretirement Health and Life Plans (1) 2015 2014 2015 2014 2015 2014 2015 2014 $ 18,614 199 — — — (851) n/a n/a $ 17,962 $ 15,508 — 621 — — — (817) (851) n/a n/a $ 14,461 3,501 $ $ 18,276 1,261 — — — (923) n/a n/a $ 18,614 $ 14,145 — 665 — — — 1,621 (923) n/a n/a $ 15,508 3,106 $ $ 14,461 3,501 — 14,461 $ 15,508 3,106 — 15,508 $ $ $ $ $ $ 2,564 342 58 1 (7) (78) n/a (142) 2,738 2,688 27 93 1 (1) (7) (2) (78) n/a (141) 2,580 158 2,479 259 101 2,580 $ $ $ $ $ $ 2,457 256 84 1 (5) (68) n/a (161) 2,564 2,580 29 109 1 1 (6) 208 (68) n/a (166) 2,688 (124) 2,582 (18) 106 2,688 $ $ $ $ $ $ 2,927 14 97 — — (233) n/a n/a 2,805 3,329 — 122 — — — (165) (233) n/a n/a 3,053 (248) 3,052 (247) 1 3,053 $ $ $ $ $ $ 2,720 336 97 — — (226) n/a n/a 2,927 3,070 1 133 — — — 351 (226) n/a n/a 3,329 (402) 3,329 (402) — 3,329 $ $ $ 28 — 79 127 — (247) 13 n/a — $ 72 6 53 129 — (248) 16 n/a 28 $ 1,346 8 48 127 — — (141) (247) 13 (2) $ 1,152 $ (1,152) $ 1,356 8 58 129 — — 29 (248) 16 (2) 1,346 $ $ (1,318) n/a n/a n/a 1,152 n/a n/a n/a 1,346 $ $ 4.51% n/a 4.12% n/a 3.59% 4.64 3.56% 4.70 4.34% 4.00 3.80% 4.00 4.32% n/a 3.75% n/a (1) The measurement date for the Qualified Pension Plan, Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans was December 31 of each year reported. n/a = not applicable Amounts recognized on the Consolidated Balance Sheet at December 31, 2015 and 2014 are presented in the table below. Amounts Recognized on Consolidated Balance Sheet Qualified Pension Plan Non-U.S. Pension Plans Nonqualified and Other Pension Plans Postretirement Health and Life Plans (Dollars in millions) Other assets Accrued expenses and other liabilities Net amount recognized at December 31 2015 2014 2015 2014 2015 2014 2015 2014 $ $ 3,501 — 3,501 $ $ 3,106 — 3,106 $ $ 548 (390) 158 $ $ $ 252 (376) (124) $ 825 (1,073) $ $ 786 (1,188) (248) $ (402) $ — $ (1,152) (1,152) $ — (1,318) (1,318) 214 Bank of America 2015 Fair value, December 31 $ 17,962 $ 18,614 $ 15,508 $ 14,145 2,688 — $ $ $ 1,346 $ 1,356 Qualified Pension Plan (1) Non-U.S. Pension Plans (1) Nonqualified and Other Pension Plans (1) Postretirement Health and Life Plans (1) 2015 2014 2015 2014 2015 2014 2015 2014 $ 18,614 $ 18,276 $ 2,564 $ 2,457 $ 2,927 $ 2,720 $ $ 199 — — — (851) n/a n/a — 621 — — — (817) (851) n/a n/a 1,261 — — — (923) n/a n/a — 665 — — — 1,621 (923) n/a n/a 342 58 1 (7) (78) n/a (142) 2,738 27 93 1 (1) (7) (2) (78) n/a (141) 2,580 158 2,479 259 101 2,580 256 84 1 (5) (68) n/a (161) 2,564 2,580 29 109 1 1 (6) 208 (68) n/a (166) 2,688 (124) 2,582 (18) 106 2,688 $ $ $ $ $ 14 97 — — (233) n/a n/a 2,805 3,329 — 122 — — — (165) (233) n/a n/a 3,053 (248) 3,052 (247) 1 3,053 $ $ $ $ $ $ $ $ $ $ 336 97 — — (226) n/a n/a 2,927 3,070 1 133 — — — 351 (226) n/a n/a 3,329 (402) — $ $ $ $ $ $ 14,461 $ 3,501 $ 15,508 $ 3,106 $ 14,461 $ 15,508 3,501 — 14,461 3,106 — 15,508 28 — 79 127 — (247) 13 n/a 8 48 127 — — (141) (247) 13 (2) n/a n/a n/a 72 6 53 129 — (248) 16 n/a 28 8 58 129 — — 29 (248) 16 (2) n/a n/a n/a (Dollars in millions) Change in fair value of plan assets Fair value, January 1 Actual return on plan assets Company contributions Plan participant contributions Settlements and curtailments Benefits paid Federal subsidy on benefits paid Foreign currency exchange rate changes Change in projected benefit obligation Projected benefit obligation, January 1 Service cost Interest cost Plan participant contributions Plan amendments Settlements and curtailments Actuarial loss (gain) Benefits paid Federal subsidy on benefits paid Foreign currency exchange rate changes Projected benefit obligation, December 31 Amount recognized, December 31 Funded status, December 31 Accumulated benefit obligation Overfunded (unfunded) status of ABO Provision for future salaries Projected benefit obligation Weighted-average assumptions, December 31 Discount rate Rate of compensation increase reported. n/a = not applicable (1) The measurement date for the Qualified Pension Plan, Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans was December 31 of each year 4.51% n/a 4.12% n/a 3.59% 4.64 3.56% 4.70 4.34% 4.00 3.80% 4.00 4.32% n/a 3.75% n/a Amounts recognized on the Consolidated Balance Sheet at December 31, 2015 and 2014 are presented in the table below. Amounts Recognized on Consolidated Balance Sheet Qualified Pension Plan Non-U.S. Pension Plans Nonqualified and Other Pension Plans Postretirement Health and Life Plans (Dollars in millions) Other assets Accrued expenses and other liabilities Net amount recognized at December 31 2015 2014 2015 2014 2015 2014 2015 2014 $ $ 3,501 — 3,501 $ $ 3,106 — 3,106 $ $ 548 (390) 158 $ $ 252 $ 825 $ 786 $ — $ — (376) (1,073) (1,188) (1,152) (124) $ (248) $ (402) $ (1,152) $ (1,318) (1,318) The Corporation’s best estimate of its contributions to be made to the Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans in 2016 is $50 million, $103 million and $108 million, respectively. The Corporation does not expect to make a contribution to the Qualified Pension Plan in 2016. Pension Plans with ABO and PBO in excess of plan assets as of December 31, 2015 and 2014 are presented in the table below. For the non-qualified plans not subject to ERISA or non-U.S. pension plans, funding strategies vary due to legal requirements and local practices. Pension and Postretirement Plans Plans with PBO and ABO in Excess of Plan Assets (Dollars in millions) PBO ABO Fair value of plan assets Non-U.S. Pension Plans Nonqualified and Other Pension Plans 2015 2014 2015 2014 $ $ 574 551 183 $ 583 563 206 $ 1,075 1,074 1 1,190 1,190 2 Net periodic benefit cost of the Corporation’s plans for 2015, 2014 and 2013 included the following components. Components of Net Periodic Benefit Cost (Dollars in millions) Components of net periodic benefit cost (income) Service cost Interest cost Expected return on plan assets Amortization of prior service cost Amortization of net actuarial loss Recognized loss (gain) due to settlements and curtailments Net periodic benefit cost (income) 3,329 $ 1,152 $ 1,346 (402) $ (1,152) $ (1,318) Discount rate Expected return on plan assets Rate of compensation increase Weighted-average assumptions used to determine net cost for years ended December 31 3,329 $ 1,152 $ 1,346 Components of net periodic benefit cost (income) (Dollars in millions) Service cost Interest cost Expected return on plan assets Amortization of prior service cost Amortization of net actuarial loss (gain) Recognized loss due to settlements and curtailments Net periodic benefit cost (income) Weighted-average assumptions used to determine net cost for years ended December 31 Discount rate Expected return on plan assets Rate of compensation increase n/a = not applicable Qualified Pension Plan 2014 2013 2015 Non-U.S. Pension Plans 2014 2013 2015 $ — $ — $ — $ 621 (1,045) — 170 — (254) $ 665 (1,018) — 111 — (242) $ 623 (1,024) — 242 17 (142) $ $ 4.12% 6.00 n/a 4.85% 6.00 n/a 4.00% 6.50 n/a $ $ 27 93 (133) 1 6 — (6) 3.56% 5.27 4.70 $ $ 29 109 (137) 1 3 2 7 4.30% 5.52 4.91 32 98 (121) — 2 (7) 4 4.23% 5.50 4.37 Nonqualified and Other Pension Plans Postretirement Health and Life Plans 2015 2014 2013 2015 2014 2013 $ — $ 122 (92) — 34 — 64 3.80% 3.26 4.00 $ $ $ $ 1 133 (124) — 25 — 35 4.55% 4.60 4.00 $ $ 1 120 (109) — 25 2 39 3.65% 3.75 4.00 8 48 (1) 4 (46) — 13 $ $ 8 58 (4) 4 (89) — (23) $ $ 9 54 (5) 4 (42) 6 26 3.75% 6.00 n/a 4.50% 6.00 n/a 3.65% 6.50 n/a 214 Bank of America 2015 Bank of America 2015 215 The asset valuation method used to calculate the expected return on plan assets component of net period benefit cost for the Qualified Pension Plan recognizes 60 percent of the prior year’s market gains or losses at the next measurement date with the remaining 40 percent spread equally over the subsequent four years. Net periodic postretirement health and life expense was determined using the “projected unit credit” actuarial method. Gains and losses for all benefit plans except postretirement health care are recognized in accordance with the standard amortization provisions of the applicable accounting guidance. For the Postretirement Health Care Plans, 50 percent of the unrecognized gain or loss at the beginning of the fiscal year (or at subsequent remeasurement) is recognized on a level basis during the year. Assumed health care cost trend rates affect the postretirement benefit obligation and benefit cost reported for the Postretirement Health and Life Plans. The assumed health care cost trend rate used to measure the expected cost of benefits covered by the Postretirement Health and Life Plans is 7.00 percent for 2016, reducing in steps to 5.00 percent in 2021 and later years. A one- percentage-point increase in assumed health care cost trend rates would have increased the service and interest costs, and the benefit obligation by $2 million and $34 million in 2015. A one- percentage-point decrease in assumed health care cost trend rates would have lowered the service and interest costs, and the benefit obligation by $2 million and $29 million in 2015. The Corporation’s net periodic benefit cost (income) recognized for the plans is sensitive to the discount rate and expected return on plan assets. With all other assumptions held constant, a 25 basis point (bp) decline in the discount rate and expected return on plan asset assumptions would have resulted in an increase in the net periodic benefit cost for the Qualified Pension Plan recognized in 2015 of approximately $9 million and $44 million, and to be recognized in 2016 of approximately $9 million and $43 million. For the Postretirement Health and Life Plans, a 25 bp decline in the discount rate would have resulted in an increase in the net periodic benefit cost recognized in 2015 of approximately $9 million, and to be recognized in 2016 of approximately $8 million. For the Non-U.S. Pension Plans and the Nonqualified and Other Pension Plans, a 25 bp decline in discount rates would not have a significant impact on the net periodic benefit cost for 2015 and 2016. Pretax amounts included in accumulated OCI for employee benefit plans at December 31, 2015 and 2014 are presented in the table below. Pretax Amounts Included in Accumulated OCI (Dollars in millions) Net actuarial loss (gain) Prior service cost (credits) Amounts recognized in accumulated OCI Qualified Pension Plan Non-U.S. Pension Plans Nonqualified and Other Pension Plans Postretirement Health and Life Plans Total 2015 $ 3,920 — $ 3,920 2014 $ 4,061 — $ 4,061 2015 $ $ 137 (10) 127 2014 $ 355 (9) $ 346 2015 $ $ 848 — 848 2014 $ 968 — $ 968 2015 2014 2015 $ (150) $ 16 $ (134) $ (56) $ 4,755 6 20 (36) $ 4,761 2014 $ 5,328 11 $ 5,339 Pretax amounts recognized in OCI for employee benefit plans in 2015 included the following components. Pretax Amounts Recognized in OCI (Dollars in millions) Current year actuarial loss (gain) Amortization of actuarial gain (loss) Current year prior service cost (credit) Amortization of prior service cost Amounts recognized in OCI Qualified Pension Plan Non-U.S. Pension Plans Nonqualified and Other Pension Plans Postretirement Health and Life Plans Total $ 2015 2014 $ 1,378 (111) — — $ (141) $ 1,267 29 (170) — — 2015 2014 2015 2014 2015 2014 2015 2014 $ (211) $ (6) (1) (1) $ (219) $ 87 (3) 1 (1) 84 $ (86) $ 138 (34) (25) — — — — $ (120) $ 113 $ (140) $ 46 — (4) 26 89 — (4) (98) $ 111 $ $ (408) $ 1,629 (50) 1 (5) $ (578) $ 1,575 (164) (1) (5) The estimated pretax amounts that will be amortized from accumulated OCI into expense in 2016 are presented in the table below. Estimated Pretax Amounts Amortized from Accumulated OCI into Period Cost in 2016 (Dollars in millions) Net actuarial loss (gain) Prior service cost Total amounts amortized from accumulated OCI Qualified Pension Plan Non-U.S. Pension Plans Nonqualified and Other Pension Plans Postretirement Health and Life Plans $ $ 136 — 136 $ $ 6 1 7 $ $ 25 — 25 $ $ (67) $ 4 (63) $ Total 100 5 105 Plan Assets The Qualified Pension Plan has been established as a retirement vehicle for participants, and trusts have been established to secure benefits promised under the Qualified Pension Plan. The Corporation’s policy is to invest the trust assets in a prudent manner for the exclusive purpose of providing benefits to participants and defraying reasonable expenses of administration. The Corporation’s investment strategy is designed to provide a total return that, over the long term, increases the ratio of assets to liabilities. The strategy attempts to maximize the investment return on assets at a level of risk deemed appropriate by the Corporation while complying with ERISA and any applicable regulations and laws. The investment strategy utilizes asset allocation as a principal determinant for establishing the risk/ return profile of the assets. Asset allocation ranges are established, periodically reviewed and adjusted as funding levels and liability characteristics change. Active and passive investment managers are employed to help enhance the risk/return profile of the assets. An additional aspect of the investment strategy used to minimize risk (part of the asset allocation plan) includes matching the equity exposure of participant-selected investment measures. For example, the common stock of the Corporation held in the trust is maintained as an offset to the exposure related to participants who elected to receive an investment measure based on the return performance of common stock of the Corporation. No plan assets are expected to be returned to the Corporation during 2016. The assets of the Non-U.S. Pension Plans are primarily attributable to a U.K. pension plan. This U.K. pension plan’s assets are invested prudently so that the benefits promised to members are provided with consideration given the nature and the duration of the plan’s liabilities. The current investment strategy was set following an asset-liability study and advice from the trustee’s 216 Bank of America 2015 on plan assets. With all other assumptions held constant, a 25 $9 million, and to be recognized in 2016 of approximately $8 basis point (bp) decline in the discount rate and expected return million. For the Non-U.S. Pension Plans and the Nonqualified and on plan asset assumptions would have resulted in an increase in Other Pension Plans, a 25 bp decline in discount rates would not the net periodic benefit cost for the Qualified Pension Plan have a significant impact on the net periodic benefit cost for 2015 recognized in 2015 of approximately $9 million and $44 million, and 2016. and to be recognized in 2016 of approximately $9 million and $43 Pretax amounts included in accumulated OCI for employee million. For the Postretirement Health and Life Plans, a 25 bp benefit plans at December 31, 2015 and 2014 are presented in decline in the discount rate would have resulted in an increase in the table below. the net periodic benefit cost recognized in 2015 of approximately Pretax Amounts Included in Accumulated OCI (Dollars in millions) Net actuarial loss (gain) Prior service cost (credits) Amounts recognized in accumulated OCI Qualified Pension Plan Non-U.S. Pension Plans Nonqualified and Other Pension Plans Postretirement Health and Life Plans Total 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 $ 3,920 $ 4,061 — — $ 3,920 $ 4,061 $ $ 137 (10) 127 $ 355 848 $ 968 $ (150) $ (56) $ 4,755 $ 5,328 (9) — — 16 20 6 11 $ 346 848 $ 968 $ (134) $ (36) $ 4,761 $ 5,339 $ $ Pretax amounts recognized in OCI for employee benefit plans in 2015 included the following components. Pretax Amounts Recognized in OCI (Dollars in millions) Current year actuarial loss (gain) Amortization of actuarial gain (loss) Current year prior service cost (credit) Amortization of prior service cost Amounts recognized in OCI Qualified Pension Plan Non-U.S. Pension Plans Nonqualified and Other Pension Plans Postretirement Health and Life Plans 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 $ 29 $ 1,378 $ (211) $ 87 $ (86) $ 138 $ (140) $ $ (408) $ 1,629 (170) (111) — — — — (6) (1) (1) (3) 1 (1) (34) — — (25) — — 46 — (4) 26 89 — (4) (164) (1) (5) (50) 1 (5) $ (141) $ 1,267 $ (219) $ 84 $ (120) $ 113 $ (98) $ 111 $ (578) $ 1,575 The estimated pretax amounts that will be amortized from accumulated OCI into expense in 2016 are presented in the table below. Estimated Pretax Amounts Amortized from Accumulated OCI into Period Cost in 2016 (Dollars in millions) Net actuarial loss (gain) Prior service cost Plan Assets Total amounts amortized from accumulated OCI The Qualified Pension Plan has been established as a retirement vehicle for participants, and trusts have been established to secure benefits promised under the Qualified Pension Plan. The Corporation’s policy is to invest the trust assets in a prudent manner for the exclusive purpose of providing benefits to participants and defraying reasonable expenses of administration. The Corporation’s investment strategy is designed to provide a total return that, over the long term, increases the ratio of assets to liabilities. The strategy attempts to maximize the investment return on assets at a level of risk deemed appropriate by the Corporation while complying with ERISA and any applicable regulations and laws. The investment strategy utilizes asset allocation as a principal determinant for establishing the risk/ return profile of the assets. Asset allocation ranges are established, periodically reviewed and adjusted as funding levels 216 Bank of America 2015 Qualified Non-U.S. Pension Plan Pension Plans Nonqualified and Other Pension Plans Postretirement Health and Life Plans $ $ 136 — 136 $ $ 6 1 7 $ $ 25 — 25 $ $ (67) $ 4 (63) $ Total 100 5 105 and liability characteristics change. Active and passive investment managers are employed to help enhance the risk/return profile of the assets. An additional aspect of the investment strategy used to minimize risk (part of the asset allocation plan) includes matching the equity exposure of participant-selected investment measures. For example, the common stock of the Corporation held in the trust is maintained as an offset to the exposure related to participants who elected to receive an investment measure based on the return performance of common stock of the Corporation. No plan assets are expected to be returned to the Corporation during 2016. The assets of the Non-U.S. Pension Plans are primarily attributable to a U.K. pension plan. This U.K. pension plan’s assets are invested prudently so that the benefits promised to members are provided with consideration given the nature and the duration of the plan’s liabilities. The current investment strategy was set following an asset-liability study and advice from the trustee’s investment advisors. The selected asset allocation strategy is designed to achieve a higher return than the lowest risk strategy while maintaining a prudent approach to meeting the plan’s liabilities. The expected return on plan assets assumption was developed through analysis of historical market returns, historical asset class volatility and correlations, current market conditions, anticipated future asset allocations, the funds’ past experience, and expectations on potential future market returns. The expected return on plan assets assumption is determined using the calculated market-related value for the Qualified Pension Plan and the Other Pension Plan and the fair value for the Non-U.S. Pension Plans and Postretirement Health and Life Plans. The expected return on plan assets assumption represents a long-term average view of the performance of the assets in the Qualified Pension Plan, the Non-U.S. Pension Plans, the Other Pension Plan, and Postretirement Health and Life Plans, a return that may or may not be achieved during any one calendar year. The terminated Other U.S. Pension Plan is invested solely in an annuity contract which is primarily invested in fixed-income securities structured such that asset maturities match the duration of the plan’s obligations. The target allocations for 2016 by asset category for the Qualified Pension Plan, Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans are presented in the table below. 2016 Target Allocation Asset Category Equity securities Debt securities Real estate Other Percentage Qualified Pension Plan Non-U.S. Pension Plans 20 - 60 40 - 80 0 - 10 0 - 5 10 - 35 40 - 80 0 - 15 0 - 15 Nonqualified and Other Pension Plans 0 - 5 95 - 100 0 - 5 0 - 5 Total percent of total plan assets) and $215 million (1.15 percent of total plan assets) at December 31, 2015 and 2014. Equity securities for the Qualified Pension Plan include common stock of the Corporation in the amounts of $189 million (1.05 Bank of America 2015 217 Fair Value Measurements For information on fair value measurements, including descriptions of Level 1, 2 and 3 of the fair value hierarchy and the valuation methods employed by the Corporation, see Note 1 – Summary of Significant Accounting Principles and Note 20 – Fair Value Measurements. Combined plan investment assets measured at fair value by level and in total at December 31, 2015 and 2014 are summarized in the Fair Value Measurements table. Fair Value Measurements (Dollars in millions) Cash and short-term investments Money market and interest-bearing cash Cash and cash equivalent commingled/mutual funds Fixed income U.S. government and agency securities Corporate debt securities Asset-backed securities Non-U.S. debt securities Fixed income commingled/mutual funds Equity Common and preferred equity securities Equity commingled/mutual funds Public real estate investment trusts Real estate Private real estate Real estate commingled/mutual funds Limited partnerships Other investments (1) Total plan investment assets, at fair value Cash and short-term investments Money market and interest-bearing cash Cash and cash equivalent commingled/mutual funds Fixed income U.S. government and agency securities Corporate debt securities Asset-backed securities Non-U.S. debt securities Fixed income commingled/mutual funds Equity Common and preferred equity securities Equity commingled/mutual funds Public real estate investment trusts Real estate Private real estate Real estate commingled/mutual funds Limited partnerships Other investments (1) Total plan investment assets, at fair value Level 1 Level 2 Level 3 Total December 31, 2015 $ $ 3,061 — — $ 4 — $ — 2,723 — — 632 551 6,735 3 138 — — — — 13,843 3,814 — 2,004 — — 627 101 6,628 16 124 $ $ — — — 1 13,315 $ 881 1,795 1,939 662 1,421 — 1,503 — — 12 121 287 8,625 11 — — — — — — — 144 731 49 102 1,037 $ $ December 31, 2014 — $ 4 — $ — 2,151 1,454 1,930 487 1,397 — 1,817 — — 4 122 490 9,856 $ 11 — — — — — — — 127 632 65 127 962 $ $ $ $ 3,061 4 3,615 1,795 1,939 1,294 1,972 6,735 1,506 138 144 743 170 389 23,505 3,814 4 4,166 1,454 1,930 1,114 1,498 6,628 1,833 124 127 636 187 618 24,133 (1) Other investments include interest rate swaps of $114 million and $297 million, participant loans of $58 million and $78 million, commodity and balanced funds of $165 million and $178 million and other various investments of $52 million and $65 million at December 31, 2015 and 2014. 