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 6 A n n u a l R e p o r t Our responsible growth strategy is delivering strong, consistent, high-quality results. Bank of America Corporation 2016 Annual Report Contents A letter from Chairman and CEO Brian Moynihan 2–5 Working together to reinvent the future of work 6–7 Delivering for a global networking giant 8–9 Bonds for a better planet 9 Focusing on client goals 10 Redefining the client experience 10–11 How a bank and Yoobi make school more fun 12–13 From dollars to yuan: Helping clients manage global payments 13 Growing within our Risk Framework 14 A Q&A with Lead Independent Director Jack Bovender 15 Financial Highlights 16 Our purpose is to help make financial lives better, through the power of every connection. A Letter from Chairman and CEO Brian Moynihan Our strategy of responsible growth delivered in 2016, as we earned nearly $18 billion, up 13 percent from a year ago. To put this into perspective, this was the second-most profitable year in our company’s history, exceeded only by the $21 billion we earned in 2006, prior to the economic and financial crisis. Our strong performance allowed us to return $6.6 billion in capital to shareholders through a higher dividend, and by repurchasing common shares. The latter helped offset significant shareholder dilution that occurred during the financial crisis, which I discuss in more detail below. These results reflect years of work to simplify the company, rebuild and strengthen the balance sheet, and focus on serving our core customers. In a dynamic operating environment characterized by unexpected events around the world, we saw the benefits of remaining nimble, adapting to change in the near term, while adhering to our long-term strategy to support our customers and clients and deliver for our shareholders. Through our responsible growth strategy, we grew revenue, reduced expenses, managed risks and continued to invest in our workforce and our capabilities. We also made steady progress relative to our long-term financial goals (return on tangible common equity of 12 percent and a return on assets of 1 percent). Our return on tangible common equity increased to 9.5 percent, while our return on assets improved to 0.82 percent. The efficiency ratio improved from 70 percent to 66 percent. Tangible book value per share, which measures the value we are creating for you, increased 9 percent in 2016 to $16.95. In 2017, we will continue to drive this company further toward our goals. We drove these results in part through operational excellence, working hard to manage expenses and reinvest in our capabilities. We reduced expenses by $3 billion last year, and while we have more work to do, expenses are down $22 billion, or nearly 30 percent, from their peak of $77 billion in 2011. It’s important to note that we did this while growing the business. This created the operating leverage we need to invest for the future. We also accomplished this in a slow-growth U.S. and global economy. However, as U.S. interest rates begin to rise, I am encouraged by what this signifies: an improving U.S. economy marked by low unemployment and increasing consumer and business confidence. It’s our job to nurture this growth and help drive the real economy in the U.S. and around the world. Committed to Capital Returns I want to focus on what our results mean for long- term shareholder value, but a little background is necessary. In 2006, we earned the most in our history ($21 billion). We had 4.6 billion shares outstanding, meaning our diluted earnings per share was $4.58. We also paid a common stock dividend of $2.12 per share, or 46 percent of our earnings. Now, compare this to our 2016 results: earnings were $18 billion, but because we had more than twice as many shares outstanding, our EPS was $1.50 per diluted share, and our common stock dividend was $0.25 per share, or 17 percent of earnings. The biggest difference between the two periods is the increase in common shares and a reduction in the dividend. Both were necessary to stabilize the company after the worst economic crisis since the Great Depression, and now that our company is stronger, we are focused on reducing the dilution and increasing the dividend. Our shares outstanding, on a fully diluted basis, peaked at 11.6 billion. We issued more than 7 billion common shares during the crisis. We funded acquisitions, strengthened our balance sheet to meet higher capital requirements, and repaid the government’s TARP investment within 13 months. We are working the share count down; at year end, we were at 11 billion shares. The market value of our company remains strong. As I write this letter, our market capitalization on a fully diluted basis is at an all-time high of more than $280 billion. 2 22 Chairman and CEO Brian Moynihan (Charlotte, N.C.) 3 we’ve built with several client companies and how we’ve helped them achieve their financial goals. Advancing the Goals of People, Companies, and Institutional Investors I’ll begin with the people we serve. We serve 46 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. Last year, our Consumer and Wealth Management segments grew deposits by $57 billion, or 7 percent, and increased loans by $29 billion, or 8 percent. We originated $79 billion in residential mortgages, up 13 percent, helping more than 260,000 families buy or refinance a home. We continue to see strong enrollment in our preferred rewards program, up more than 40 percent from 2015, and we’re seeing a 99 percent retention rate in this program. We have more than 33 million online customers, and nearly 22 million mobile banking users. You can learn more about how we are redefining the retail financial services experience in the comments from Dean Athanasia and Thong Nguyen, the co-heads of our Consumer Banking business, on pages 10–11. In Merrill Lynch and U.S. Trust, we have two of the best brands in the wealth management business, as well as the No. 1 market position across assets, deposits and loans. As Merrill Lynch Private Wealth Advisor Raj Sharma explains on page 10, these businesses continue to integrate the broad capabilities of our company to meet client needs. Turning to the companies we serve, our Global Banking business works with virtually every one of the S&P 500 firms. In addition to a range of lending and other solutions, we have one of the world’s top-tier investment banks, ranked No. 3 globally in investment banking fees last year. We also are one of the largest lenders to mid-sized companies and to small businesses. As you will see from the stories of our great clients Cisco, WeWork, and Yoobi in this report, we bring the broadest array of capabilities to our clients—cash management, trade financing, lending in local currencies, and more—to support businesses that are driving the real economy here in the U.S. and around the world. Finally, through our Global Markets business, we serve many of the world’s largest institutional investors, who are managing savings and investments through pension and retirement funds. This is a balanced business, narrower in its scope of activities than before the financial crisis, and focused on clients needing to raise capital and investors seeking the best opportunities to put their capital to work. Because of our balanced approach, Global Markets can weather market volatility and make money in a wide range of economic scenarios. Our sales and trading business was profitable on all but three days last year, despite the volatility caused by macroeconomic events, including the United Kingdom vote to leave the European Union and the U.S. elections. We are also focused on increasing the dividend. Last June, we increased the quarterly common stock dividend by 50 percent, made possible by all the work we’ve done to simplify the company, strengthen the balance sheet and rebuild capital. What are the lessons we learned from this? First, we must grow organically. Acquisitions are not part of our strategy so we don’t have to issue shares. Second, our businesses generate more than sufficient capital to fund their growth. We have shed non-core businesses and we have everything we need to serve our clients, so we can focus on building stronger relationships with them and optimizing returns. Third, we need to continue to reduce the number of shares outstanding. This is essential if we want our stock price to exceed the record highs we have achieved in our market capitalization and in our tangible book value per share. And, because our stock is trading at a price that is close to our book value, repurchasing shares now creates long-term value for remaining shareholders when we buy from the selling shareholders at this level. Finally, by staying focused on these things, and executing our strategy of responsible growth, we can deliver the returns that you expect from us and continue to return excess capital to you through dividends and common stock repurchases. Responsible Growth Is Working We will remain on the path that led us to near-record earnings in 2016. Responsible growth means remaining steadfast in delivering on our purpose to help our customers and clients live their financial lives by connecting them to all of our capabilities. This strategy has four tenets: • Grow and win in the market, no excuses. • Grow with our customer-focused strategy. • Grow within our Risk Framework. • Grow in a sustainable manner. To put it more simply: Not every dollar is a good dollar, unless it comes from activities that satisfy a customer need and fit our risk parameters. We are here to serve our customers and clients and to nurture those relationships and drive growth with the leading capabilities we have across our company. Ours is a relationship business, and in this report, you will read about the relationships 4 A differentiator for us is our Global Research team. For the sixth year in a row, our team was ranked No. 1 in the world by Institutional Investor magazine. Our research capabilities help drive our entire company, providing valuable insights to our markets business, corporate banking, and our wealth management clients. Net Income ($B) $17.9 $15.8 Managing Risk Well Is Central to Everything We Do $10.5 In addition to keeping a clear focus on customers and clients, our responsible growth strategy includes growing within a clear Risk Framework so that we can maintain our balanced, stable and financially strong platform. This means understanding the risk and reward in everything we do and empowering our teammates to share their opinions and ideas so we make better decisions. In the last quarter of 2016, we had the lowest charge-off ratio in our company’s history. For all of 2016, we grew core loan balances by 6 percent, yet charge-offs declined by 12 percent, which demonstrates our focus on growing the right way. In this report, Chief Risk Officer Geoff Greener discusses how we continue to strengthen our risk management so that every employee understands his or her role. Ensuring Our Growth Is Sustainable The final tenet of responsible growth is that we must grow in a sustainable manner. That means we must adhere to rigorous standards of corporate governance; we must invest in our communities; and we must strive to be the best place to work by helping our 200,000 teammates achieve their goals and aspirations. Our environmental, social, and governance (ESG) practices are cen- tral to growing in a sustainable manner. A special ESG supplement enclosed in our Annual Report mailing this year provides additional details. There is also an extended discussion of our ESG practices in the proxy statement. Let me highlight a few key elements. We are committed to best practices in corporate governance, including a strong, independent Board of Directors and other measures. The Board oversees our responsible growth strategy to deliver long-term value for you, our shareholders. Also, the Board has empowered a lead independent director whose duties and responsibilities meet or exceed corporate best practices. You can learn more about how the Board discharges its responsibilities in the Q&A with Lead Independent Director Jack Bovender in this report, and in the 2017 proxy statement. We also view the nearly $200 million in philanthropic investments we make in communi- ties around the world, and the nearly 2 million volunteer hours our teammates commit to the causes they care about, as critical to creating the conditions for long-term, sustainable growth. Also critical to fostering sustainable growth is the way we invest in our workforce and create an environment where they can thrive. As of early 2017, we’ve increased our minimum wage so that all employ- ees earn more than $15 an hour. We will continue to adjust that, as we have regularly for several years now. In 2016, we also increased our fully paid parental leave from 12 to 16 weeks for all new parents. We create sustainable results through our Simplify and Improve (SIM) program, as well. Driven by thousands of ideas generated by our own teammates, SIM is our ongoing process of simplifying our $5.5 $3.9 2012 2013 2014 2015 2016 company, eliminating or streamlining our internal and external pro- cesses, and reducing costs so we can reinvest in future growth. It’s the hard work of our team that makes everything we are sharing with you on these pages possible. And, it’s our duty to create an environment that reflects and honors the diversity they represent, promotes inclusiveness and the sharing of different viewpoints, and provides benefits and career development opportunities so they can continue to grow and thrive. Helping to Drive the Economy To continue the strong performance we saw in 2016, we remain focused on executing our responsible growth strategy. There will be external impacts from changes in the markets, driven by political and economic factors that we cannot predict. We may see changes to banking laws, or to how regulations are implemented, in the United States and in other jurisdictions where we operate. Reasonable regulation is important for the safety and soundness of our financial system, and we support a review by policymakers and elected officials to ensure they strike the right balance to drive responsible economic growth. As always, we must be agile and adaptive, but what will not change are the principles upon which we run our company. In both the near term and for the long term, given the current regulatory environment and because of the way we rebuilt our balance sheet and how we are executing our responsible growth strategy, we will have excess capital to put to work driving the economy. We are lending, and we will continue returning capital to shareholders through dividends and stock repurchases. There is a discussion in some quarters about perceived trade-offs between those important objectives, but we can do both while growing the company. We will continue investing in our business, our people, and our communities because we understand that when our customers, communities and employees succeed, we all succeed. Thank you for investing in Bank of America. Brian Moynihan March 3, 2017 5 Working together to reinvent the future of work When co-founders Adam Neumann and Miguel McKelvey started WeWork, they spent nearly six months trying to find the right name for the business. They wanted something that spoke to what they thought the mission of business should be: to create a world where people work to make a life, not just a living. WeWork’s first step for achieving its mission can be seen in its custom-designed office spaces, which are intended to allow colleagues, creators and collaborators to share a stimulating environment, explore new ideas, and ignite the creative spark that’s vital for any successful new business today. Today, six years after the company launched, the vision for WeWork goes beyond a new way of working. WeWork is now being approached by some of the world’s largest companies — Bank of America included — to create spaces that allow for creative thinking and positive social engagement. And WeLive, the company’s new community-based living offering, saw a high-profile launch in 2016. Connecting with Bank of America WeWork’s founders knew that delivering a new kind of work experience required partners who shared their vision. Bank of America not only had the foresight to grasp the potential in WeWork’s concept, but also the ability to work across various business lines to support them as they grew and evolved. The relationship between WeWork and Bank of America began with an innovative joint initiative. Building on our position as a leader in providing credit and digital solutions to small businesses, we stationed small business officers in several WeWork locations in the U.S. Bringing the bank to the customer in this way provided WeWork members access to an array of products and services, from business checking and credit cards to lines of credit and cash management. Over time, the relationship progressed to other financing and capital markets services. Bank of America Merrill Lynch’s Cross Asset Solutions and Strategies Group, started by Karen Fang, was able to bring together solutions and expertise from every corner of the organization. The team also recognized the importance of providing a relatively young company the right kind of services at the right time, consistent with our responsible growth principles. For example, we are providing a creative real estate financing solution that will enable WeWork to create a flagship location in New York City combining both its workspace and WeLive concept. Since launching its first shared workspace in New York City’s SoHo neighborhood in 2010, WeWork has grown to over 100,000 members who collaborate in person at more than 130 locations across 10 countries. In 2016 alone, the company doubled its number of buildings, cities, countries and members, as well as revenue run rate, and tripled gross profit in locations open longer than 18 months. The efforts of the Cross Asset Solutions and Strategies Group were vital to the success of the WeWork relationship. “The bank empowered a team that could focus on the ‘big picture’ strategic needs of clients, and was well-versed in what we could provide across our platform so we were able to deliver solutions across small business banking, investment banking, capital markets, and global markets sales and trading,” said Fang, who continues to support WeWork as head of Americas Fixed Income, Currency and Commodities Sales. “This approach differentiated Bank of America from the competition and was viewed by WeWork as thoughtful and strategic.” “Call me old fashioned but I still believe in relationship banking. Tom Montag, Karen Fang and the team at Bank of America understand this and know that these things take time and commitment. They took our business and our vision seriously, made the introductions to people across the bank that we need to flourish and helped us along our journey,” said WeWork CEO Adam Neumann. “As our business has grown, and our needs have grown, we’ve been able to call on different areas of the bank,” continued Neumann. “Best of all, from our point of view, the bank is a believer in the WeWork mission and has seen the value that WeWork can create through its thoughtful approach to design and the creative and collaborative communities that it generates.” The way we have built and grown our relationship with WeWork is an excellent example of how the bank has gone to great lengths to make our global resources available to clients in an integrated manner. As innovative companies reinvent the way people and companies work, Bank of America is changing the way they bank. 6 Adam Neumann, WeWork CEO (New York City, N.Y.) 7 Delivering for a global networking giant Cisco Systems, the world’s largest networking solutions company, knows a thing or two about the power of connections. Cisco helps customers embrace the opportunities of our increasingly connected world by providing highly secure, automated, and intelligent solutions that connect nearly everything that can be digitally connected. Serving the financial needs of a global networking giant requires an equally pioneering provider with vast global resources, a role the team at Bank of America Merrill Lynch (BofAML) has played for nearly 20 years. With our help, Cisco is forging ahead in the rapidly evolving technology industry with an innovation strategy that integrates its ability to build, buy, partner, invest, and codevelop to create the next generation of industry-changing solutions. Few financial companies can assemble the range of leading products and solutions that we can provide around the world. For example, Cisco relies on our Global Transaction Services team to seamlessly transact and move money around the globe, while our leading foreign Chuck Robbins, Cisco CEO (San Jose, Calif.) 8 exchange capabilities allow Cisco to book global revenue more confidently and with less earnings volatility by managing the risk that comes from conducting business in multiple currencies. Whether our teammates are working in Singapore, Switzerland or San Jose, Cisco knows the transactions will follow our high standards for customer service, while delivering the local knowledge required to competently execute transactions. “Because we’ve worked with Cisco for so long, our relationship and understanding of where they’re going is so deep; we’re their trusted adviser,” said Gary Kirkham, senior investment banker at BofAML. “And because we can execute 24 hours a day, seven days a week, we deliver the full capabilities of Bank of America to the Cisco team.” “Bank of America Merrill Lynch is a trusted and valued one-stop shop,” said Cisco CEO Chuck Robbins. “Their 360-degree offering, whether helping employees through their retail capabilities, advising on strategic mergers and acquisitions, or providing treasury services, drives efficiencies and productivity globally.” Our long-term support of Cisco includes helping the company access credit markets to fund its innovation and growth strategy. We have been a bookrunner for Cisco in all eight debt issuances in the company’s history, totaling in excess of $45 billion, with the most recent transaction exceeding $6 billion in September 2016. We also have advised Cisco on numerous acquisitions through the years as Cisco seeks to enhance its capabilities, with such notable acquisitions as Meraki, Sourcefire and Acano. Robbins added, “BofAML understands Cisco’s strategic objectives. Their full suite of institutional offerings, including advisory services and corporate and investment banking, has consistently provided best-in-class solutions to help Cisco attain its goals. In addition, BofAML is a consistent leader in deploying innovative new technology to enable its business. This forward-leaning posture helps Cisco evaluate new technology areas and consistently improve our innovation in core businesses.” Bonds for a better planet Members of the BofAML Green Bonds underwriting team Left: Natalie Mordi-Hillaert, Jeff Tannenbaum and Suzanne Buchta (London) Right: Rebecca Burns and Ariana Meinz (New York City) The ultimate win-win in global banking may be the green bond, an innovative financial product that allows investors to support the growth of eco-friendly projects, such as clean energy, while receiving market returns. Bank of America played a pivotal role in developing the green bond market, both as an issuer and as an underwriter. To date, we’ve issued a total of $2.1 billion in three separate offerings, including a $1 billion offering in November 2016. Through these offerings, we are advancing renewable energy generation by financing new projects, such as a multi-state residential solar portfolio and a utility scale wind farm in Oklahoma. “Our responsible growth strategy includes the belief that we have an important role to play in funding the future of clean energy and using our expertise in global banking to help clients fund their organization’s environmental and sustainable initiatives,” said Vice Chairman Anne Finucane. In addition to issuing our own bonds, Bank of America Merrill Lynch (BofAML) was the top underwriter of green bonds in 2014, 2015 and 20161. In 2016 alone, we underwrote more than $25 billion in green bonds on behalf of 27 unique clients, and led offerings for clients including the Chinese automobile company Zhejiang Geely Holdings ($400 million), the New York Metropolitan Transportation Authority ($588 million), Banco Nacional de Costa Rica ($500 million) and the European Investment Bank (five bonds in 2016 totalling $3.6 billion). Proceeds from these bonds are helping to finance various emissions- reducing projects. “The global green bond market has seen rapid growth driven by a growing number of environmentally conscious clients, investors and shareholders,” said Suzanne Buchta, managing director, Green Bonds, at BofAML. “In driving the growth of the green bond market, our teams at Bank of America have helped clients access capital, diversify their funding opportunities, create jobs through new investments and advance alternative energy sources, while delivering returns for our shareholders.” 