218 Bank of America 2015 Fair Value Measurements For information on fair value measurements, including descriptions of Level 1, 2 and 3 of the fair value hierarchy and the valuation methods employed by the Corporation, see Note 1 – Summary of Significant Accounting Principles and Note 20 – Fair Value Measurements. Combined plan investment assets measured at fair value by level and in total at December 31, 2015 and 2014 are summarized in the Fair Value Measurements table. Fair Value Measurements (Dollars in millions) Cash and short-term investments Money market and interest-bearing cash Cash and cash equivalent commingled/mutual funds Fixed income U.S. government and agency securities Corporate debt securities Asset-backed securities Non-U.S. debt securities Fixed income commingled/mutual funds Equity Common and preferred equity securities Equity commingled/mutual funds Public real estate investment trusts Real estate Private real estate Limited partnerships Other investments (1) Real estate commingled/mutual funds Cash and short-term investments Money market and interest-bearing cash Cash and cash equivalent commingled/mutual funds Fixed income U.S. government and agency securities Corporate debt securities Asset-backed securities Non-U.S. debt securities Fixed income commingled/mutual funds Equity Common and preferred equity securities Equity commingled/mutual funds Public real estate investment trusts Real estate Private real estate Limited partnerships Other investments (1) Real estate commingled/mutual funds Level 1 Level 2 Level 3 Total December 31, 2015 $ 3,061 $ — $ — $ 4 — 2,723 — — 632 551 6,735 3 138 — — — — — 2,004 — — 627 101 6,628 16 124 — — — 1 881 1,795 1,939 662 1,421 1,503 — — — 12 121 287 2,151 1,454 1,930 487 1,397 1,817 — — — 4 122 490 3,061 4 3,615 1,795 1,939 1,294 1,972 6,735 1,506 138 144 743 170 389 4 4,166 1,454 1,930 1,114 1,498 6,628 1,833 124 127 636 187 618 — 11 — — — — — — — 144 731 49 102 — 11 — — — — — — — 127 632 65 127 962 Total plan investment assets, at fair value $ 13,843 $ 8,625 $ 1,037 $ 23,505 $ 3,814 $ — $ 3,814 December 31, 2014 — $ 4 The Level 3 Fair Value Measurements table presents a reconciliation of all plan investment assets measured at fair value using significant unobservable inputs (Level 3) during 2015, 2014 and 2013. Level 3 Fair Value Measurements (Dollars in millions) Fixed income U.S. government and agency securities Real estate Private real estate Real estate commingled/mutual funds Limited partnerships Other investments Total Fixed income U.S. government and agency securities Non-U.S. debt securities Real estate Private real estate Real estate commingled/mutual funds Limited partnerships Other investments Total Fixed income U.S. government and agency securities Non-U.S. debt securities Real estate Private real estate Real estate commingled/mutual funds Limited partnerships Other investments Total Actual Return on Plan Assets Still Held at the Reporting Date Balance January 1 2015 Purchases, Sales and Settlements Transfers out of Level 3 Balance December 31 11 $ — $ — $ — $ 11 127 632 65 127 962 12 6 119 462 145 135 879 13 10 110 324 231 129 817 $ $ $ $ $ 14 37 (1) (5) 45 $ — $ — 5 20 5 1 31 $ — $ (2) 4 15 8 (6) 19 $ 2014 2013 3 62 (15) (20) 30 $ (1) $ (2) 3 150 (85) (9) 56 $ (1) $ (2) 5 123 (66) 12 71 $ — — — — — $ — $ (4) — — — — (4) $ — $ — — — (28) — (28) $ 144 731 49 102 1,037 11 — 127 632 65 127 962 12 6 119 462 145 135 879 $ $ $ $ $ $ Projected Benefit Payments Benefit payments projected to be made from the Qualified Pension Plan, Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans are presented in the table below. Projected Benefit Payments Postretirement Health and Life Plans Total plan investment assets, at fair value $ 13,315 $ 9,856 $ $ 24,133 (1) Other investments include interest rate swaps of $114 million and $297 million, participant loans of $58 million and $78 million, commodity and balanced funds of $165 million and $178 million and other various investments of $52 million and $65 million at December 31, 2015 and 2014. (Dollars in millions) Qualified Pension Plan (1) Non-U.S. Pension Plans (2) Nonqualified and Other Pension Plans (2) Net Payments (3) $ 2016 2017 2018 2019 2020 2021 - 2025 (1) Benefit payments expected to be made from the plan’s assets. (2) Benefit payments expected to be made from a combination of the plans’ and the Corporation’s assets. (3) Benefit payments (net of retiree contributions) expected to be made from a combination of the plans’ and the Corporation’s assets. 915 900 902 894 903 4,409 56 59 62 68 71 463 $ $ $ 246 238 240 237 236 1,110 121 115 111 105 101 450 Medicare Subsidy $ 13 13 13 12 12 52 218 Bank of America 2015 Bank of America 2015 219 Defined Contribution Plans The Corporation maintains qualified defined contribution retirement plans and nonqualified defined contribution retirement plans. The Corporation recorded expense of $1.0 billion, $1.0 billion and $1.1 billion in 2015, 2014 and 2013, respectively, related to the qualified defined contribution plans. At December 31, 2015 and 2014, 236 million and 238 million shares of the Corporation’s common stock were held by these plans. Payments to the plans for dividends on common stock were $48 million, $29 million and $10 million in 2015, 2014 and 2013, respectively. Certain non-U.S. employees are covered under defined contribution pension plans that are separately administered in accordance with local laws. NOTE 18 Stock-based Compensation Plans The Corporation administers a number of equity compensation plans, with awards being granted predominantly from the Bank of America Corporation 2003 Key Associate Stock Plan (KASP). Grants in 2015 from the KASP included restricted stock units (RSUs) which generally vest in three equal annual installments beginning one year from the grant date, and awards which will vest subject to the attainment of specified performance criteria. During 2015, the Corporation issued 131 million RSUs to certain employees under the KASP. RSUs may be settled in cash or in shares of common stock depending on the terms of the applicable award. In 2015, two million of these RSUs were authorized to be settled in shares of common stock with the remainder in cash. Certain awards contain cancellation and clawback provisions which permit the Corporation to cancel or recoup all or a portion of the award under specified circumstances. The compensation cost for these awards is accrued over the vesting period and adjusted to fair value based upon changes in the share price of the Corporation’s common stock. For most awards, expense is generally recognized ratably over the vesting period net of estimated forfeitures, unless the employee meets certain retirement eligibility criteria. For awards to employees that meet retirement eligibility criteria, the Corporation records the expense upon grant. For employees that become retirement eligible during the vesting period, the Corporation recognizes expense from the grant date to the date on which the employee becomes retirement eligible, net of estimated forfeitures. The compensation cost for the stock-based plans was $2.17 billion, $2.30 billion and $2.28 billion in 2015, 2014 and 2013, respectively. The related income tax benefit was $824 million, $854 million and $842 million for 2015, 2014 and 2013, respectively. From time to time, the Corporation enters into equity total return swaps to hedge a portion of RSUs granted to certain employees as part of their compensation in prior periods in order to minimize the change in the expense to the Corporation driven by fluctuations in the fair value of the RSUs. Certain of these derivatives are designated as cash flow hedges of unrecognized unvested awards with the changes in fair value of the hedge recorded in accumulated OCI and reclassified into earnings in the same period as the RSUs affect earnings. The remaining derivatives are used to hedge the price risk of cash-settled awards with changes in fair value recorded in personnel expense. For information on amounts recognized on equity total return swaps used to hedge the Corporation’s outstanding RSUs, see Note 2 – Derivatives. On May 6, 2015, Bank of America shareholders approved the amendment and restatement of the KASP, and renamed it the Bank of America Corporation Key Employee Equity Plan (KEEP). Under the amendment and restatement of the KEEP, 450 million shares of the Corporation’s common stock and any shares that were subject to an award as of December 31, 2014 under the KASP, if such award is canceled, terminates, expires, lapses or is settled in cash for any reason from and after January 1, 2015, are authorized to be used for grants of awards. Restricted Stock/Units The table below presents the status at December 31, 2015 of the share-settled restricted stock/units and changes during 2015. Stock-settled Restricted Stock/Units Outstanding at January 1, 2015 Granted Vested Canceled Outstanding at December 31, 2015 Shares/Units Weighted- average Grant Date Fair Value 29,882,769 2,079,667 (8,750,921) (655,497) 22,556,018 $ $ 9.30 16.60 11.43 9.52 9.14 220 Bank of America 2015 Defined Contribution Plans The Corporation maintains qualified defined contribution retirement plans and nonqualified defined contribution retirement plans. The Corporation recorded expense of $1.0 billion, $1.0 billion and $1.1 billion in 2015, 2014 and 2013, respectively, related to the qualified defined contribution plans. At December 31, 2015 and 2014, 236 million and 238 million shares of the Corporation’s common stock were held by these plans. Payments to the plans for dividends on common stock were $48 million, $29 million and $10 million in 2015, 2014 and 2013, respectively. Certain non-U.S. employees are covered under defined contribution pension plans that are separately administered in accordance with local laws. NOTE 18 Stock-based Compensation Plans The Corporation administers a number of equity compensation plans, with awards being granted predominantly from the Bank of America Corporation 2003 Key Associate Stock Plan (KASP). Grants in 2015 from the KASP included restricted stock units (RSUs) which generally vest in three equal annual installments beginning one year from the grant date, and awards which will vest subject to the attainment of specified performance criteria. During 2015, the Corporation issued 131 million RSUs to certain employees under the KASP. RSUs may be settled in cash or in shares of common stock depending on the terms of the applicable award. In 2015, two million of these RSUs were authorized to be settled in shares of common stock with the remainder in cash. Certain awards contain cancellation and clawback provisions which permit the Corporation to cancel or recoup all or a portion of the award under specified circumstances. The compensation cost for these awards is accrued over the vesting period and adjusted to fair value based upon changes in the share price of the Corporation’s common stock. For most awards, expense is generally recognized ratably over the vesting period net of estimated forfeitures, unless the employee meets certain retirement eligibility criteria. For awards to employees that meet retirement eligibility criteria, the Corporation records the expense upon grant. For employees that become retirement eligible during the vesting period, the Corporation recognizes expense from the grant date to the date on which the employee becomes retirement eligible, net of estimated forfeitures. The compensation cost for the stock-based plans was $2.17 billion, $2.30 billion and $2.28 billion in 2015, 2014 and 2013, respectively. The related income tax benefit was $824 million, $854 million and $842 million for 2015, 2014 and 2013, respectively. From time to time, the Corporation enters into equity total return swaps to hedge a portion of RSUs granted to certain employees as part of their compensation in prior periods in order to minimize the change in the expense to the Corporation driven by fluctuations in the fair value of the RSUs. Certain of these derivatives are designated as cash flow hedges of unrecognized unvested awards with the changes in fair value of the hedge recorded in accumulated OCI and reclassified into earnings in the same period as the RSUs affect earnings. The remaining derivatives are used to hedge the price risk of cash-settled awards with changes in fair value recorded in personnel expense. For information on amounts recognized on equity total return swaps used to hedge the Corporation’s outstanding RSUs, see Note 2 – Derivatives. On May 6, 2015, Bank of America shareholders approved the amendment and restatement of the KASP, and renamed it the Bank of America Corporation Key Employee Equity Plan (KEEP). Under the amendment and restatement of the KEEP, 450 million shares of the Corporation’s common stock and any shares that were subject to an award as of December 31, 2014 under the KASP, if such award is canceled, terminates, expires, lapses or is settled in cash for any reason from and after January 1, 2015, are authorized to be used for grants of awards. Restricted Stock/Units The table below presents the status at December 31, 2015 of the share-settled restricted stock/units and changes during 2015. Stock-settled Restricted Stock/Units Outstanding at January 1, 2015 Granted Vested Canceled Outstanding at December 31, 2015 22,556,018 $ Shares/Units 29,882,769 $ 2,079,667 (8,750,921) (655,497) Weighted- average Grant Date Fair Value 9.30 16.60 11.43 9.52 9.14 The table below presents the status at December 31, 2015 of the cash-settled RSUs granted under the KASP and changes during 2015. NOTE 19 Income Taxes The components of income tax expense for 2015, 2014 and 2013 are presented in the table below. Cash-settled Restricted Units Outstanding at January 1, 2015 Granted Vested Canceled Outstanding at December 31, 2015 Units 316,956,435 128,748,571 (176,407,854) (13,942,138) 255,355,014 Income Tax Expense (Dollars in millions) Current income tax expense U.S. federal U.S. state and local Non-U.S. Total current expense 2015 2014 2013 $ $ 2,387 210 561 3,158 1,992 519 597 3,108 6,266 $ $ 443 340 513 1,296 583 85 58 726 2,022 $ $ 180 786 513 1,479 2,056 (94) 1,300 3,262 4,741 Deferred income tax expense (benefit) U.S. federal U.S. state and local Non-U.S. Total deferred expense Total income tax expense Total income tax expense does not reflect the tax effects of items that are included in accumulated OCI. For additional information, see Note 14 – Accumulated Other Comprehensive Income (Loss). These tax effects resulted in an expense of $616 million in 2015 and $3.4 billion in 2014, and a benefit of $2.7 billion in 2013, recorded in accumulated OCI. In addition, total income tax expense does not reflect tax effects associated with the Corporation’s employee stock plans which decreased common stock and additional paid-in capital $44 million, $35 million and $128 million in 2015, 2014 and 2013, respectively. At December 31, 2015, there was an estimated $1.2 billion of total unrecognized compensation cost related to certain share- based compensation awards that is expected to be recognized over a period of up to four years, with a weighted-average period of 1.7 years. The total fair value of restricted stock vested in 2015, 2014 and 2013 was $145 million, $704 million and $906 million, respectively. In 2015, 2014 and 2013, the amount of cash paid to settle equity-based awards for all equity compensation plans was $3.0 billion, $2.7 billion and $1.7 billion, respectively. Stock Options The table below presents the status of all option plans at December 31, 2015 and changes during 2015. Stock Options Weighted- average Exercise Price Options Outstanding at January 1, 2015 Forfeited Outstanding at December 31, 2015 $ 88,087,054 (24,211,579) 63,875,475 48.96 48.38 49.18 All options outstanding as of December 31, 2015 were vested and exercisable with a weighted-average remaining contractual term of 1.1 years and have no aggregate intrinsic value. No options have been granted since 2008. 220 Bank of America 2015 Bank of America 2015 221 Income tax expense for 2015, 2014 and 2013 varied from the amount computed by applying the statutory income tax rate to income before income taxes. A reconciliation of the expected U.S. federal income tax expense, calculated by applying the federal statutory tax rate of 35 percent, to the Corporation’s actual income tax expense, and the effective tax rates for 2015, 2014 and 2013 are presented in the table below. Reconciliation of Income Tax Expense (Dollars in millions) Expected U.S. federal income tax expense Increase (decrease) in taxes resulting from: State tax expense, net of federal benefit Affordable housing credits/other credits Non-U.S. tax rate differential Tax-exempt income, including dividends Changes in prior period UTBs, including interest Non-U.S. tax law changes Nondeductible expenses Other Total income tax expense 2015 2014 2013 Amount Percent Amount Percent Amount Percent $ 7,754 35.0% $ 2,399 35.0% $ 5,660 35.0% 474 (1,087) (559) (539) (85) 289 40 (21) 6,266 $ 2.1 (4.9) (2.5) (2.4) (0.4) 1.3 0.2 (0.1) 28.3% $ 276 (950) (507) (533) (741) — 1,982 96 2,022 4.0 (13.8) (7.4) (7.8) (10.8) — 28.9 1.4 29.5% $ 450 (863) (940) (524) (255) 1,133 104 (24) 4,741 2.8 (5.3) (5.8) (3.2) (1.6) 7.0 0.6 (0.2) 29.3% The reconciliation of the beginning unrecognized tax benefits (UTB) balance to the ending balance is presented in the table below. Reconciliation of the Change in Unrecognized Tax Benefits (Dollars in millions) Balance, January 1 Increases related to positions taken during the current year Increases related to positions taken during prior years (1) Decreases related to positions taken during prior years (1) Settlements Expiration of statute of limitations Balance, December 31 2015 2014 2013 $ $ 1,068 36 187 (177) (1) (18) 1,095 $ $ 3,068 75 519 (973) (1,594) (27) 1,068 $ $ 3,677 98 254 (508) (448) (5) 3,068 (1) The sum per year of positions taken during prior years differs from the $85 million, $741 million and $255 million in the Reconciliation of Income Tax Expense table due to temporary items, state items and jurisdictional offsets, as well as the inclusion of interest in the Reconciliation of Income Tax Expense table. At December 31, 2015, 2014 and 2013, the balance of the Corporation’s UTBs which would, if recognized, affect the Corporation’s effective tax rate was $0.7 billion, $0.7 billion and $2.5 billion, respectively. Included in the UTB balance are some items the recognition of which would not affect the effective tax rate, such as the tax effect of certain temporary differences, the portion of gross state UTBs that would be offset by the tax benefit of the associated federal deduction and the portion of gross non- U.S. UTBs that would be offset by tax reductions in other jurisdictions. The Corporation files income tax returns in more than 100 state and non-U.S. jurisdictions each year. The IRS and other tax authorities in countries and states in which the Corporation has significant business operations examine tax returns periodically (continuously in some jurisdictions). The Tax Examination Status table summarizes the status of significant examinations (U.S. federal unless otherwise noted) for the Corporation and various subsidiaries as of December 31, 2015. Tax Examination Status U.S. U.S. New York U.K. Years under Examination 2010 – 2011 2012 – 2013 2008 – 2014 2012 Status at December 31 2015 IRS Appeals Field examination Field examination Field examination During 2015, the Corporation and IRS Appeals arrived at final agreement on the audit of Bank of America Corporation for the 2010 through 2011 tax years. While subject to review by the Joint Committee on Taxation of the U.S. Congress, the Corporation expects this examination will be concluded early in 2016. 222 Bank of America 2015 Income tax expense for 2015, 2014 and 2013 varied from the amount computed by applying the statutory income tax rate to income before income taxes. A reconciliation of the expected U.S. federal income tax expense, calculated by applying the federal statutory tax rate of 35 percent, to the Corporation’s actual income tax expense, and the effective tax rates for 2015, 2014 and 2013 are presented in the table below. Reconciliation of Income Tax Expense (Dollars in millions) Expected U.S. federal income tax expense Increase (decrease) in taxes resulting from: State tax expense, net of federal benefit Affordable housing credits/other credits Non-U.S. tax rate differential Tax-exempt income, including dividends Changes in prior period UTBs, including interest Non-U.S. tax law changes Nondeductible expenses Other Total income tax expense 2015 2014 2013 Amount Percent Amount Percent Amount Percent $ 7,754 35.0% $ 2,399 35.0% $ 5,660 35.0% 474 (1,087) (559) (539) (85) 289 40 (21) 2.1 (4.9) (2.5) (2.4) (0.4) 1.3 0.2 (0.1) 276 (950) (507) (533) (741) — 1,982 96 4.0 (13.8) (7.4) (7.8) (10.8) — 28.9 1.4 450 (863) (940) (524) (255) 1,133 104 (24) $ 6,266 28.3% $ 2,022 29.5% $ 4,741 2.8 (5.3) (5.8) (3.2) (1.6) 7.0 0.6 (0.2) 29.3% The reconciliation of the beginning unrecognized tax benefits (UTB) balance to the ending balance is presented in the table below. (1) The sum per year of positions taken during prior years differs from the $85 million, $741 million and $255 million in the Reconciliation of Income Tax Expense table due to temporary items, state items and jurisdictional offsets, as well as the inclusion of interest in the Reconciliation of Income Tax Expense table. Reconciliation of the Change in Unrecognized Tax Benefits (Dollars in millions) Balance, January 1 Increases related to positions taken during the current year Increases related to positions taken during prior years (1) Decreases related to positions taken during prior years (1) Settlements Expiration of statute of limitations Balance, December 31 At December 31, 2015, 2014 and 2013, the balance of the Corporation’s UTBs which would, if recognized, affect the Corporation’s effective tax rate was $0.7 billion, $0.7 billion and $2.5 billion, respectively. Included in the UTB balance are some items the recognition of which would not affect the effective tax rate, such as the tax effect of certain temporary differences, the portion of gross state UTBs that would be offset by the tax benefit of the associated federal deduction and the portion of gross non- U.S. UTBs that would be offset by tax reductions in other jurisdictions. The Corporation files income tax returns in more than 100 state and non-U.S. jurisdictions each year. The IRS and other tax authorities in countries and states in which the Corporation has significant business operations examine tax returns periodically (continuously in some jurisdictions). The Tax Examination Status table summarizes the status of significant examinations (U.S. federal unless otherwise noted) for the Corporation and various subsidiaries as of December 31, 2015. 2015 2014 2013 $ 1,068 $ 3,068 $ 3,677 36 187 (177) (1) (18) 75 519 (973) (1,594) (27) 98 254 (508) (448) (5) $ 1,095 $ 1,068 $ 3,068 Tax Examination Status U.S. U.S. U.K. New York Years under Examination Status at December 31 2015 2010 – 2011 IRS Appeals 2012 – 2013 Field examination 2008 – 2014 Field examination 2012 Field examination During 2015, the Corporation and IRS Appeals arrived at final agreement on the audit of Bank of America Corporation for the 2010 through 2011 tax years. While subject to review by the Joint Committee on Taxation of the U.S. Congress, the Corporation expects this examination will be concluded early in 2016. It is reasonably possible that the UTB balance may decrease by as much as $0.1 billion during the next 12 months, since resolved items will be removed from the balance whether their resolution results in payment or recognition. The Corporation recognized benefits of $82 million during 2015 and $196 million in 2014, and an expense of $127 million in 2013 for interest and penalties, net-of-tax, in income tax expense. At December 31, 2015 and 2014, the Corporation’s accrual for interest and penalties that related to income taxes, net of taxes and remittances, was $288 million and $455 million. Significant components of the Corporation’s net deferred tax assets and liabilities at December 31, 2015 and 2014 are presented in the table below. Deferred Tax Assets and Liabilities (Dollars in millions) Deferred tax assets Net operating loss carryforwards Accrued expenses Allowance for credit losses Security, loan and debt valuations Employee compensation and retirement benefits Tax credit carryforwards Available-for-sale securities Other Gross deferred tax assets Valuation allowance Total deferred tax assets, net of valuation allowance Deferred tax liabilities Equipment lease financing Intangibles Fee income Mortgage servicing rights Long-term borrowings Available-for-sale securities Other Gross deferred tax liabilities Net deferred tax assets, net of valuation allowance December 31 2015 2014 $ 9,494 6,340 4,649 4,084 3,585 2,707 152 2,333 33,344 (1,149) $ 10,955 6,309 5,478 5,385 3,899 5,614 — 1,800 39,440 (1,111) 32,195 38,329 3,016 1,306 864 466 327 — 1,752 7,731 3,105 1,513 881 1,094 630 828 2,024 10,075 $ 24,464 $ 28,254 The table below summarizes the deferred tax assets and related valuation allowances recognized for the net operating loss (NOL) and tax credit carryforwards at December 31, 2015. Net Operating Loss and Tax Credit Carryforward Deferred Tax Assets (Dollars in millions) Deferred Tax Asset Valuation Allowance Net Deferred Tax Asset First Year Expiring Net operating losses – U.S. $ 2,507 Net operating losses – U.K. 5,657 Net operating losses – $ — $ — 2,507 5,657 After 2027 None (1) other non-U.S. Net operating losses – U.S. states (2) 432 898 (323) (405) 109 493 Various Various General business credits Foreign tax credits (1) The U.K. net operating losses may be carried forward indefinitely. (2) The net operating losses and related valuation allowances for U.S. states before considering After 2031 n/a 2,635 72 2,635 — — (72) the benefit of federal deductions were $1.4 billion and $623 million. n/a = not applicable Management concluded that no valuation allowance was necessary to reduce the U.K. NOL carryforwards and U.S. NOL and general business credit carryforwards since estimated future taxable income will be sufficient to utilize these assets prior to their expiration. The majority of the Corporation’s U.K. net deferred tax assets, which consist primarily of NOLs, are expected to be realized by certain subsidiaries over an extended number of years. Management’s conclusion is supported by financial results and forecasts, the reorganization of certain business activities and the indefinite period to carry forward NOLs. However, significant changes to those estimates, such as changes that would be caused by a substantial and prolonged worsening of the condition of Europe’s capital markets, or a change in applicable laws, could lead management to reassess its U.K. valuation allowance conclusions. At December 31, 2015, U.S. federal income taxes had not been provided on $18.0 billion of undistributed earnings of non-U.S. subsidiaries that management has determined have been reinvested for an indefinite period of time. If the Corporation were to record a deferred tax liability associated with these undistributed earnings, the amount would be approximately $5.0 billion at December 31, 2015. 222 Bank of America 2015 Bank of America 2015 223 NOTE 20 Fair Value Measurements Under applicable accounting guidance, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Corporation determines the fair values of its financial instruments based on the fair value hierarchy established under applicable accounting guidance which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value. The Corporation conducts a review of its fair value hierarchy classifications on a quarterly basis. Transfers into or out of fair value hierarchy classifications are made if the significant inputs used in the financial models measuring the fair values of the assets and liabilities became unobservable or observable, respectively, in the current marketplace. These transfers are considered to be effective as of the beginning of the quarter in which they occur. For more information regarding the fair value hierarchy and how the Corporation measures fair value, see Note 1 – Summary of Significant Accounting Principles. The Corporation accounts for certain financial instruments under the fair value option. For additional information, see Note 21 – Fair Value Option. Valuation Processes and Techniques The Corporation has various processes and controls in place to ensure that fair value is reasonably estimated. A model validation policy governs the use and control of valuation models used to estimate fair value. This policy requires review and approval of models by personnel who are independent of the front office, and periodic reassessments of models to ensure that they are continuing to perform as designed. In addition, detailed reviews of trading gains and losses are conducted on a daily basis by personnel who are independent of the front office. A price verification group, which is also independent of the front office, utilizes available market information including executed trades, market prices and market-observable valuation model inputs to ensure that fair values are reasonably estimated. The Corporation performs due diligence procedures over third-party pricing service providers in order to support their use in the valuation process. Where market information is not available to support internal valuations, independent reviews of the valuations are performed and any material exposures are escalated through a management review process. While the Corporation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. During 2015, there were no changes to the valuation techniques that had, or are expected to have, a material impact on the Corporation’s consolidated financial position or results of operations. Level 1, 2 and 3 Valuation Techniques Financial instruments are considered Level 1 when the valuation is based on quoted prices in active markets for identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or models using inputs that are observable or 224 Bank of America 2015 can be corroborated by observable market data for substantially the full term of the assets or liabilities. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques, and at least one significant model assumption or input is unobservable and when determination of the fair value requires significant management judgment or estimation. Trading Account Assets and Liabilities and Debt Securities The fair values of trading account assets and liabilities are primarily based on actively traded markets where prices are based on either direct market quotes or observed transactions. The fair values of debt securities are generally based on quoted market prices or market prices for similar assets. Liquidity is a significant factor in the determination of the fair values of trading account assets and liabilities and debt securities. Market price quotes may not be readily available for some positions, or positions within a market sector where trading activity has slowed significantly or ceased. Some of these instruments are valued using a discounted cash flow model, which estimates the fair value of the securities using internal credit risk, interest rate and prepayment risk models that incorporate management’s best estimate of current key assumptions such as default rates, loss severity and prepayment rates. Principal and interest cash flows are discounted using an observable discount rate for similar instruments with adjustments that management believes a market participant would consider in determining fair value for the specific security. Other instruments are valued using a net asset value approach which considers the value of the underlying securities. Underlying assets are valued using external pricing services, where available, or matrix pricing based on the vintages and ratings. Situations of illiquidity generally are triggered by the market’s perception of credit uncertainty regarding a single company or a specific market sector. In these instances, fair value is determined based on limited available market information and other factors, principally from reviewing the issuer’s financial statements and changes in credit ratings made by one or more rating agencies. Derivative Assets and Liabilities The fair values of derivative assets and liabilities traded in the OTC market are determined using quantitative models that utilize multiple market inputs including interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. When third-party pricing services are used, the methods and assumptions are reviewed by the Corporation. Estimation risk is greater for derivative asset and liability positions that are either option-based or have longer maturity dates where observable market inputs are less readily available, or are unobservable, in which case, quantitative-based extrapolations of rate, price or index scenarios are used in determining fair values. The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality and other instrument-specific the Corporation factors, where appropriate. incorporates within its fair value measurements of OTC derivatives a valuation adjustment to reflect the credit risk associated with the net position. Positions are netted by counterparty, and fair value for net long exposures is adjusted for counterparty credit risk while the fair value for net short exposures is adjusted for the In addition, NOTE 20 Fair Value Measurements Under applicable accounting guidance, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Corporation determines the fair values of its financial instruments based on the fair value hierarchy established under applicable accounting guidance which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value. The Corporation conducts a review of its fair value hierarchy classifications on a quarterly basis. Transfers into or out of fair value hierarchy classifications are made if the significant inputs used in the financial models measuring the fair values of the assets and liabilities became unobservable or observable, respectively, in the current marketplace. These transfers are considered to be effective as of the beginning of the quarter in which they occur. For more information regarding the fair value hierarchy and how the Corporation measures fair value, see Note 1 – Summary of Significant Accounting Principles. The Corporation accounts for certain financial instruments under the fair value option. For additional information, see Note 21 – Fair Value Option. Valuation Processes and Techniques The Corporation has various processes and controls in place to ensure that fair value is reasonably estimated. A model validation policy governs the use and control of valuation models used to estimate fair value. This policy requires review and approval of models by personnel who are independent of the front office, and periodic reassessments of models to ensure that they are continuing to perform as designed. In addition, detailed reviews of trading gains and losses are conducted on a daily basis by personnel who are independent of the front office. A price verification group, which is also independent of the front office, utilizes available market information including executed trades, market prices and market-observable valuation model inputs to ensure that fair values are reasonably estimated. The Corporation performs due diligence procedures over third-party pricing service providers in order to support their use in the valuation process. Where market information is not available to support internal valuations, independent reviews of the valuations are performed and any material exposures are escalated through a management review process. While the Corporation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. During 2015, there were no changes to the valuation techniques that had, or are expected to have, a material impact on the Corporation’s consolidated financial position or results of operations. Level 1, 2 and 3 Valuation Techniques Financial instruments are considered Level 1 when the valuation is based on quoted prices in active markets for identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or models using inputs that are observable or 224 Bank of America 2015 can be corroborated by observable market data for substantially the full term of the assets or liabilities. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques, and at least one significant model assumption or input is unobservable and when determination of the fair value requires significant management judgment or estimation. Trading Account Assets and Liabilities and Debt Securities The fair values of trading account assets and liabilities are primarily based on actively traded markets where prices are based on either direct market quotes or observed transactions. The fair values of debt securities are generally based on quoted market prices or market prices for similar assets. Liquidity is a significant factor in the determination of the fair values of trading account assets and liabilities and debt securities. Market price quotes may not be readily available for some positions, or positions within a market sector where trading activity has slowed significantly or ceased. Some of these instruments are valued using a discounted cash flow model, which estimates the fair value of the securities using internal credit risk, interest rate and prepayment risk models that incorporate management’s best estimate of current key assumptions such as default rates, loss severity and prepayment rates. Principal and interest cash flows are discounted using an observable discount rate for similar instruments with adjustments that management believes a market participant would consider in determining fair value for the specific security. Other instruments are valued using a net asset value approach which considers the value of the underlying securities. Underlying assets are valued using external pricing services, where available, or matrix pricing based on the vintages and ratings. Situations of illiquidity generally are triggered by the market’s perception of credit uncertainty regarding a single company or a specific market sector. In these instances, fair value is determined based on limited available market information and other factors, principally from reviewing the issuer’s financial statements and changes in credit ratings made by one or more rating agencies. Derivative Assets and Liabilities The fair values of derivative assets and liabilities traded in the OTC market are determined using quantitative models that utilize multiple market inputs including interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. When third-party pricing services are used, the methods and assumptions are reviewed by the Corporation. Estimation risk is greater for derivative asset and liability positions that are either option-based or have longer maturity dates where observable market inputs are less readily available, or are unobservable, in which case, quantitative-based extrapolations of rate, price or index scenarios are used in determining fair values. The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality and other instrument-specific factors, where appropriate. In addition, the Corporation incorporates within its fair value measurements of OTC derivatives a valuation adjustment to reflect the credit risk associated with the net position. Positions are netted by counterparty, and fair value for net long exposures is adjusted for counterparty credit risk while the fair value for net short exposures is adjusted for the Corporation’s own credit risk. The Corporation also incorporates FVA within its fair value measurements to include funding costs on uncollateralized derivatives and derivatives where the Corporation is not permitted to use the collateral it receives. An estimate of severity of loss is also used in the determination of fair value, primarily based on market data. Loans and Loan Commitments The fair values of loans and loan commitments are based on market prices, where available, or discounted cash flow analyses using market-based credit spreads of comparable debt instruments or credit derivatives of the specific borrower or comparable borrowers. Results of discounted cash flow analyses may be adjusted, as appropriate, to reflect other market conditions or the perceived credit risk of the borrower. Mortgage Servicing Rights The fair values of MSRs are determined using models that rely on estimates of prepayment rates, the resultant weighted-average lives of the MSRs and the option-adjusted spread levels. For more information on MSRs, see Note 23 – Mortgage Servicing Rights. Loans Held-for-sale The fair values of LHFS are based on quoted market prices, where available, or are determined by discounting estimated cash flows using interest rates approximating the Corporation’s current origination rates for similar loans adjusted to reflect the inherent credit risk. The borrower-specific credit risk is embedded within the quoted market prices or is implied by considering loan performance when selecting comparables. Private Equity Investments Private equity investments consist of direct investments and fund investments which are initially valued at their transaction price. Thereafter, the fair value of direct investments is based on an assessment of each individual investment using methodologies that include publicly-traded comparables derived by multiplying a key performance metric (e.g., earnings before interest, taxes, depreciation and amortization) of the portfolio company by the relevant valuation multiple observed for comparable companies, acquisition comparables, entry level multiples and discounted cash flow analyses, and are subject to appropriate discounts for lack of liquidity or marketability. After initial recognition, the fair value of fund investments is based on the Corporation’s proportionate interest in the fund’s capital as reported by the respective fund managers. Short-term Borrowings and Long-term Debt The Corporation issues structured liabilities that have coupons or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities. The fair values of these structured liabilities are estimated using quantitative models for the combined derivative and debt portions of the notes. These models incorporate observable and, in some instances, unobservable inputs including security prices, interest rate yield curves, option volatility, currency, commodity or equity rates and correlations among these inputs. The Corporation also considers the impact of its own credit spreads in determining the discount rate used to value these liabilities. The credit spread is determined by reference to observable spreads in the secondary bond market. Securities Financing Agreements The fair values of certain reverse repurchase agreements, repurchase agreements and securities borrowed transactions are determined using quantitative models, including discounted cash flow models that require the use of multiple market inputs including interest rates and spreads to generate continuous yield or pricing curves, and volatility factors. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. Deposits The fair values of deposits are determined using quantitative models, including discounted cash flow models that require the use of multiple market inputs including interest rates and spreads to generate continuous yield or pricing curves, and volatility factors. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. The Corporation considers the impact of its own credit spreads in the valuation of these liabilities. The credit risk is determined by reference to observable credit spreads in the secondary cash market. Asset-backed Secured Financings The fair values of asset-backed secured financings are based on external broker bids, where available, or are determined by rates discounting estimated cash approximating the Corporation’s current origination rates for similar loans adjusted to reflect the inherent credit risk. flows using interest Bank of America 2015 225 Recurring Fair Value Assets and liabilities carried at fair value on a recurring basis at December 31, 2015 and 2014, including financial instruments which the Corporation accounts for under the fair value option, are summarized in the following tables. (Dollars in millions) Assets Federal funds sold and securities borrowed or purchased under agreements to resell Trading account assets: U.S. government and agency securities (2) Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total trading account assets Derivative assets (3) AFS debt securities: U.S. Treasury and agency securities Mortgage-backed securities: Agency Agency-collateralized mortgage obligations Non-agency residential Commercial Non-U.S. securities Corporate/Agency bonds Other taxable securities Tax-exempt securities Total AFS debt securities Other debt securities carried at fair value: Mortgage-backed securities: Agency-collateralized mortgage obligations Non-agency residential Non-U.S. securities Other taxable securities Total other debt securities carried at fair value Loans and leases Mortgage servicing rights Loans held-for-sale Other assets (4) Total assets Liabilities Interest-bearing deposits in U.S. offices Federal funds purchased and securities loaned or sold under $ $ agreements to repurchase Trading account liabilities: U.S. government and agency securities Equity securities Non-U.S. sovereign debt Corporate securities and other Total trading account liabilities Derivative liabilities (3) Short-term borrowings Accrued expenses and other liabilities Long-term debt Fair Value Measurements December 31, 2015 Level 1 Level 2 Level 3 Netting Adjustments (1) Assets/Liabilities at Fair Value $ — $ 55,143 $ — $ — $ 55,143 33,034 325 41,735 15,651 — 90,745 5,149 23,374 — — — — 2,768 — — — 26,142 15,501 22,738 20,887 12,915 8,107 80,148 679,458 1,903 228,947 10,985 3,073 7,165 2,999 243 9,445 13,439 278,199 — — 11,691 — 11,691 — — — 11,923 145,650 $ 7 3,460 1,152 267 4,886 5,318 — 4,031 2,023 1,109,206 — $ 1,116 $ $ — 2,838 407 521 1,868 5,634 5,134 — — — 106 — — — 757 569 1,432 — 30 — — 30 1,620 3,087 787 374 18,098 — — — — — — (639,751) — — — — — — — — — — — — — — — — — — — $ (639,751) $ 48,535 25,901 63,029 29,087 9,975 176,527 49,990 25,277 228,947 10,985 3,179 7,165 5,767 243 10,202 14,008 305,773 7 3,490 12,843 267 16,607 6,938 3,087 4,818 14,320 633,203 — $ — $ 1,116 — 24,239 335 — 24,574 14,803 27,898 13,589 193 56,483 4,941 — 11,656 — 73,080 169 2,392 1,951 5,947 10,459 671,613 1,295 2,234 28,584 739,540 — — — 21 21 5,575 30 9 1,513 7,483 — — — — — (643,679) — — — (643,679) $ 14,972 30,290 15,540 6,161 66,963 38,450 1,325 13,899 30,097 176,424 Total liabilities $ (1) Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties. (2) Includes $14.8 billion of government-sponsored enterprise obligations. $ $ $ (3) During 2015, $6.6 billion of derivative assets and $6.7 billion of derivative liabilities were transferred from Level 1 to Level 2 based on inputs used to measure fair value. Additionally, $6.4 billion of derivative assets and $6.2 billion of derivative liabilities were transferred from Level 2 to Level 1 due to additional information related to certain options. For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives. (4) During 2015, approximately $327 million of assets were transferred from Level 2 to Level 1 due to a restriction that was lifted for an equity investment. 