1Bloomberg New Energy Finance 9 Focusing on client goals A conversation with Merrill Lynch Private Wealth Advisor Raj Sharma Q: How do you feel you help clients make their financial lives better? A: We live in a world of infinite information, filled with constant change. Understandably, clients are seeking clarity and peace of mind. They want to be sure someone is looking out for them. Our job is to distill all of that information and help our clients pursue their goals. To do that, we start by focusing on what they want to accomplish. So, whether it is saving for college, retirement, supporting philanthropy or ensuring their legacy, we help our clients clarify their objectives and goals. Often, our clients ask their children to join these discussions because they want them to look at their inheritance as something to preserve, enhance and use to do great things in the world. Through these conver- sations, we construct an investment strategy and create a personalized Raj Sharma portfolio. The process recognizes the need for review and, sometimes, rebalancing. Markets can be volatile. While we strive to remain calm and steadfast, we also understand the importance of managing change. Q: What does responsible growth mean to you and your practice? A: Responsible growth means never compromising our standards of service. It means accepting responsibility to ensure systems and processes are in place to monitor what we do, and help to deliver what our clients need and expect. Put simply, we work to serve. Our goal is to gain our clients’ confidence so they will entrust us with their wealth and refer new clients. That’s how we pursue responsible growth. The key, just as Charlie Merrill said more than 100 years ago, is always putting the clients’ interests first. Q: How does being part of Bank of America help your business succeed? A: When I came to Merrill Lynch, I thought we had good capabilities. What I see today, thanks to the broader Bank of America platform, is far more than that. We have the intellectual capital and experience to provide access to compelling solutions to meet virtually any challenge — in estate planning services, alternative investments, and lending from Bank of America, N.A. I believe our capabilities are unmatched — and I’m excited to see this great company uniting around Brian’s vision to make our clients’ lives better, one connection at a time. 10 Redefining the client experience Dean Athanasia and Thong Nguyen, co-heads of Consumer Banking, on the future of banking Technology is transforming financial services, fundamen- tally changing the relationship people have with their bank by delivering the best of high tech and high touch. Mobility, in particular, is dramatically improving access to financial services, regardless of income, geography or technological familiarity. While our more than 65 million consumer and small business clients have many different needs, they generally agree on three things: they want everyday banking to be easy enough that they don’t have to think about it; they want us to be there when they really need us; and they want us to help them reach their financial goals. We’re turning more of our financial centers into destination centers, where clients can speak to a representative face to face and get advice. That’s why we’ve made changes in how we work with clients across every channel: when they come into a financial center, when they use their computer or mobile device, and when they call us on the phone. Each of these avenues has been revolutionized by technology. For example, more than five years ago, two-thirds of deposits were made at financial centers; today, that proportion has been cut in half. At the time, we had just over 9 million mobile banking users; now, that number is close to 22 million, and mobile logins have increased 1,000 percent. Mobile banking goes far beyond checking balances and transferring money. Today, clients can deposit checks, manage their investments, and get an auto or home loan. Nearly nine in 10 clients also use mobile banking alerts, helping them reduce fees, track their finances, manage spending and budgeting, and improve decision-making. They can also choose to navigate our mobile banking app in either English or Spanish. But this is just the beginning of the mobile revolution, especially as mobile payments begin to transform how people pay each other and buy goods. In 2017, we’re making it easier for clients to send, receive and request money, allowing them to use the existing contacts on their mobile device to securely transfer money to (or request money from) almost anyone, regardless of where they bank. They’ll be able to split expenses among multiple contacts or friends — such as a group dinner check — and they can even add a personal note along with the payment transfer or request. Innovation is also changing the way we help our clients pursue their life priorities, such as saving for a home, for their children’s education and for retirement. We recently introduced Merrill Edge Guided Investing, which delivers the simplicity of online investing, backed by an investment strategy designed by experts from Global Wealth and Investment Management’s Chief Investment Office. By giving our clients the freedom to choose how, when and where they invest — independently, with an advisor or a combination of both — we’re integrating advice with technology to create deeper relationships with our clients. Number of Mobile Banking Active Users (in millions) 21.6 18.7 16.5 14.4 12.0 2012 2013 2014 2015 2016 Thong Nguyen and Dean Athanasia Still, when it comes to making big financial decisions, there is no substitute for meeting face to face with the people we serve. That’s why we’re investing heavily in improving our financial centers, making them destinations for our clients when they need expert help and advice. Over the next few years, we plan to open nearly 300 new centers, including some in new markets, while upgrading more than 1,500 others to a more modern and client-friendly format, staffing the centers with professionals to provide solutions and guidance to clients. We also recently introduced the first community-focused financial center, with 25 more planned for 2017. These centers are designed to help us better serve our clients in low- to moderate-income communities by providing the services and connections they need most, such as increased access to financial coaching and education that will help them stay financially on track. Also, we have deployed even more Digital Ambassadors to help them get the most out of our latest technology. Smart use of innovation to deliver the best of high tech and high touch is the key to building stronger connections with our clients and communities, and improving financial lives to make a positive and lasting impact on the overall economy. It’s a better way to accomplish what has always been our purpose and mission. 11 Ido Leffler, Yoobi CEO (Los Angeles, Calif.) How a bank and Yoobi make school more fun for a class of up to 30 students, including pencil cases, crayons, markers, pencils, folders, glue, erasers and much more — all of the core learning tools students need in order to succeed in their schoolwork. Since its launch in June 2014, Yoobi has impacted the lives of more than 2 million kids in the U.S. Ido Leffler is a serial entrepreneur with a passion for making a difference. So when he learned that the average school teacher spends almost $500 of his or her own money each year on basic classroom supplies, he decided to do something about it. Leffler, the son of a teacher, and his business partners co-founded Yoobi to transform the school and office supply industries by making colorful, vibrant tools that spark learning and creativity while giving back to classrooms in need across the United States. Yoobi embodies social entrepreneurship through its buy one, give one business model. For every item purchased, Yoobi donates an item to a classroom in need in the U.S. The donations come in the form of a “Yoobi Classroom Pack,” which contains hundreds of items Bank of America’s Role With his vision set, Leffler set out to find a bank that would help him achieve his goals. At first, he wasn’t sure he would find a banker who would embrace Yoobi’s social mission and understand its unique business model. But fortunately, he didn’t have to look too far. Jeff Klinger, his Merrill Lynch Private Wealth Advisor, saw the potential and immediately started connecting him to the vast banking resources of Bank of America Merrill Lynch (BofAML). “When they found out what we could do for them and saw our banking capabilities, not only on the cash management side, but also on some of our trade finance products and services, they were definitely pretty excited about it,” said Rob Glenn, a commercial banker with BofAML. “Now, they are using us for global treasury and financing to buy their new office building and to provide solutions to help them grow.” 12 From dollars to yuan: Helping clients manage global payments A look at how Bank of America Merrill Lynch is helping clients do business in a global market by Ather Williams III, head of Bank of America Merrill Lynch’s Global Transaction Services When it comes to moving money with speed and precision, there aren’t many organizations who can do what we do. With our capabilities in 68 countries, delivered through Bank of America Merrill Lynch (BofAML) offices and strategic relationships, we help our clients make and receive payments, manage liquidity, safeguard assets and connect with suppliers, customers, employees and shareholders all around the globe. Ather Williams III Each day, we process $1.4 trillion on behalf of our clients. In a world of big numbers, that might not sound like a lot, but consider this — if you took all the money we process every day in dollar bills and laid them out end to end, you could circle the Earth 4,000 times. In addition to processing transactions, we help our clients collect and report on their receivables, and guide them through their migration from paper to electronic payments, all with the ultimate goal of helping them maximize their working capital, gain operational efficiencies and mitigate risk. Our experienced specialists work with clients to understand what they need and provide insights and solutions to help them reach their goals. For example, let’s say a company is concerned about currency exposure and counterparty risk in its global supply chain. With access to a comprehensive suite of foreign exchange and trade finance solutions and robust hedging tools, we can help companies transact payments in 140 currencies and 230 countries and territories while facilitating payment for the exchange of goods or services. And, when the time comes to expand into new markets, we have the systems and connections in place to help companies of all sizes conduct and grow their business across borders. Payments are the lifeblood of every business, and as the payments landscape evolves exponentially — a result of technological advances, increased globalization and changing consumer buying habits — we are preparing for the next generation of solutions, such as digital wallets, digital identity, blockchain technology and artificial intelligence. We are investing alongside technology startups to develop these innovations that will help our clients conduct business efficiently and safely across borders. The new technologies will complement our worldwide client access channel, CashPro®, which allows companies to connect to virtually all the treasury, liquidity, trade and foreign exchange solutions they need through a single secure sign-on. At BofAML, we’re committed to helping our clients achieve their goals within a dynamic, evolving global economy by delivering comprehensive solutions for their needs, wherever in the world they operate. 13 Building a business like Yoobi comes with a number of challenges, and the operation has grown rapidly, with international transactions scaling up from hundreds of thousands to millions of dollars. Each stage of growth presents a new set of challenges, and BofAML has been there through it all. “Having one bank that could handle our international, domestic and overarching business needs meant that we could operate more efficiently and work better with our suppliers and retailers,” Leffler said. “We wouldn’t be able to do what we do, genuinely, if it weren’t for the help of Bank of America. As we’ve needed to grow, scale, move, and dream bigger, they’ve been with us each step of the way.” Now in its third year of operation, Yoobi offers over 500 different items, available at Target stores nationwide, on Yoobi.com and at Yoobi’s flagship store. For more information on Yoobi and its social mission, visit www.yoobi.com. Stay connected by following Yoobi on Twitter, Facebook, Instagram and more. Growing within our Risk Framework A conversation about managing risk with Bank of America’s Chief Risk Officer Geoff Greener Annual Net Charge-Offs ($B) $14.9 $7.9 $4.4 $4.3 $3.8 2012 2013 2014 2015 2016 Geoff Greener Q: What is responsible growth? Q: How do you measure success? A: Responsible growth means being true to our purpose and values, growing with our core customers and always being there to help them achieve their financial goals. It means we proactively and thoroughly assess risk and reward so we can stand tall through economic cycles and provide sustainable returns for our share- holders over time. No matter where we work in the organization, managing risk well is foundational to delivering responsible growth. Our success depends on the intellectual curiosity and sound judgment of every employee across the company. Q: How do you know you make the right decisions? A: At the end of the day, our job is to understand the risk and reward in what we do. We work hard to create an environment where our teams can challenge conventional wisdom and think outside the box to identify the risks we face, regardless of the likelihood of them occurring at a given point in time. We also believe that the more our teammates feel empowered to speak up and share their views, and the more we listen carefully to one another, the better informed our decisions will be. 14 A: The most direct signs of success can be found in our financial results and in key risk metrics. In 2016, net charge-offs, delinquencies and nonperforming assets all improved, and we had positive trading revenue on all but three trading days. Just as important, throughout the company, teammates are identifying areas for greater effectiveness and efficiency and driving change one step at a time. To me, this shows a culture of humility and a hunger to keep improving. Finally, we measure success in how we live our purpose — helping our customers and clients live better financial lives and by having a positive impact on the communities we serve. We’ve built a strong balance sheet and transformed the way we manage risk to be more proactive, foster debate and challenge, with strong independent oversight and governance. These efforts have positioned us to grow responsibly and be there to serve our customers and clients through good times and bad. Q: Tell us how the Board addresses the responsibility to represent the interests of shareholders. A: Our shareholders are represented by an experienced, independent Board of Directors with diverse perspectives. The only non- independent director is our CEO, Brian Moynihan. In 2016, we added two directors: a seasoned financial services executive and a leader in consumer business and technology. We focus on maintaining the right balance between new and longer- seated directors. The average director tenure is about five and a half years, significantly below the S&P 500 average of over eight years. Q: What is the Board’s role in helping set the company’s strategy? How do you and the other directors balance near-term issues with long-term goals? A: It starts with the Board’s regular engagement with the company’s management about the issues we face and the environment in which we operate. These meetings extend well into the company, including business leaders, risk and audit executives, and others. The independent directors also meet privately after all Board meetings. We focus on the long term through our year-round strategic assessment and planning process, during which we review with management the company’s multi-year responsible growth strategy. The process begins over several days each fall, when we conduct a detailed assessment of the company’s progress, highlight areas of focus and adjustment to management, and reaffirm the strategy. As we proceed through the year, we receive regular updates from management to evaluate our company’s performance against the plan. We temper and shape our long-term view though ongoing discussions with management regarding industry trends and other macro and geopolitical developments that may impact our strategy, including input from investors. Q: How do you stay connected with shareholders and key stakeholders? A: The directors and management engage stockholders and solicit their views and input on matters including the company’s performance, governance practices, environmental, social, and governance (ESG) priorities, executive compensation, and how we maximize the potential of our greatest asset — our employees. In 2016, we contacted our 100 largest shareholders representing nearly half of our outstanding shares, discussed regular updates regarding developments at the company, and invited them to Jack Bovender meet with our directors. In addition to stockholders, I maintain a regular dialogue with our company’s regulators. We often include regulators in our in-person Board meetings, too. Hearing directly from shareholders and from regulators provides the independent Board members important perspective. We will continue this engagement in 2017. Key Statistics Regarding Our Board Average tenure — below the 8.3-year S&P 500 average 5.6 yrs 93% are independent have CEO experience 64% 15 A Q&A with Lead Independent Director Jack Bovender Bank of America Corporation — Financial Highlights Bank of America Corporation (NYSE: BAC) is headquartered in Charlotte, North Carolina. As of December 31, 2016, 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 four business segments: Consumer Banking, Global Wealth and Investment Management, Global Banking, and Global Markets. Financial Highlights (in millions, except per share information) For the year Revenue, net of interest expense Net income Earnings per common share Diluted earnings per common share Dividends paid per common share Return on average assets Return on average tangible common shareholders’ equity 1 Efficiency ratio Average diluted common shares issued and outstanding At year-end Total loans and leases Total assets Total deposits Total shareholders’ equity Book value per common share Tangible book value per common share1 Market price per common share Common shares issued and outstanding Tangible common equity ratio1 2016 $ 83,701 17,906 1.58 1.50 $ 0.25 0.82% 9.54 65.65 11,036 2016 $ 906,683 2,187,702 1,260,934 266,840 24.04 16.95 $ 22.10 10,053 8.1% 2015 $ 82,965 15,836 1.37 1.31 2014 $ 85,894 5,520 0.43 0.42 $ 0.20 $ 0.12 0.73% 9.08 69.59 11,214 2015 $ 896,983 2,144,287 1,197,259 256,176 22.53 15.62 $ 16.83 10,380 7.8% 0.26% 2.98 88.08 10,585 2014 $ 876,104 2,104,539 1,118,936 243,476 21.32 14.43 $ 17.89 10,517 7.5% 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 26 and Statistical Table XV on page 106 of the 2016 Financial Review section. Total Cumulative Shareholder Return2 BAC Five-Year Stock Performance $400 $300 $200 $100 $0 2011 2012 2013 2014 2015 2016 December 31 2011 2012 2013 2014 2015 2016 Bank of America Corporation $100 $210 $282 $327 $311 $415 201 259 KBW Bank Sector Index 177 198 S&P 500 COMP 200 100 100 154 183 133 175 116 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, 2011 through 2016. The graph assumes an initial investment of $100 at the end of 2011 and the reinvestment of all dividends during the years indicated. 16 $25 $20 $15 $10 $5 $0 2012 2013 2014 2015 2016 HIGH $11.61 $15.88 $18.13 LOW 5.80 CLOSE 11.61 11.03 15.57 14.51 17.89 $18.45 $23.16 15.15 11.16 16.83 22.10 Book Value Per Share/Tangible Book Value Per Share 4 2 . 0 2 $ 6 3 . 3 1 $ 9 6 . 0 2 $ . 7 7 3 1 $ . 2 3 1 2 $ 3 4 . 4 1 $ 3 5 . 2 2 $ 2 6 . 5 1 $ 4 0 . 4 2 $ . 5 9 6 1 $ 2012 2013 2014 2015 2016 Book Value Per Share Tangible Book Value Per Share3 3Tangible book value per share is a non-GAAP financial measure. Financial Review 2016 Financial Review Table of Contents Financial Review Table of Contents Executive Summary Recent Events Financial Highlights Executive Summary Balance Sheet Overview Recent Events Supplemental Financial Data Financial Highlights Business Segment Operations Balance Sheet Overview Consumer Banking Supplemental Financial Data Global Wealth & Investment Management Business Segment Operations Global Banking Consumer Banking Global Markets Global Wealth & Investment Management All Other Global Banking Off-Balance Sheet Arrangements and Contractual Obligations Global Markets Managing Risk All Other Strategic Risk Management Off-Balance Sheet Arrangements and Contractual Obligations Capital Management Managing Risk Liquidity Risk Strategic Risk Management Credit Risk Management Capital Management Consumer Portfolio Credit Risk Management Liquidity Risk Commercial Portfolio Credit Risk Management Credit Risk Management Non-U.S. Portfolio Consumer Portfolio Credit Risk Management Provision for Credit Losses Commercial Portfolio Credit Risk Management Allowance for Credit Losses Non-U.S. Portfolio Market Risk Management Provision for Credit Losses Trading Risk Management Allowance for Credit Losses Interest Rate Risk Management for the Banking Book Mortgage Banking Risk Management Trading Risk Management Compliance Risk Management Interest Rate Risk Management for the Banking Book Operational Risk Management Mortgage Banking Risk Management Reputational Risk Management Compliance Risk Management Complex Accounting Estimates Operational Risk Management 2015 Compared to 2014 Reputational Risk Management Complex Accounting Estimates 2015 Compared to 2014 Statistical Tables Glossary Statistical Tables Glossary Overview Business Segment Operations Overview Business Segment Operations Market Risk Management 18 Bank of America 2016 18 Bank of America 2016 Page 19 20 Page 21 19 23 20 26 21 28 23 29 26 32 28 34 29 36 32 38 34 39 36 40 38 43 39 44 40 50 43 54 44 55 50 65 54 73 55 74 65 74 73 78 74 79 74 83 78 85 79 85 83 85 85 86 85 86 85 89 86 89 86 91 89 92 89 108 91 92 108 Management’s Discussion and Analysis of Financial Condition and Results of Operations Bank of America Corporation (the "Corporation") and its interest income or other projections; adverse changes to the management may make certain statements that constitute Corporation’s credit ratings from the major credit rating agencies; "forward-looking statements" within the meaning of the Private estimates of the fair value of certain of the Corporation’s assets Securities Litigation Reform Act of 1995. These statements can be and liabilities; uncertainty regarding the content, timing and impact identified by the fact that they do not relate strictly to historical or of regulatory capital and liquidity requirements, including the current facts. Forward-looking statements often use words such as potential impact of total loss-absorbing capacity requirements; “anticipates,” “targets,” “expects,” “hopes,” “estimates,” “intends,” potential adverse changes to our global systemically important bank “plans,” “goals,” “believes,” “continue,” "suggests" and other similar (G-SIB) surcharge; the potential for payment protection insurance expressions or future or conditional verbs such as “will,” “may,” exposure to increase as a result of Financial Conduct Authority “might,” “should,” “would” and “could.” Forward-looking statements actions; the impact of Federal Reserve actions on the Corporation’s represent the Corporation's current expectations, plans or forecasts capital plans; the possible impact of the Corporation's failure to of its future results, revenues, expenses, efficiency ratio, capital remediate shortcomings identified by banking regulators in the measures, and future business and economic conditions more Corporation's Resolution Plan; the impact of implementation and generally, and other future matters. These statements are not compliance with U.S. and international laws, regulations and guarantees of future results or performance and involve certain regulatory interpretations, including, but not limited to, recovery and known and unknown risks, uncertainties and assumptions that are resolution planning requirements, Federal Deposit Insurance difficult to predict and are often beyond the Corporation's control. Corporation (FDIC) assessments, the Volcker Rule, fiduciary Actual outcomes and results may differ materially from those standards and derivatives regulations; a failure in or breach of the expressed in, or implied by, any of these forward-looking statements. Corporation’s operational or security systems or infrastructure, or You should not place undue reliance on any forward-looking those of third parties, including as a result of cyberattacks; the statement and should consider the following uncertainties and risks, impact on the Corporation's business, financial condition and results as well as the risks and uncertainties more fully discussed under of operations from the potential exit of the United Kingdom (U.K.) Item 1A. Risk Factors of our 2016 Annual Report on Form 10-K and from the European Union (EU); and other similar matters. in any of the Corporation’s subsequent Securities and Exchange Forward-looking statements speak only as of the date they are Commission filings: the Corporation’s ability to resolve made, and the Corporation undertakes no obligation to update any representations and warranties repurchase and related claims, forward-looking statement to reflect the impact of circumstances or including claims brought by investors or trustees seeking to events that arise after the date the forward-looking statement was distinguish certain aspects of the New York Court of Appeals' ACE made. Securities Corp. v. DB Structured Products, Inc. (ACE) decision or to Notes to the Consolidated Financial Statements referred to in assert other claims seeking to avoid the impact of the ACE decision; the Management’s Discussion and Analysis of Financial Condition the possibility that the Corporation could face increased servicing, and Results of Operations (MD&A) are incorporated by reference securities, fraud, indemnity, contribution or other claims from one into the MD&A. Certain prior-year amounts have been reclassified or more counterparties, including trustees, purchasers of loans, to conform to current-year presentation. Throughout the MD&A, underwriters, issuers, other parties involved in securitizations, the Corporation uses certain acronyms and abbreviations which monolines or private-label and other investors; the possibility that are defined in the Glossary. 