226 Bank of America 2015 Recurring Fair Value Assets and liabilities carried at fair value on a recurring basis at December 31, 2015 and 2014, including financial instruments which the Corporation accounts for under the fair value option, are summarized in the following tables. (Dollars in millions) Assets agreements to resell Trading account assets: Federal funds sold and securities borrowed or purchased under Fair Value Measurements December 31, 2015 Level 1 Level 2 Level 3 Adjustments (1) at Fair Value Netting Assets/Liabilities $ — $ 55,143 $ — $ — $ 55,143 U.S. government and agency securities (2) Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total trading account assets Derivative assets (3) AFS debt securities: U.S. Treasury and agency securities Mortgage-backed securities: Agency Agency-collateralized mortgage obligations Non-agency residential Commercial Non-U.S. securities Corporate/Agency bonds Other taxable securities Tax-exempt securities Total AFS debt securities Other debt securities carried at fair value: Mortgage-backed securities: Agency-collateralized mortgage obligations Non-agency residential Non-U.S. securities Other taxable securities Total other debt securities carried at fair value Loans and leases Mortgage servicing rights Loans held-for-sale Other assets (4) Total assets Liabilities agreements to repurchase Trading account liabilities: U.S. government and agency securities Equity securities Non-U.S. sovereign debt Corporate securities and other Total trading account liabilities Derivative liabilities (3) Short-term borrowings Long-term debt Total liabilities Accrued expenses and other liabilities 33,034 325 41,735 15,651 — 90,745 5,149 23,374 — — — — — — — — — — — — — 2,768 26,142 11,691 11,691 11,923 14,803 27,898 13,589 193 56,483 4,941 11,656 — — 15,501 22,738 20,887 12,915 8,107 80,148 679,458 1,903 228,947 10,985 3,073 7,165 2,999 243 9,445 13,439 278,199 7 3,460 1,152 267 4,886 5,318 — 4,031 2,023 169 2,392 1,951 5,947 10,459 671,613 1,295 2,234 28,584 — 2,838 407 521 1,868 5,634 5,134 — — — — — — 106 757 569 1,432 — 30 — — 30 1,620 3,087 787 374 — — — 21 21 30 9 1,513 7,483 (639,751) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 48,535 25,901 63,029 29,087 9,975 176,527 49,990 25,277 228,947 10,985 3,179 7,165 5,767 243 10,202 14,008 305,773 7 3,490 12,843 267 16,607 6,938 3,087 4,818 14,320 633,203 24,574 14,972 30,290 15,540 6,161 66,963 38,450 1,325 13,899 30,097 5,575 (643,679) Interest-bearing deposits in U.S. offices — $ 1,116 — $ — $ 1,116 145,650 $ 1,109,206 18,098 $ (639,751) $ $ $ $ $ Federal funds purchased and securities loaned or sold under — 24,239 335 (Dollars in millions) Assets Federal funds sold and securities borrowed or purchased under agreements to resell Trading account assets: U.S. government and agency securities (2) Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total trading account assets Derivative assets (3) AFS debt securities: U.S. Treasury and agency securities Mortgage-backed securities: Agency Agency-collateralized mortgage obligations Non-agency residential Commercial Non-U.S. securities Corporate/Agency bonds Other taxable securities Tax-exempt securities Total AFS debt securities Other debt securities carried at fair value: U.S. Treasury and agency securities Mortgage-backed securities: Agency Non-agency residential Non-U.S. securities Other taxable securities Total other debt securities carried at fair value Loans and leases Mortgage servicing rights Loans held-for-sale Other assets (4) Total assets Liabilities Interest-bearing deposits in U.S. offices Federal funds purchased and securities loaned or sold under agreements to repurchase Trading account liabilities: U.S. government and agency securities Equity securities Non-U.S. sovereign debt Corporate securities and other Total trading account liabilities Derivative liabilities (3) Short-term borrowings Accrued expenses and other liabilities Long-term debt Fair Value Measurements December 31, 2014 Level 1 Level 2 Level 3 Netting Adjustments (1) Assets/Liabilities at Fair Value $ — $ 62,182 $ — $ — $ 62,182 33,470 243 33,518 20,348 — 87,579 4,957 67,413 — — — — 3,191 — 20 — 70,624 1,541 — — 13,270 — 14,811 — — — 11,581 189,552 $ 17,549 31,699 22,488 15,332 10,879 97,947 972,977 2,182 165,039 14,248 4,175 4,000 3,029 368 9,104 8,950 211,095 — 15,704 3,745 1,862 299 21,610 6,698 — 6,628 1,381 1,380,518 — $ 1,469 $ $ $ $ — 3,270 352 574 2,063 6,259 6,851 — — — 279 — 10 — 1,667 599 2,555 — — — — — — 1,983 3,530 173 911 22,262 — — — — — — (932,103) — — — — — — — — — — — — — — — — — — — — $ (932,103) $ 51,019 35,212 56,358 36,254 12,942 191,785 52,682 69,595 165,039 14,248 4,454 4,000 6,230 368 10,791 9,549 284,274 1,541 15,704 3,745 15,132 299 36,421 8,681 3,530 6,801 13,873 660,229 — $ — $ 1,469 — 35,357 — — 35,357 18,514 24,679 16,089 189 59,471 4,493 — 10,795 — 74,759 446 3,670 3,625 6,944 14,685 969,502 2,697 1,250 34,042 1,059,002 — — — 36 36 7,771 — 10 2,362 10,179 — — — — — (934,857) — — — (934,857) $ 18,960 28,349 19,714 7,169 74,192 46,909 2,697 12,055 36,404 209,083 Total liabilities $ (1) Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties. (2) Includes $17.2 billion of government-sponsored enterprise obligations. $ $ $ (1) Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties. (2) Includes $14.8 billion of government-sponsored enterprise obligations. (3) During 2015, $6.6 billion of derivative assets and $6.7 billion of derivative liabilities were transferred from Level 1 to Level 2 based on inputs used to measure fair value. Additionally, $6.4 billion of derivative assets and $6.2 billion of derivative liabilities were transferred from Level 2 to Level 1 due to additional information related to certain options. For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives. (4) During 2015, approximately $327 million of assets were transferred from Level 2 to Level 1 due to a restriction that was lifted for an equity investment. $ 73,080 $ 739,540 $ $ (643,679) $ 176,424 (3) For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives. (4) During 2014, the Corporation reclassified certain assets and liabilities within its fair value hierarchy based on a review of its inputs used to measure fair value. Accordingly, approximately $4.1 billion of assets related to U.S. government and agency securities, non-U.S. government securities and equity derivatives, and $570 million of liabilities related to equity derivatives were transferred from Level 1 to Level 2. 226 Bank of America 2015 Bank of America 2015 227 The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2015, 2014 and 2013, including net realized and unrealized gains (losses) included in earnings and accumulated OCI. Level 3 – Fair Value Measurements (1) Balance January 1 2015 Gains (Losses) in Earnings Gains (Losses) in OCI (2) Purchases Sales Issuances Settlements Gross Transfers into Level 3 Gross Transfers out of Level 3 Balance December 31 2015 2015 Gross (Dollars in millions) Trading account assets: Corporate securities, trading loans and other $ 3,270 $ (31) $ (11) $ 1,540 $ (1,616) $ — $ (1,122) $ 1,570 $ (762) $ 2,838 407 521 1,868 5,634 (441) 106 — 757 569 1,432 30 1,620 3,087 787 374 (335) (21) (30) (9) (1,513) 9 114 154 246 1,335 — (179) 1 (189) (7) 49 185 1,250 3,024 273 (11) (1) (1,117) (2,745) (863) (11) (145) (493) (1,771) (261) 41 — 50 1,661 (40) Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total trading account assets Net derivative assets (3) AFS debt securities: Non-agency residential MBS Non-U.S. securities Other taxable securities Tax-exempt securities Total AFS debt securities Other debt securities carried at fair value – Non-agency residential MBS Loans and leases (4, 5) Mortgage servicing rights (5) Loans held-for-sale (4) Other assets (6) Federal funds purchased and securities loaned or sold under agreements to repurchase (4) Trading account liabilities – Corporate securities and other 352 574 2,063 6,259 (920) 279 10 1,667 599 2,555 — 1,983 3,530 173 911 (12) — — — (12) (3) (23) 187 (51) (55) — — — — — — (4) (393) (203) (130) — — — — — — — — (8) — — — 134 — 189 — 323 33 — — 771 11 — 30 — (11) (36) 19 Short-term borrowings (4) Accrued expenses and other liabilities Long-term debt (4) (1) Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. (2) — (10) (2,362) 17 1 287 — — 616 — — 19 — — — — — — — — — — — 57 637 61 — (425) (10) (160) (30) (625) — (237) (874) (61) (51) 217 — 10 — 273 — (131) (34) — — — — (52) — (188) (411) — (24) — (1,592) 1 — 19 — 1,434 (22) (27) (40) (851) 42 (37) — (939) — (976) — (300) — (98) (322) 167 — — — 167 — 144 — 203 10 Includes unrealized gains (losses) on AFS debt securities, foreign currency translation adjustments and the impact on structured liabilities of changes in the Corporation’s credit spreads. For more information, see Note 1 – Summary of Significant Accounting Principles. (3) Net derivatives include derivative assets of $5.1 billion and derivative liabilities of $5.6 billion. (4) Amounts represent instruments that are accounted for under the fair value option. (5) Issuances represent loan originations and MSRs retained following securitizations or whole-loan sales. (6) Other assets is primarily comprised of certain private equity investments. Significant transfers into Level 3, primarily due to decreased price observability, during 2015 included: $1.7 billion of trading account assets $167 million of AFS debt securities $144 million of loans and leases $203 million of LHFS $411 million of federal funds purchased and securities loaned or sold under agreements to repurchase $1.6 billion of long-term debt. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole. Significant transfers out of Level 3, primarily due to increased price observability unless otherwise noted, during 2015 included: $851 million of trading account assets, primarily the result of increased market liquidity $976 million of AFS debt securities $300 million of loans and leases $322 million of other assets $1.4 billion of long-term debt 228 Bank of America 2015 The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2015, 2014 and 2013, including net realized and unrealized gains (losses) included in earnings Level 3 – Fair Value Measurements (1) Balance January 1 Gains (Losses) 2015 in Earnings Gains (Losses) in OCI (2) Purchases Sales Issuances Settlements Level 3 Gross Transfers into Gross Transfers out of Level 3 Balance December 31 2015 $ 3,270 $ (31) $ (11) $ 1,540 $ (1,616) $ — $ (1,122) $ 1,570 $ (762) $ 2,838 (179) — 1 (189) (7) 49 185 1,250 3,024 273 (11) (1) (1,117) (2,745) (863) (11) (145) (493) (1,771) (261) 41 — 50 1,661 (40) (920) 1,335 and accumulated OCI. Level 3 – Fair Value Measurements (1) (Dollars in millions) Trading account assets: Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total trading account assets Net derivative assets (3) AFS debt securities: Non-agency residential MBS Non-U.S. securities Other taxable securities Tax-exempt securities Total AFS debt securities Other debt securities carried at fair value – Non-agency residential MBS Loans and leases (4, 5) Mortgage servicing rights (5) Loans held-for-sale (4) Other assets (6) Federal funds purchased and securities loaned or sold under agreements to repurchase (4) Trading account liabilities – Corporate securities and other Short-term borrowings (4) Accrued expenses and other liabilities Long-term debt (4) 352 574 2,063 6,259 279 10 1,667 599 2,555 — 1,983 3,530 173 911 (36) — (10) (2,362) 9 114 154 246 (12) — — — (12) (3) (23) 187 (51) (55) 19 17 1 287 — — — — — — — — (8) — — — — — 19 134 — 189 — 323 33 — — 771 11 — 30 — — 616 2015 Gross — — — — — — — — — — — 57 637 61 — — — — — — — (4) (393) (203) (130) (425) (10) (160) (30) (625) — (237) (874) (61) (51) 167 — — — 167 — 144 — 203 10 (22) (27) (40) (851) 42 (37) — (939) — (976) — (300) — (98) (322) 1 — 19 — 407 521 1,868 5,634 (441) 106 — 757 569 1,432 30 1,620 3,087 787 374 (335) (21) (30) (9) — (11) — (131) 217 (411) (34) — — — — (52) — (188) — 10 — — (24) — 273 (1,592) 1,434 (1,513) (1) Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. (2) Includes unrealized gains (losses) on AFS debt securities, foreign currency translation adjustments and the impact on structured liabilities of changes in the Corporation’s credit spreads. For more information, see Note 1 – Summary of Significant Accounting Principles. (3) Net derivatives include derivative assets of $5.1 billion and derivative liabilities of $5.6 billion. (4) Amounts represent instruments that are accounted for under the fair value option. (5) Issuances represent loan originations and MSRs retained following securitizations or whole-loan sales. (6) Other assets is primarily comprised of certain private equity investments. Significant transfers into Level 3, primarily due to decreased Significant transfers out of Level 3, primarily due to increased price observability unless otherwise noted, during 2015 included: $851 million of trading account assets, primarily the result price observability, during 2015 included: $1.7 billion of trading account assets $167 million of AFS debt securities $144 million of loans and leases $203 million of LHFS $411 million of federal funds purchased and securities loaned or sold under agreements to repurchase $1.6 billion of long-term debt. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole. of increased market liquidity $976 million of AFS debt securities $300 million of loans and leases $322 million of other assets $1.4 billion of long-term debt (Dollars in millions) Trading account assets: U.S. government and agency securities Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total trading account assets Net derivative assets (2) AFS debt securities: Non-agency residential MBS Non-U.S. securities Corporate/Agency bonds Other taxable securities Tax-exempt securities Total AFS debt securities Loans and leases (3, 4) Mortgage servicing rights (4) Loans held-for-sale (4) Other assets (5) Trading account liabilities – Corporate securities and other 2014 Gross Balance January 1 2014 Gains (Losses) in Earnings Gains (Losses) in OCI Purchases Sales Issuances Settlements Gross Transfers into Level 3 Gross Transfers out of Level 3 Balance December 31 2014 $ — $ — $ — $ 87 $ (87) $ — $ — $ — $ — $ — 3,559 386 468 4,631 9,044 (224) — 107 — 3,847 806 4,760 3,057 5,042 929 1,669 180 — 30 199 409 463 (2) (7) — 9 8 8 69 (1,231) 45 (98) (35) 1 — — — — — — — (11) — (8) — (19) — — — — — 1,675 104 120 1,643 3,629 823 (857) (86) (34) (1,259) (2,323) (1,738) 11 241 — 154 — 406 — — 59 — 10 — — — — (16) (16) (3) (61) (725) (430) (13) — — — — — — — — — — — — — — 699 707 23 — (938) (16) (19) (585) (1,558) (432) — (147) — (1,381) (235) (1,763) (1,591) (927) (216) (245) 1,275 146 11 39 1,471 28 270 — 93 — 36 399 25 — 83 39 — (3) (615) — — 540 (9) — (1,581) (1,624) (182) (2) (2,605) (4,413) 160 — (173) (93) (954) — (1,220) (273) — (25) (24) 10 1 1,066 3,270 352 574 2,063 6,259 (920) 279 10 — 1,667 599 2,555 1,983 3,530 173 911 (36) (10) (2,362) Accrued expenses and other liabilities Long-term debt (3) (1) Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. (2) Net derivatives include derivative assets of $6.9 billion and derivative liabilities of $7.8 billion. (3) Amounts represent instruments that are accounted for under the fair value option. (4) Issuances represent loan originations and MSRs retained following securitizations or whole-loan sales. (10) (1,990) — 169 2 49 — — (5) Other assets is primarily comprised of certain long-term fixed-rate margin loans that are accounted for under the fair value option and certain private equity investments. Significant transfers into Level 3, primarily due to decreased price observability, during 2014 included: $1.5 billion of trading account assets $399 million of AFS debt securities $1.6 billion of long-term debt. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole. Significant transfers out of Level 3, primarily due to increased price observability unless otherwise noted, during 2014 included: $4.4 billion of trading account assets, primarily the result of increased market liquidity $160 million of net derivative assets $1.2 billion of AFS debt securities $273 million of loans and leases $1.1 billion of long-term debt 228 Bank of America 2015 Bank of America 2015 229 Level 3 – Fair Value Measurements (1) Balance January 1 2013 Gains (Losses) in Earnings Gains (Losses) in OCI Purchases Sales Issuances Settlements Gross Transfers into Level 3 Gross Transfers out of Level 3 Balance December 31 2013 2013 Gross (Dollars in millions) Trading account assets: Corporate securities, trading loans and other $ 3,726 $ 242 $ — $ 3,848 $ (3,110) $ 59 $ (651) $ 890 $ (1,445) $ 3,559 Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total trading account assets Net derivative assets (2) AFS debt securities: Commercial MBS Non-U.S. securities Corporate/Agency bonds Other taxable securities Tax-exempt securities Total AFS debt securities Loans and leases (3, 4) Mortgage servicing rights (4) Loans held-for-sale (3) Other assets (5) Trading account liabilities – Corporate securities and other 545 353 4,935 9,559 1,468 10 — 92 3,928 1,061 5,091 2,287 5,716 2,733 3,129 74 50 53 419 (304) — 5 — 9 3 17 98 1,941 62 (288) (64) 10 — — — — — — 2 4 15 19 40 — — — — — 96 122 2,514 6,580 824 — 1 — 1,055 — 1,056 310 — 8 46 43 Accrued expenses and other liabilities (3) Long-term debt (3) (1) Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. (2) Net derivatives include derivative assets of $7.3 billion and derivative liabilities of $7.5 billion. (3) Amounts represent instruments that are accounted for under the fair value option. (4) Issuances represent loan originations and MSRs retained following securitizations or whole-loan sales. (15) (2,301) — 358 30 13 — — (175) (18) (1,993) (5,296) (1,467) — (1) — — — (1) (128) (2,044) (402) (383) — — — 59 — — — — — — — 1,252 472 4 — (100) (36) (868) (1,655) (1,362) (10) — — (1,155) (109) (1,274) (757) (1,043) (1,507) (1,019) 70 2 20 982 (10) — 100 — — — 100 19 — 34 239 (124) (5) (30) (1,604) 627 — — (96) (5) (168) (269) (24) — (3) (55) (54) — (4) (5) (751) (172) — 724 258 (9) (1) (1,331) 44 3 1,189 386 468 4,631 9,044 (224) — 107 — 3,847 806 4,760 3,057 5,042 929 1,669 (35) (10) (1,990) (5) Other assets is primarily comprised of certain long-term fixed-rate margin loans that are accounted for under the fair value option and certain private equity investments. Significant transfers into Level 3, primarily due to decreased price observability, during 2013 included: Significant transfers out of Level 3, primarily due to increased price observability unless otherwise noted, during 2013 included: $982 million of trading account assets $100 million of AFS debt securities $239 million of other assets $1.3 billion of long-term debt. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole. $1.6 billion of trading account assets $627 million of net derivative assets $269 million of AFS debt securities, primarily due to increased market liquidity $1.2 billion of long-term debt 230 Bank of America 2015 Level 3 – Fair Value Measurements (1) (Dollars in millions) Trading account assets: Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total trading account assets Net derivative assets (2) AFS debt securities: Commercial MBS Non-U.S. securities Corporate/Agency bonds Other taxable securities Tax-exempt securities Total AFS debt securities Loans and leases (3, 4) Mortgage servicing rights (4) Loans held-for-sale (3) Other assets (5) Trading account liabilities – Corporate securities and other Accrued expenses and other liabilities (3) Long-term debt (3) Balance January 1 2013 Gains (Losses) in Earnings Gains (Losses) in OCI Purchases Sales Issuances Settlements Gross Transfers into Level 3 Gross Transfers out of Level 3 Balance December 31 2013 2013 Gross $ 3,726 $ 242 $ — $ 3,848 $ (3,110) $ 59 $ (651) $ 890 $ (1,445) $ 3,559 545 353 4,935 9,559 1,468 10 — 92 3,928 1,061 5,091 2,287 5,716 2,733 3,129 (64) (15) (2,301) 74 50 53 419 (304) — 5 — 9 3 17 98 10 30 13 1,941 62 (288) — — — — — — 2 4 15 19 40 — — — — — — — 96 122 2,514 6,580 824 — 1 — — 1,055 1,056 310 — 8 46 43 — 358 (175) (18) (1,993) (5,296) (1,467) — (1) — — — (1) (2,044) (402) (383) (54) — (4) — — — 59 — — — — — — — 472 4 — (5) (751) (172) (100) (36) (868) (1,655) (1,362) (10) — — (1,155) (109) (1,274) (757) (1,043) (1,507) (1,019) — 724 258 (128) 1,252 70 2 20 982 (10) — 100 100 — — — 19 — 34 239 (9) (1) (124) (5) (30) (1,604) 627 — — (96) (5) (168) (269) (24) — (3) (55) 44 3 386 468 4,631 9,044 (224) — 107 — 3,847 806 4,760 3,057 5,042 929 1,669 (35) (10) (1) Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. (2) Net derivatives include derivative assets of $7.3 billion and derivative liabilities of $7.5 billion. (3) Amounts represent instruments that are accounted for under the fair value option. (4) Issuances represent loan originations and MSRs retained following securitizations or whole-loan sales. (5) Other assets is primarily comprised of certain long-term fixed-rate margin loans that are accounted for under the fair value option and certain private equity investments. Significant transfers into Level 3, primarily due to decreased Significant transfers out of Level 3, primarily due to increased price observability, during 2013 included: price observability unless otherwise noted, during 2013 included: $982 million of trading account assets $100 million of AFS debt securities $239 million of other assets $1.3 billion of long-term debt. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole. $1.6 billion of trading account assets $627 million of net derivative assets $269 million of AFS debt securities, primarily due to increased market liquidity $1.2 billion of long-term debt The following tables summarize gains (losses) due to changes in fair value, including both realized and unrealized gains (losses), recorded in earnings for Level 3 assets and liabilities during 2015, 2014 and 2013. These amounts include gains (losses) on loans, LHFS, loan commitments and structured liabilities that are accounted for under the fair value option. Level 3 – Total Realized and Unrealized Gains (Losses) Included in Earnings (Dollars in millions) Trading account assets: Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total trading account assets Net derivative assets AFS debt securities – Non-agency residential MBS Other debt securities carried at fair value – Non-agency residential MBS Loans and leases (2) Mortgage servicing rights Loans held-for-sale (2) Other assets Federal funds purchased and securities loaned or sold under agreements to repurchase (2) Trading account liabilities – Corporate securities and other Short-term borrowings (2) Accrued expenses and other liabilities Long-term debt (2) (1,331) 1,189 (1,990) Total Trading account assets: Corporate securities, trading loans and other Non-U.S. sovereign debt Mortgage trading loans and ABS Total trading account assets Net derivative assets AFS debt securities: Non-agency residential MBS Non-U.S. securities Other taxable securities Tax-exempt securities Total AFS debt securities Loans and leases (2) Mortgage servicing rights Loans held-for-sale (2) Other assets Trading account liabilities – Corporate securities and other Accrued expenses and other liabilities Long-term debt (2) Total (1) Mortgage banking income (loss) does not reflect the impact of Level 1 and Level 2 hedges on MSRs. (2) Amounts represent instruments that are accounted for under the fair value option. 2015 Trading Account Profits (Losses) Mortgage Banking Income (Loss) (1) Other Total $ (31) $ 9 114 154 246 508 — — (8) 73 (58) — (11) 19 17 — 339 1,125 180 30 199 409 (475) $ $ — $ — — — — 765 — — — 114 — (66) — — — — — 813 $ 2014 — $ — — — 834 — — — — — — (6) (14) — 1 — 78 (7) $ — — — — — — (1,225) — (79) — — — (470) $ $ $ $ — $ — — — — 62 (12) (3) (15) — 7 11 — — — 1 (52) (1) $ — $ — — — 104 (2) (7) 9 8 8 69 — 59 (19) — 2 (29) 194 $ (31) 9 114 154 246 1,335 (12) (3) (23) 187 (51) (55) (11) 19 17 1 287 1,937 180 30 199 409 463 (2) (7) 9 8 8 69 (1,231) 45 (98) 1 2 49 (283) 230 Bank of America 2015 Bank of America 2015 231 Level 3 – Total Realized and Unrealized Gains (Losses) Included in Earnings (continued) (Dollars in millions) Trading account assets: Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total trading account assets Net derivative assets AFS debt securities: Non-U.S. securities Other taxable securities Tax-exempt securities Total AFS debt securities Loans and leases (2) Mortgage servicing rights Loans held-for-sale (2) Other assets Trading account liabilities – Corporate securities and other Accrued expenses and other liabilities Long-term debt (2) Total (1) Mortgage banking income (loss) does not reflect the impact of Level 1 and Level 2 hedges on MSRs. (2) Amounts represent instruments that are accounted for under the fair value option. 