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; potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory proceedings, including the possibility that amounts may be in excess of the Corporation’s recorded liability and estimated range of possible loss for litigation exposures; the possible outcome of LIBOR, other reference rate, financial instrument and foreign exchange inquiries, investigations and litigation; 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 (including rising, negative or continued low 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 or ongoing volatility with respect to oil prices; the Corporation's ability to achieve its expense targets or net 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 four business segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking and Global Markets, 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, 2016, the Corporation had approximately $2.2 trillion in assets and approximately 208,000 full-time equivalent employees. As of December 31, 2016, we operated in all 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico and more than 35 countries. Our retail banking footprint covers approximately 80 percent of the U.S. population, and we serve Bank of America 2016 19 Financial Review Table of Contents Global Wealth & Investment Management Off-Balance Sheet Arrangements and Contractual Obligations Executive Summary Recent Events Financial Highlights Balance Sheet Overview Supplemental Financial Data Business Segment Operations Consumer Banking Global Banking Global Markets 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 2015 Compared to 2014 Overview Business Segment Operations Statistical Tables Glossary Consumer Portfolio Credit Risk Management Commercial Portfolio Credit Risk Management Interest Rate Risk Management for the Banking Book Mortgage Banking Risk Management 18 Bank of America 2016 Page 19 20 21 23 26 28 29 32 34 36 38 39 40 43 44 50 54 55 65 73 74 74 78 79 83 85 85 85 86 86 89 89 91 92 108 Management’s Discussion and Analysis of Financial Condition and Results of Operations to filings: (the "Corporation") and the Corporation’s ability Bank of America Corporation 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, revenues, expenses, efficiency ratio, capital measures, 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 under Item 1A. Risk Factors of our 2016 Annual Report on Form 10-K and in any of the Corporation’s subsequent Securities and Exchange Commission resolve representations and warranties repurchase and related claims, including claims brought by investors or trustees seeking to distinguish certain aspects of the New York Court of Appeals' 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 increased servicing, securities, fraud, indemnity, contribution or other claims from one or more counterparties, including trustees, purchasers of 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; potential claims, damages, penalties, fines and reputational damage litigation and regulatory resulting from pending or future proceedings, including the possibility that amounts may be in excess of the Corporation’s recorded liability and estimated range of possible loss for litigation exposures; the possible outcome of LIBOR, other reference rate, financial instrument and foreign exchange inquiries, investigations and litigation; 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 (including rising, negative or continued low 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 or ongoing volatility with respect to oil prices; the Corporation's ability to achieve its expense targets or net interest income or other projections; 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 impact of total loss-absorbing capacity requirements; potential adverse changes to our global systemically important bank (G-SIB) surcharge; the potential for payment protection insurance exposure to increase as a result of Financial Conduct Authority actions; the impact of Federal Reserve actions on the Corporation’s capital plans; the possible impact of the Corporation's failure to remediate shortcomings identified by banking regulators in the Corporation's Resolution Plan; the impact of implementation and compliance with U.S. and international laws, regulations and regulatory interpretations, including, but not limited to, recovery and resolution planning requirements, Federal Deposit Insurance Corporation (FDIC) assessments, the Volcker Rule, fiduciary standards 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 cyberattacks; the impact on the Corporation's business, financial condition and results of operations from the potential exit of the United Kingdom (U.K.) from the European Union (EU); 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. 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 four business segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking and Global Markets, 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) the Corporation had charter. At December 31, 2016, approximately $2.2 trillion in assets and approximately 208,000 full-time equivalent employees. As of December 31, 2016, we operated in all 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico and more footprint covers than 35 countries. Our approximately 80 percent of the U.S. population, and we serve retail banking Bank of America 2016 19 Internationally, the Eurozone grew moderately in 2016 amid increasing political uncertainty and fragmentation which led to political impasse and fragile governments in many countries, including Italy and Spain. In this context, the European Central Bank extended its quantitative easing program, albeit at a slower pace. At the same time, the U.K. surprised financial markets by voting in favor of leaving the EU. Despite this decision, the U.K. economy proved resilient. Activity in Japan continued to expand in 2016. However, inflation fell back into negative territory for most of the year, forcing the Bank of Japan to adopt a new monetary policy framework aimed at targeting sovereign yields. Aided in part by the increase in oil prices, the Russian and Brazilian economies showed signs of stabilizing following their deep recessions. China’s economy decelerated modestly during the year, as its transition towards a growth model less focused on trade, and public investment continued. Recent Events Capital Management During 2016, we repurchased approximately $5.1 billion of common stock pursuant to the Board of Directors’ (the Board) authorization of our 2016 and 2015 Comprehensive Capital Analysis and Review (CCAR) capital plans and to offset equity- based compensation awards. Also, in addition to the previously announced repurchases associated with the 2016 CCAR capital plan, on January 13, 2017, we announced a plan to repurchase an additional $1.8 billion of common stock during the first half of 2017, to which the Federal Reserve did not object. For additional information, see Capital Management on page 44. Sale of Non-U.S. Consumer Credit Card Business On December 20, 2016, we entered into an agreement to sell our non-U.S. consumer credit card business to a third party. Subject to regulatory approval, this transaction is expected to close by mid-2017. After closing, we will retain substantially all payment protection insurance (PPI) exposure above existing reserves. We have considered this exposure in our estimate of a small after-tax gain on the sale. This transaction, once completed, will reduce risk-weighted assets and goodwill, benefiting regulatory capital. At December 31, 2016, the assets of this business, which are presented in assets of business held for sale on the Consolidated Balance Sheet, included non-U.S. credit card loans of $9.2 billion. This business is included in All Other for reporting purposes. For more information on the assets and liabilities of this business, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. and leading 15,900 approximately 46 million consumer and small business relationships with approximately 4,600 retail financial centers, approximately online ATMs, (www.bankofamerica.com) and mobile banking platforms with approximately 34 million active accounts and more than 22 million mobile active users. We offer industry-leading support to approximately three million small business owners. Our wealth management businesses, with client balances of approximately $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. 2016 Economic and Business Environment The economy in the U.S. grew in 2016 for the seventh consecutive year. Following a soft start to the year partly reflecting severe winter weather, domestic demand grew at a moderate pace over the remainder of the year. Suppressed by a slowdown in housing gains and a decrease in state and local government purchases, domestic spending growth was less than two percent, while weak exports, in part a lagged response to the sharp U.S. dollar appreciation of recent years, and continued inventory reductions by businesses also had a negative impact on GDP growth. Meanwhile, the labor market continued to tighten, and average hourly earnings increased at the fastest pace since 2008. Payroll gains remained solid, and the unemployment rate trended downward, with the decline limited by stabilizing labor force participation. With employment and wages both rising, consumer spending, the largest component of the U.S. economy, was an economic bright spot. Core inflation (which, unlike headline inflation, excludes certain items subject to frequent volatile price change such as food and energy) also increased during 2016, but remained below the Federal Reserve System’s (Federal Reserve) longer-term target of two percent. Meanwhile, headline inflation recovered, as energy costs began to reverse some of their large declines of recent years. Following a weak start, equity markets advanced in 2016. Higher energy costs improved the trajectory of the manufacturing sector and the outlook for business investment. Treasury yields decreased in the first half of the year, but more than reversed their declines during the second half, especially in the fourth quarter. The U.S. dollar followed a similar pattern, depreciating in the first half only to reverse the losses later in the year. For a second consecutive year, the Federal Open Market Committee raised its target range for the Federal funds rate by 25 basis points (bps) at the year’s final meeting. With a stronger economy, rising inflation and continued labor market tightening, Federal Reserve members raised expectations that if economic growth continued, the pace of rate increases will pick up in 2017, although the removal of accommodation would remain gradual. The contrast between U.S. tightening and quantitative easing in Europe and Japan remained a source of dollar strength. 20 Bank of America 2016 approximately 46 million consumer and small business Internationally, the Eurozone grew moderately in 2016 amid relationships with approximately 4,600 retail financial centers, increasing political uncertainty and fragmentation which led to approximately 15,900 ATMs, and leading online political impasse and fragile governments in many countries, (www.bankofamerica.com) and mobile banking platforms with including Italy and Spain. In this context, the European Central approximately 34 million active accounts and more than 22 million Bank extended its quantitative easing program, albeit at a slower mobile active users. We offer industry-leading support to pace. At the same time, the U.K. surprised financial markets by approximately three million small business owners. Our wealth voting in favor of leaving the EU. Despite this decision, the U.K. management businesses, with client balances of approximately economy proved resilient. Activity in Japan continued to expand in $2.5 trillion, provide tailored solutions to meet client needs 2016. However, inflation fell back into negative territory for most through a full set of investment management, brokerage, banking, of the year, forcing the Bank of Japan to adopt a new monetary trust and retirement products. We are a global leader in corporate policy framework aimed at targeting sovereign yields. Aided in part classes serving corporations, governments, institutions and showed signs of stabilizing following their deep recessions. China’s individuals around the world. economy decelerated modestly during the year, as its transition towards a growth model less focused on trade, and public 2016 Economic and Business Environment The economy in the U.S. grew in 2016 for the seventh consecutive year. Following a soft start to the year partly reflecting severe winter weather, domestic demand grew at a moderate pace over the remainder of the year. Suppressed by a slowdown in housing gains investment continued. Recent Events Capital Management and a decrease in state and local government purchases, domestic During 2016, we repurchased approximately $5.1 billion of spending growth was less than two percent, while weak exports, common stock pursuant to the Board of Directors’ (the Board) in part a lagged response to the sharp U.S. dollar appreciation of authorization of our 2016 and 2015 Comprehensive Capital recent years, and continued inventory reductions by businesses Analysis and Review (CCAR) capital plans and to offset equity- also had a negative impact on GDP growth. based compensation awards. Also, in addition to the previously Meanwhile, the labor market continued to tighten, and average announced repurchases associated with the 2016 CCAR capital hourly earnings increased at the fastest pace since 2008. Payroll plan, on January 13, 2017, we announced a plan to repurchase gains remained solid, and the unemployment rate trended an additional $1.8 billion of common stock during the first half of downward, with the decline limited by stabilizing labor force 2017, to which the Federal Reserve did not object. For additional participation. With employment and wages both rising, consumer information, see Capital Management on page 44. spending, the largest component of the U.S. economy, was an economic bright spot. Core inflation (which, unlike headline inflation, excludes certain items subject to frequent volatile price change such as food and energy) also increased during 2016, but remained below the Federal Reserve System’s (Federal Reserve) longer-term target of two percent. Meanwhile, headline inflation recovered, as energy costs began to reverse some of their large declines of recent years. Following a weak start, equity markets advanced in 2016. Higher energy costs improved the trajectory of the manufacturing sector and the outlook for business investment. Treasury yields decreased in the first half of the year, but more than reversed their declines during the second half, especially in the fourth quarter. The U.S. dollar followed a similar pattern, depreciating in the first half only to reverse the losses later in the year. For a second consecutive year, the Federal Open Market Committee raised its target range for the Federal funds rate by 25 basis points (bps) at the year’s final meeting. With a stronger economy, rising inflation and continued labor market tightening, Federal Reserve members raised expectations that if economic growth continued, the pace of rate increases will pick up in 2017, although the removal of accommodation would remain gradual. The contrast between U.S. tightening and quantitative easing in Europe and Japan remained a source of dollar strength. Sale of Non-U.S. Consumer Credit Card Business On December 20, 2016, we entered into an agreement to sell our non-U.S. consumer credit card business to a third party. Subject to regulatory approval, this transaction is expected to close by mid-2017. After closing, we will retain substantially all payment protection insurance (PPI) exposure above existing reserves. We have considered this exposure in our estimate of a small after-tax gain on the sale. This transaction, once completed, will reduce risk-weighted assets and goodwill, benefiting regulatory capital. At December 31, 2016, the assets of this business, which are presented in assets of business held for sale on the Consolidated Balance Sheet, included non-U.S. credit card loans of $9.2 billion. This business is included in All Other for reporting purposes. For more information on the assets and liabilities of this business, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. 20 Bank of America 2016 Selected Financial Data Table 1 provides selected consolidated financial data for 2016 and 2015. Table 1 Selected Financial Data (Dollars in millions, except per share information) Income statement Revenue, net of interest expense Net income Diluted earnings per common share Dividends paid per common share and investment banking and trading across a broad range of asset by the increase in oil prices, the Russian and Brazilian economies Performance ratios Return on average assets Return on average common shareholders' equity Return on average tangible common shareholders’ equity (1) Efficiency ratio Balance sheet at year end Total loans and leases Total assets Total deposits Total common shareholders’ equity Total shareholders’ equity 2016 2015 $ 83,701 17,906 1.50 0.25 $ 82,965 15,836 1.31 0.20 0.82% 6.71 9.54 65.65 0.73% 6.24 9.08 69.59 $ 906,683 2,187,702 1,260,934 241,620 266,840 $ 896,983 2,144,287 1,197,259 233,903 256,176 (1) Return on average tangible common shareholders' equity is a non-GAAP financial measure. For additional information, see Supplemental Financial Data on page 26, and for corresponding reconciliations to accounting principles generally accepted in the United States of America (GAAP) financial measures, see Statistical Table XV. Financial Highlights Net income was $17.9 billion, or $1.50 per diluted share in 2016 compared to $15.8 billion, or $1.31 per diluted share in 2015. The results for 2016 compared to 2015 were driven by higher net interest income and lower noninterest expense, partially offset by a decline in noninterest income and higher provision for credit losses. Table 2 Summary Income Statement (Dollars in millions) Net interest income Noninterest income Total revenue, net of interest expense Provision for credit losses 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 2016 $ 41,096 42,605 83,701 3,597 54,951 25,153 7,247 17,906 1,682 $ 16,224 2015 $ 38,958 44,007 82,965 3,161 57,734 22,070 6,234 15,836 1,483 $ 14,353 $ $ 1.58 1.50 1.37 1.31 Net Interest Income Net interest income increased $2.1 billion to $41.1 billion in 2016 compared to 2015. The net interest yield increased seven bps to 2.21 percent for 2016. These increases were primarily driven by growth in commercial loans, the impact of higher short-end interest rates and increased debt securities balances, as well as a charge of $612 million in 2015 related to the redemption of certain trust preferred securities, partially offset by lower loan spreads and market-related hedge ineffectiveness. We expect net interest income to increase approximately $600 million per quarter beginning in the first quarter of 2017, assuming interest rates remain at the year-end 2016 level and modest growth in loans and deposits. Noninterest Income Table 3 Noninterest Income (Dollars in millions) Card income Service charges Investment and brokerage services Investment banking income Trading account profits Mortgage banking income Gains on sales of debt securities Other income Total noninterest income 2016 2015 $ 5,851 7,638 12,745 5,241 6,902 1,853 490 1,885 $ 42,605 $ 5,959 7,381 13,337 5,572 6,473 2,364 1,138 1,783 $ 44,007 Noninterest income decreased $1.4 billion to $42.6 billion for 2016 compared to 2015. The following highlights the significant changes. Service charges increased $257 million primarily due to higher treasury-related revenue. Investment and brokerage services income decreased $592 million driven by lower transactional revenue, and decreased asset management fees due to lower market valuations, partially offset by the impact of higher long-term assets under management (AUM) flows. Investment banking income decreased $331 million driven by lower equity issuance fees and advisory fees due to a decline in market fee pools. Trading account profits increased $429 million due to a stronger performance across credit products led by mortgages and continued strength in rates products, partially offset by reduced client activity in equities. Mortgage banking income decreased $511 million primarily driven by a decline in production income, higher representations and warranties provision and lower servicing income, partially offset by more favorable mortgage servicing rights (MSR) results, net of the related hedge performance. Gains on sales of debt securities decreased $648 million primarily driven by lower sales volume. Bank of America 2016 21 Income Tax Expense Table 5 Income Tax Expense (Dollars in millions) Income before income taxes Income tax expense Effective tax rate 2016 $ 25,153 7,247 2015 $ 22,070 6,234 28.8% 28.2% The effective tax rate for 2016 was driven by our recurring tax preferences and net tax benefits related to various tax audit matters, partially offset by a charge for the impact of the U.K. tax law changes discussed below. The effective tax rate for 2015 was driven by our recurring tax preferences and by tax benefits related to certain non-U.S. restructurings, partially offset by a charge for the impact of the U.K. tax law change enacted in 2015. The U.K. Finance Bill 2016 was enacted on September 15, 2016. The changes included reducing the U.K. corporate income tax rate by one percent to 17 percent, effective April 1, 2020. This reduction favorably affects income tax expense on future U.K. earnings, but required a remeasurement of our U.K. net deferred tax assets using the lower tax rate. Accordingly, upon enactment, we recorded an income tax charge of $348 million. In addition, for banking companies, the portion of U.K. taxable income that can be reduced by existing net operating loss carryforwards in any one taxable year has been reduced from 50 percent to 25 percent retroactive to April 1, 2016. Our U.K. deferred tax assets, which consist primarily of net operating losses, are expected to be realized by certain subsidiaries over a number of years. Significant changes to management's earnings forecasts for those subsidiaries, changes in applicable laws, further changes in tax laws or changes in the ability of our U.K. subsidiaries to conduct business in the EU, could lead management to reassess our ability to realize the U.K. deferred tax assets. For additional information, see Item 1A. Risk Factors of our 2016 Annual Report on Form 10-K. Other income increased $102 million primarily due to lower debit valuation adjustment (DVA) losses on structured liabilities, improved results from loans and the related hedging activities in the fair value option portfolio, and lower PPI expense, partially offset by lower gains on asset sales. DVA losses related to structured liabilities were $97 million in 2016 compared to $633 million in 2015. Provision for Credit Losses The provision for credit losses increased $436 million to $3.6 billion for 2016 compared to 2015 due to a slower pace of credit quality improvement in the consumer portfolio and an increase in energy sector reserves for the higher risk energy sub-sectors in the commercial portfolio. For more information on the provision for credit losses, see Provision for Credit Losses on page 74. For more information on our energy sector exposure, see Commercial Portfolio Credit Risk Management – Industry Concentrations on page 70. Noninterest Expense Table 4 Noninterest Expense (Dollars in millions) Personnel Occupancy Equipment Marketing Professional fees Amortization of intangibles Data processing Telecommunications Other general operating Total noninterest expense 2016 $ 31,616 4,038 1,804 1,703 1,971 730 3,007 746 9,336 $ 54,951 2015 $ 32,868 4,093 2,039 1,811 2,264 834 3,115 823 9,887 $ 57,734 Noninterest expense decreased $2.8 billion to $55.0 billion for 2016 compared to 2015. Personnel expense decreased $1.3 billion as we continue to manage headcount and achieve cost savings. Continued expense management, as well as the expiration of advisor retention awards, more than offset the increases in client-facing professionals. Professional fees decreased $293 million primarily due to lower legal fees. Other general operating expense decreased $551 million primarily driven by lower foreclosed properties expense and lower brokerage fees, partially offset by higher FDIC expense. We have previously announced an annual noninterest expense target of approximately $53 billion for full-year 2018. 22 Bank of America 2016 valuation adjustment (DVA) losses on structured liabilities, improved results from loans and the related hedging activities in the fair value option portfolio, and lower PPI expense, partially offset by lower gains on asset sales. DVA losses related to structured liabilities were $97 million in 2016 compared to $633 million in 2015. Provision for Credit Losses The provision for credit losses increased $436 million to $3.6 billion for 2016 compared to 2015 due to a slower pace of credit quality improvement in the consumer portfolio and an increase in energy sector reserves for the higher risk energy sub-sectors in the commercial portfolio. For more information on the provision for credit losses, see Provision for Credit Losses on page 74. For more information on our energy sector exposure, see Commercial Portfolio Credit Risk Management – Industry Concentrations on page 70. Noninterest Expense Table 4 Noninterest Expense (Dollars in millions) Personnel Occupancy Equipment Marketing Professional fees Amortization of intangibles Data processing Telecommunications Other general operating Total noninterest expense (Dollars in millions) Income before income taxes Income tax expense Effective tax rate 2016 2015 $ 25,153 $ 22,070 7,247 28.8% 6,234 28.2% The effective tax rate for 2016 was driven by our recurring tax preferences and net tax benefits related to various tax audit matters, partially offset by a charge for the impact of the U.K. tax law changes discussed below. The effective tax rate for 2015 was driven by our recurring tax preferences and by tax benefits related to certain non-U.S. restructurings, partially offset by a charge for the impact of the U.K. tax law change enacted in 2015. The U.K. Finance Bill 2016 was enacted on September 15, 2016. The changes included reducing the U.K. corporate income tax rate by one percent to 17 percent, effective April 1, 2020. This reduction favorably affects income tax expense on future U.K. earnings, but required a remeasurement of our U.K. net deferred tax assets using the lower tax rate. Accordingly, upon enactment, we recorded an income tax charge of $348 million. In addition, for 2016 2015 banking companies, the portion of U.K. taxable income that can $ 31,616 $ 32,868 be reduced by existing net operating loss carryforwards in any one taxable year has been reduced from 50 percent to 25 percent 4,038 1,804 1,703 1,971 730 3,007 746 9,336 4,093 2,039 1,811 2,264 834 3,115 823 9,887 $ 54,951 $ 57,734 retroactive to April 1, 2016. Our U.K. deferred tax assets, which consist primarily of net operating losses, are expected to be realized by certain subsidiaries over a number of years. Significant changes to management's earnings forecasts for those subsidiaries, changes in applicable laws, further changes in tax laws or changes in the ability of our U.K. subsidiaries to conduct business in the EU, could lead management to reassess our ability to realize the U.K. deferred tax assets. For additional information, see Item 1A. Risk Factors of our 2016 Annual Report on Form 10-K. Noninterest expense decreased $2.8 billion to $55.0 billion for 2016 compared to 2015. Personnel expense decreased $1.3 billion as we continue to manage headcount and achieve cost savings. Continued expense management, as well as the expiration of advisor retention awards, more than offset the increases in client-facing professionals. Professional fees decreased $293 million primarily due to lower legal fees. Other general operating expense decreased $551 million primarily driven by lower foreclosed properties expense and lower brokerage fees, partially offset by higher FDIC expense. We have previously announced an annual noninterest expense target of approximately $53 billion for full-year 2018. Other income increased $102 million primarily due to lower debit Income Tax Expense Balance Sheet Overview Table 5 Income Tax Expense Table 6 Selected Balance Sheet Data (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 2016 2015 % Change $ 147,738 198,224 180,209 430,731 906,683 (11,237) 335,354 $ 2,187,702 $ 159,353 192,482 176,527 406,888 896,983 (12,234) 324,288 $ 2,144,287 $ 1,260,934 170,291 63,031 23,944 216,823 185,839 1,920,862 266,840 $ 2,187,702 $ 1,197,259 174,291 66,963 28,098 236,764 184,736 1,888,111 256,176 $ 2,144,287 (7)% 3 2 6 1 (8) 3 2 5 (2) (6) (15) (8) 1 2 4 2 Assets At December 31, 2016, total assets were approximately $2.2 trillion, up $43.4 billion from December 31, 2015. The increase in assets was primarily due to higher debt securities driven by the deployment of deposit inflows, an increase in loans and leases driven by client demand for commercial loans, and higher securities borrowed or purchased under agreements to resell due to increased customer financing activity. These increases were partially offset by a decrease in cash and cash equivalents as excess cash was deployed. Cash and Cash Equivalents Cash and cash equivalents decreased $11.6 billion primarily driven by loan growth, net securities purchases and net debt maturities. 