2013 Trading Account Profits (Losses) Mortgage Banking Income (Loss) (1) Other Total $ $ 242 74 50 53 419 (1,224) — — — — — — — — 10 — 45 $ (750) $ — $ — — — — 927 — — — — (38) 1,941 2 122 — 30 — 2,984 $ — $ — — — — (7) 5 9 3 17 136 — 60 (410) — — (32) (236) $ 242 74 50 53 419 (304) 5 9 3 17 98 1,941 62 (288) 10 30 13 1,998 232 Bank of America 2015 Level 3 – Total Realized and Unrealized Gains (Losses) Included in Earnings (continued) Corporate securities, trading loans and other $ 242 $ — $ — $ (Dollars in millions) Trading account assets: Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total trading account assets Net derivative assets AFS debt securities: Non-U.S. securities Other taxable securities Tax-exempt securities Total AFS debt securities Loans and leases (2) Mortgage servicing rights Loans held-for-sale (2) Other assets Long-term debt (2) Total Trading account liabilities – Corporate securities and other Accrued expenses and other liabilities (1) Mortgage banking income (loss) does not reflect the impact of Level 1 and Level 2 hedges on MSRs. (2) Amounts represent instruments that are accounted for under the fair value option. 2013 Trading Account Profits (Losses) Mortgage Banking Income (Loss) (1) Other Total 419 (1,224) 74 50 53 — — — — — — — — 10 — 45 927 — — — — — — — — 2 122 — 30 — (38) 1,941 — — — — (7) 5 9 3 17 136 — 60 (410) — — (32) 242 74 50 53 419 (304) 5 9 3 17 98 62 10 30 13 1,941 (288) The table below summarizes changes in unrealized gains (losses) recorded in earnings during 2015, 2014 and 2013 for Level 3 assets and liabilities that were still held at December 31, 2015, 2014 and 2013. These amounts include changes in fair value on loans, LHFS, loan commitments and structured liabilities that are accounted for under the fair value option. Level 3 – Changes in Unrealized Gains (Losses) Relating to Assets and Liabilities Still Held at Reporting Date (Dollars in millions) Trading account assets: Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total trading account assets Net derivative assets Loans and leases (2) Mortgage servicing rights Loans held-for-sale (2) Other assets Trading account liabilities – Corporate securities and other Short-term borrowings (2) Accrued expenses and other liabilities Long-term debt (2) $ (750) $ 2,984 $ (236) $ 1,998 Total Trading account assets: Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total trading account assets Net derivative assets Loans and leases (2) Mortgage servicing rights Loans held-for-sale (2) Other assets Trading account liabilities – Corporate securities and other Accrued expenses and other liabilities Long-term debt (2) Total Trading account assets: Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans and ABS Total trading account assets Net derivative assets Loans and leases (2) Mortgage servicing rights Loans held-for-sale (2) Other assets Long-term debt (2) Total (1) Mortgage banking income (loss) does not reflect the impact of Level 1 and Level 2 hedges on MSRs. (2) Amounts represent instruments that are accounted for under the fair value option. 2015 Trading Account Profits (Losses) Mortgage Banking Income (Loss) (1) Other Total $ $ $ $ $ $ (123) $ 3 74 (93) (139) 507 (3) 73 (1) — (3) 1 — 277 712 $ $ 69 (8) 31 79 171 (276) — (6) (14) — 1 — 29 (95) $ (130) $ 40 80 (174) (184) (1,375) — — — — (4) (1,563) $ — $ — — — — 36 — (158) — (41) — — — — (163) $ 2014 — $ — — — — 85 — (1,747) — (50) — — — (1,712) $ 2013 — $ — — — — 42 (34) 1,541 6 166 — 1,721 $ — $ — — — — 62 16 — (38) (20) — — 1 (22) (1) $ — $ — — — — 104 76 — 10 102 — 1 (37) 256 $ — $ — — — — (7) 152 — 57 14 (32) 184 $ (123) 3 74 (93) (139) 605 13 (85) (39) (61) (3) 1 1 255 548 69 (8) 31 79 171 (87) 76 (1,753) (4) 52 1 1 (8) (1,551) (130) 40 80 (174) (184) (1,340) 118 1,541 63 180 (36) 342 232 Bank of America 2015 Bank of America 2015 233 The following tables present information about significant unobservable inputs related to the Corporation’s material categories of Level 3 financial assets and liabilities at December 31, 2015 and 2014. Quantitative Information about Level 3 Fair Value Measurements at December 31, 2015 (Dollars in millions) Inputs Loans and Securities (1) Financial Instrument Fair Value Valuation Technique Significant Unobservable Inputs Ranges of Inputs Weighted Average Instruments backed by residential real estate assets $ 2,017 Trading account assets – Mortgage trading loans and ABS Loans and leases Loans held-for-sale Instruments backed by commercial real estate assets $ Trading account assets – Mortgage trading loans and ABS Loans held-for-sale 400 1,520 97 852 162 690 Discounted cash flow, Market comparables Discounted cash flow, Market comparables Commercial loans, debt securities and other $ 4,558 Trading account assets – Corporate securities, trading loans and other Trading account assets – Non-U.S. sovereign debt Trading account assets – Mortgage trading loans and ABS AFS debt securities – Other taxable securities Loans and leases Auction rate securities Trading account assets – Corporate securities, trading loans and other AFS debt securities – Other taxable securities AFS debt securities – Tax-exempt securities 2,503 521 1,306 128 100 $ 1,533 335 629 569 Discounted cash flow, Market comparables Discounted cash flow, Market comparables Yield Prepayment speed Default rate Loss severity Yield Price Yield Prepayment speed Default rate Loss severity Duration Price Price Structured liabilities Long-term debt Net derivative assets Credit derivatives Equity derivatives Commodity derivatives $ (1,513) Industry standard derivative pricing (2, 3) Equity correlation Long-dated equity volatilities $ (75) Discounted cash flow, Stochastic recovery correlation model $ (1,037) $ 169 Industry standard derivative pricing (2) Discounted cash flow, Industry standard derivative pricing (2) Yield Upfront points Credit spreads Credit correlation Prepayment speed Default rate Loss severity Equity correlation Long-dated equity volatilities 0% to 25% 0% to 27% CPR 0% to 10% CDR 0% to 90% 0% to 25% $0 to $100 0% to 37% 5% to 20% 2% to 5% 25% to 50% 6% 11% 4% 40% 8% $73 13% 16% 4% 37% 0 to 5 years 3 years $0 to $258 $10 to $100 $64 $94 25% to 100% 4% to 101% 6% to 25% 67% 28% 16% 0 to 100 points 60 points 0 bps to 447 bps 111 bps 31% to 99% 10% to 20% CPR 1% to 4% CDR 35% to 40% 25% to 100% 4% to 101% 38% 19% 3% 35% 67% 28% Natural gas forward price $1/MMBtu to $6/MMBtu $4/MMBtu Propane forward price $0/Gallon to $1/Gallon $1/Gallon Correlation Volatilities Correlation (IR/IR) Correlation (FX/IR) Long-dated inflation rates Long-dated inflation volatilities 66% to 93% 18% to 125% 17% to 99% -15% to 40% 0% to 7% 0% to 2% 84% 39% 48% -9% 3% 1% Interest rate derivatives $ 502 Industry standard derivative pricing (3) Total net derivative assets $ (441) (1) The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 228: Trading account assets – Corporate securities, trading loans and other of $2.8 billion, Trading account assets – Non-U.S. sovereign debt of $521 million, Trading account assets – Mortgage trading loans and ABS of $1.9 billion, AFS debt securities – Other taxable securities of $757 million, AFS debt securities – Tax-exempt securities of $569 million, Loans and leases of $1.6 billion and LHFS of $787 million. Includes models such as Monte Carlo simulation and Black-Scholes. Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates. (2) (3) CPR = Constant Prepayment Rate CDR = Constant Default Rate MMBtu = Million British thermal units IR = Interest Rate FX = Foreign Exchange 234 Bank of America 2015 Quantitative Information about Level 3 Fair Value Measurements at December 31, 2015 (Dollars in millions) Inputs Fair Value Valuation Technique Significant Unobservable Inputs Ranges of Inputs Weighted Average Loans and Securities (1) Financial Instrument Instruments backed by residential real estate assets $ 2,017 Trading account assets – Mortgage trading loans and ABS Loans and leases Loans held-for-sale Loans held-for-sale Instruments backed by commercial real estate assets $ Trading account assets – Mortgage trading loans and ABS Trading account assets – Non-U.S. sovereign debt Trading account assets – Mortgage trading loans and ABS AFS debt securities – Other taxable securities Loans and leases Auction rate securities Trading account assets – Corporate securities, trading loans and other AFS debt securities – Other taxable securities AFS debt securities – Tax-exempt securities Commercial loans, debt securities and other $ 4,558 Trading account assets – Corporate securities, trading loans and other Prepayment speed Yield Prepayment speed Default rate Loss severity Yield Price Yield Default rate Loss severity Duration Price Price Yield Upfront points Credit spreads Credit correlation Prepayment speed Default rate Loss severity Equity correlation Discounted cash flow, Market comparables Discounted cash flow, Market comparables Discounted cash flow, Market comparables 400 1,520 97 852 162 690 2,503 521 1,306 128 100 335 629 569 $ 1,533 Discounted cash flow, Market comparables $ (75) Discounted cash flow, Stochastic recovery correlation model $ (1,037) $ 169 Industry standard derivative pricing (2) Discounted cash flow, Industry standard derivative pricing (2) Industry standard derivative pricing (3) $ (1,513) Equity correlation Industry standard derivative pricing (2, 3) Long-dated equity volatilities Correlation Volatilities Correlation (IR/IR) Correlation (FX/IR) Long-dated inflation rates Long-dated inflation volatilities 0% to 25% 0% to 27% CPR 0% to 10% CDR 0% to 90% 0% to 25% $0 to $100 0% to 37% 5% to 20% 2% to 5% 25% to 50% $0 to $258 $10 to $100 25% to 100% 4% to 101% 6% to 25% 31% to 99% 10% to 20% CPR 1% to 4% CDR 35% to 40% 25% to 100% 4% to 101% 66% to 93% 18% to 125% 17% to 99% -15% to 40% 0% to 7% 0% to 2% 6% 11% 4% 40% 8% $73 13% 16% 4% 37% $64 $94 67% 28% 16% 38% 19% 3% 35% 67% 28% 84% 39% 48% -9% 3% 1% 0 to 100 points 60 points 0 bps to 447 bps 111 bps Long-dated equity volatilities Natural gas forward price $1/MMBtu to $6/MMBtu $4/MMBtu Propane forward price $0/Gallon to $1/Gallon $1/Gallon Interest rate derivatives $ 502 Total net derivative assets $ (441) (1) The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 228: Trading account assets – Corporate securities, trading loans and other of $2.8 billion, Trading account assets – Non-U.S. sovereign debt of $521 million, Trading account assets – Mortgage trading loans and ABS of $1.9 billion, AFS debt securities – Other taxable securities of $757 million, AFS debt securities – Tax-exempt securities of $569 million, Loans and leases of $1.6 billion and LHFS of Includes models such as Monte Carlo simulation and Black-Scholes. Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates. $787 million. (2) (3) CPR = Constant Prepayment Rate CDR = Constant Default Rate MMBtu = Million British thermal units IR = Interest Rate FX = Foreign Exchange Structured liabilities Long-term debt Net derivative assets Credit derivatives Equity derivatives Commodity derivatives The following tables present information about significant unobservable inputs related to the Corporation’s material categories of Level 3 financial assets and liabilities at December 31, 2015 and 2014. Quantitative Information about Level 3 Fair Value Measurements at December 31, 2014 (Dollars in millions) Inputs Fair Value Valuation Technique Significant Unobservable Inputs Ranges of Inputs Weighted Average Financial Instrument Loans and Securities (1) Instruments backed by residential real estate assets Trading account assets – Mortgage trading loans and ABS Loans and leases Loans held-for-sale Commercial loans, debt securities and other Trading account assets – Corporate securities, trading loans and other Trading account assets – Non-U.S. sovereign debt Trading account assets – Mortgage trading loans and ABS AFS debt securities – Other taxable securities Loans and leases Auction rate securities 0 to 5 years 3 years Trading account assets – Corporate securities, trading loans and other AFS debt securities – Other taxable securities AFS debt securities – Tax-exempt securities Structured liabilities Long-term debt Net derivative assets Credit derivatives Equity derivatives Commodity derivatives Interest rate derivatives $ 2,030 483 1,374 173 $ 7,203 3,224 574 1,580 1,216 609 $ 1,096 46 451 599 Discounted cash flow, Market comparables Discounted cash flow, Market comparables Discounted cash flow, Market comparables Yield Prepayment speed Default rate Loss severity Yield Enterprise value/EBITDA multiple Prepayment speed Default rate Loss severity Duration Price Price $ (2,362) Equity correlation Industry standard derivative pricing (2, 3) Long-dated equity volatilities Long-dated volatilities (IR) Yield Upfront points Spread to index Credit correlation Prepayment speed Default rate Loss severity Equity correlation Long-dated equity volatilities $ 22 Discounted cash flow, Stochastic recovery correlation model $ (1,560) $ 141 $ 477 Industry standard derivative pricing (2) Discounted cash flow, Industry standard derivative pricing (2) Industry standard derivative pricing (3) 0% to 25% 0% to 35% CPR 2% to 15% CDR 26% to 100% 0% to 40% 0x to 30x 1% to 30% 1% to 5% 25% to 40% 6% 14% 7% 34% 9% 6x 12% 4% 38% 0 to 5 years 3 years $0 to $107 $60 to $100 $76 $95 20% to 98% 6% to 69% 0% to 2% 0% to 25% 65% 24% 1% 14% 0 to 100 points 65 points 25 bps to 450 bps 119 bps 24% to 99% 3% to 20% CPR 4% CDR 35% 20% to 98% 6% to 69% 51% 11% n/a n/a 65% 24% Natural gas forward price $2/MMBtu to $7/MMBtu $5/MMBtu Correlation Volatilities Correlation (IR/IR) Correlation (FX/IR) Long-dated inflation rates Long-dated inflation volatilities 82% to 93% 16% to 98% 11% to 99% -48% to 40% 0% to 3% 0% to 2% 90% 35% 55% -5% 1% 1% Total net derivative assets $ (920) (1) The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 229: Trading account assets – Corporate securities, trading loans and other of $3.3 billion, Trading account assets – Non-U.S. sovereign debt of $574 million, Trading account assets – Mortgage trading loans and ABS of $2.1 billion, AFS debt securities – Other taxable securities of $1.7 billion, AFS debt securities – Tax-exempt securities of $599 million, Loans and leases of $2.0 billion and LHFS of $173 million. Includes models such as Monte Carlo simulation and Black-Scholes. Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates. (3) (2) CPR = Constant Prepayment Rate CDR = Constant Default Rate EBITDA = Earnings before interest, taxes, depreciation and amortization MMBtu = Million British thermal units IR = Interest Rate FX = Foreign Exchange n/a = not applicable 234 Bank of America 2015 Bank of America 2015 235 In the tables above, instruments backed by residential and commercial real estate assets include RMBS, commercial mortgage-backed securities, whole loans and mortgage CDOs. Commercial loans, debt securities and other include corporate CLOs and CDOs, commercial loans and bonds, and securities backed by non-real estate assets. Structured liabilities primarily include equity-linked notes that are accounted for under the fair value option. The Corporation uses multiple market approaches in valuing certain of its Level 3 financial instruments. For example, market comparables and discounted cash flows are used together. For a given product, such as corporate debt securities, market comparables may be used to estimate some of the unobservable inputs and then these inputs are incorporated into a discounted cash flow model. Therefore, the balances disclosed encompass both of these techniques. The level of aggregation and diversity within the products disclosed in the tables result in certain ranges of inputs being wide and unevenly distributed across asset and liability categories. For more information on the inputs and techniques used in the valuation of MSRs, see Note 23 – Mortgage Servicing Rights. Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs Loans and Securities For instruments backed by residential real estate assets, commercial real estate assets and commercial loans, debt securities and other, a significant increase in market yields, default rates, loss severities or duration would result in a significantly lower fair value for long positions. Short positions would be impacted in a directionally opposite way. The impact of changes in prepayment speeds would have differing impacts depending on the seniority of the instrument and, in the case of CLOs, whether prepayments can be reinvested. For auction rate securities, a significant increase in price would result in a significantly higher fair value. Structured Liabilities and Derivatives For credit derivatives, a significant increase in market yield, including spreads to indices, upfront points (i.e., a single upfront payment made by a protection buyer at inception), credit spreads, default rates or loss severities would result in a significantly lower fair value for protection sellers and higher fair value for protection buyers. The impact of changes in prepayment speeds would have differing impacts depending on the seniority of the instrument and, in the case of CLOs, whether prepayments can be reinvested. Structured credit derivatives, which include tranched portfolio CDS and derivatives with derivative product company (DPC) and monoline counterparties, are impacted by credit correlation, including default and wrong-way correlation. Default correlation is a parameter that describes the degree of dependence among credit default rates within a credit portfolio that underlies a credit derivative instrument. The sensitivity of this input on the fair value varies depending on the level of subordination of the tranche. For senior tranches that are net purchases of protection, a significant increase in default correlation would result in a significantly higher fair value. Net short protection positions would be impacted in a directionally opposite way. Wrong-way correlation is a parameter that describes the probability that as exposure to a counterparty increases, the credit quality of the counterparty decreases. A significantly higher degree of wrong-way correlation between a DPC counterparty and underlying derivative exposure would result in a significantly lower fair value. For equity derivatives, commodity derivatives, interest rate derivatives and structured liabilities, a significant change in long- dated rates and volatilities and correlation inputs (e.g., the degree of correlation between an equity security and an index, between two different commodities, between two different interest rates, or between interest rates and foreign exchange rates) would result in a significant impact to the fair value; however, the magnitude and direction of the impact depends on whether the Corporation is long or short the exposure. 236 Bank of America 2015 In the tables above, instruments backed by residential and Structured Liabilities and Derivatives commercial real estate assets include RMBS, commercial For credit derivatives, a significant increase in market yield, mortgage-backed securities, whole loans and mortgage CDOs. including spreads to indices, upfront points (i.e., a single upfront Commercial loans, debt securities and other include corporate payment made by a protection buyer at inception), credit spreads, CLOs and CDOs, commercial loans and bonds, and securities default rates or loss severities would result in a significantly lower backed by non-real estate assets. Structured liabilities primarily fair value for protection sellers and higher fair value for protection include equity-linked notes that are accounted for under the fair buyers. The impact of changes in prepayment speeds would have value option. differing impacts depending on the seniority of the instrument and, The Corporation uses multiple market approaches in valuing in the case of CLOs, whether prepayments can be reinvested. certain of its Level 3 financial instruments. For example, market Structured credit derivatives, which include tranched portfolio comparables and discounted cash flows are used together. For a CDS and derivatives with derivative product company (DPC) and given product, such as corporate debt securities, market monoline counterparties, are impacted by credit correlation, comparables may be used to estimate some of the unobservable including default and wrong-way correlation. Default correlation is inputs and then these inputs are incorporated into a discounted a parameter that describes the degree of dependence among cash flow model. Therefore, the balances disclosed encompass credit default rates within a credit portfolio that underlies a credit both of these techniques. derivative instrument. The sensitivity of this input on the fair value The level of aggregation and diversity within the products varies depending on the level of subordination of the tranche. For disclosed in the tables result in certain ranges of inputs being senior tranches that are net purchases of protection, a significant wide and unevenly distributed across asset and liability categories. increase in default correlation would result in a significantly higher For more information on the inputs and techniques used in the fair value. Net short protection positions would be impacted in a valuation of MSRs, see Note 23 – Mortgage Servicing Rights. Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs Loans and Securities For instruments backed by residential real estate assets, commercial real estate assets and commercial loans, debt securities and other, a significant increase in market yields, default rates, loss severities or duration would result in a significantly lower fair value for long positions. Short positions would be impacted in a directionally opposite way. The impact of changes in prepayment speeds would have differing impacts depending on the seniority of the instrument and, in the case of CLOs, whether prepayments can be reinvested. For auction rate securities, a significant increase in price would result in a significantly higher fair value. directionally opposite way. Wrong-way correlation is a parameter that describes the probability that as exposure to a counterparty increases, the credit quality of the counterparty decreases. A significantly higher degree of wrong-way correlation between a DPC counterparty and underlying derivative exposure would result in a significantly lower fair value. For equity derivatives, commodity derivatives, interest rate derivatives and structured liabilities, a significant change in long- dated rates and volatilities and correlation inputs (e.g., the degree of correlation between an equity security and an index, between two different commodities, between two different interest rates, or between interest rates and foreign exchange rates) would result in a significant impact to the fair value; however, the magnitude and direction of the impact depends on whether the Corporation is long or short the exposure. Nonrecurring Fair Value The Corporation holds certain assets that are measured at fair value, but only in certain situations (e.g., impairment) and these measurements are referred to herein as nonrecurring. The amounts below represent assets still held as of the reporting date for which a nonrecurring fair value adjustment was recorded during 2015, 2014 and 2013. Assets Measured at Fair Value on a Nonrecurring Basis (Dollars in millions) Assets Loans held-for-sale Loans and leases (1) Foreclosed properties (2, 3) Other assets Assets December 31 2015 2014 Level 2 Level 3 Level 2 Level 3 $ $ 9 — — 54 $ 33 2,739 172 — 156 5 — 13 $ 30 4,636 208 — Gains (Losses) 2014 2015 2013 Loans held-for-sale (1,132) Loans and leases (1) (66) Foreclosed properties (2, 3) (6) Other assets Includes $174 million of losses on loans that were written down to a collateral value of zero during 2015 compared to losses of $370 million and $365 million in 2014 and 2013. (980) (57) (15) (8) $ $ (19) $ (1) (71) (1,104) (63) (20) (2) Amounts are included in other assets on the Consolidated Balance Sheet and represent the carrying value of foreclosed properties that were written down subsequent to their initial classification as foreclosed properties. Losses on foreclosed properties include losses taken during the first 90 days after transfer of a loan to foreclosed properties. (3) Excludes $1.4 billion and $1.1 billion of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) as of December 31, 2015 and 2014. The table below presents information about significant unobservable inputs related to the Corporation’s nonrecurring Level 3 financial assets and liabilities at December 31, 2015 and 2014. Instruments backed by residential real estate assets represent residential mortgages where the loan has been written down to the fair value of the underlying collateral. Quantitative Information about Nonrecurring Level 3 Fair Value Measurements (Dollars in millions) December 31, 2015 Inputs Financial Instrument Fair Value Valuation Technique Significant Unobservable Inputs Ranges of Inputs Weighted Average Loans and leases backed by residential real estate assets $ 2,739 Market comparables OREO discount Cost to sell December 31, 2014 Loans and leases backed by residential real estate assets $ 4,636 Market comparables OREO discount Cost to sell 7% to 55% 8% to 45% 0% to 28% 7% to 14% 20% 10% 8% 8% 236 Bank of America 2015 Bank of America 2015 237 NOTE 21 Fair Value Option Loans and Loan Commitments The Corporation elects to account for certain commercial loans and loan commitments that exceed the Corporation’s single name credit risk concentration guidelines under the fair value option. Lending commitments, both funded and unfunded, are actively managed and monitored and, as appropriate, credit risk for these lending relationships may be mitigated through the use of credit derivatives, with the Corporation’s public side credit view and market perspectives determining the size and timing of the hedging activity. These credit derivatives do not meet the requirements for designation as accounting hedges and therefore are carried at fair value with changes in fair value recorded in other income (loss). Electing the fair value option allows the Corporation to carry these loans and loan commitments at fair value, which is more consistent with management’s view of the underlying economics and the manner in which they are managed. In addition, election of the fair value option allows the Corporation to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at historical cost and the credit derivatives at fair value. The Corporation also elected the fair value option for certain loans held in consolidated VIEs. Loans Held-for-sale The Corporation elects to account for residential mortgage LHFS, commercial mortgage LHFS and certain other LHFS under the fair value option with interest income on these LHFS recorded in other interest income. These loans are actively managed and monitored and, as appropriate, certain market risks of the loans may be mitigated through the use of derivatives. The Corporation has elected not to designate the derivatives as qualifying accounting hedges and therefore they are carried at fair value with changes in fair value recorded in other income (loss). The changes in fair value of the loans are largely offset by changes in the fair value of the derivatives. Election of the fair value option allows the Corporation to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at the lower of cost or fair value and the derivatives at fair value. The Corporation has not elected to account for certain other LHFS under the fair value option primarily because these loans are floating-rate loans that are not hedged using derivative instruments. Loans Reported as Trading Account Assets The Corporation elects to account for certain loans that are held for the purpose of trading and are risk-managed on a fair value basis under the fair value option. Other Assets The Corporation elects to account for certain private equity investments that are not in an investment company under the fair value option as this measurement basis is consistent with applicable accounting guidance for similar investments that are in an investment company. The Corporation also elects to account for certain long-term fixed-rate margin loans that are hedged with derivatives under the fair value option. Election of the fair value option allows the Corporation to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at historical cost and the derivatives at fair value. Securities Financing Agreements The Corporation elects to account for certain securities financing agreements, including resale and repurchase agreements, under the fair value option based on the tenor of the agreements, which reflects the magnitude of the interest rate risk. The majority of securities financing agreements collateralized by U.S. government securities are not accounted for under the fair value option as these contracts are generally short-dated and therefore the interest rate risk is not significant. Long-term Deposits The Corporation elects to account for certain long-term fixed-rate and rate-linked deposits that are hedged with derivatives that do not qualify for hedge accounting under the fair value option. Election of the fair value option allows the Corporation to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at historical cost and the derivatives at fair value. The Corporation has not elected to carry other long-term deposits at fair value because they were not hedged using derivatives. Short-term Borrowings The Corporation elects to account for certain short-term borrowings, primarily short-term structured liabilities, under the fair value option because this debt is risk-managed on a fair value basis. The Corporation elects to account for certain asset-backed secured financings, which are also classified in short-term borrowings, under the fair value option. Election of the fair value option allows the Corporation to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the asset-backed secured financings at historical cost and the corresponding mortgage LHFS securing these financings at fair value. Long-term Debt The Corporation elects to account for certain long-term debt, primarily structured liabilities, under the fair value option. This long- term debt is either risk-managed on a fair value basis or the related hedges do not qualify for hedge accounting. 238 Bank of America 2015 Short-term borrowings Unfunded loan commitments Long-term debt (2) (1) A significant portion of the loans reported as trading account assets are distressed loans which trade and were purchased at a deep discount to par, and the remainder are loans with a fair value The table below provides information about the fair value carrying amount and the contractual principal outstanding of assets and liabilities accounted for under the fair value option at December 31, 2015 and 2014. Fair Value Option Elections (Dollars in millions) Federal funds sold and securities borrowed or purchased under agreements to resell Loans reported as trading account assets (1) Trading inventory – other Consumer and commercial loans Loans held-for-sale Other assets Long-term deposits Federal funds purchased and securities loaned or sold under agreements to repurchase 2015 2014 December 31 Fair Value Carrying Amount Contractual Principal Outstanding Fair Value Carrying Amount Less Unpaid Principal Fair Value Carrying Amount Contractual Principal Outstanding Fair Value Carrying Amount Less Unpaid Principal $ 55,143 $ 54,999 $ 144 $ 62,182 $ 61,902 $ 4,995 8,149 6,938 4,818 275 1,116 9,214 n/a 7,293 6,157 270 1,021 (4,219) n/a (355) (1,339) 5 95 4,607 6,865 8,681 6,801 253 1,469 8,487 n/a 8,925 8,072 270 1,361 280 (3,880) n/a (244) (1,271) (17) 108 24,574 24,718 (144) 35,357 35,332 25 activity. These credit derivatives do not meet the requirements for derivatives at fair value. NOTE 21 Fair Value Option Loans and Loan Commitments The Corporation elects to account for certain commercial loans and loan commitments that exceed the Corporation’s single name credit risk concentration guidelines under the fair value option. Lending commitments, both funded and unfunded, are actively managed and monitored and, as appropriate, credit risk for these lending relationships may be mitigated through the use of credit derivatives, with the Corporation’s public side credit view and market perspectives determining the size and timing of the hedging designation as accounting hedges and therefore are carried at fair value with changes in fair value recorded in other income (loss). Electing the fair value option allows the Corporation to carry these loans and loan commitments at fair value, which is more consistent with management’s view of the underlying economics and the manner in which they are managed. In addition, election of the fair value option allows the Corporation to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at historical cost and the credit derivatives at fair value. The Corporation also elected the fair value option for certain loans held in consolidated VIEs. Loans Held-for-sale The Corporation elects to account for residential mortgage LHFS, commercial mortgage LHFS and certain other LHFS under the fair value option with interest income on these LHFS recorded in other interest income. These loans are actively managed and monitored and, as appropriate, certain market risks of the loans may be mitigated through the use of derivatives. The Corporation has elected not to designate the derivatives as qualifying accounting hedges and therefore they are carried at fair value with changes in fair value recorded in other income (loss). The changes in fair value of the loans are largely offset by changes in the fair value of the derivatives. Election of the fair value option allows the Corporation to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at the lower of cost or fair value and the derivatives at fair value. The Corporation has not elected to account basis. for certain other LHFS under the fair value option primarily because these loans are floating-rate loans that are not hedged using derivative instruments. Loans Reported as Trading Account Assets The Corporation elects to account for certain loans that are held for the purpose of trading and are risk-managed on a fair value basis under the fair value option. Other Assets The Corporation elects to account for certain private equity investments that are not in an investment company under the fair value option as this measurement basis is consistent with applicable accounting guidance for similar investments that are in an investment company. The Corporation also elects to account for certain long-term fixed-rate margin loans that are hedged with derivatives under the fair value option. Election of the fair value option allows the Corporation to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at historical cost and the Securities Financing Agreements The Corporation elects to account for certain securities financing agreements, including resale and repurchase agreements, under the fair value option based on the tenor of the agreements, which reflects the magnitude of the interest rate risk. The majority of securities financing agreements collateralized by U.S. government securities are not accounted for under the fair value option as these contracts are generally short-dated and therefore the interest rate risk is not significant. Long-term Deposits The Corporation elects to account for certain long-term fixed-rate and rate-linked deposits that are hedged with derivatives that do not qualify for hedge accounting under the fair value option. Election of the fair value option allows the Corporation to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at historical cost and the derivatives at fair value. The Corporation has not elected to carry other long-term deposits at fair value because they were not hedged using derivatives. Short-term Borrowings The Corporation elects to account for certain short-term borrowings, primarily short-term structured liabilities, under the fair value option because this debt is risk-managed on a fair value The Corporation elects to account for certain asset-backed secured financings, which are also classified in short-term borrowings, under the fair value option. Election of the fair value option allows the Corporation to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the asset-backed secured financings at historical cost and the corresponding mortgage LHFS securing these financings at fair value. Long-term Debt The Corporation elects to account for certain long-term debt, primarily structured liabilities, under the fair value option. This long- term debt is either risk-managed on a fair value basis or the related hedges do not qualify for hedge accounting. near contractual principal outstanding. Includes structured liabilities with a fair value of $29.0 billion and $35.3 billion, and contractual principal outstanding of $29.4 billion and $34.6 billion at December 31, 2015 and 2014. (2) n/a = not applicable 238 Bank of America 2015 Bank of America 2015 239 2,697 n/a 35,815 2,697 405 36,404 1,325 n/a 30,593 1,325 658 30,097 — n/a (496) — n/a 589 The following tables provide information about where changes in the fair value of assets and liabilities accounted for under the fair value option are included in the Consolidated Statement of Income for 2015, 2014 and 2013. Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option (Dollars in millions) Federal funds sold and securities borrowed or purchased under agreements to resell Loans reported as trading account assets Trading inventory – other (1) Consumer and commercial loans Loans held-for-sale (2) Other assets Long-term deposits Federal funds purchased and securities loaned or sold under agreements to repurchase Short-term borrowings Unfunded loan commitments Long-term debt (3, 4) Total Federal funds sold and securities borrowed or purchased under agreements to resell Loans reported as trading account assets Trading inventory – other (1) Consumer and commercial loans Loans held-for-sale (2) Long-term deposits Federal funds purchased and securities loaned or sold under agreements to repurchase Short-term borrowings Unfunded loan commitments Long-term debt (3) Total Federal funds sold and securities borrowed or purchased under agreements to resell Loans reported as trading account assets Trading inventory – other (1) Consumer and commercial loans Loans held-for-sale (2) Other assets Long-term deposits Federal funds purchased and securities loaned or sold under agreements to repurchase Asset-backed secured financings Short-term borrowings Unfunded loan commitments Long-term debt (3) Total 2015 Trading Account Profits (Losses) Mortgage Banking Income (Loss) Other Income (Loss) Total $ $ $ $ $ $ (195) $ (199) 1,284 52 (36) — 1 33 3 — 2,107 3,050 $ (114) $ (87) 1,091 (24) (56) 23 4 52 — 239 1,128 $ (44) $ 83 1,355 (28) 7 — 30 (36) — (70) — (602) 695 $ — $ — — — 673 — — — — — — 673 $ 2014 — $ — — — 798 — — — — — 798 $ 2013 — $ — — (38) 966 — — — (91) — — — 837 $ — $ — — (295) 63 10 13 — — (210) (633) (1,052) $ — $ — — 69 83 (26) — — (64) 407 469 $ — $ — — 240 75 (77) 84 — — — 180 (649) (147) $ (195) (199) 1,284 (243) 700 10 14 33 3 (210) 1,474 2,671 (114) (87) 1,091 45 825 (3) 4 52 (64) 646 2,395 (44) 83 1,355 174 1,048 (77) 114 (36) (91) (70) 180 (1,251) 1,385 (1) The gains (losses) in trading account profits (losses) are primarily offset by gains (losses) on trading liabilities that hedge these assets. (2) Includes the value of IRLCs on funded loans, including those sold during the period. (3) The majority of the net gains (losses) in trading account profits relate to the embedded derivative in structured liabilities and are offset by gains (losses) on derivatives and securities that hedge these liabilities. In connection with the implementation of new accounting guidance relating to DVA on structured liabilities accounted for at fair value under the fair value option, unrealized DVA gains (losses) in 2015 are recorded in accumulated OCI while realized gains (losses) are recorded in other income (loss); for years prior to 2015, the realized and unrealized gains (losses) are reflected in other income (loss). For more information on the implementation of new accounting guidance, see Note 1 – Summary of Significant Accounting Principles. (4) For the cumulative impact of changes in the Corporation’s credit spreads and the amount recognized in OCI, see Note 14 – Accumulated Other Comprehensive Income (Loss). For more information on how the Corporation’s own credit spread is determined, see Note 20 – Fair Value Measurements. Gains (Losses) Related to Borrower-specific Credit Risk for Assets Accounted for Under the Fair Value Option (Dollars in millions) Loans reported as trading account assets Consumer and commercial loans Loans held-for-sale 240 Bank of America 2015 2015 $ December 31 2014 2013 $ 37 (200) 37 $ 28 32 84 56 148 225 The following tables provide information about where changes in the fair value of assets and liabilities accounted for under the fair value option are included in the Consolidated Statement of Income for 2015, 2014 and 2013. Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option Federal funds sold and securities borrowed or purchased under agreements to resell $ (195) $ — $ — $ Federal funds purchased and securities loaned or sold under agreements to repurchase Federal funds sold and securities borrowed or purchased under agreements to resell 673 $ (1,052) $ 2014 — $ — $ Federal funds purchased and securities loaned or sold under agreements to repurchase Federal funds sold and securities borrowed or purchased under agreements to resell 1,128 $ 798 $ $ 2,395 2013 — $ — $ 2015 Trading Account Profits (Losses) Mortgage Banking Income (Loss) Other Income (Loss) Total (199) 1,284 52 (36) — 1 33 3 — 2,107 3,050 $ (114) $ (87) 1,091 (24) (56) 23 4 52 — 239 (28) 7 — 30 (36) — (70) — (44) $ 83 1,355 $ $ $ $ $ 673 — — — — — — — — — — — — — — — — — — — — — — — — — 798 (38) 966 (91) (295) — — 63 10 13 — — (210) (633) — — 69 83 (26) — — (64) 407 469 — — 240 75 (77) 84 — — — 180 (649) (195) (199) 1,284 (243) 700 10 14 33 3 (210) 1,474 2,671 (114) (87) 1,091 45 825 (3) 4 52 (64) 646 (44) 83 1,355 174 1,048 (77) 114 (36) (91) (70) 180 (1,251) 1,385 Federal funds purchased and securities loaned or sold under agreements to repurchase (1) The gains (losses) in trading account profits (losses) are primarily offset by gains (losses) on trading liabilities that hedge these assets. (2) Includes the value of IRLCs on funded loans, including those sold during the period. (3) The majority of the net gains (losses) in trading account profits relate to the embedded derivative in structured liabilities and are offset by gains (losses) on derivatives and securities that hedge these liabilities. In connection with the implementation of new accounting guidance relating to DVA on structured liabilities accounted for at fair value under the fair value option, unrealized DVA gains (losses) in 2015 are recorded in accumulated OCI while realized gains (losses) are recorded in other income (loss); for years prior to 2015, the realized and unrealized gains (losses) are reflected in other income (loss). For more information on the implementation of new accounting guidance, see Note 1 – Summary of Significant Accounting Principles. (4) For the cumulative impact of changes in the Corporation’s credit spreads and the amount recognized in OCI, see Note 14 – Accumulated Other Comprehensive Income (Loss). For more information on how the Corporation’s own credit spread is determined, see Note 20 – Fair Value Measurements. (602) 695 $ 837 $ (147) $ Gains (Losses) Related to Borrower-specific Credit Risk for Assets Accounted for Under the Fair Value Option December 31 2015 2014 2013 $ 37 $ (200) 37 $ 28 32 84 56 148 225 (Dollars in millions) Loans reported as trading account assets Trading inventory – other (1) Consumer and commercial loans Loans held-for-sale (2) Other assets Long-term deposits Short-term borrowings Unfunded loan commitments Long-term debt (3, 4) Total Loans reported as trading account assets Trading inventory – other (1) Consumer and commercial loans Loans held-for-sale (2) Long-term deposits Short-term borrowings Unfunded loan commitments Long-term debt (3) Total Loans reported as trading account assets Trading inventory – other (1) Consumer and commercial loans Loans held-for-sale (2) Other assets Long-term deposits Asset-backed secured financings Short-term borrowings Unfunded loan commitments Long-term debt (3) Total (Dollars in millions) Loans reported as trading account assets Consumer and commercial loans Loans held-for-sale 240 Bank of America 2015 NOTE 22 Fair Value of Financial Instruments Financial instruments are classified within the fair value hierarchy using the methodologies described in Note 20 – Fair Value Measurements. The following disclosures include financial instruments where only a portion of the ending balance at December 31, 2015 and 2014 was carried at fair value on the Consolidated Balance Sheet. value of non-U.S. time deposits approximates fair value. For deposits with no stated maturities, the carrying value was considered to approximate fair value and does not take into account the significant value of the cost advantage and stability of the Corporation’s long-term relationships with depositors. The Corporation accounts for certain long-term fixed-rate deposits under the fair value option. Short-term Financial Instruments The carrying value of short-term financial instruments, including cash and cash equivalents, time deposits placed and other short- term investments, federal funds sold and purchased, certain resale and repurchase agreements, customer and other receivables, customer payables (within accrued expenses and other liabilities on the Consolidated Balance Sheet), and short- term borrowings approximates the fair value of these instruments. These financial instruments generally expose the Corporation to limited credit risk and have no stated maturities or have short- term maturities and carry interest rates that approximate market. The Corporation elected to account for certain resale and repurchase agreements under the fair value option. Under the fair value hierarchy, cash and cash equivalents are classified as Level 1. Time deposits placed and other short-term investments, such as U.S. government securities and short-term commercial paper, are classified as Level 1 and Level 2. Federal funds sold and purchased are classified as Level 2. Resale and repurchase agreements are classified as Level 2 because they are generally short-dated and/or variable-rate instruments collateralized by U.S. government or agency securities. Customer and other receivables primarily consist of margin loans, servicing advances and other accounts receivable and are classified as Level 2 and Level 3. Customer payables and short-term borrowings are classified as Level 2. Held-to-maturity Debt Securities HTM debt securities, which consist primarily of U.S. agency debt securities, are classified as Level 2 using the same methodologies as AFS U.S. agency debt securities. For more information on HTM debt securities, see Note 3 – Securities. Loans The fair values for commercial and consumer loans are generally determined by discounting both principal and interest cash flows expected to be collected using a discount rate for similar instruments with adjustments that the Corporation believes a market participant would consider in determining fair value. The Corporation estimates the cash flows expected to be collected using internal credit