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 increased $5.7 billion due to a higher level of customer financing activity. 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 increased $3.7 billion primarily 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 $23.8 billion primarily driven by the deployment of deposit inflows. For more information on debt securities, see Note 3 – Securities to the Consolidated Financial Statements. leases increased $9.7 billion compared Loans and Leases Loans and to December 31, 2015. The increase consisted of $18.9 billion in net loan growth driven by strong client demand for commercial loans, partially offset by $9.2 billion in non-U.S. credit card loans that were reclassified from loans and leases to assets of business held for sale, which is included in all other assets in the table above. For more information on the loan portfolio, see Credit Risk Management on page 54. Allowance for Loan and Lease Losses The allowance for loan and lease losses decreased $1.0 billion primarily due to the impact of improvements in credit quality from a stronger economy. For additional information, see Allowance for Credit Losses on page 74. 22 Bank of America 2016 Bank of America 2016 23 All Other Assets All other assets increased $11.1 billion driven by the reclassification of $10.7 billion in assets related to our non-U.S. credit card business primarily from loans and leases and debt securities to assets of business held for sale, which is included in all other assets in Table 6. Liabilities At December 31, 2016, total liabilities were approximately $1.9 trillion, up $32.8 billion from December 31, 2015, primarily due to an increase in deposits, partially offset by a decrease in long- term debt. Deposits Deposits increased $63.7 billion primarily due to an increase in retail deposits. 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 $4.0 billion primarily 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 $3.9 billion primarily due to lower levels of short U.S. Treasury positions driven by less 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 borrowings decreased $4.2 billion primarily due to a decrease in short-term bank notes, partially offset by an increase in short-term FHLB Advances. 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 Long-term Debt Long-term debt decreased $19.9 billion primarily driven by maturities and redemptions outpacing issuances. For more information on long-term debt, see Note 11 – Long-term Debt to the Consolidated Financial Statements. All Other Liabilities All other liabilities increased $1.1 billion due to an increase in derivative liabilities. Shareholders’ Equity Shareholders’ equity increased $10.7 billion driven by earnings and preferred stock issuances, partially offset by returns of capital to shareholders of $9.4 billion through common and preferred stock dividends and share repurchases, as well as a decrease in accumulated other comprehensive income (OCI) primarily due to an increase in unrealized losses on available-for-sale (AFS) debt securities as a result of higher 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 50. 24 Bank of America 2016 All Other Assets borrowings, notes payable and various other borrowings that All other assets increased $11.1 billion driven by the generally have maturities of one year or less. Short-term reclassification of $10.7 billion in assets related to our non-U.S. borrowings decreased $4.2 billion primarily due to a decrease in credit card business primarily from loans and leases and debt short-term bank notes, partially offset by an increase in short-term securities to assets of business held for sale, which is included FHLB Advances. For more information on short-term borrowings, in all other assets in Table 6. Liabilities see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings to the Consolidated Financial Statements. At December 31, 2016, total liabilities were approximately $1.9 trillion, up $32.8 billion from December 31, 2015, primarily due to an increase in deposits, partially offset by a decrease in long- Long-term Debt term debt. Deposits retail deposits. Deposits increased $63.7 billion primarily due to an increase in Long-term debt decreased $19.9 billion primarily driven by maturities and redemptions outpacing issuances. For more information on long-term debt, see Note 11 – Long-term Debt to the Consolidated Financial Statements. All Other Liabilities All other liabilities increased $1.1 billion due to an increase in Federal Funds Purchased and Securities Loaned or Sold derivative liabilities. 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 $4.0 billion primarily due to a decrease in repurchase agreements. Trading Account Liabilities Shareholders’ Equity Shareholders’ equity increased $10.7 billion driven by earnings and preferred stock issuances, partially offset by returns of capital to shareholders of $9.4 billion through common and preferred stock dividends and share repurchases, as well as a decrease in accumulated other comprehensive income (OCI) primarily due to an increase in unrealized losses on available-for-sale (AFS) debt securities as a result of higher interest rates. Cash Flows Overview Trading account liabilities consist primarily of short positions in The Corporation’s operating assets and liabilities support our equity and fixed-income securities including U.S. Treasury and global markets and lending activities. We believe that cash flows agency securities, corporate securities and non-U.S. sovereign from operations, available cash balances and our ability to debt. Trading account liabilities decreased $3.9 billion primarily generate cash through short- and long-term debt are sufficient to due to lower levels of short U.S. Treasury positions driven by less fund our operating liquidity needs. Our investing activities primarily 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 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 50. Table 7 Five-year Summary of Selected 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 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 (1) Return on average shareholder's equity Return on average tangible shareholders’ equity (1) 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 (1) Market price per share of common stock Closing High closing Low closing 2016 2015 2014 2013 2012 $ $ $ $ 41,096 42,605 83,701 3,597 54,951 25,153 7,247 17,906 16,224 10,284 11,036 0.82% 6.71 9.54 6.72 9.19 12.20 12.16 15.86 1.58 1.50 0.25 24.04 16.95 $ $ 38,958 44,007 82,965 3,161 57,734 22,070 6,234 15,836 14,353 10,462 11,214 0.73% 6.24 9.08 6.28 8.80 11.95 11.66 14.56 1.37 1.31 0.20 22.53 15.62 $ $ 40,779 45,115 85,894 2,275 75,656 7,963 2,443 5,520 4,476 10,528 10,585 0.26% 2.01 2.98 2.32 3.34 11.57 11.11 28.20 0.43 0.42 0.12 21.32 14.43 $ $ 40,719 46,783 87,502 3,556 69,213 14,733 4,194 10,539 9,190 10,731 11,491 0.49% 4.21 6.35 4.51 6.58 11.06 10.81 4.66 0.86 0.83 0.04 20.69 13.77 40,135 42,663 82,798 8,169 72,094 2,535 (1,320) 3,855 2,427 10,746 10,841 0.18% 1.12 1.71 1.64 2.40 10.72 10.75 18.03 0.23 0.22 0.04 20.24 13.36 $ 22.10 23.16 11.16 $ 222,163 $ 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 Market capitalization (1) Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios, see Supplemental Financial Data on page 26, and for corresponding reconciliations to GAAP financial measures, see Statistical Table XV on page 107. (2) 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 55. (3) Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments. (4) 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 63 and corresponding Table 30, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 69 and corresponding Table 37. (5) Asset quality metrics include $243 million of non-U.S. credit card allowance for loan and lease losses and $9.2 billion of non-U.S. credit card loans, which are included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. (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 $340 million, $808 million, $810 million, $2.3 billion and $2.8 billion of write-offs in the PCI loan portfolio for 2016, 2015, 2014, 2013 and 2012 respectively. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 61. (8) Risk-based capital ratios are reported under Basel 3 Advanced - Transition at December 31, 2016 and 2015. We reported risk-based capital ratios under Basel 3 Standardized - Transition at December 31, 2014 and under the general risk-based approach at December 31, 2013 and 2012. For additional information, see Capital Management on page 44. n/a = not applicable 24 Bank of America 2016 Bank of America 2016 25 Table 7 Five-year Summary of Selected Financial Data (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 (2) Allowance for credit losses (3) Nonperforming loans, leases and foreclosed properties (4) Allowance for loan and lease losses as a percentage of total loans and leases outstanding (4, 5) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (4, 5) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio (4, 5) Amounts included in allowance for loan and lease losses for loans and leases that are 2016 2015 2014 2013 2012 $ 900,433 2,189,971 1,222,561 228,617 241,621 266,277 $ 876,787 2,160,197 1,155,860 240,059 230,173 251,981 $ 898,703 2,145,393 1,124,207 253,607 222,907 238,317 $ 918,641 2,163,296 1,089,735 263,417 218,340 233,819 $ 898,768 2,191,361 1,047,782 316,393 216,999 235,681 $ 11,999 8,084 $ 12,880 9,836 $ 14,947 12,629 $ 17,912 17,772 $ 24,692 23,555 1.26% 1.37% 1.66% 1.90% 2.69% 149 144 130 122 121 107 102 87 107 82 excluded from nonperforming loans and leases (6) $ 3,951 $ 4,518 $ 5,944 $ 7,680 $ 12,021 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 (4, 6) Net charge-offs (7) Net charge-offs as a percentage of average loans and leases outstanding (4, 7) Net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (4) Net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (4) Nonperforming loans and leases as a percentage of total loans and leases outstanding (4, 5) Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (4, 5) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (5, 7) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs, excluding the PCI loan portfolio (5) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs and PCI write-offs (5) Capital ratios at year end (8) Risk-based capital: Common equity tier 1 capital Tier 1 common capital Tier 1 capital Total capital Tier 1 leverage Tangible equity (1) Tangible common equity (1) For footnotes see page 25. 98% 82% 71% 57% 54% $ 3,821 $ 4,338 $ 4,383 $ 7,897 $ 14,908 0.43% 0.50% 0.49% 0.87% 1.67% 0.44 0.47 0.85 0.89 3.00 2.89 2.76 11.0% n/a 12.4 14.3 8.9 9.2 8.1 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 1.38 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 7.8 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 Supplemental Financial Data In this Form 10-K, we present certain non-GAAP financial measures. Non-GAAP financial measures exclude certain items or otherwise include components that differ from the most directly comparable measures calculated in accordance with GAAP. Non- GAAP financial measures are provided as additional useful information to assess our financial condition, results of operations (including period-to-period operating performance) or compliance with prospective regulatory requirements. These non-GAAP financial measures are not intended as a substitute for GAAP financial measures and may not be defined or calculated the same way as non-GAAP financial measures used by other companies. We view net interest income and related ratios and analyses on an fully taxable-equivalent (FTE) basis, which when presented on a consolidated basis, are non-GAAP financial measures. 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 and a representative state tax rate. In addition, 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 believe that presentation of these items on an FTE basis allows for comparison of amounts from both taxable and tax-exempt sources and is consistent with industry practices. We may present certain key performance indicators and ratios excluding certain items (e.g., DVA) which result in non-GAAP 26 Bank of America 2016 financial measures. We believe that the presentation of measures that exclude these items are useful because they provide additional information to assess the underlying operational performance and trends of our businesses and to allow better comparison of period-to-period operating performance. 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 certain acquired 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 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 certain acquired intangible assets (excluding MSRs), net of related deferred tax liabilities. Table 8 Five-year Supplemental Financial Data 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 certain acquired 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. We believe that the use of ratios that utilize tangible equity provides additional useful information because they present measures of those assets that can generate income. Tangible book value per share provides additional useful information about the level of tangible assets in relation to outstanding shares of common stock. The aforementioned supplemental data and performance measures are presented in Table 7 and Statistical Table XII. Statistical Tables XV and XVI on pages 107 and 108 provide reconciliations of these non-GAAP financial measures to GAAP financial measures. (Dollars in millions, except per share information) Fully taxable-equivalent basis data Net interest income Total revenue, net of interest expense Net interest yield Efficiency ratio 2016 2015 2014 2013 2012 $ 41,996 84,601 $ 39,847 83,854 $ 41,630 86,745 $ 41,578 88,361 $ 41,036 83,699 2.25% 64.95 2.19% 68.85 2.30% 87.22 2.29% 78.33 2.22% 86.13 excluded from nonperforming loans and leases (6) $ 3,951 $ 4,518 $ 5,944 $ 7,680 $ 12,021 excluded from nonperforming loans and leases (4, 6) 98% 82% 71% 57% 54% Net charge-offs (7) $ 3,821 $ 4,338 $ 4,383 $ 7,897 $ 14,908 Net charge-offs as a percentage of average loans and leases outstanding (4, 7) 0.43% 0.50% 0.49% 0.87% 1.67% Table 7 Five-year Summary of Selected Financial Data (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 (2) Allowance for credit losses (3) outstanding (4, 5) leases (4, 5) Nonperforming loans, leases and foreclosed properties (4) 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 (4, 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 Net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (4) outstanding (4) outstanding (4, 5) Net charge-offs and PCI write-offs as a percentage of average loans and leases 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 (4, 5) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (5, 7) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs, excluding the PCI loan portfolio (5) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs and PCI write-offs (5) Capital ratios at year end (8) Risk-based capital: Common equity tier 1 capital Tier 1 common capital Tier 1 capital Total capital Tier 1 leverage Tangible equity (1) Tangible common equity (1) For footnotes see page 25. 2016 2015 2014 2013 2012 $ 900,433 $ 876,787 $ 898,703 $ 918,641 $ 898,768 2,189,971 1,222,561 228,617 241,621 266,277 2,160,197 2,145,393 2,163,296 2,191,361 1,155,860 1,124,207 1,089,735 1,047,782 240,059 230,173 251,981 253,607 222,907 238,317 263,417 218,340 233,819 316,393 216,999 235,681 $ 11,999 $ 12,880 $ 14,947 $ 17,912 $ 24,692 8,084 9,836 12,629 17,772 23,555 1.26% 1.37% 1.66% 1.90% 2.69% 149 144 130 122 121 107 102 87 107 82 0.44 0.47 0.85 0.89 3.00 2.89 2.76 11.0% n/a 12.4 14.3 8.9 9.2 8.1 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 1.38 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 7.8 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 Supplemental Financial Data In this Form 10-K, we present certain non-GAAP financial measures. Non-GAAP financial measures exclude certain items or otherwise include components that differ from the most directly comparable measures calculated in accordance with GAAP. Non- GAAP financial measures are provided as additional useful information to assess our financial condition, results of operations (including period-to-period operating performance) or compliance with prospective regulatory requirements. These non-GAAP financial measures are not intended as a substitute for GAAP financial measures and may not be defined or calculated the same way as non-GAAP financial measures used by other companies. We view net interest income and related ratios and analyses on an fully taxable-equivalent (FTE) basis, which when presented on a consolidated basis, are non-GAAP financial measures. 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 and a representative state tax rate. In addition, 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 believe that presentation of these items on an FTE basis allows for comparison of amounts from both taxable and tax-exempt sources and is consistent with industry practices. We may present certain key performance indicators and ratios excluding certain items (e.g., DVA) which result in non-GAAP 26 Bank of America 2016 Bank of America 2016 27 Business Segment Operations Segment Description and Basis of Presentation We report our results of operations through the following four business segments: Consumer Banking, GWIM, Global Banking and Global Markets, 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 Deposits • Merrill Lynch Global Wealth Management • U.S. Trust, Bank of America Private Wealth Management • Consumer Deposits • Merrill Edge • Small Business Client Management Consumer Lending • Consumer and Small Business Credit Card • Debit Card • Core Consumer Real Estate Loans • Consumer Vehicle Lending Global Banking Global Markets All Other • Investment Banking • Fixed Income Markets • ALM Activities • Non–U.S. Consumer • Global Corporate • Equity Markets Card Banking • Global Commercial Banking • Business Banking • Non-Core Mortgage Loans • Other Liquidating Businesses • Equity Investments • Corporate Activities and Residual Expense Allocations • Accounting Reclassifications and Eliminations We periodically review capital allocated to our businesses and allocate 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. Our 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 40. The capital allocated to the business segments is referred to as allocated capital. For purposes of goodwill impairment testing, we utilize allocated equity as a proxy for the carrying value of our 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. For more information on the basis of presentation for business segments and reconciliations to consolidated total revenue, net income and year-end total assets, see Note 24 – Business Segment Information to the Consolidated Financial Statements. 28 Bank of America 2016 Business Segment Operations Segment Description and Basis of Presentation We report our results of operations through the following four business segments: Consumer Banking, GWIM, Global Banking and Global Markets, 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 (Dollars in millions) Net interest income (FTE basis) Noninterest income: Card income Service charges Mortgage banking income All other income Consumer Banking Global Wealth & Investment Management Global Banking Global Markets All Other 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 Deposits • Merrill Lynch Global • Investment • Fixed Income Markets • ALM Activities • Non–U.S. Consumer • Global Corporate • Equity Markets Card Wealth Management • U.S. Trust, Bank of America Private Wealth Management Banking Banking • Global Commercial Banking • Business Banking • Non-Core Mortgage Loans • Other Liquidating Businesses • Equity Investments • Corporate Activities and Residual Expense Allocations • Accounting Reclassifications and Eliminations • Consumer Deposits • Merrill Edge • Small Business Client Management Consumer Lending • Consumer and Small Business Credit Card • Debit Card • Core Consumer Real Estate Loans • Consumer Vehicle Lending We periodically review capital allocated to our businesses and carrying value of our reporting units. Allocated equity in the allocate capital annually during the strategic and capital planning reporting units is comprised of allocated capital plus capital for processes. We utilize a methodology that considers the effect of the portion of goodwill and intangibles specifically assigned to the regulatory capital requirements in addition to internal risk-based reporting unit. For additional information, see Note 8 – Goodwill capital models. Our internal risk-based capital models use a risk- and Intangible Assets to the Consolidated Financial Statements. adjusted methodology incorporating each segment’s credit, For more information on the basis of presentation for business market, interest rate, business and operational risk components. segments and reconciliations to consolidated total revenue, net For more information on the nature of these risks, see Managing income and year-end total assets, see Note 24 – Business Segment Risk on page 40. The capital allocated to the business segments Information to the Consolidated Financial Statements. is referred to as allocated capital. For purposes of goodwill impairment testing, we utilize allocated equity as a proxy for the Year end Total loans and leases Total earning assets (1) Total assets (1) Total deposits (1) 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. 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 coast to coast network including financial centers in 33 states and the District of Columbia. Our network includes approximately 4,600 financial centers, 15,900 ATMs, nationwide call centers, and online and mobile platforms. Consumer Banking Results Net income for Consumer Banking increased $524 million to $7.2 billion in 2016 compared to 2015 primarily driven by lower noninterest expense and higher revenue, partially offset by higher provision for credit losses. Net interest income increased $862 million to $21.3 billion primarily due to the beneficial impact of an increase in investable assets as a result of higher deposits. Noninterest income decreased $656 million to $10.4 billion due to lower mortgage banking income and gains in 2015 on certain divestitures. The provision for credit losses increased $369 million to $2.7 billion in 2016 primarily driven by a slower pace of improvement in the credit card portfolio. Noninterest expense decreased $1.1 billion to $17.7 billion driven by improved operating efficiencies and lower fraud costs, partially offset by higher FDIC expense. The return on average allocated capital was 21 percent, up from 20 percent, reflecting higher net income. For additional information on capital allocations, see Business Segment Operations on page 28. 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. 28 Bank of America 2016 Bank of America 2016 29 Deposits Consumer Lending Total Consumer Banking 2016 $ 10,701 2015 $ 9,635 2016 $ 10,589 2015 $ 10,793 2016 $ 21,290 2015 $ 20,428 % Change 4% 9 4,141 — 403 4,553 15,254 174 9,678 5,402 1,992 3,410 11 4,100 — 483 4,594 14,229 200 9,856 4,173 1,521 2,652 $ $ 4,926 1 960 1 5,888 16,477 2,541 7,975 5,961 2,198 3,763 4,926 1 1,332 244 6,503 17,296 2,146 8,860 6,290 2,293 3,997 $ $ 4,935 4,142 960 404 10,441 31,731 2,715 17,653 11,363 4,190 7,173 4,937 4,101 1,332 727 11,097 31,525 2,346 18,716 10,463 3,814 6,649 $ $ 1.79% 28 63.44 1.75% 22 69.27 4.37% 17 48.41 4.70% 19 51.23 3.38% 21 55.63 3.52% 20 59.37 $ 4,809 598,043 624,592 592,417 12,000 $ 4,713 549,600 576,569 544,685 12,000 $ 240,999 242,445 254,287 7,237 22,000 $227,719 229,579 242,707 8,191 21,000 $ 245,808 629,990 668,381 599,654 34,000 $232,432 580,095 620,192 552,876 33,000 $ 4,938 631,172 658,316 625,727 $ 4,735 576,108 603,448 571,467 $ 254,053 255,511 268,002 7,063 $234,116 235,496 248,571 6,365 $ 258,991 662,704 702,339 632,790 $238,851 605,012 645,427 577,832 — 1 (28) (44) (6) 1 16 (6) 9 10 8 6 9 8 8 3 8 10 9 10 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 - Net Migration Summary on page 33. Net income for Deposits increased $758 million to $3.4 billion in 2016 driven by higher revenue and lower noninterest expense. Net interest income increased $1.1 billion to $10.7 billion primarily due to the beneficial impact of an increase in investable assets as a result of higher deposits. Noninterest income decreased $41 million to $4.6 billion due to gains in the prior year on certain divestitures. The provision for credit losses decreased $26 million to $174 million. Noninterest expense decreased $178 million to $9.7 billion primarily driven by improved operating efficiencies, partially offset by higher FDIC expense. Average deposits increased $47.7 billion to $592.4 billion in 2016 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 $53.8 billion was partially offset by a decline in time deposits of $6.1 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 four bps. Key Statistics – Deposits Total deposit spreads (excludes noninterest costs) (1) 1.65% 1.62% 2016 2015 Year end Client brokerage assets (in millions) Online banking active accounts (units in thousands) Mobile banking active users (units in thousands) Financial centers ATMs (1) Includes deposits held in Consumer Lending. $ 144,696 33,811 21,648 4,579 15,928 $122,721 31,674 18,705 4,726 16,038 Client brokerage assets increased $22.0 billion in 2016 driven by client flows and strong market performance. Mobile banking active users increased 2.9 million reflecting continuing changes in our customers’ banking preferences. The number of financial centers declined 147 driven by changes in customer preferences to self-service options 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, 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 results also include the impact of servicing residential mortgages and home equity loans in the core portfolio, including loans held on the balance sheet of Consumer Lending and loans serviced for others. We classify consumer real estate loans as core or non-core based on loan and customer characteristics such as origination 30 Bank of America 2016 date, product type, loan-to-value (LTV), Fair Isaac Corporation (FICO) score and delinquency status. Total owned loans in the core portfolio held in Consumer Lending increased $10.6 billion to $101.2 billion in 2016 primarily driven by higher residential mortgage balances, partially offset by a decline in home equity balances. For more information on the core and non-core portfolios, see Consumer Portfolio Credit Risk Management on page 55. 