risk, interest rate and prepayment risk models that incorporate the Corporation’s best estimate of current key assumptions, such as default rates, loss severity and prepayment speeds for the life of the loan. The carrying value of loans is presented net of the applicable allowance for loan losses and excludes leases. The Corporation accounts for certain commercial loans and residential mortgage loans under the fair value option. Deposits The fair value for certain deposits with stated maturities was determined by discounting contractual cash flows using current market rates for instruments with similar maturities. The carrying Long-term Debt The Corporation uses quoted market prices, when available, to estimate fair value for its long-term debt. When quoted market prices are not available, fair value is estimated based on current market interest rates and credit spreads for debt with similar terms and maturities. The Corporation accounts for certain structured liabilities under the fair value option. Fair Value of Financial Instruments The carrying values and fair values by fair value hierarchy of certain financial instruments where only a portion of the ending balance was carried at fair value at December 31, 2015 and 2014 are presented in the table below. Fair Value of Financial Instruments December 31, 2015 Fair Value Carrying Value Level 2 Level 3 Total (Dollars in millions) Financial assets Loans Loans held-for-sale $ 863,561 7,453 $ 70,223 5,347 $ 805,371 2,106 $ 875,594 7,453 Financial liabilities Deposits Long-term debt Financial assets 1,197,259 236,764 1,197,577 239,596 — 1,197,577 241,109 1,513 December 31, 2014 Loans Loans held-for-sale $ 842,259 12,836 $ 87,174 12,236 $ 776,370 618 $ 863,544 12,854 Financial liabilities Deposits Long-term debt 1,118,936 243,139 1,119,427 249,692 — 1,119,427 252,054 2,362 Commercial Unfunded Lending Commitments Fair values were generally determined using a discounted cash flow valuation approach which is applied using market-based CDS or internally developed benchmark credit curves. The Corporation accounts for certain loan commitments under the fair value option. The carrying values and fair values of the Corporation’s commercial unfunded lending commitments were $1.3 billion and $6.3 billion at December 31, 2015, and $932 million and $3.8 billion at December 31, 2014. Commercial unfunded lending commitments are primarily classified as Level 3. The carrying value of these commitments is classified in accrued expenses and other liabilities. The Corporation does not estimate the fair values of consumer unfunded lending commitments because, in many instances, the Corporation can reduce or cancel these commitments by providing notice to the borrower. For more information on commitments, see Note 12 – Commitments and Contingencies. Bank of America 2015 241 Significant economic assumptions in estimating the fair value of MSRs at December 31, 2015 and 2014 are presented below. The change in fair value as a result of changes in OAS rates is included within “Model and other cash flow assumption changes” in the Rollforward of Mortgage Servicing Rights table. The weighted- average life is not an input in the valuation model but is a product of both changes in market rates of interest and changes in model and other cash flow assumptions. The weighted-average life represents the average period of time that the MSRs’ cash flows are expected to be received. Absent other changes, an increase (decrease) to the weighted-average life would generally result in an increase (decrease) in the fair value of the MSRs. Significant Economic Assumptions Weighted-average OAS Weighted-average life, in years December 31 2015 2014 Fixed 4.62% 4.46 Adjustable 7.61% 3.43 Fixed 4.52% 4.53 Adjustable 7.61% 2.95 The table below presents the sensitivity of the weighted- average lives and fair value of MSRs to changes in modeled assumptions. These sensitivities are hypothetical and should be used with caution. As the amounts indicate, changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of MSRs that continue to be held by the Corporation is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. The below sensitivities do not reflect any hedge strategies that may be undertaken to mitigate such risk. Sensitivity Impacts (Dollars in millions) Prepayment rates December 31, 2015 Change in Weighted-average Lives Fixed Adjustable Change in Fair Value Impact of 10% decrease Impact of 20% decrease 0.30 years 0.64 0.26 years 0.55 $ 183 389 Impact of 10% increase Impact of 20% increase (0.26) (0.50) (0.23) (0.43) OAS level Impact of 100 bps decrease Impact of 200 bps decrease Impact of 100 bps increase Impact of 200 bps increase $ (163) (310) 124 259 (115) (221) NOTE 23 Mortgage Servicing Rights The Corporation accounts for consumer MSRs at fair value with changes in fair value primarily recorded in mortgage banking income in the Consolidated Statement of Income. The Corporation manages the risk in these MSRs with derivatives such as options and interest rate swaps, which are not designated as accounting hedges, as well as securities including MBS and U.S. Treasury securities. The securities used to manage the risk in the MSRs are classified in other assets with changes in the fair value of the securities and the related interest income recorded in mortgage banking income. The table below presents activity for residential mortgage and home equity MSRs for 2015 and 2014. Rollforward of Mortgage Servicing Rights (Dollars in millions) Balance, January 1 Additions Sales Amortization of expected cash flows (1) Impact of changes in interest rates and other market factors (2) Model and other cash flow assumption changes: (3) Projected cash flows, including changes in costs $ 2015 3,530 637 (393) (874) 2014 $ 5,042 707 (61) (927) 41 (1,191) to service loans 100 (163) Impact of changes in the Home Price Index Impact of changes to the prepayment model Other model changes (4) Balance, December 31 (5) (13) (10) 69 3,087 394 (25) 243 (95) $ 3,530 490 $ $ $ Mortgage loans serviced for investors (in billions) (1) Represents the net change in fair value of the MSR asset due to the recognition of modeled cash flows. (2) These amounts reflect the changes in modeled MSR fair value primarily due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve and periodic adjustments to valuation based on third-party discovery. (3) These amounts reflect periodic adjustments to the valuation model to reflect changes in the modeled relationship between inputs and their impact on projected cash flows as well as changes in certain cash flow assumptions such as cost to service and ancillary income per loan. (4) These amounts include the impact of periodic recalibrations of the model to reflect changes in the relationship between market interest rate spreads and projected cash flows. Also included is a decrease of $127 million for 2014 due to changes in option-adjusted spread rate assumptions. (5) At December 31, 2015, includes $2.7 billion of U.S. and $407 million of non-U.S. consumer MSR balances compared to $3.3 billion and $259 million at December 31, 2014. The Corporation primarily uses an option-adjusted spread (OAS) valuation approach which factors in prepayment risk to determine the fair value of MSRs. This approach consists of projecting servicing cash flows under multiple interest rate scenarios and discounting these cash flows using risk-adjusted discount rates. In addition to updating the valuation model for interest, discount and prepayment rates, periodic adjustments are made to recalibrate the valuation model for factors used to project cash flows. The changes to the factors capture the effect of variances related to actual versus estimated servicing proceeds. 242 Bank of America 2015 NOTE 23 Mortgage Servicing Rights The Corporation accounts for consumer MSRs at fair value with changes in fair value primarily recorded in mortgage banking income in the Consolidated Statement of Income. The Corporation manages the risk in these MSRs with derivatives such as options and interest rate swaps, which are not designated as accounting hedges, as well as securities including MBS and U.S. Treasury securities. The securities used to manage the risk in the MSRs are classified in other assets with changes in the fair value of the securities and the related interest income recorded in mortgage banking income. The table below presents activity for residential mortgage and home equity MSRs for 2015 and 2014. Rollforward of Mortgage Servicing Rights (Dollars in millions) Balance, January 1 Additions Sales Amortization of expected cash flows (1) Impact of changes in interest rates and other market factors (2) Model and other cash flow assumption changes: (3) Projected cash flows, including changes in costs to service loans Impact of changes in the Home Price Index Impact of changes to the prepayment model Other model changes (4) Balance, December 31 (5) Mortgage loans serviced for investors (in billions) 2015 2014 $ 3,530 $ 5,042 637 (393) (874) 707 (61) (927) 41 (1,191) 100 (13) (10) 69 (163) (25) 243 (95) $ $ 3,087 $ 3,530 394 $ 490 cash flows. loan. assumptions. (1) Represents the net change in fair value of the MSR asset due to the recognition of modeled (2) These amounts reflect the changes in modeled MSR fair value primarily due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve and periodic adjustments to valuation based on third-party discovery. (3) These amounts reflect periodic adjustments to the valuation model to reflect changes in the modeled relationship between inputs and their impact on projected cash flows as well as changes in certain cash flow assumptions such as cost to service and ancillary income per (4) These amounts include the impact of periodic recalibrations of the model to reflect changes in the relationship between market interest rate spreads and projected cash flows. Also included is a decrease of $127 million for 2014 due to changes in option-adjusted spread rate (5) At December 31, 2015, includes $2.7 billion of U.S. and $407 million of non-U.S. consumer MSR balances compared to $3.3 billion and $259 million at December 31, 2014. Significant economic assumptions in estimating the fair value of MSRs at December 31, 2015 and 2014 are presented below. The change in fair value as a result of changes in OAS rates is included within “Model and other cash flow assumption changes” in the Rollforward of Mortgage Servicing Rights table. The weighted- average life is not an input in the valuation model but is a product of both changes in market rates of interest and changes in model and other cash flow assumptions. The weighted-average life represents the average period of time that the MSRs’ cash flows are expected to be received. Absent other changes, an increase (decrease) to the weighted-average life would generally result in an increase (decrease) in the fair value of the MSRs. Significant Economic Assumptions December 31 2015 2014 Fixed Adjustable Fixed Adjustable Weighted-average OAS Weighted-average life, in years 4.62% 4.46 7.61% 3.43 4.52% 4.53 7.61% 2.95 The table below presents the sensitivity of the weighted- average lives and fair value of MSRs to changes in modeled assumptions. These sensitivities are hypothetical and should be used with caution. As the amounts indicate, changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of MSRs that continue to be held by the Corporation is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. The below sensitivities do not reflect any hedge strategies that may be undertaken to mitigate such risk. Sensitivity Impacts The Corporation primarily uses an option-adjusted spread (OAS) valuation approach which factors in prepayment risk to determine the fair value of MSRs. This approach consists of projecting servicing cash flows under multiple interest rate scenarios and discounting these cash flows using risk-adjusted discount rates. In addition to updating the valuation model for (Dollars in millions) Prepayment rates Impact of 10% decrease Impact of 20% decrease Impact of 10% increase Impact of 20% increase interest, discount and prepayment rates, periodic adjustments are OAS level made to recalibrate the valuation model for factors used to project cash flows. The changes to the factors capture the effect of variances related to actual versus estimated servicing proceeds. Impact of 100 bps decrease Impact of 200 bps decrease Impact of 100 bps increase Impact of 200 bps increase December 31, 2015 Change in Weighted-average Lives Fixed Adjustable Change in Fair Value 0.30 years 0.26 years $ 0.64 (0.26) (0.50) 0.55 (0.23) (0.43) $ 183 389 (163) (310) 124 259 (115) (221) NOTE 24 Business Segment Information The Corporation reports its results of operations through the following five business segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking, Global Markets and Legacy Assets & Servicing (LAS), with the remaining operations recorded in All Other. Consumer Banking Consumer Banking offers a diversified range of credit, banking and investment products and services to consumers and small businesses. Consumer Banking product offerings include traditional savings accounts, money market savings accounts, CDs and IRAs, noninterest- and interest-bearing checking accounts, investment accounts and products, as well as credit and debit cards, residential mortgages and home equity loans, and direct and indirect loans to consumers and small businesses in the U.S. Customers and clients have access to a franchise network that stretches coast to coast through 33 states and the District of Columbia. The franchise network includes approximately 4,700 financial centers, 16,000 ATMs, nationwide call centers, and online and mobile platforms. Global Wealth & Investment Management GWIM provides a high-touch client experience through a network of financial advisors focused on clients with over $250,000 in total investable assets, including tailored solutions to meet clients’ needs through a full set of investment management, brokerage, banking and retirement products. GWIM also provides comprehensive wealth management solutions targeted to high net worth and ultra high net worth clients, as well as customized solutions to meet clients’ wealth structuring, investment management, trust and banking needs, including specialty asset management services. Global Banking Global Banking provides a wide range of lending-related products and services, integrated working capital management and treasury solutions to clients, and underwriting and advisory services through the Corporation’s network of offices and client relationship teams. Global Banking’s lending products and services include commercial loans, leases, commitment facilities, trade finance, real estate lending and asset-based lending. Global Banking’s treasury solutions business includes treasury management, foreign exchange and short-term investing options. Global Banking also provides investment banking products to clients such as debt and equity underwriting and distribution, and merger-related and other advisory services. The economics of most investment banking and underwriting activities are shared primarily between Global Banking and Global Markets based on the activities performed by each segment. Global Banking clients generally include middle-market companies, commercial real estate firms, large global auto dealerships, not-for-profit companies, corporations, financial institutions, leasing clients, and mid-sized U.S.-based businesses requiring customized and integrated financial advice and solutions. Global Markets Global Markets offers sales and trading services, including research, to institutional clients across fixed-income, credit, currency, commodity and equity businesses. Global Markets product coverage includes securities and derivative products in both the primary and secondary markets. Global Markets provides market-making, financing, securities clearing, settlement and custody services globally to institutional investor clients in support of their investing and trading activities. Global Markets also works with commercial and corporate clients to provide risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income and mortgage-related products. As a result of market-making activities in these products, Global Markets may be required to manage risk in a broad range of financial products including government securities, equity and equity-linked securities, high-grade and high-yield corporate debt securities, syndicated loans, MBS, commodities and ABS. In addition, the economics of most investment banking and underwriting activities are shared primarily between Global Markets and Global Banking based on the activities performed by each segment. Legacy Assets & Servicing LAS is responsible for mortgage servicing activities related to residential first mortgage and home equity loans serviced for others and loans held by the Corporation, including loans that have been designated as the LAS Portfolios, and manages certain legacy exposures related to mortgage origination, sales and servicing activities (e.g., litigation, representations and warranties). LAS also includes the results of MSR activities, including net hedge results. Home equity loans are held on the balance sheet of LAS, and residential mortgage loans are included as part of All Other. The financial results of the on-balance sheet loans are reported in the segment that owns the loans or in All Other. 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 certain residential mortgages, debt 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. The results of certain ALM activities are allocated to the business segments. Additionally, certain residential mortgage loans that are managed by LAS are held in All Other. 242 Bank of America 2015 Bank of America 2015 243 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. Further, net interest income on an FTE basis includes market-related adjustments, which are adjustments to net interest income to reflect the impact of changes in long-term interest rates on the estimated lives of mortgage- related debt securities thereby impacting premium amortization. Also is hedge ineffectiveness that impacts net interest income. in market-related adjustments included In addition, the business segments are impacted by the migration of customers and clients and their deposit, loan and brokerage balances between 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. 244 Bank of America 2015 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. Further, net interest income on an FTE basis includes market-related adjustments, which are adjustments to net interest income to reflect the impact of changes in long-term interest rates on the estimated lives of mortgage- related debt securities thereby impacting premium amortization. Also included in market-related adjustments is hedge ineffectiveness that impacts net interest income. In addition, the business segments are impacted by the migration of customers and clients and their deposit, loan and brokerage balances between 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. The table below presents net income (loss) and the components thereto (with net interest income on an FTE basis) for 2015, 2014 and 2013, and total assets at December 31, 2015 and 2014 for each business segment, as well as All Other. Results for Business Segments and All Other At and for the Year Ended December 31 Total Corporation (1) Consumer Banking Global Wealth & Investment Management 2015 2014 2013 2015 2014 2013 40,160 $ 43,256 83,416 3,161 57,192 23,063 7,175 15,888 $ 40,821 $ 43,124 46,677 44,295 89,801 85,116 3,556 2,275 69,214 75,117 17,031 7,724 5,600 2,891 4,833 $ 11,431 $ $ 2,144,316 $ 2,104,534 2015 2013 2014 $ 19,844 $ 20,177 $ 20,619 11,313 31,932 3,166 18,865 9,901 3,630 6,271 10,774 30,618 2,524 17,485 10,609 3,870 6,739 $ $ 636,464 $588,878 10,632 30,809 2,680 17,865 10,264 3,828 6,436 $ $ $ 5,499 $ 5,836 $ 12,502 18,001 51 13,843 4,107 1,498 2,609 $ $ 296,139 $274,887 12,568 18,404 14 13,654 4,736 1,767 2,969 $ $ (Dollars in millions) Net interest income (FTE basis) Noninterest income $ Total revenue, net of interest expense (FTE basis) Provision for credit losses Noninterest expense Income before income taxes (FTE basis) Income tax expense (FTE basis) Net income Year-end total assets Net interest income (FTE basis) Noninterest income Total revenue, net of interest expense (FTE basis) Provision for credit losses Noninterest expense Income before income taxes (FTE basis) Income tax expense (FTE basis) Net income Year-end total assets Net interest income (FTE basis) Noninterest income Total revenue, net of interest expense (FTE basis) Provision for credit losses Noninterest expense Loss before income taxes (FTE basis) Income tax benefit (FTE basis) Net income (loss) Year-end total assets (1) There were no material intersegment revenues. 6,064 11,726 17,790 56 13,039 4,695 1,722 2,973 2013 4,237 11,221 15,458 140 12,094 3,224 2,090 1,134 Global Banking 2014 2015 2013 2015 Global Markets 2014 $ 9,254 $ 7,665 16,919 685 7,888 8,346 3,073 5,273 $ 9,810 $ 7,797 17,607 322 8,170 9,115 3,346 5,769 $ $ $ 382,043 $353,637 9,692 7,744 17,436 1,142 8,051 8,243 3,024 5,219 $ 4,338 $ 4,004 $ 10,729 15,067 99 11,310 3,658 1,162 2,496 $ $ 551,587 $579,594 12,184 16,188 110 11,862 4,216 1,511 2,705 $ $ Legacy Assets & Servicing 2014 2015 2013 2015 All Other 2014 2013 $ $ 1,573 $ 1,857 3,430 144 4,451 (1,165) (425) (740) $ (13,110) $ (4,883) $ 1,520 $ 1,156 2,676 127 20,633 (18,084) (4,974) 1,552 2,872 4,424 (283) 12,416 (7,709) (2,826) (348) $ (271) (619) (342) 2,215 (2,492) (2,003) (526) $ (42) (568) (978) 2,933 (2,523) (2,587) 960 1,801 2,761 (665) 4,749 (1,323) (2,040) 717 $ $ 47,292 $ 45,957 (489) $ $ 230,791 $261,581 64 $ 244 Bank of America 2015 Bank of America 2015 245 The table below presents a reconciliation of the five business segments’ total revenue, net of interest expense, on an FTE basis, and net income to the Consolidated Statement of Income, and total assets to the Consolidated Balance Sheet. The adjustments presented in the table below include consolidated income, expense and asset amounts not specifically allocated to individual business segments. Business Segment Reconciliations (Dollars in millions) Segments’ total revenue, net of interest expense (FTE basis) Adjustments: ALM activities Equity investment income Liquidating businesses and other FTE basis adjustment Consolidated revenue, net of interest expense Segments’ total net income Adjustments, net-of-taxes: ALM activities Equity investment income Liquidating businesses and other Consolidated net income Segments’ total assets Adjustments: ALM activities, including securities portfolio Equity investments Liquidating businesses and other Elimination of segment asset allocations to match liabilities Consolidated total assets 2015 2014 2013 $ 84,035 $ 85,684 $ 87,040 237 — (856) (909) 82,507 16,377 (305) — (184) 15,888 $ $ $ (804) 727 (491) (869) 84,247 4,769 (343) 454 (47) 4,833 $ $ $ (545) 2,737 569 (859) 88,942 10,714 (929) 1,724 (78) 11,431 $ $ $ December 31 2015 $ 1,913,525 2014 $ 1,842,953 681,876 4,297 63,465 (518,847) $ 2,144,316 658,319 4,871 73,008 (474,617) $ 2,104,534 246 Bank of America 2015 segments. (Dollars in millions) Adjustments: ALM activities Business Segment Reconciliations Segments’ total revenue, net of interest expense (FTE basis) Consolidated revenue, net of interest expense Equity investment income Liquidating businesses and other FTE basis adjustment Segments’ total net income Adjustments, net-of-taxes: ALM activities Equity investment income Liquidating businesses and other Consolidated net income Segments’ total assets Adjustments: ALM activities, including securities portfolio Equity investments Liquidating businesses and other Elimination of segment asset allocations to match liabilities Consolidated total assets 2015 2014 2013 $ 84,035 $ 85,684 $ 87,040 $ $ 82,507 16,377 $ $ 84,247 4,769 $ $ 88,942 10,714 237 — (856) (909) (305) — (184) (804) 727 (491) (869) (343) 454 (47) (545) 2,737 569 (859) (929) 1,724 (78) $ 15,888 $ 4,833 $ 11,431 December 31 2015 2014 $ 1,913,525 $ 1,842,953 681,876 4,297 63,465 658,319 4,871 73,008 (518,847) (474,617) $ 2,144,316 $ 2,104,534 The table below presents a reconciliation of the five business segments’ total revenue, net of interest expense, on an FTE basis, and net income to the Consolidated Statement of Income, and total assets to the Consolidated Balance Sheet. The adjustments presented in the table below include consolidated income, expense and asset amounts not specifically allocated to individual business NOTE 25 Parent Company Information The following tables present the Parent Company-only financial information. This financial information is presented in accordance with bank regulatory reporting requirements. Condensed Statement of Income (Dollars in millions) Income Dividends from subsidiaries: Bank holding companies and related subsidiaries Nonbank companies and related subsidiaries Interest from subsidiaries Other income (loss) Total income Expense Interest on borrowed funds from related subsidiaries Other interest expense Noninterest expense Total expense Income (loss) before income taxes and equity in undistributed earnings of subsidiaries Income tax benefit Income (loss) before equity in undistributed earnings of subsidiaries Equity in undistributed earnings (losses) of subsidiaries: Bank holding companies and related subsidiaries Nonbank companies and related subsidiaries Total equity in undistributed earnings (losses) of subsidiaries Net income Condensed Balance Sheet (Dollars in millions) Assets Cash held at bank subsidiaries (1) Securities Receivables from subsidiaries: Bank holding companies and related subsidiaries Banks and related subsidiaries Nonbank companies and related subsidiaries Investments in subsidiaries: Bank holding companies and related subsidiaries Nonbank companies and related subsidiaries Other assets Total assets Liabilities and shareholders’ equity Short-term borrowings Accrued expenses and other liabilities Payables to subsidiaries: Banks and related subsidiaries Nonbank companies and related subsidiaries Long-term debt Total liabilities Shareholders’ equity Total liabilities and shareholders’ equity (1) Balance includes third-party cash held of $28 million and $29 million at December 31, 2015 and 2014. 