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 32. Net income for Consumer Lending decreased $234 million to $3.8 billion in 2016 driven by a decline in revenue and higher provision for credit losses, partially offset by lower noninterest expense. Net interest income decreased $204 million to $10.6 billion primarily driven by higher funding costs, partially offset by the impact of an increase in consumer auto lending balances. Noninterest income decreased $615 million to $5.9 billion driven by lower mortgage banking income and gains in 2015 on certain divestitures. The provision for credit losses increased $395 million to $2.5 billion in 2016 primarily driven by a slower pace of improvement in the credit card portfolio. Noninterest expense decreased $885 million to $8.0 billion primarily driven by improved operating efficiencies and lower fraud costs due to the benefit of the Europay, MasterCard and Visa (EMV) chip implementation, as well as lower personnel expense. Average loans increased $13.3 billion to $241.0 billion in 2016 primarily driven by increases in residential mortgages and consumer vehicle loans, partially offset by lower home equity loans. 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 2016 2015 9.29% 9.04 4,979 $ 226,432 $ 285,612 9.16% 9.31 4,973 $221,378 $277,695 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 2016, the total U.S. credit card risk-adjusted margin decreased 27 bps primarily driven by the impact of gains in 2015 on certain divestitures and a decrease in net interest margin, partially offset by an improvement in credit quality in the U.S. Card portfolio. Total U.S. credit card purchase volumes increased $5.1 billion to $226.4 billion and debit card purchase volumes increased $7.9 billion to $285.6 billion, reflecting higher levels of consumer spending. The increase in total U.S. credit card purchase volumes was partially offset by the impact of certain divestitures. Mortgage Banking Income Mortgage banking income is earned primarily in Consumer Banking and All Other. Total production income within mortgage banking income is comprised primarily of revenue from the fair value gains and losses recognized on our interest rate lock commitments (IRLCs) and loans held-for-sale (LHFS), the related secondary market execution, and costs related to representations and warranties made in the sales transactions along with other obligations incurred in the sales of mortgage loans. Servicing Deposits includes the net impact of migrating customers and date, product type, loan-to-value (LTV), Fair Isaac Corporation (FICO) their related deposit and brokerage asset balances between score and delinquency status. Total owned loans in the core Deposits and GWIM as well as other client-managed businesses. portfolio held in Consumer Lending increased $10.6 billion to For more information on the migration of customer balances to or $101.2 billion in 2016 primarily driven by higher residential from GWIM, see GWIM - Net Migration Summary on page 33. mortgage balances, partially offset by a decline in home equity Net income for Deposits increased $758 million to $3.4 billion balances. For more information on the core and non-core portfolios, in 2016 driven by higher revenue and lower noninterest expense. see Consumer Portfolio Credit Risk Management on page 55. Net interest income increased $1.1 billion to $10.7 billion primarily Consumer Lending includes the net impact of migrating due to the beneficial impact of an increase in investable assets customers and their related loan balances between Consumer as a result of higher deposits. Noninterest income decreased $41 Lending and GWIM. For more information on the migration of million to $4.6 billion due to gains in the prior year on certain customer balances to or from GWIM, see GWIM on page 32. divestitures. Net income for Consumer Lending decreased $234 million to The provision for credit losses decreased $26 million to $174 $3.8 billion in 2016 driven by a decline in revenue and higher million. Noninterest expense decreased $178 million to $9.7 provision for credit losses, partially offset by lower noninterest billion primarily driven by improved operating efficiencies, partially expense. Net interest income decreased $204 million to $10.6 offset by higher FDIC expense. billion primarily driven by higher funding costs, partially offset by Average deposits increased $47.7 billion to $592.4 billion in the impact of an increase in consumer auto lending balances. 2016 driven by a continuing customer shift to more liquid products Noninterest income decreased $615 million to $5.9 billion driven in the low rate environment. Growth in checking, traditional savings by lower mortgage banking income and gains in 2015 on certain and money market savings of $53.8 billion was partially offset by divestitures. a decline in time deposits of $6.1 billion. As a result of our The provision for credit losses increased $395 million to $2.5 continued pricing discipline and the shift in the mix of deposits, billion in 2016 primarily driven by a slower pace of improvement the rate paid on average deposits declined by one bp to four bps. in the credit card portfolio. Noninterest expense decreased $885 Key Statistics – Deposits Total deposit spreads (excludes noninterest costs) (1) 1.65% 1.62% 2016 2015 personnel expense. Year end Client brokerage assets (in millions) $ 144,696 $122,721 loans. million to $8.0 billion primarily driven by improved operating efficiencies and lower fraud costs due to the benefit of the Europay, MasterCard and Visa (EMV) chip implementation, as well as lower Average loans increased $13.3 billion to $241.0 billion in 2016 primarily driven by increases in residential mortgages and consumer vehicle loans, partially offset by lower home equity Online banking active accounts (units in thousands) Mobile banking active users (units in thousands) Financial centers ATMs (1) Includes deposits held in Consumer Lending. 33,811 21,648 4,579 15,928 31,674 18,705 4,726 16,038 Client brokerage assets increased $22.0 billion in 2016 driven by client flows and strong market performance. Mobile banking active users increased 2.9 million reflecting continuing changes in our customers’ banking preferences. The number of financial centers declined 147 driven by changes in customer preferences to self-service options as we continue to optimize our consumer banking network and improve our cost-to-serve. Consumer Lending 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 Debit card purchase volumes portfolio is in GWIM. 2016 2015 9.29% 9.16% 9.04 4,979 9.31 4,973 $ 226,432 $ 285,612 $221,378 $277,695 (1) In addition to the U.S. credit card portfolio in Consumer Banking, the remaining U.S. credit card During 2016, the total U.S. credit card risk-adjusted margin decreased 27 bps primarily driven by the impact of gains in 2015 Consumer Lending offers products to consumers and small on certain divestitures and a decrease in net interest margin, businesses across the U.S. The products offered include credit partially offset by an improvement in credit quality in the U.S. Card and debit cards, residential mortgages and home equity loans, portfolio. Total U.S. credit card purchase volumes increased $5.1 and direct and indirect loans such as automotive, recreational billion to $226.4 billion and debit card purchase volumes vehicle and consumer personal loans. In addition to earning net increased $7.9 billion to $285.6 billion, reflecting higher levels of interest spread revenue on its lending activities, Consumer consumer spending. The increase in total U.S. credit card purchase Lending generates interchange revenue from credit and debit card volumes was partially offset by the impact of certain divestitures. 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 results also include the impact of servicing residential mortgages and home equity loans in the core portfolio, including loans held on the balance sheet of Consumer Lending and loans serviced for others. We classify consumer real estate loans as core or non-core based on loan and customer characteristics such as origination 30 Bank of America 2016 Mortgage Banking Income Mortgage banking income is earned primarily in Consumer Banking and All Other. Total production income within mortgage banking income is comprised primarily of revenue from the fair value gains and losses recognized on our interest rate lock commitments (IRLCs) and loans held-for-sale (LHFS), the related secondary market execution, and costs related to representations and warranties made in the sales transactions along with other obligations incurred in the sales of mortgage loans. Servicing income within 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. Servicing income for the core portfolio is recorded in Consumer Banking. Servicing income for the non-core portfolio, including hedge ineffectiveness on MSR hedges, is recorded in All Other. The costs associated with our servicing activities are included in noninterest expense. The table below summarizes the components of mortgage banking income. Amounts for mortgage banking income in All Other are included in this Consumer Banking table to show the components of consolidated mortgage banking income. Mortgage Banking Income (Dollars in millions) Consumer Banking mortgage banking income Total production income Net 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 Total Consumer Banking mortgage banking income Other mortgage banking income Servicing fees Amortization of expected cash flows (1) Fair value changes of MSRs, net of risk management 2016 2015 $ 663 $ 950 708 (577) 166 297 960 452 (74) 855 (661) 188 382 1,332 540 (77) activities used to hedge certain market risks (2) 546 426 Other Total other mortgage banking income (3) Total consolidated mortgage banking income (31) 893 $ 1,853 143 1,032 $ 2,364 (1) Represents the net change in fair value of the MSR asset due to the recognition of modeled (2) (3) cash flows. Includes changes in fair value of MSRs due to changes in inputs and assumptions, net of risk management activities, and gains (losses) on sales of MSRs. For additional information, see Note 23 – Mortgage Servicing Rights to the Consolidated Financial Statements. Includes $889 million and $1.0 billion of mortgage banking income recorded in All Other for 2016 and 2015. Total production income for Consumer Banking decreased $287 million to $663 million in 2016 due to a decrease in production volume to be sold, resulting from a decision to retain certain residential mortgage loans in Consumer Banking. Servicing The costs associated with 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) are allocated to the business segment that owns the loans or MSRs or All Other. 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, we evaluate various workout options in an effort to help our customers avoid foreclosure. Consumer Banking servicing income decreased $85 million to $297 million in 2016 driven by lower servicing fees, partially offset by lower amortization of expected cash flows due to a smaller servicing portfolio. Servicing fees declined $147 million to $708 million in 2016 reflecting the decline in the size of the servicing portfolio. Mortgage Servicing Rights At December 31, 2016, the core MSR portfolio, held within Consumer Lending, was $2.1 billion compared to $2.3 billion at December 31, 2015. The decrease was primarily driven by the amortization of expected cash flows, which exceeded new additions, as well as changes in fair value due to changes in inputs and assumptions. For more information on MSRs, see Note 23 – Mortgage Servicing Rights the Consolidated Financial to Statements. Key Statistics (Dollars in millions) Loan production (1): Total (2): First mortgage Home equity Consumer Banking: First mortgage Home equity 2016 2015 $ 64,153 15,214 $ 56,930 13,060 $ 44,510 13,675 $ 40,878 11,988 (1) The loan production amounts represent the unpaid principal balance of loans and in the case (2) 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 $3.6 billion and $7.2 billion in 2016 compared to 2015 driven by improving housing trends and a lower rate environment. Home equity production for the total Corporation increased $2.2 billion in 2016 compared to 2015 due to a higher demand in the market based on improving housing trends, as well as improved financial center engagement with customers and more competitive pricing. Bank of America 2016 31 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 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 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 per year 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 appreciation/depreciation and other adjustments. 32 Bank of America 2016 2016 2015 % Change $ 5,759 $ 5,527 4% 10,316 1,575 11,891 17,650 68 13,182 4,400 1,629 2,771 10,792 1,715 12,507 18,034 51 13,943 4,040 1,473 2,567 $ $ 2.09% 21 74.68 2.13% 21 77.32 $ 142,429 275,800 291,479 256,425 13,000 $ 132,499 259,020 275,950 244,725 12,000 $ 148,179 283,152 298,932 262,530 $ 139,039 279,597 296,271 260,893 (4) (8) (5) (2) 33 (5) 9 11 8 7 6 6 5 8 7 1 1 1 Client assets under advisory and/or 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 increased $204 million to $2.8 billion in 2016 compared to 2015 driven by a decrease in noninterest expense, partially offset by a decrease in revenue. Net interest income increased $232 million to $5.8 billion driven by the impact of growth in loan and deposit balances. Noninterest income, which primarily includes investment and brokerage services income, decreased $616 million to $11.9 billion. The decline in noninterest income was driven by lower transactional revenue and decreased asset management fees primarily due to lower market valuations in 2016, partially offset by the impact of long-term AUM flows. Noninterest expense decreased $761 million to $13.2 billion primarily due to the expiration of advisor retention awards, lower revenue-related incentives and lower operating and support costs, partially offset by higher FDIC expense. Return on average allocated capital was 21 percent for both 2016 and 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 2016 2015 % Change $ 5,759 $ 5,527 4% 10,316 1,575 11,891 17,650 68 13,182 4,400 1,629 2,771 10,792 1,715 12,507 18,034 51 13,943 4,040 1,473 2,567 $ $ 2.09% 21 74.68 2.13% 21 77.32 $ 142,429 $ 132,499 275,800 291,479 256,425 13,000 259,020 275,950 244,725 12,000 $ 148,179 $ 139,039 283,152 298,932 262,530 279,597 296,271 260,893 (4) (8) (5) (2) 33 (5) 9 11 8 7 6 6 5 8 7 1 1 1 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 (1) 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 (1) Total assets under management, end of year Associates, at year end (3, 4) Number of financial advisors Total wealth advisors, including financial advisors Total primary sales professionals, including financial advisors and wealth advisors Merrill Lynch Global Wealth Management Metric (4) Financial advisor productivity (5) (in thousands) 2016 2015 $ $ 14,486 3,075 89 17,650 $ $ 14,926 3,032 76 18,034 $ 2,102,175 406,392 — $ 2,508,567 $ 1,986,502 388,604 82,929 $ 2,458,035 $ 886,148 — 886,148 1,085,826 123,066 262,530 150,997 $ 2,508,567 $ 817,938 82,925 900,863 1,040,938 113,239 260,893 142,102 $ 2,458,035 $ $ 900,863 38,572 (7,990) (45,297) 886,148 $ 902,872 34,441 6,133 (42,583) $ 900,863 16,830 18,688 19,676 16,687 18,515 19,462 $ 979 $ 1,024 GWIM consists of two primary businesses: Merrill Lynch Global Client assets under advisory and/or discretion of GWIM in which Wealth Management (MLGWM) and U.S. Trust, Bank of America the investment strategy seeks current income, while maintaining Private Wealth Management (U.S. Trust). liquidity and capital preservation, are considered liquidity AUM. MLGWM’s advisory business provides a high-touch client The duration of these strategies is primarily less than one year. experience through a network of financial advisors focused on The change in AUM balances from the prior year is primarily the clients with over $250,000 in total investable assets. MLGWM net client flows for liquidity AUM. provides tailored solutions to meet our clients’ needs through a Net income for GWIM increased $204 million to $2.8 billion in full set of investment management, brokerage, banking and 2016 compared to 2015 driven by a decrease in noninterest retirement products. expense, partially offset by a decrease in revenue. U.S. Trust, together with MLGWM’s Private Banking & Net interest income increased $232 million to $5.8 billion Investments Group, provides comprehensive wealth management driven by the impact of growth in loan and deposit balances. solutions targeted to high net worth and ultra high net worth clients, Noninterest income, which primarily includes investment and as well as customized solutions to meet clients’ wealth structuring, brokerage services income, decreased $616 million to $11.9 investment management, trust and banking needs, including billion. The decline in noninterest income was driven by lower specialty asset management services. transactional revenue and decreased asset management fees Client assets managed under advisory and/or discretion of primarily due to lower market valuations in 2016, partially offset GWIM are AUM and are typically held in diversified portfolios. The by the impact of long-term AUM flows. Noninterest expense majority of client AUM have an investment strategy with a duration decreased $761 million to $13.2 billion primarily due to the of greater than one year and are, therefore, considered long-term expiration of advisor retention awards, lower revenue-related AUM. Fees earned on long-term AUM are calculated as a incentives and lower operating and support costs, partially offset percentage of total AUM. The asset management fees charged to by higher FDIC expense. clients per year are dependent on various factors, but are generally Return on average allocated capital was 21 percent for both driven by the breadth of the client’s relationship and generally 2016 and 2015. 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 appreciation/depreciation and other adjustments. $80 billion of BofA Global Capital Management's AUM during the three months ended June 30, 2016. (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 2,201 and 2,187 at December 31, 2016 and 2015. (4) Associate headcount computation is based upon full-time equivalents. (5) Financial advisor productivity is defined as MLGWM total revenue, excluding the allocation of certain asset and liability management (ALM) activities, divided by the total number of financial advisors (excluding financial advisors in the Consumer Banking segment). Client balances increased $50.5 billion, or two percent, to more than $2.5 trillion at December 31, 2016, driven by market valuation increases and positive net flows, partially offset by the impact of the sale of BofA Global Capital Management's AUM. The number of wealth advisors increased one percent, due to continued investment in the advisor development programs, competitive recruiting and near historically low advisor attrition levels. In 2016, revenue from MLGWM of $14.5 billion was down three percent driven by a decline in noninterest income due to lower transactional revenue and asset management fees primarily related to lower market valuations, partially offset by the impact of long-term AUM flows. Net interest income was up, primarily driven by growth in loan and deposit balances. U.S. Trust revenue of $3.1 billion was up one percent primarily driven by higher net interest income due to higher loan and deposit balances. 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 – from GWIM Total loans, net – from GWIM Total brokerage, net – from GWIM (1) Migration occurs primarily between GWIM and Consumer Banking. $ 2016 2015 (1,319) $ (7) (1,972) (218) (97) (2,416) 32 Bank of America 2016 Bank of America 2016 33 U.S. Trust Metric, at year end (4) Primary sales professionals (1) Includes the results of BofA Global Capital Management, the cash management division of Bank of America, and certain administrative items. Also reflects the sale to a third party of approximately 1,595 1,678 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 2016 2015 % Change $ 9,942 $ 9,244 8% 3,094 2,884 2,510 8,488 18,430 883 8,486 9,061 3,341 5,720 2,914 3,110 2,353 8,377 17,621 686 8,481 8,454 3,114 5,340 $ $ 2.86% 15 46.04 2.90% 15 48.13 $ 333,820 347,489 396,705 304,101 37,000 $ 303,907 318,977 369,001 294,733 35,000 $ 339,271 356,241 408,268 306,430 $ 323,687 334,766 386,132 296,162 6 (7) 7 1 5 29 — 7 7 7 10 9 8 3 6 5 6 6 3 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, 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 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 increased $380 million to $5.7 billion in 2016 compared to 2015 as higher revenue more than offset an increase in the provision for credit losses. 34 Bank of America 2016 Revenue increased $809 million to $18.4 billion in 2016 compared to 2015 driven by higher net interest income, which increased $698 million to $9.9 billion driven by the impact of growth in loans and leases and higher deposits. Noninterest income increased $111 million to $8.5 billion primarily due to the impact from loans and the related loan hedging activities in the fair value option portfolio and higher treasury-related revenues, partially offset by lower investment banking fees. The provision for credit losses increased $197 million to $883 million in 2016 driven by increases in energy-related reserves as well as loan growth. For additional information, see Commercial Portfolio Credit Risk Management – Industry Concentrations on page 70. Noninterest expense of $8.5 billion remained relatively unchanged in 2016 as investments in client-facing professionals in Commercial and Business Banking, higher severance costs and an increase in FDIC expense were largely offset by lower operating and support costs. The return on average allocated capital remained unchanged at 15 percent, as higher net income was partially offset by an increased capital allocation. For more information on capital allocated to the business segments, see Business Segment Operations on page 28. Total revenue, net of interest expense (FTE basis) 18,430 17,621 Global Corporate, Global Commercial and Business Banking 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 and following discussion presents a summary of the results, which exclude certain investment banking activities in Global 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 2016 2015 2016 2015 2016 2015 2016 2015 $ $ 4,285 2,982 7,267 $ $ 3,981 2,793 6,774 $ $ 4,140 2,718 6,858 $ $ 3,968 2,649 6,617 $ $ 376 739 1,115 $ $ 352 703 1,055 $ 8,801 6,439 $ 15,240 $ 8,301 6,145 $ 14,446 $ 152,944 142,593 $138,025 138,142 $ 163,341 126,253 $148,735 123,007 $ 17,506 35,256 $ 17,072 33,588 $ 333,791 304,102 $303,832 294,737 $ 152,589 142,815 $146,803 133,742 $ 168,864 128,210 $159,720 128,656 $ 17,846 35,409 $ 17,165 33,767 $ 339,299 306,434 $323,688 296,165 Business Lending revenue increased $500 million in 2016 compared to 2015 driven by the impact of growth in loans and leases, as well as the impact from loans and the related loan hedging activities in the fair value option portfolio. Global Transaction Services revenue increased $294 million in 2016 compared to 2015 driven by growth in treasury-related revenue as well as higher net interest income driven by the beneficial impact of an increase in investable assets as a result of higher deposits. Average loans and leases increased 10 percent in 2016 compared to 2015 driven by growth in the commercial and industrial, and leasing portfolios. Average deposits increased three percent due to continued portfolio growth with new and existing clients. 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 certain investment banking and underwriting activities are shared primarily between Global Banking and Global Markets under an internal revenue-sharing arrangement. 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 2016 2015 Total Corporation 2016 2015 $ $ 1,156 1,407 321 2,884 (49) $ 1,354 1,296 460 3,110 (57) 1,269 3,276 864 5,409 (168) 1,503 3,033 1,236 5,772 (200) $ 2,835 $ 3,053 $ 5,241 $ 5,572 Total Corporation investment banking fees of $5.2 billion, excluding self-led deals, included within Global Banking and Global Markets, decreased six percent in 2016 compared to 2015 driven by lower equity issuance fees and advisory fees due to a decline in market fee pools. 