2015 2014 2013 $ $ 18,970 53 2,004 (623) 20,404 1,169 5,098 4,747 11,014 9,390 (3,574) 12,964 3,120 (196) 2,924 15,888 $ $ 12,400 149 1,836 72 14,457 1,661 5,552 4,471 11,684 2,773 (4,079) 6,852 8,532 357 2,087 233 11,209 1,730 6,379 10,938 19,047 (7,838) (7,227) (611) 3,613 (5,632) (2,019) 4,833 14,150 (2,108) 12,042 $ 11,431 $ December 31 2015 2014 $ 98,024 937 $ 100,304 932 23,594 569 56,426 23,356 2,395 52,251 272,596 2,402 9,360 $ 463,908 270,441 2,139 14,599 $ 466,417 $ 15 13,900 $ 46 16,872 465 13,921 179,402 207,703 256,205 $ 463,908 2,559 17,698 185,771 222,946 243,471 $ 466,417 246 Bank of America 2015 Bank of America 2015 247 Condensed Statement of Cash Flows (Dollars in millions) Operating activities Net income Reconciliation of net income to net cash provided by (used in) operating activities: Equity in undistributed (earnings) losses of subsidiaries Other operating activities, net Net cash provided by (used in) operating activities Investing activities Net sales (purchases) of securities Net payments from (to) subsidiaries Other investing activities, net Net cash provided by (used in) investing activities Financing activities Net increase (decrease) in short-term borrowings Net increase (decrease) in other advances Proceeds from issuance of long-term debt Retirement of long-term debt Proceeds from issuance of preferred stock Redemption of preferred stock Common stock repurchased Cash dividends paid Net cash used in financing activities Net increase (decrease) in cash held at bank subsidiaries Cash held at bank subsidiaries at January 1 Cash held at bank subsidiaries at December 31 2015 2014 2013 $ 15,888 $ 4,833 $ 11,431 (2,924) (2,509) 10,455 15 (7,944) 70 (7,859) (221) (770) 26,492 (27,393) 2,964 — (2,374) (3,574) (4,876) (2,280) 100,304 98,024 $ 2,019 2,143 8,995 (142) (5,902) 19 (6,025) (12,042) (10,422) (11,033) 459 39,336 3 39,798 (55) 1,264 29,324 (33,854) 5,957 — (1,675) (2,306) (1,345) 1,625 98,679 $ 100,304 178 (14,378) 30,966 (39,320) 1,008 (6,461) (3,220) (1,677) (32,904) (4,139) 102,818 $ 98,679 248 Bank of America 2015 Reconciliation of net income to net cash provided by (used in) operating activities: Condensed Statement of Cash Flows (Dollars in millions) Operating activities Net income Equity in undistributed (earnings) losses of subsidiaries Other operating activities, net Net cash provided by (used in) operating activities Investing activities Net sales (purchases) of securities Net payments from (to) subsidiaries Other investing activities, net Net cash provided by (used in) investing activities Financing activities Net increase (decrease) in short-term borrowings Net increase (decrease) in other advances Proceeds from issuance of long-term debt Retirement of long-term debt Proceeds from issuance of preferred stock Redemption of preferred stock Common stock repurchased Cash dividends paid Net cash used in financing activities Net increase (decrease) in cash held at bank subsidiaries Cash held at bank subsidiaries at January 1 Cash held at bank subsidiaries at December 31 2015 2014 2013 $ 15,888 $ 4,833 $ 11,431 (7,859) (6,025) 39,798 (2,924) (2,509) 10,455 (7,944) 15 70 (221) (770) 26,492 (27,393) 2,964 — (2,374) (3,574) (4,876) (2,280) 100,304 2,019 2,143 8,995 (142) (5,902) 19 (55) 1,264 29,324 (33,854) 5,957 — (1,675) (2,306) (1,345) 1,625 98,679 (12,042) (10,422) (11,033) 459 39,336 3 178 (14,378) 30,966 (39,320) 1,008 (6,461) (3,220) (1,677) (32,904) (4,139) 102,818 NOTE 26 Performance by Geographical Area Since the Corporation’s operations are highly integrated, certain asset, liability, income and expense amounts must be allocated to arrive at total assets, total revenue, net of interest expense, income before income taxes and net income (loss) by geographic area. The Corporation identifies its geographic performance based on the business unit structure used to manage the capital or expense deployed in the region as applicable. This requires certain judgments related to the allocation of revenue so that revenue can be appropriately matched with the related capital or expense deployed in the region. (Dollars in millions) U.S. (3) Asia (4) Europe, Middle East and Africa Latin America and the Caribbean Total Non-U.S. $ 98,024 $ 100,304 $ 98,679 Total Consolidated December 31 Year Ended December 31 Total Assets (1) Total Revenue, Net of Interest Expense (2) Income Before Income Taxes Net Income (Loss) $ 1,849,128 1,792,719 $ 86,994 92,005 178,899 190,365 29,295 29,445 295,188 311,815 $ 2,144,316 2,104,534 $ $ $ 71,659 72,960 76,612 3,524 3,605 4,442 6,081 6,409 6,353 1,243 1,273 1,535 10,848 11,287 12,330 82,507 84,247 88,942 $ $ 20,148 4,643 13,221 726 759 1,382 938 1,098 1,003 342 355 566 2,006 2,212 2,951 22,154 6,855 16,172 14,689 3,305 10,588 457 473 887 516 813 (403) 226 242 359 1,199 1,528 843 15,888 4,833 11,431 Year 2015 2014 2013 2015 2014 2013 2015 2014 2013 2015 2014 2013 2015 2014 2013 2015 2014 2013 (1) Total assets include long-lived assets, which are primarily located in the U.S. (2) There were no material intercompany revenues between geographic regions for any of the periods presented. (3) Substantially reflects the U.S. (4) Amounts include pretax gains of $753 million ($474 million net-of-tax) on the sale of common shares of CCB during 2013. 248 Bank of America 2015 Bank of America 2015 249 Disclosure Controls and Procedures Bank of America Corporation and Subsidiaries As of the end of the period covered by this report and pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (Exchange Act), Bank of America’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness and design of our disclosure controls and procedures (as that term is defined in Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, Bank of America’s Chief Executive Officer and Chief Financial Officer concluded that Bank of America’s disclosure controls and procedures were effective, as of the end of the period covered by this report, in recording, processing, summarizing and reporting information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act, within the time periods specified in the Securities and Exchange Commission’s rules and forms. 250 Bank of America 2015 Disclosure Controls and Procedures Bank of America Corporation and Subsidiaries Executive Management Team and Board of Directors Executive Management Team and Board of Directors Bank of America Corporation Bank of America Corporation Bank of America — 2015 Annual Report 022210 BAC_AR15_Financials_v15 03/02/16 page 267 As of the end of the period covered by this report and pursuant to Bank of America’s disclosure controls and procedures were Rule 13a-15 of the Securities Exchange Act of 1934 (Exchange effective, as of the end of the period covered by this report, in Act), Bank of America’s management, including the Chief Executive recording, processing, summarizing and reporting information Officer and Chief Financial Officer, conducted an evaluation of the required to be disclosed by the Corporation in reports that it files effectiveness and design of our disclosure controls and or submits under the Exchange Act, within the time periods procedures (as that term is defined in Rule 13a-15(e) of the specified in the Securities and Exchange Commission’s rules and Exchange Act). Based upon that evaluation, Bank of America’s forms. Chief Executive Officer and Chief Financial Officer concluded that Board of Directors Board of Directors Brian T. Moynihan Brian T. Moynihan Chairman of the Board and Chairman of the Board and Chief Executive Officer Chief Executive Officer Bank of America Corporation Bank of America Corporation Jack O. Bovender, Jr. Jack O. Bovender, Jr. Lead Independent Director Lead Independent Director Bank of America Corporation Bank of America Corporation Former Chairman and Former Chairman and Chief Executive Officer Chief Executive Officer HCA, Inc. HCA, Inc. Sharon L. Allen Sharon L. Allen Former Chairman Former Chairman Deloitte LLP Deloitte LLP Susan S. Bies Susan S. Bies Former Member Former Member Board of Governors of the Board of Governors of the Federal Reserve System Federal Reserve System Frank P. Bramble, Sr. Frank P. Bramble, Sr. Former Executive Officer Former Executive Officer MBNA Corporation MBNA Corporation Pierre J. P. de Weck Pierre J. P. de Weck Former Chairman and Global Head Former Chairman and Global Head of Private Wealth Management of Private Wealth Management Deutsche Bank AG Deutsche Bank AG Arnold W. Donald Arnold W. Donald President and Chief Executive Officer President and Chief Executive Officer Carnival Corporation and Carnival plc Carnival Corporation and Carnival plc Charles K. Gifford** Charles K. Gifford** Former Chairman of the Board Former Chairman of the Board Bank of America Corporation Bank of America Corporation Linda P. Hudson Linda P. Hudson Chairman and Chief Executive Officer Chairman and Chief Executive Officer The Cardea Group, LLC The Cardea Group, LLC Former President and Former President and Chief Executive Officer Chief Executive Officer BAE Systems, Inc. BAE Systems, Inc. Monica C. Lozano Monica C. Lozano Former Chairman Former Chairman US Hispanic Media Inc. US Hispanic Media Inc. Thomas J. May Thomas J. May Chairman, President and Chairman, President and Chief Executive Officer Chief Executive Officer Eversource Energy Eversource Energy Lionel L. Nowell, III Lionel L. Nowell, III Former Senior Vice President Former Senior Vice President and Treasurer and Treasurer PepsiCo, Inc. PepsiCo, Inc. R. David Yost R. David Yost Former Chief Executive Officer Former Chief Executive Officer Amerisource Bergen Corporation Amerisource Bergen Corporation Executive Management Team Executive Management Team Brian T. Moynihan* Brian T. Moynihan* Chairman of the Board and Chairman of the Board and Chief Executive Officer Chief Executive Officer Dean C. Athanasia* Dean C. Athanasia* President, Preferred and President, Preferred and Small Business Banking and Small Business Banking and Co-head — Consumer Banking Co-head — Consumer Banking Catherine P. Bessant* Catherine P. Bessant* Chief Operations and Technology Officer Chief Operations and Technology Officer Sheri B. Bronstein Sheri B. Bronstein Global Human Resources Executive Global Human Resources Executive Paul M. Donofrio* Paul M. Donofrio* Chief Financial Officer Chief Financial Officer Anne M. Finucane Anne M. Finucane Vice Chairman Vice Chairman Geoffrey S. Greener* Geoffrey S. Greener* Chief Risk Officer Chief Risk Officer Christine P. Katziff Christine P. Katziff Corporate General Auditor Corporate General Auditor Terrence P. Laughlin* Terrence P. Laughlin* Vice Chairman, Global Wealth and Vice Chairman, Head of Global Wealth Investment Management and Investment Management David G. Leitch* David G. Leitch* Global General Counsel Global General Counsel Gary G. Lynch Gary G. Lynch Vice Chairman Vice Chairman Thomas K. Montag* Thomas K. Montag* Chief Operating Officer Chief Operating Officer Thong M. Nguyen* Thong M. Nguyen* President, Retail Banking and President, Retail Banking and Co-head — Consumer Banking Co-head — Consumer Banking Andrea B. Smith* Andrea B. Smith* Chief Administrative Officer Chief Administrative Officer Bruce R. Thompson Bruce R. Thompson Vice Chairman Vice Chairman 250 Bank of America 2015 Bank of America 2015 251 267 * Executive Officer * Executive Officer ** Not standing for reelection at the 2016 Annual Meeting of Stockholders ** Not standing for reelection at the 2016 Annual Meeting of Stockholders BAC_AR15_Financials_v15.indd 267 3/2/16 6:26 PM Corporate Information Bank of America Corporation Headquarters The principal executive offices of Bank of America Corporation (the Corporation) are located in the Bank of America Corporate Center, 100 North Tryon Street, Charlotte, NC 28255. Stock Listing The Corporation’s common stock is listed on the New York Stock Exchange (NYSE) under the symbol BAC. The Corporation’s common stock is also listed on the London Stock Exchange, and certain shares are listed on the Tokyo Stock Exchange. The stock is typically listed as BankAm in newspapers. As of February 12, 2016, there were 193,594 registered holders of the Corporation’s common stock. Investor Relations Analysts, portfolio managers and other investors seeking additional information about Bank of America stock should contact our Equity Investor Relations group at 1.704.386.5681 or i_r@bankofamerica.com. For additional information about Bank of America from a credit perspective, including debt and preferred securities, contact our Fixed Income Investor Relations group at 1.866.607.1234 or fixedincomeir@bankofamerica.com. Visit the Investor Relations area of the Bank of America website, http://investor.bankofamerica.com, for stock and dividend information, financial news releases, links to Bank of America SEC filings, electronic versions of our annual reports and other items of interest to the Corporation’s shareholders. Customers For assistance with Bank of America products and services, call 1.800.432.1000, or visit the Bank of America website at www.bankofamerica.com. Additional toll-free numbers for specific products and services are listed on our website at www.bankofamerica.com/contact. News Media News media seeking information should visit our online newsroom at www.bankofamerica.com/newsroom for news releases, speeches and other items relating to the Corporation, including a complete list of the Corporation’s media relations specialists grouped by business specialty or geography. Annual Report on Form 10-K The Corporation’s 2015 Annual Report on Form 10-K is available at http://investor.bankofamerica.com. The Corporation also will provide a copy of the 2015 Annual Report on Form 10-K (without exhibits) upon written request addressed to: Bank of America Corporation Office of the Corporate Secretary NC1-027-18-05 Hearst Tower, 214 North Tryon Street Charlotte, NC 28255 Shareholder Inquiries For inquiries concerning dividend checks, electronic deposit of dividends, dividend reinvestment, tax statements, electronic delivery, transferring ownership, address changes or lost or stolen stock certificates, contact Bank of America Shareholder Services at Computershare Trust Company, N.A. via the Internet at www.computershare.com/bac; call 1.800.642.9855; or write to P.O. Box 43078, Providence, RI 02940-3078. For general shareholder information, contact Bank of America Office of the Corporate Secretary at 1.800.521.3984. Shareholders outside of the United States and Canada may call 1.781.575.2621. Electronic Delivery As part of our ongoing commitment to reduce paper consumption, we offer electronic methods for customer communications and transactions. Customers can sign up to receive online statements through their Bank of America or Merrill Lynch account website. In 2012, we adopted the SEC’s Notice and Access rule, which allows certain issuers to inform shareholders of the electronic availability of Proxy materials, including the Annual Report, which significantly reduced the number of printed copies we produce and mail to shareholders. Shareholders still receiving printed copies can join our efforts by electing to receive an electronic copy of the Annual Report and Proxy materials. If you have an account maintained in your name at Computershare Investor Services, you may sign up for this service at www.computershare.com/bac. If your shares are held by a broker, bank or other nominee, you may elect to receive electronic delivery of the Annual Report and Proxy materials online at www.proxyvote.com, or contact your broker. 252 Bank of America 2015 A Note of Introduction from Lead Independent Director, Jack Bovender To our shareholders: On behalf of the directors of your company, I join our CEO and the management team in thanking you for choosing to invest in Bank of America. I also want to take this opportunity to add to Brian’s letter, which highlights the Board’s independent oversight of management and our focus on building long-term shareholder value. You are represented by a strong independent Board. As a steward of the company on your behalf, the Board is focused on the active and independent oversight of management. The Board oversees risk management, our governance, and carries out other important duties in coordination with Board committees that have strong, experienced chairs and members. To enhance the Board’s effectiveness, we conduct intensive and thoughtful annual self- assessments, regularly evaluate our leadership structure, and review feedback from shareholders. We have strengthened our director recruiting process to deepen our diversity of thought and experience, broaden our demographic, and bring on fresh perspectives that invigorate our discourse with management and with each other. We are committed to engaging with shareholders, and we have made enhancements to our corporate governance practices that are informed by the feedback from our engagement. The Board also regularly evaluates the company’s strategy, operating environment, performance, and the progress your company is making toward its goals. Over several days each fall, in anticipation of the coming year, we engage in a thorough review with management of the company’s multi-year strategy. We assess how the company has performed against the prior year’s plan. We examine how well the businesses are delivering for our customers and clients under the strategic plan, as well as the processes the company has in place to increase revenue, manage risk and expenses, and grow. We also consider the operating environment and management assumptions about how the environment will affect the company’s results and returns. During our regular meetings throughout the year, we further monitor and evaluate shorter-term issues and how they may impact the company’s execution of its strategy and its progress toward building long-term shareholder value. Throughout 2015, I had the pleasure of continuing to meet with our shareholders to discuss our strategic planning process and corporate governance practices. Hearing directly from these shareholders, as well as from regulators with whom we regularly visit, provides me and the other independent Board members important perspective. I look forward to more meetings in 2016. I encourage you to carefully review this report, our 2016 proxy statement, our forthcoming Business Standards Report, and the other materials the company makes available to shareholders to better understand the opportunities and challenges ahead and the company’s work to execute its strategy. We remain committed to building long-term value in the company and returning value to you, our shareholders. Sincerely, Jack O. Bovender, Jr. Lead Independent Director Responsible Growth When we look at where we stand today, our company is stronger, simpler, and better positioned to deliver long- term value to our shareholders, thanks to the straightforward way in which we serve our customers and clients. The path forward is clearly one of responsible growth. Responsible growth has four pillars: Grow and Win in the Market — No Excuses Page 4 Grow With Our Customer-Focused Strategy Page 7 Grow Within Our Risk Framework Page 8 Grow in a Sustainable Manner Page 11 u r m e r P g e r G y b 5 1 - 4 1 s e g a p ; i n k t o P l l e o J y b r e v o c : y h p a r g o t o h P m o c . i n o s d d a . w w w i n o s d d A y b i n g s e D Investment products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value Global Wealth & Investment Management is a division of Bank of America Corporation (“BofA Corp.”). Merrill Lynch, Merrill Edge™, and U.S. Trust, are affiliated sub- divisions within Global Wealth & Investment Management. Merrill Lynch and The Private Banking and Investment Group, make available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) and other subsidiaries of BofA Corp. Merrill Edge is available through MLPF&S, and consists of the Merrill Edge Advisory Center (investment guidance) and self- directed online investing. U.S. Trust, Bank of America Private Wealth Management operates through Bank of America, N.A., and other subsidiaries of BofA Corp. Banking products are provided by Bank of America, N.A., and affiliated banks, Members FDIC and wholly owned subsidiaries of BofA Corp. Please recycle. The annual report is printed on 30% post-consumer waste (PCW) recycled paper. © 2016 Bank of America Corporation. All rights reserved. Bank of America Corporation 2015 Annual Report © 2016 Bank of America Corporation 00-04-1373B 3/2016 B a n k o f A m e r i c a C o r p o r a t i o n 2 0 1 5 A n n u a l R e p o r t Bank of America Corporation 2015 Annual Report To our shareholders, Thank you for investing in Bank of America. In 2015, your company earned nearly $16 billion and returned nearly $4.5 billion in capital. This progress is the result of continued strong business performance, no longer clouded over by heavy mortgage and crisis-related litigation and operating costs. Over the past several years, we’ve followed a strategy to simplify the company, rebuild our capital and liquidity, invest in our company and our capabilities, and pursue a straightforward model focused on responsible growth. At the Core of our strategy is the commitment we made to a clear purpose: to make financial lives better by connecting those we serve to the resources and expertise they need to achieve their goals. This is what drives us.