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 2016 2015 % Change $ 9,942 $ 9,244 8% 3,094 2,884 2,510 8,488 883 8,486 9,061 3,341 5,720 2,914 3,110 2,353 8,377 686 8,481 8,454 3,114 5,340 $ $ 2.86% 15 46.04 2.90% 15 48.13 $ 333,820 $ 303,907 10 347,489 396,705 304,101 37,000 318,977 369,001 294,733 35,000 $ 339,271 $ 323,687 356,241 408,268 306,430 334,766 386,132 296,162 6 (7) 7 1 5 29 — 7 7 7 9 8 3 6 5 6 6 3 Global Banking, which includes Global Corporate Banking, Revenue increased $809 million to $18.4 billion in 2016 Global Commercial Banking, Business Banking and Global compared to 2015 driven by higher net interest income, which Investment Banking, provides a wide range of lending-related increased $698 million to $9.9 billion driven by the impact of products and services, integrated working capital management growth in loans and leases and higher deposits. Noninterest and treasury solutions, and underwriting and advisory services income increased $111 million to $8.5 billion primarily due to the through our network of offices and client relationship teams. Our impact from loans and the related loan hedging activities in the lending products and services include commercial loans, leases, fair value option portfolio and higher treasury-related revenues, commitment facilities, trade finance, real estate lending and asset- partially offset by lower investment banking fees. based lending. Our treasury solutions business includes treasury The provision for credit losses increased $197 million to $883 management, foreign exchange and short-term investing options. million in 2016 driven by increases in energy-related reserves as We also provide investment banking products to our clients such well as loan growth. For additional information, see Commercial as debt and equity underwriting and distribution, and merger- Portfolio Credit Risk Management – Industry Concentrations on related and other advisory services. Underwriting debt and equity page 70. Noninterest expense of $8.5 billion remained relatively issuances, fixed-income and equity research, and certain market- unchanged in 2016 as investments in client-facing professionals based activities are executed through our global broker-dealer in Commercial and Business Banking, higher severance costs and affiliates which are our primary dealers in several countries. Within an increase in FDIC expense were largely offset by lower operating Global Banking, Global Commercial Banking clients generally and support costs. include middle-market companies, commercial real estate firms The return on average allocated capital remained unchanged and not-for-profit companies. Global Corporate Banking clients at 15 percent, as higher net income was partially offset by an generally include large global corporations, financial institutions increased capital allocation. For more information on capital and leasing clients. Business Banking clients include mid-sized allocated to the business segments, see Business Segment U.S.-based businesses requiring customized and integrated Operations on page 28. financial advice and solutions. Net income for Global Banking increased $380 million to $5.7 billion in 2016 compared to 2015 as higher revenue more than offset an increase in the provision for credit losses. 34 Bank of America 2016 Bank of America 2016 35 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. n/m = not meaningful 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 certain investment banking and underwriting activities are shared primarily between Global Markets and Global Banking under an internal revenue-sharing arrangement. Global Banking originates certain deal-related 36 Bank of America 2016 2016 2015 % Change $ 4,558 $ 4,191 9% 2,102 2,296 6,550 584 11,532 16,090 31 10,170 5,889 2,072 3,817 2,221 2,401 6,109 91 10,822 15,013 99 11,374 3,540 1,117 2,423 $ $ 10% 63.21 7% 75.75 $ 185,135 89,715 87,286 50,769 412,905 69,641 423,579 585,342 34,250 37,000 $ 195,650 103,506 79,494 54,519 433,169 63,443 430,468 594,057 38,074 35,000 $ 380,562 72,743 397,023 566,060 34,927 $ 373,926 73,208 384,046 548,790 37,038 (5) (4) 7 n/m 7 7 (69) (11) 66 85 58 (5) (13) 10 (7) (5) 10 (2) (1) (10) 6 2 (1) 3 3 (6) 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 35. Net income for Global Markets increased $1.4 billion to $3.8 billion in 2016 compared to 2015. Net DVA losses were $238 million compared to losses of $786 million in 2015. Excluding net DVA, net income increased $1.1 billion to $4.0 billion in 2016 compared to 2015 primarily driven by higher sales and trading revenue and lower noninterest expense, partially offset by lower investment banking fees and investment and brokerage services revenue. Sales and trading revenue, excluding net DVA, increased $638 million primarily due to a stronger performance globally across credit products led by mortgages and continued strength in rates products. The increase was partially offset by challenging credit market conditions in early 2016 as well as reduced client activity in equities, most notably in Asia, and a less favorable trading environment for equity derivatives. Noninterest expense decreased $1.2 billion to $10.2 billion primarily due to lower litigation expense and lower revenue-related expenses. Sales and Trading Revenue (1, 2) (Dollars in millions) Sales and trading revenue 2016 2015 Fixed-income, currencies and commodities Equities Total sales and trading revenue $ 9,373 4,017 $ 13,390 $ 7,869 4,335 $ 12,204 Sales and trading revenue, excluding net DVA (3) Fixed-income, currencies and commodities Equities 9,611 4,017 Total sales and trading revenue, excluding net DVA $ 13,628 $ $ 8,632 4,358 $ 12,990 (1) (2) Includes FTE adjustments of $184 million and $182 million for 2016 and 2015. 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 $406 million and $424 million for 2016 and 2015. (3) Fixed-income, currencies and commodities (FICC) and Equities sales and trading revenue, excluding net DVA, is a non-GAAP financial measure. FICC net DVA losses were $238 million for 2016 compared to net DVA losses of $763 million in 2015. Equities net DVA losses were $0 for 2016 compared to net DVA losses of $23 million in 2015. The explanations for period-over-period changes in sales and trading, FICC and Equities revenue, as set forth below, would be the same if net DVA was included. FICC revenue, excluding net DVA, increased $979 million as rates products improved on increased customer flow, and mortgages recorded strong results. This was partially offset by a weaker performance in commodities, as lower volatility dampened client activity. Equities revenue, excluding net DVA, decreased $341 million to $4.0 billion primarily driven by lower levels of client activity, primarily in Asia, which benefited in 2015 from increased market volumes relating to stock markets rallies in the region, as well as weaker trading performance in derivatives. For more information on sales and trading revenue, see Note 2 – Derivatives to the Consolidated Financial Statements. 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 n/m = not meaningful Average earning assets decreased $6.9 billion to $423.6 billion in 2016 primarily driven by a decrease in match book financing activity and a reduction in trading inventory, partially offset by higher loans and other customer financing. Year-end trading-related assets increased $6.6 billion in 2016 primarily driven by higher securities borrowed or purchased under agreements to resell due to increased customer financing activity as well as higher trading account assets due to client demand. The return on average allocated capital was 10 percent, up from seven percent, reflecting an increase in net income, partially offset by 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 residential mortgage-backed obligations, commercial MBS, securities (RMBS), collateralized loan obligations (CLOs), interest rate and credit derivative contracts), 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 additional useful information to assess the underlying performance of these businesses and to allow better comparison of period-to-period operating performance. 2016 2015 % Change $ 4,558 $ 4,191 9% 2,102 2,296 6,550 584 11,532 16,090 31 10,170 5,889 2,072 3,817 2,221 2,401 6,109 91 10,822 15,013 99 11,374 3,540 1,117 2,423 $ $ 10% 63.21 7% 75.75 $ 185,135 $ 195,650 89,715 87,286 50,769 412,905 69,641 423,579 585,342 34,250 37,000 103,506 79,494 54,519 433,169 63,443 430,468 594,057 38,074 35,000 $ 380,562 $ 373,926 72,743 397,023 566,060 34,927 73,208 384,046 548,790 37,038 (5) (4) 7 n/m 7 7 (69) (11) 66 85 58 (5) (13) 10 (7) (5) 10 (2) (1) (10) 6 2 (1) 3 3 (6) (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 35. product coverage includes securities and derivative products in Net income for Global Markets increased $1.4 billion to $3.8 both the primary and secondary markets. Global Markets provides billion in 2016 compared to 2015. Net DVA losses were $238 market-making, financing, securities clearing, settlement and million compared to losses of $786 million in 2015. Excluding net custody services globally to our institutional investor clients in DVA, net income increased $1.1 billion to $4.0 billion in 2016 support of their investing and trading activities. We also work with compared to 2015 primarily driven by higher sales and trading our commercial and corporate clients to provide risk management revenue and lower noninterest expense, partially offset by lower products using interest rate, equity, credit, currency and commodity investment banking fees and investment and brokerage services derivatives, foreign exchange, fixed-income and mortgage-related revenue. Sales and trading revenue, excluding net DVA, increased products. As a result of our market-making activities in these $638 million primarily due to a stronger performance globally products, we may be required to manage risk in a broad range of across credit products led by mortgages and continued strength financial products including government securities, equity and in rates products. The increase was partially offset by challenging equity-linked securities, high-grade and high-yield corporate debt credit market conditions in early 2016 as well as reduced client securities, syndicated loans, MBS, commodities and asset-backed activity in equities, most notably in Asia, and a less favorable securities (ABS). The economics of certain investment banking trading environment for equity derivatives. Noninterest expense and underwriting activities are shared primarily between Global decreased $1.2 billion to $10.2 billion primarily due to lower Markets and Global Banking under an internal revenue-sharing litigation expense and lower revenue-related expenses. arrangement. Global Banking originates certain deal-related 36 Bank of America 2016 Bank of America 2016 37 All Other (Dollars in millions) Net interest income (FTE basis) Noninterest income: Card income Mortgage banking 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 loss Balance Sheet (1) Average Total loans and leases Total deposits Year end Total loans and leases (2) Total deposits (1) 2016 2015 % Change $ 447 $ 457 (2)% 189 889 490 (1,315) 253 700 (100) 5,460 (4,660) (3,085) (1,575) $ 260 1,022 1,126 (1,204) 1,204 1,661 (21) 5,220 (3,538) (2,395) (1,143) 108,735 28,131 $ 144,506 25,452 96,713 24,257 $ 122,198 25,334 $ $ $ (27) (13) (56) 9 (79) (58) n/m 5 32 29 38 (25) 11 (21) (4) 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 $500.0 billion and $463.4 billion for 2016 and 2015, and $518.7 billion and $489.0 billion at December 31, 2016 and 2015. Includes $9.2 billion of non-U.S. credit card loans, which are included in assets of business held for sale on the Consolidated Balance Sheet. (2) n/m = not meaningful All Other consists of ALM activities, equity investments, the non-U.S. consumer credit card business, non-core mortgage loans and servicing activities, the net impact of periodic revisions to the MSR valuation model for both core and non-core MSRs, other liquidating businesses, residual expense allocations and other. ALM activities encompass certain residential mortgages, debt securities, interest rate and foreign currency risk management activities, the impact of certain allocation methodologies and accounting hedge ineffectiveness. The results of certain ALM activities are allocated to our business segments. For more information on our ALM activities, see 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. On December 20, 2016, we entered into an agreement to sell our non-U.S. consumer credit card business to a third party. Subject to regulatory approval, this transaction is expected to close by mid-2017. For more information on the sale of our non-U.S. consumer credit card business, see Recent Events on page 20 and Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. The Corporation classifies consumer real estate loans as core or non-core based on loan and customer characteristics such as origination date, product type, LTV, FICO score and delinquency status. Residential mortgage loans that are held for interest rate or liquidity risk management purposes are presented on the balance sheet of All Other. For more information on our interest rate and liquidity risk management activities, see Liquidity Risk on 38 Bank of America 2016 page 50 and Interest Rate Risk Management for the Banking Book on page 83. During 2016, residential mortgage loans held for ALM activities decreased $8.5 billion to $34.7 billion at December 31, 2016 primarily as a result of payoffs, paydowns and loan sales outpacing new volume. Non-core residential mortgage and home equity loans, which are principally run-off portfolios, including certain loans accounted for under the fair value option and MSRs pertaining to non-core loans serviced for others, are also held in All Other. During 2016, total non-core loans decreased $15.7 billion to $53.1 billion at December 31, 2016 due largely to payoffs and paydowns, as well as loan sales. The net loss for All Other increased $432 million to $1.6 billion in 2016 primarily due to lower gains on the sale of debt securities, lower mortgage banking income, lower gains on sales of consumer real estate loans and an increase in noninterest expense, partially offset by an improvement in the provision for credit losses and a decrease of $174 million in PPI costs. Mortgage banking income decreased $133 million primarily due to higher representations and warranties provision, partially offset by more favorable MSR results, net of the related hedge performance, which includes a net $306 million increase in MSR fair value due to a revision of certain MSR valuation assumptions. Gains on the sales of loans, including nonperforming and other delinquent loans were $232 million compared to gains of $1.0 billion in 2015. The benefit in the provision for credit losses improved $79 million to a benefit of $100 million in 2016 primarily driven by lower loan and lease balances from continued run-off of non-core consumer real estate loans. Noninterest expense increased $240 million to $5.5 billion driven by litigation expense. The income tax benefit was $3.1 billion in 2016 compared to a benefit of $2.4 billion in 2015 with the increase driven by the All Other (Dollars in millions) Net interest income (FTE basis) Noninterest income: Card income Mortgage banking 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 loss Balance Sheet (1) Average Total loans and leases Total deposits Year end Total loans and leases (2) Total deposits 2015. n/m = not meaningful (1) 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 $500.0 billion and $463.4 billion for 2016 and 2015, and $518.7 billion and $489.0 billion at December 31, 2016 and (2) Includes $9.2 billion of non-U.S. credit card loans, which are included in assets of business held for sale on the Consolidated Balance Sheet. All Other consists of ALM activities, equity investments, the page 50 and Interest Rate Risk Management for the Banking Book non-U.S. consumer credit card business, non-core mortgage loans on page 83. During 2016, residential mortgage loans held for ALM and servicing activities, the net impact of periodic revisions to the activities decreased $8.5 billion to $34.7 billion at December 31, MSR valuation model for both core and non-core MSRs, other 2016 primarily as a result of payoffs, paydowns and loan sales liquidating businesses, residual expense allocations and other. outpacing new volume. Non-core residential mortgage and home ALM activities encompass certain residential mortgages, debt equity loans, which are principally run-off portfolios, including securities, interest rate and foreign currency risk management certain loans accounted for under the fair value option and MSRs activities, the impact of certain allocation methodologies and pertaining to non-core loans serviced for others, are also held in accounting hedge ineffectiveness. The results of certain ALM All Other. During 2016, total non-core loans decreased $15.7 activities are allocated to our business segments. For more billion to $53.1 billion at December 31, 2016 due largely to payoffs information on our ALM activities, see Note 24 – Business Segment and paydowns, as well as loan sales. Information to the Consolidated Financial Statements. Equity The net loss for All Other increased $432 million to $1.6 billion investments include our merchant services joint venture as well in 2016 primarily due to lower gains on the sale of debt securities, as Global Principal Investments (GPI) which is comprised of a lower mortgage banking income, lower gains on sales of consumer portfolio of equity, real estate and other alternative investments. real estate loans and an increase in noninterest expense, partially For more information on our merchant services joint venture, see offset by an improvement in the provision for credit losses and a Note 12 – Commitments and Contingencies to the Consolidated decrease of $174 million in PPI costs. Financial Statements. Mortgage banking income decreased $133 million primarily On December 20, 2016, we entered into an agreement to sell due to higher representations and warranties provision, partially our non-U.S. consumer credit card business to a third party. offset by more favorable MSR results, net of the related hedge Subject to regulatory approval, this transaction is expected to close performance, which includes a net $306 million increase in MSR by mid-2017. For more information on the sale of our non-U.S. fair value due to a revision of certain MSR valuation assumptions. consumer credit card business, see Recent Events on page 20 Gains on the sales of loans, including nonperforming and other and Note 1 – Summary of Significant Accounting Principles to the delinquent loans were $232 million compared to gains of $1.0 Consolidated Financial Statements. billion in 2015. The Corporation classifies consumer real estate loans as core or non-core based on loan and customer characteristics such as origination date, product type, LTV, FICO score and delinquency status. Residential mortgage loans that are held for interest rate or liquidity risk management purposes are presented on the balance sheet of All Other. For more information on our interest rate and liquidity risk management activities, see Liquidity Risk on The benefit in the provision for credit losses improved $79 million to a benefit of $100 million in 2016 primarily driven by lower loan and lease balances from continued run-off of non-core consumer real estate loans. Noninterest expense increased $240 million to $5.5 billion driven by litigation expense. The income tax benefit was $3.1 billion in 2016 compared to a benefit of $2.4 billion in 2015 with the increase driven by the 38 Bank of America 2016 2016 2015 % Change $ 447 $ 457 (2)% 189 889 490 253 700 (1,315) (100) 5,460 (4,660) (3,085) 260 1,022 1,126 (1,204) 1,204 1,661 (21) 5,220 (3,538) (2,395) (1,143) $ (1,575) $ $ 108,735 $ 144,506 28,131 25,452 $ 96,713 24,257 $ 122,198 25,334 (27) (13) (56) 9 (79) (58) n/m 5 32 29 38 (25) 11 (21) (4) change in the pretax loss and net tax benefits related to various tax audit matters, partially offset by a $348 million tax charge in 2016 related to the change in the U.K. corporate tax rate compared to a $290 million charge in 2015. 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. Debt, lease and other obligations are more fully discussed in Note 11 – Long-term Debt and Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. Table 9 Contractual Obligations Other long-term liabilities include our contractual funding obligations related to the Qualified Pension Plan, 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 2016 and 2015, we contributed $256 million and $234 million to the Plans, and we expect to make $215 million of contributions during 2017. The Plans are more fully discussed in Note 17 – Employee Benefit Plans 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 9 includes certain contractual obligations at December 31, 2016 and 2015. (Dollars in millions) Long-term debt Operating lease obligations Purchase obligations Time deposits Other long-term liabilities Estimated interest expense on long-term debt and time deposits (1) December 31, 2016 Due After One Year Through Three Years Due After Three Years Through Five Years Due in One Year or Less December 31 2015 Due After Five Years Total Total $ 43,964 $ 60,106 $ 26,034 $ 86,719 $ 216,823 $ 236,764 2,324 2,089 65,112 1,991 4,814 3,877 2,019 5,961 837 9,852 2,908 604 3,369 648 4,910 4,511 1,030 502 1,091 19,871 13,620 5,742 74,944 4,567 39,447 13,681 5,350 73,974 4,311 43,898 Total contractual obligations $ 120,294 $ 82,652 $ 38,473 $ 113,724 $ 355,143 $ 377,978 (1) Represents forecasted net interest expense on long-term debt and time deposits based on interest rates at December 31, 2016. 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 Freddie Mac (FHLMC) and Fannie Mae (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 or in the form of whole loans. In connection with these transactions, we or certain legacy companies made various of our subsidiaries or representations 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 investors, securitization trusts, guarantors, insurers or other parties (collectively, repurchases). and warranties. Breaches of At December 31, 2016, we had $18.3 billion of unresolved repurchase claims, predominately related to subprime and pay option first-lien loans and home equity loans, compared to $18.4 billion at December 31, 2015. 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, claim resolution and (2) the lack of an established process to resolve disputes related to these claims. 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 $1.3 billion and $1.4 billion at December 31, 2016 and 2015. 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 Bank of America 2016 39 Statement of Income. At December 31, 2016 and 2015, the liability for representations and warranties was $2.3 billion and $11.3 billion. The representations and warranties provision was $106 million for 2016 compared to a benefit of $39 million for 2015. In addition, 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, 2016. The estimated range of possible loss 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. Future provisions and/or ranges of possible loss associated with obligations under representations and warranties may be significantly impacted if future experiences are different from historical experience or our understandings, interpretations or assumptions. 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, such as investors or trustees successfully challenging or avoiding the application of the relevant statute of limitations, could result in significant increases to future provisions and/or the estimated range of possible loss. For more information on representations and warranties, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees 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 89. to Other Mortgage-related Matters We continue to be subject to additional mortgage-related litigation and disputes, as well as 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, indemnification obligations, and mortgage insurance 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 increased operational and in environment, has 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 for certain litigation matters 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. We take 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 Board. 40 Bank of America 2016 The seven key 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 inability to meet expected or unexpected cash flow and collateral needs while continuing to support our businesses and customers with the appropriate funding sources 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 may adversely impact its profitability or operations through an inability to establish new or maintain existing customer/client relationships or otherwise adversely impact relationships with key stakeholders, such as investors, regulators, employees and the community. 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 current Risk Framework that, as part of its annual review process, was approved by the ERC and the Board. As set forth in our Risk Framework, a culture of managing risk well 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 culture of managing risk well throughout the organization is critical to our success and is a clear expectation of our executive management team and the Board. 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 Statement of Income. At December 31, 2016 and 2015, the The seven key types of risk faced by the Corporation are liability for representations and warranties was $2.3 billion and strategic, credit, market, liquidity, compliance, operational and $11.3 billion. The representations and warranties provision was reputational risks. $106 million for 2016 compared to a benefit of $39 million for Strategic risk is the risk resulting from incorrect assumptions 2015. about external or internal factors, inappropriate business plans, In addition, we currently estimate that the range of possible ineffective business strategy execution, or failure to respond in loss for representations and warranties exposures could be up to a timely manner to changes in the regulatory, macroeconomic $2 billion over existing accruals at December 31, 2016. The or competitive environments. estimated range of possible loss represents a reasonably possible Credit risk is the risk of loss arising from the inability or failure loss, but does not represent a probable loss, and is based on of a borrower or counterparty to meet its obligations. currently available information, significant judgment and a number Market risk is the risk that changes in market conditions may of assumptions that are subject to change. adversely impact the value of assets or liabilities, or otherwise Future provisions and/or ranges of possible loss associated negatively impact earnings. with obligations under representations and warranties may be Liquidity risk is the inability to meet expected or unexpected significantly impacted if future experiences are different from cash flow and collateral needs while continuing to support our historical experience or our understandings, interpretations or businesses and customers with the appropriate funding sources assumptions. Adverse developments, with respect to one or more under a range of economic conditions. of the assumptions underlying the liability for representations and Compliance risk is the risk of legal or regulatory sanctions, warranties and the corresponding estimated range of possible material financial loss or damage to the reputation of the loss, such as investors or trustees successfully challenging or Corporation arising from the failure of the Corporation to comply avoiding the application of the relevant statute of limitations, could with the requirements of applicable laws, rules, regulations and result in significant increases to future provisions and/or the related self-regulatory organizations’ standards and codes of estimated range of possible loss. For more information on conduct. representations and warranties, see Note 7 – Representations and Operational risk is the risk of loss resulting from inadequate or Warranties Obligations and Corporate Guarantees to the failed internal processes, people and systems, or from external Consolidated Financial Statements and, for more information events. related to the sensitivity of the assumptions used to estimate our Reputational risk is the risk that negative perceptions of the liability for representations and warranties, see Complex Corporation’s conduct or business practices may adversely Accounting Estimates – Representations and Warranties Liability impact its profitability or operations through an inability to on page 89. Other Mortgage-related Matters We continue to be subject to additional mortgage-related litigation and disputes, as well as 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, indemnification obligations, and mortgage insurance 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 resulted in increased operational and 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 for certain litigation matters and on regulatory investigations, see Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. 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. We take 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 Board. 40 Bank of America 2016 establish new or maintain existing customer/client relationships or otherwise adversely impact relationships with key stakeholders, such as investors, regulators, employees and the community. 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 current Risk Framework that, as part of its annual review process, was approved by the ERC and the Board. As set forth in our Risk Framework, a culture of managing risk well 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 culture of managing risk well throughout the organization is critical to our success and is a clear expectation of our executive management team and the Board. Our Risk Framework is the foundation for comprehensive management of the risks facing the Corporation. The Risk Framework sets forth clear roles, 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. 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 28. Our Risk Appetite Statement is how we maintain 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 we are willing to accept. Risk appetite is aligned with the strategic, capital and financial operating plans to maintain consistency with our 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 43 through 86. 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 us to continue to operate in a safe and sound manner, 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. Board of Directors (1) Board of Directors (1) Board Board Committees Committees Audit Audit Committee Committee Enterprise Enterprise Risk Risk Committee Committee Corporate Corporate Governance Governance Committee Committee Compensation Compensation and Benefits and Benefits Committee Committee Management Management Committees Committees Disclosure Disclosure Committee (2) Committee (2) Management Management Risk Risk Committee Committee Insider Oversight Insider Oversight and Monitoring and Monitoring Committee Committee Corporate Corporate Benefits Benefits Committee Committee Management Management Compensation Compensation Committee Committee ____________________________ (1) This presentation does not include committees for other legal entities. (1) This presentation does not include committees for other legal entities. (2) Reports to the CEO and CFO with oversight by the Audit Committee. (2) Reports to the CEO and CFO with oversight by the Audit Committee. Board of Directors and Board Committees The Board is comprised of 14 directors, all but one of whom are independent. The Board 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 inquiries of, and receive reports from management on risk-related matters to assess scope or resource limitations that could impede the ability of independent risk management (IRM) and/or Corporate Audit to execute its responsibilities. The Board committees discussed below have the principal responsibility for enterprise-wide oversight of our risk management activities. Through these activities, the Board and applicable committees are provided with information on our risk profile, and oversee executive management addressing key risks we face. Other Board committees as described below provide additional oversight of specific risks. 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 insight about our management of enterprise-wide risks. Audit Committee The Audit Committee oversees the qualifications, performance and independence of the Independent Registered Public Accounting Firm, the performance of our corporate audit function, the integrity of our consolidated financial statements, our compliance 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. Enterprise Risk Committee The ERC has primary responsibility for oversight of the Risk Framework and key risks we face. It approves the Risk Framework Bank of America 2016 41 and the Risk Appetite Statement and further recommends these documents to the Board for approval. The ERC oversees senior management’s identification, measurement, monitoring and control of key risks we face. The ERC may consult with other Board committees on risk-related matters. responsibilities the for 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. Our primary management- level risk committee is the Management Risk Committee (MRC). Subject to Board oversight, the MRC is responsible for management oversight of key risks we face. The MRC provides management oversight of our 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, among other things. 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: Front Line Units (FLUs), IRM and Corporate Audit. We also have control functions outside of FLUs and IRM (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 our 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. 42 Bank of America 2016 Front Line Units FLUs include the lines of business as well as the Global Technology and Operations Group, and are responsible for appropriately assessing and effectively managing all of the risks associated with their activities. Three organizational units that include FLU activities and control function activities, but are not part of IRM are the Chief Financial Officer (CFO) Group, Global Marketing and Corporate Affairs (GM&CA) and the Chief Administrative Officer (CAO) Group. 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 that include concentration risk limits where appropriate. Such policies and procedures outline how aggregate risks are identified, measured, monitored and controlled. 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, FLU risk teams and control function 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 key risks inherent in our business activities or key risks that may arise from external factors. Each employee is expected to identify and escalate and the Risk Appetite Statement and further recommends these Front Line Units documents to the Board for approval. The ERC oversees senior FLUs include the lines of business as well as the Global Technology management’s responsibilities for the identification, and Operations Group, and are responsible for appropriately measurement, monitoring and control of key risks we face. The assessing and effectively managing all of the risks associated with ERC may consult with other Board committees on risk-related their activities. matters. Other Board Committees Our Corporate Governance Committee oversees our Board’s governance processes, identifies and reviews the qualifications of Three organizational units that include FLU activities and control function activities, but are not part of IRM are the Chief Financial Officer (CFO) Group, Global Marketing and Corporate Affairs (GM&CA) and the Chief Administrative Officer (CAO) Group. potential Board members, recommends nominees for election to Independent Risk Management our Board, recommends committee appointments for Board IRM is part of our control functions and includes Global Risk approval and reviews our stockholder engagement activities. Management and Global Compliance. We have other control Our Compensation and Benefits Committee oversees functions that are not part of IRM (other control functions may also establishing, maintaining and administering our compensation provide oversight to FLU activities), including Legal, Global Human programs and employee benefit plans, including approving and Resources and certain activities within the CFO Group, GM&CA recommending our Chief Executive Officer’s (CEO) compensation and the CAO Group. IRM, led by the Chief Risk Officer (CRO), is to our Board for further approval by all independent directors, and responsible for independently assessing and overseeing risks reviewing and approving all of our executive officers’ within FLUs and other control functions. IRM establishes written 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. Our primary management- level risk committee is the Management Risk Committee (MRC). Subject to Board oversight, the MRC is responsible for management oversight of key risks we face. The MRC provides management oversight of our 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, among other things. 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: Front Line Units (FLUs), IRM and Corporate Audit. We also have control functions outside of FLUs and IRM (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 our 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 42 Bank of America 2016 enterprise policies and procedures that include concentration risk limits where appropriate. Such policies and procedures outline how aggregate risks are identified, measured, monitored and controlled. 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, FLU risk teams and control function 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. and proactively identified. Proper risk identification focuses on recognizing and understanding key risks inherent in our business activities or key risks that may arise from external factors. Each employee is expected to identify and escalate officers and other employees may also serve on committees and Identify – To be effectively managed, risks must be clearly defined participate in committee decisions. 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 requests for approval to managers and alerts to executive management, management-level 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. 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 culture of managing risk well through communications, training, policies, responsibilities. procedures and organizational 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. roles and Corporation-wide Stress Testing Integral to our Capital Planning, Financial Planning and Strategic Planning processes, we conduct capital scenario management and forecasting on a periodic basis to better understand balance sheet, earnings and capital sensitivities to certain economic and business scenarios, including economic and market conditions that are more severe than anticipated. These forecasts provide an understanding of the potential impacts from our risk profile on the balance sheet, earnings and capital, and serve as a key component of our capital and risk management practices. 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 We have developed and maintain contingency plans that are designed to prepare us in advance to respond in the event of potential adverse economic, financial or market stress. These include our Capital Contingency Plan, contingency plans Contingency Funding Plan and Recovery Plan, which provide monitoring, escalation, actions and routines designed to enable us to increase capital, access funding sources and reduce risk through consideration of potential options that include asset sales, business sales, capital or debt issuances, or other de-risking strategies. We also maintain a Resolution Plan to limit adverse systemic impacts that could be associated with a potential resolution of Bank of America. 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. This risk results 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, 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, capital plan and liquidity requirements, and specifically addresses strategic risks. On an annual basis, the Board reviews and approves the strategic plan, capital plan, financial operating plan and Risk Appetite Statement. With oversight by the Board, executive management directs the lines of business to execute our strategic plan consistent with our core operating principles and risk appetite. The executive management team monitors business performance throughout the year and provides the Board with regular progress reports on whether strategic objectives and timelines are being met, including reports on strategic risks and if additional or alternative actions need to be considered or implemented. The regular executive reviews focus on assessing forecasted earnings and returns on capital, the current risk profile, current capital and liquidity requirements, staffing levels and changes required to support the strategic 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 Resolution Plans are reviewed and approved by the Board. At the business level, processes are in place to discuss the strategic risk implications of new, expanded or modified businesses, products or services and other strategic initiatives, and to provide formal review and approval where required. 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. Proprietary models are used 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 profile. 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. Bank of America 2016 43 Capital Management The Corporation manages its capital position so its capital is more than adequate 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, meet obligations to creditors and counterparties, 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. We periodically review capital allocated to our businesses and allocate capital annually during the strategic and capital planning processes. For additional information, see Business Segment Operations on page 28. 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 April 2016, we submitted our 2016 CCAR capital plan and related supervisory stress tests. The 2016 CCAR capital plan included requests: (i) to repurchase $5.0 billion of common stock over four quarters beginning in the third quarter of 2016, (ii) to repurchase common stock to offset the dilution resulting from certain equity-based compensation awards, and (iii) to increase the quarterly common stock dividend from $0.05 per share to $0.075 per share. On June 29, 2016, following the Federal Reserve's non-objection to our 2016 CCAR capital plan, the Board authorized the common stock repurchase beginning July 1, 2016. Also, in addition to the previously announced repurchases associated with the 2016 CCAR capital plan, on January 13, 2017, we announced a plan to repurchase an additional $1.8 billion of common stock during the first half of 2017, to which the Federal Reserve did not object. The common stock repurchase authorization includes both common stock and warrants. During 2016, we repurchased approximately $5.1 billion of common stock pursuant to the Board’s authorization of our 2016 and 2015 CCAR capital plans and to offset equity-based compensation awards. 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 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. As a “well-capitalized” BHC, we may notify the Federal Reserve of our intention to make additional capital distributions not to exceed one percent of Tier 1 capital (0.25 percent of Tier 1 capital beginning April 1, 2017), and which were not contemplated in our capital plan, subject to the Federal Reserve's non-objection. Regulatory Capital As a financial services holding company, we are subject to regulatory capital rules issued by U.S. banking regulators including Basel 3, which includes certain transition provisions through January 1, 2019. The Corporation and its primary affiliated banking entity, BANA, are Basel 3 Advanced approaches institutions. 44 Bank of America 2016 Capital Management The Corporation manages its capital position so its capital is more than adequate 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, meet obligations to creditors and counterparties, 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. We periodically review capital allocated to our businesses and allocate capital annually during the strategic and capital planning processes. For additional information, see Business Segment Operations on page 28. 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 April 2016, we submitted our 2016 CCAR capital plan and related supervisory stress tests. The 2016 CCAR capital plan included requests: (i) to repurchase $5.0 billion of common stock over four quarters beginning in the third quarter of 2016, (ii) to repurchase common stock to offset the dilution resulting from certain equity-based compensation awards, and (iii) to increase the quarterly common stock dividend from $0.05 per share to $0.075 per share. On June 29, 2016, following the Federal Reserve's non-objection to our 2016 CCAR capital plan, the Board authorized the common stock repurchase beginning July 1, 2016. Also, in addition to the previously announced repurchases associated with the 2016 CCAR capital plan, on January 13, 2017, we announced a plan to repurchase an additional $1.8 billion of common stock during the first half of 2017, to which the Federal Reserve did not object. The common stock repurchase authorization includes both common stock and warrants. During 2016, we repurchased approximately $5.1 billion of common stock pursuant to the Board’s authorization of our 2016 and 2015 CCAR capital plans and to offset equity-based compensation awards. 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 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. As a “well-capitalized” BHC, we may notify the Federal Reserve of our intention to make additional capital distributions not to exceed one percent of Tier 1 capital (0.25 percent of Tier 1 capital beginning April 1, 2017), and which were not contemplated in our capital plan, subject to the Federal Reserve's non-objection. Regulatory Capital As a financial services holding company, we are subject to regulatory capital rules issued by U.S. banking regulators including Basel 3, which includes certain transition provisions through January 1, 2019. The Corporation and its primary affiliated banking entity, BANA, are Basel 3 Advanced approaches institutions. 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, net of deductions and adjustments primarily related to goodwill, deferred tax assets, intangibles, MSRs and defined benefit pension assets. Under the Basel 3 regulatory capital transition provisions, certain deductions and adjustments to Common equity tier 1 capital are phased in through January 1, 2018. In 2016, under the transition provisions, 60 percent of these deductions and adjustments were recognized. Basel 3 also revised minimum capital ratios and buffer requirements, added a supplementary leverage ratio (SLR), and addressed the adequately capitalized minimum requirements under the Prompt Corrective Action (PCA) framework. Finally, Basel 3 established two methods of calculating risk-weighted assets, the Standardized approach and the Advanced approaches. The Standardized approach relies primarily on supervisory risk weights based on exposure type and the Advanced approaches determines risk weights based on internal models. As an Advanced approaches institution, 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. 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 December 31, 2016. On January 1, 2016, we became 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 a G-SIB surcharge in order to avoid restrictions on capital distributions and discretionary bonus payments. The buffers and surcharge must be composed solely of Common equity tier 1 capital. Under the phase-in provisions, we were required to maintain a capital conservation buffer greater than 0.625 percent plus a G-SIB surcharge of 0.75 percent in 2016. The countercyclical capital buffer is currently set at zero. We estimate that our fully phased-in G-SIB surcharge will be 2.5 percent. The G-SIB surcharge may differ from this estimate over time. Supplementary Leverage Ratio Basel 3 also requires Advanced approaches institutions to disclose an SLR. The numerator of the SLR is quarter-end Basel 3 Tier 1 capital. 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. Effective January 1, 2018, the Corporation will be required to maintain a minimum SLR of 3.0 percent, plus a leverage buffer of 2.0 percent in order to avoid certain restrictions on capital Insured distributions and discretionary bonus payments. depository institution subsidiaries of BHCs will be required to maintain a minimum 6.0 percent SLR to be considered "well capitalized" under the PCA framework. Capital Composition and Ratios Table 10 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, 2016 and 2015. Fully phased-in estimates are non-GAAP financial measures that the Corporation considers to be useful measures in evaluating compliance with new regulatory capital requirements that are not yet effective. For reconciliations to GAAP financial measures, see Table 13. As of December 31, 2016 and 2015, the Corporation meets the definition of “well capitalized” under current regulatory requirements. 44 Bank of America 2016 Bank of America 2016 45 Table 10 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 (6) Risk-weighted assets (in billions) Common equity tier 1 capital ratio Tier 1 capital ratio Total capital ratio Standardized Approach Transition Advanced Approaches $ 168,866 190,315 228,187 1,399 $ 168,866 190,315 218,981 1,530 December 31, 2016 Fully Phased-in Regulatory Minimum (2, 3) Standardized Approach Advanced Approaches (4) Regulatory Minimum (5) $ 162,729 187,559 223,130 1,417 $ 162,729 187,559 213,924 1,512 12.1% 13.6 16.3 11.0% 12.4 14.3 5.875% 7.375 9.375 11.5% 13.2 15.8 10.8% 12.4 14.2 9.5% 11.0 13.0 Leverage-based metrics: Adjusted quarterly average assets (in billions) (7) Tier 1 leverage ratio $ 2,131 $ 2,131 $ 2,131 $ 2,131 8.9% 8.9% 4.0 8.8% 8.8% SLR leverage exposure (in billions) SLR Risk-based capital metrics: Common equity tier 1 capital Tier 1 capital Total capital (6) Risk-weighted assets (in billions) Common equity tier 1 capital ratio Tier 1 capital ratio Total capital ratio Leverage-based metrics: Adjusted quarterly average assets (in billions) (7) Tier 1 leverage ratio SLR leverage exposure (in billions) SLR $ 2,702 6.9% December 31, 2015 4.0 5.0 $ 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 10.8% 12.3 14.8 9.8% 11.2 12.8 9.5% 11.0 13.0 $ 2,103 $ 2,103 $ 2,102 $ 2,102 8.6% 8.6% 4.0 8.4% 8.4% 4.0 $ 2,727 6.4% 5.0 (1) As an Advanced approaches institution, 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 method at December 31, 2016 and 2015. (2) The December 31, 2016 amount includes a transition capital conservation buffer of 0.625 percent and a transition G-SIB surcharge of 0.75 percent. The 2016 countercyclical capital buffer is zero. (3) To be “well capitalized” under the current U.S. banking regulatory agency definitions, we must maintain a Total capital ratio of 10 percent or greater. (4) 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, 2016, we did not have regulatory approval of the IMM model. (5) Fully phased-in regulatory minimums assume a capital conservation buffer of 2.5 percent and estimated G-SIB surcharge of 2.5 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. The fully phased-in SLR minimum assumes a leverage buffer of 2.0 percent and is applicable on January 1, 2018. (6) 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. (7) Reflects adjusted average total assets for the three months ended December 31, 2016 and 2015. Common equity tier 1 capital under Basel 3 Advanced – Transition was $168.9 billion at December 31, 2016, an increase of $5.8 billion compared to December 31, 2015 driven by earnings, partially offset by dividends, common stock repurchases and the impact of certain transition provisions under the Basel 3 rules. During 2016, Total capital increased $8.1 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. Risk-weighted assets decreased $72 billion during 2016 to $1,530 billion primarily due to lower market risk, and lower exposures and improved credit quality on legacy retail products. 46 Bank of America 2016 Table 10 Bank of America Corporation Regulatory Capital under Basel 3 (1) Table 11 presents the capital composition as measured under Basel 3 – Transition at December 31, 2016 and 2015. Table 11 Capital Composition under Basel 3 – Transition (1, 2) December 31 2016 2015 $ $ 241,620 (69,191) (4,976) 1,392 233,932 (69,215) (3,434) 1,774 1,402 1,220 Adjusted quarterly average assets (in billions) (7) $ 2,131 $ 2,131 $ 2,131 $ 2,131 8.9% 8.9% 4.0 8.8% 8.8% Standardized Approach Transition Advanced Approaches Regulatory Minimum (2, 3) Standardized Approach Advanced Approaches (4) Regulatory Minimum (5) (Dollars in millions) Total common shareholders’ equity Goodwill Deferred tax assets arising from net operating loss and tax credit carryforwards Adjustments for amounts recorded in accumulated OCI attributed to defined benefit postretirement plans Net unrealized (gains) losses on 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, 2015 Total Tier 1 capital Long-term debt qualifying as Tier 2 capital Eligible credit reserves included in Tier 2 capital Nonqualifying capital instruments subject to phase out from Tier 2 capital Other December 31, 2016 Fully Phased-in $ 168,866 $ 168,866 $ 162,729 $ 162,729 190,315 228,187 1,399 12.1% 13.6 16.3 190,315 218,981 1,530 11.0% 12.4 14.3 187,559 223,130 187,559 213,924 1,417 11.5% 13.2 15.8 1,512 10.8% 12.4 14.2 5.875% 7.375 9.375 $ 2,702 6.9% $ 163,026 $ 163,026 180,778 220,676 180,778 210,912 1,403 11.6% 12.9 15.7 1,602 10.2% 11.3 13.2 $ 154,084 $ 154,084 175,814 211,167 1,427 10.8% 12.3 14.8 175,814 201,403 1,575 9.8% 11.2 12.8 4.5% 6.0 8.0 9.5% 11.0 13.0 4.0 5.0 9.5% 11.0 13.0 (Dollars in millions) Risk-based capital metrics: Common equity tier 1 capital Tier 1 capital Total capital (6) 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 SLR leverage exposure (in billions) SLR Risk-based capital metrics: Common equity tier 1 capital Tier 1 capital Total capital (6) 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 SLR leverage exposure (in billions) SLR Adjusted quarterly average assets (in billions) (7) $ 2,103 $ 2,103 $ 2,102 $ 2,102 8.6% 8.6% 4.0 8.4% 8.4% 4.0 (1) As an Advanced approaches institution, 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 method at December 31, 2016 and 2015. (2) The December 31, 2016 amount includes a transition capital conservation buffer of 0.625 percent and a transition G-SIB surcharge of 0.75 percent. The 2016 countercyclical capital buffer is zero. (3) To be “well capitalized” under the current U.S. banking regulatory agency definitions, we must maintain a Total capital ratio of 10 percent or greater. (4) 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, 2016, we did not have regulatory approval of the IMM model. (5) Fully phased-in regulatory minimums assume a capital conservation buffer of 2.5 percent and estimated G-SIB surcharge of 2.5 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. The fully phased-in SLR minimum assumes a leverage buffer of 2.0 percent and is applicable on January 1, 2018. (6) 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. (7) Reflects adjusted average total assets for the three months ended December 31, 2016 and 2015. Common equity tier 1 capital under Basel 3 Advanced – driven by the same factors that drove the increase in Common Transition was $168.9 billion at December 31, 2016, an increase equity tier 1 capital as well as issuances of preferred stock and of $5.8 billion compared to December 31, 2015 driven by subordinated debt. earnings, partially offset by dividends, common stock repurchases Risk-weighted assets decreased $72 billion during 2016 to and the impact of certain transition provisions under the Basel 3 $1,530 billion primarily due to lower market risk, and lower rules. During 2016, Total capital increased $8.1 billion primarily exposures and improved credit quality on legacy retail products. January 1, 2018. Any assets that are a direct deduction from the computation of capital are excluded from risk-weighted assets and adjusted average total assets. Table 12 presents the components of our risk-weighted assets as measured under Basel 3 – Transition at December 31, 2016 and 2015. $ 2,727 6.4% 5.0 Table 12 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 2016 2015 Standardized Approach Advanced Approaches Standardized Approach Advanced Approaches $ $ 1,334 65 n/a n/a 1,399 $ $ 903 63 500 64 1,530 $ $ 1,314 89 n/a n/a 1,403 $ $ 940 86 500 76 1,602 46 Bank of America 2016 Bank of America 2016 47 Total Basel 3 Capital (1) See Table 10, footnote 1. (2) Deductions from and adjustments to regulatory capital subject to transition provisions under Basel 3 are generally recognized in 20 percent annual increments, and will be fully recognized as of (1,039) 204 (416) 163,026 22,273 (5,151) 1,430 (568) 307 (539) 180,778 22,579 3,116 4,448 (9) 210,912 (1,198) 413 (596) 168,866 25,220 (3,318) — (341) 276 (388) 190,315 23,365 3,035 2,271 (5) 218,981 $ $ Table 13 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, 2016 and 2015. Table 13 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 Other adjustments to Tier 2 capital 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 2016 2015 168,866 (3,318) (1,899) (798) (341) 276 (57) 162,729 21,449 3,318 — 341 (276) (2) 24,830 187,559 28,666 (2,271) 9,176 35,571 223,130 (9,206) 213,924 $ $ 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 1,399,477 17,638 1,417,115 $ 1,403,293 24,089 $ 1,427,382 1,529,903 (18,113) 1,511,790 $ 1,602,373 (27,690) $ 1,574,683 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 10, 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 IMM. As of December 31, 2016, we $ did not have regulatory approval for the IMM model. 48 Bank of America 2016 Table 13 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, 2016 and 2015. Bank of America, N.A. Regulatory Capital Table 14 presents transition regulatory capital information for BANA in accordance with Basel 3 Standardized and Advanced approaches as measured at December 31, 2016 and 2015. As of December 31, 2016, BANA met the definition of “well capitalized” under the PCA framework. Table 13 Regulatory Capital Reconciliations between Basel 3 Transition to Fully Phased-in (1) Table 14 Bank of America, N.A. Regulatory Capital under Basel 3 Standardized Approach Advanced Approaches December 31, 2016 (Dollars in millions) Common equity tier 1 capital Tier 1 capital Total capital Tier 1 leverage Ratio Amount 12.7% $ 149,755 12.7 149,755 13.9 163,471 149,755 9.3 Minimum Required (1) 6.5% 8.0 10.0 5.0 Ratio Amount 14.3% $ 149,755 14.3 149,755 14.8 154,697 149,755 9.3 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 PCA framework. 12.2% $ 144,869 144,869 12.2 159,871 13.5 144,869 9.2 December 31, 2015 6.5% 8.0 10.0 5.0 13.1% $ 144,869 144,869 13.1 150,624 13.6 144,869 9.2 Minimum Required (1) 6.5% 8.0 10.0 5.0 6.5% 8.0 10.0 5.0 Regulatory Developments total loss-absorbing capacity Minimum Total Loss-Absorbing Capacity On December 15, 2016, the Federal Reserve issued a final rule establishing external (TLAC) requirements to improve the resolvability and resiliency of large, interconnected BHCs. The rule will be effective January 1, 2019 and U.S. G-SIBs will be required to maintain a minimum external TLAC. We estimate our minimum required external TLAC would be the greater of 22.5 percent of risk-weighted assets or 9.5 percent of SLR leverage exposure. In addition, U.S. G-SIBs must meet a minimum long-term debt requirement. Our minimum required long- term debt is estimated to be the greater of 8.5 percent of risk- weighted assets or 4.5 percent of SLR leverage exposure. The impact of the TLAC rule is not expected to be material to our results of operations. The Corporation issued $11.6 billion of TLAC compliant debt in early 2017. 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 approach for operational risk, revisions to the credit valuation adjustment (CVA) risk framework and constraints on the use of internal models. The Basel Committee has also finalized a revised standardized model for counterparty credit risk, revisions to the securitization framework and its fundamental review of the trading book, which updates both modeled and standardized approaches for market risk measurement. These revisions are to 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, both at the input parameter and aggregate risk- weighted asset level. The Basel Committee expects to finalize the outstanding proposals in 2017. U.S. banking regulators may update the U.S. Basel 3 rules to incorporate the Basel Committee revisions. Single-Counterparty Credit Limits On March 4, 2016, the Federal Reserve issued a notice of proposed rulemaking (NPR) to establish Single-Counterparty Credit Limits (SCCL) for large U.S. BHCs. The SCCL rule is designed to complement and serve as a backstop to risk-based capital requirements to ensure that the maximum possible loss that a bank could incur due to a single counterparty’s default would not endanger the bank’s survival. Under the proposal, U.S. BHCs must calculate SCCL by dividing the net aggregate credit exposure to a given counterparty by a bank’s eligible Tier 1 capital base, ensuring that exposure to G-SIBs and other nonbank systemically important financial institutions does not breach 15 percent and exposures to other counterparties do not breach 25 percent. Capital Requirements for Swap Dealers On December 2, 2016, the Commodity Futures Trading Commission issued an NPR to establish capital requirements for swap dealers and major swap participants that are not subject to existing U.S. prudential regulation. Under the proposal, applicable subsidiaries of the Corporation must meet capital requirements under one of two approaches. The first approach is a bank-based capital approach which requires that firms maintain Common equity tier 1 capital greater than or equal to the larger of 8.0 percent of the entity’s RWA as calculated under Basel 3, or 8.0 percent of the margin of the entity’s cleared and uncleared swaps, security- based swaps, futures and foreign futures positions. The second approach is based on net liquid assets and requires that a firm maintain net capital greater than or equal to 8.0 percent of the margin as described above. The proposal also includes liquidity and reporting requirements. Broker-dealer Regulatory Capital and Securities Regulation The Corporation’s principal U.S. broker-dealer subsidiaries are Merrill Lynch, Pierce, Fenner & Smith Incorporated (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 Securities and Exchange Commission (SEC) Rule 15c3-1. Both entities are also registered as futures commission Bank of America 2016 49 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 Other adjustments to Tier 2 capital 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 10, footnote 1. did not have regulatory approval for the IMM model. December 31 2016 2015 $ 168,866 $ 163,026 (3,318) (1,899) (798) (341) 276 (57) 162,729 21,449 3,318 — 341 (276) (2) 24,830 187,559 28,666 (2,271) 9,176 35,571 223,130 (9,206) (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) $ $ $ $ $ 213,924 $ 201,403 1,399,477 $ 1,403,293 17,638 24,089 1,417,115 $ 1,427,382 1,529,903 $ 1,602,373 (18,113) (27,690) 1,511,790 $ 1,574,683 (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 IMM. As of December 31, 2016, we 48 Bank of America 2016 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, 2016, MLPF&S’s regulatory net capital as defined by Rule 15c3-1 was $11.9 billion and exceeded the minimum requirement of $1.8 billion by $10.1 billion. MLPCC’s net capital of $2.8 billion exceeded the minimum requirement of $481 million by $2.3 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, 2016, 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, 2016, MLI’s capital resources were $34.9 billion which exceeded the minimum requirement of $14.8 billion. Liquidity Risk Funding and Liquidity Risk Management Liquidity risk is the inability to meet expected or unexpected cash flow and collateral needs while continuing to support our businesses and customers with the appropriate funding sources 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 liquidity and access to diverse funding sources, including our stable deposit base, and seek to align liquidity-related incentives and risks. We define 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 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 our 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 directing management to maintain exposures within the established tolerance levels. The MRC reviews and monitors our liquidity position, cash flow forecasts, stress testing scenarios and results, and reviews and approves certain liquidity risk limits. For additional information, see Managing Risk on page 40. Under this governance framework, we have developed certain funding and liquidity risk management practices which include: maintaining liquidity at the parent company and selected subsidiaries, including our bank subsidiaries and other regulated entities; determining what 50 Bank of America 2016 amounts of 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 Liquidity Sources and Other Unencumbered Assets We maintain liquidity available to the Corporation, including the parent company and selected subsidiaries, in the form of cash and high-quality, liquid, unencumbered securities. Our liquidity buffer, referred to as Global Liquidity Sources (GLS), formerly Global Excess Liquidity Sources, is comprised of assets that are readily available to the parent company and selected subsidiaries, including holding company, 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 GLS 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. Pursuant to the Federal Reserve and FDIC request disclosed in our Current Report on Form 8-K dated April 13, 2016, we provided our Resolution Plan submission to those regulators on September 30, 2016. In connection with our resolution planning activities, in the third quarter of 2016, we entered into intercompany arrangements with certain key subsidiaries under which we transferred certain of our parent company assets, and agreed to transfer certain additional parent company assets, to NB Holdings, Inc., a wholly-owned holding company subsidiary (NB Holdings). The parent company is expected to continue to have access to the same flow of dividends, interest and other amounts of cash necessary to service its debt, pay dividends and perform other obligations as it would have had if it had not entered into these arrangements and transferred any assets. In consideration for the transfer of assets, NB Holdings issued a subordinated note to the parent company in a principal amount equal to the value of the transferred assets. The aggregate principal amount of the note will increase by the amount of any future asset transfers. NB Holdings also provided the parent company with a committed line of credit that allows the parent company to draw funds necessary to service near-term cash needs. These arrangements support our preferred single point of entry resolution strategy, under which only the parent company would be resolved under the U.S Bankruptcy Code. These arrangements include provisions to terminate the line of credit, forgive the subordinated note and require the parent company to transfer its remaining financial assets to NB Holdings if our projected liquidity resources deteriorate so severely that resolution of the parent company becomes imminent. Our GLS are substantially the same in composition to what qualifies as High Quality Liquid Assets (HQLA) under the final U.S. Liquidity Coverage Ratio (LCR) rules. For more information on the final LCR rules, see Liquidity Risk – Basel 3 Liquidity Standards on page 52. merchants and are subject to the Commodity Futures Trading amounts of liquidity are appropriate for these entities based on Our GLS were $499 billion and $504 billion at December 31, Table 16 presents the composition of GLS at December 31, Commission Regulation 1.17. analysis of debt maturities and other potential cash outflows, 2016 and 2015, and were as shown in Table 15. 2016 and 2015. Table 15 Global Liquidity Sources Table 16 Global Liquidity Sources Composition (Dollars in billions) Parent company and NB Holdings Bank subsidiaries Other regulated entities Total Global Liquidity Sources Average for Three Months Ended December 31 2016 December 31 2016 2015 $ $ 76 372 51 499 $ $ 96 $ 361 47 504 $ 77 389 49 515 As shown in Table 15, parent company and NB Holdings liquidity totaled $76 billion and $96 billion at December 31, 2016 and 2015. The decrease in parent company and NB Holdings liquidity was primarily due to the BNY Mellon settlement payment in the first quarter of 2016 and prepositioning liquidity to subsidiaries in connection with resolution planning. Typically, parent company and NB Holdings liquidity is in the form of cash deposited with BANA. Liquidity held at our bank subsidiaries totaled $372 billion and $361 billion at December 31, 2016 and 2015. The increase in bank subsidiaries’ liquidity was primarily due to deposit growth, partially offset by loan growth. Liquidity at bank subsidiaries excludes the cash deposited by the parent company and NB Holdings. Our bank subsidiaries can also generate incremental liquidity by pledging a range of unencumbered loans and securities to certain FHLBs and the Federal Reserve Discount Window. The cash we could have obtained by borrowing against this pool of specifically-identified eligible assets was $310 billion and $252 billion at December 31, 2016 and 2015. 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. Liquidity held at our other regulated entities, comprised primarily of broker-dealer subsidiaries, totaled $51 billion and $47 billion at December 31, 2016 and 2015. Our other regulated entities also held 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 Liquidity Sources December 31 2016 2015 $ $ 106 58 318 17 499 $ $ 119 38 327 20 504 Time-to-required Funding and Liquidity Stress Analysis We use a variety of metrics to determine the appropriate amounts of liquidity to maintain at the parent company and our subsidiaries. One metric we use to evaluate the appropriate level of liquidity at the parent company and NB Holdings is “time-to-required funding (TTF).” This debt coverage measure indicates the number of months the parent company can continue to meet its unsecured contractual obligations as they come due using only the parent company and NB Holdings' 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. Prior to the third quarter of 2016, TTF incorporated only the liquidity of the parent company. During the third quarter of 2016, TTF was expanded to include the liquidity of NB Holdings, following changes in our liquidity the management practices, initiated include resolution planning activities, Corporation's maintaining at NB Holdings certain liquidity previously held solely at the parent company. Our TTF was 35 months at December 31, 2016. in connection with that We also utilize liquidity stress analysis to assist us in determining the appropriate amounts of liquidity to maintain at the parent company and our subsidiaries. The liquidity stress testing process is an integral part of analyzing our potential contractual and contingent cash outflows. 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 more severe events including potential resolution scenarios. The scenarios are based on our historical experience, experience of distressed and failed financial institutions, regulatory guidance, and both expected and unexpected future events. Bank of America 2016 51 MLPF&S has elected to compute the minimum capital including those that we may experience during stressed market requirement in accordance with the Alternative Net Capital conditions; diversifying funding sources, considering our asset Requirement as permitted by SEC Rule 15c3-1. At December 31, profile and legal entity structure; and performing contingency 2016, MLPF&S’s regulatory net capital as defined by Rule 15c3-1 planning. was $11.9 billion and exceeded the minimum requirement of $1.8 billion by $10.1 billion. MLPCC’s net capital of $2.8 billion exceeded the minimum requirement of $481 million by $2.3 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, 2016, 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, 2016, MLI’s capital resources were $34.9 billion which exceeded the minimum requirement of $14.8 billion. Liquidity Risk Funding and Liquidity Risk Management Liquidity risk is the inability to meet expected or unexpected cash flow and collateral needs while continuing to support our businesses and customers with the appropriate funding sources 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 liquidity and access to diverse funding sources, including our stable deposit base, and seek to align liquidity-related incentives and risks. We define 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 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 our 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 directing management to maintain exposures within the established tolerance levels. The MRC reviews and monitors our liquidity position, cash flow forecasts, stress testing scenarios and results, and reviews and approves certain liquidity risk limits. For additional information, see Managing Risk on page 40. Under this governance framework, we have developed certain funding and liquidity risk management practices which include: maintaining liquidity at the Global Liquidity Sources and Other Unencumbered Assets We maintain liquidity available to the Corporation, including the parent company and selected subsidiaries, in the form of cash and high-quality, liquid, unencumbered securities. Our liquidity buffer, referred to as Global Liquidity Sources (GLS), formerly Global Excess Liquidity Sources, is comprised of assets that are readily available to the parent company and selected subsidiaries, including holding company, 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 GLS 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. Pursuant to the Federal Reserve and FDIC request disclosed in our Current Report on Form 8-K dated April 13, 2016, we provided our Resolution Plan submission to those regulators on September 30, 2016. In connection with our resolution planning activities, in the third quarter of 2016, we entered into intercompany arrangements with certain key subsidiaries under which we transferred certain of our parent company assets, and agreed to transfer certain additional parent company assets, to NB Holdings, Inc., a wholly-owned holding company subsidiary (NB Holdings). The parent company is expected to continue to have access to the same flow of dividends, interest and other amounts of cash necessary to service its debt, pay dividends and perform other obligations as it would have had if it had not entered into these arrangements and transferred any assets. In consideration for the transfer of assets, NB Holdings issued a subordinated note to the parent company in a principal amount equal to the value of the transferred assets. The aggregate principal amount of the note will increase by the amount of any future asset transfers. NB Holdings also provided the parent company with a committed line of credit that allows the parent company to draw funds necessary to service near-term cash needs. These arrangements support our preferred single point of entry resolution strategy, under which only the parent company would be resolved under the U.S Bankruptcy Code. These arrangements include provisions to terminate the line of credit, forgive the subordinated note and require the parent company to transfer its remaining financial assets to NB Holdings if our projected liquidity resources deteriorate so severely that resolution of the parent company becomes imminent. Our GLS are substantially the same in composition to what qualifies as High Quality Liquid Assets (HQLA) under the final U.S. Liquidity Coverage Ratio (LCR) rules. For more information on the final LCR rules, see Liquidity Risk – Basel 3 Liquidity Standards parent company and selected subsidiaries, including our bank on page 52. subsidiaries and other regulated entities; determining what 50 Bank of America 2016 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 and liability profile and establish limits and guidelines on certain funding sources and businesses. Basel 3 Liquidity Standards Basel 3 has two liquidity risk-related standards: the LCR and the Net Stable Funding Ratio (NSFR). institutions. As of December 31, 2016, 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. The LCR regulatory requirement of 100 percent as of January 1, 2017 is applicable to the Corporation on a consolidated basis and to our insured depository the consolidated Corporation and its insured depository institutions were above the 2017 LCR requirements. Our LCR may fluctuate from period to period due to normal business flows from customer activity. On December 19, 2016, the Federal Reserve published the final LCR public disclosure requirements. Effective April 1, 2017, the final rule requires us to disclose publicly, on a quarterly basis, quantitative information about our LCR calculation and a discussion of the factors that have a significant effect on our LCR. In April 2016, U.S. banking regulators issued a proposal for an NSFR requirement applicable to U.S. financial institutions following the Basel Committee's final standard in 2014. The U.S. NSFR would apply to the Corporation on a consolidated basis and to our insured depository institutions beginning on January 1, 2018. We expect to meet the NSFR requirement within the regulatory timeline. The standard 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. Diversified Funding Sources We fund our assets primarily with a mix of deposits and secured and unsecured through a centralized, globally coordinated funding approach diversified across products, programs, markets, currencies and investor groups. liabilities The primary benefits of our centralized funding approach 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 52 Bank of America 2016 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 $1.26 trillion and $1.20 trillion at December 31, 2016 and 2015. 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 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 FHLB 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 2016, we issued $35.6 billion of long-term debt, consisting of $27.5 billion for Bank of America Corporation, $1.0 billion for Bank of America, N.A. and $7.1 billion of other debt. Table 17 presents our long-term debt by major currency at December 31, 2016 and 2015. Table 17 Long-term Debt by Major Currency (Dollars in millions) U.S. Dollar Euro British Pound Japanese Yen Australian Dollar Canadian Dollar Other Total long-term debt December 31 2016 $ 172,082 28,236 6,588 3,919 2,900 1,049 2,049 $ 216,823 2015 $ 190,381 29,797 7,080 3,099 2,534 1,428 2,445 $ 236,764 The types of potential contractual and contingent cash outflows company funding impractical, certain other subsidiaries may issue we consider in our scenarios may include, but are not limited to, their own debt. upcoming contractual maturities of unsecured debt and reductions We fund a substantial portion of our lending activities through in new debt issuance; diminished access to secured financing our deposits, which were $1.26 trillion and $1.20 trillion at markets; potential deposit withdrawals; increased draws on loan December 31, 2016 and 2015. Deposits are primarily generated commitments, liquidity facilities and letters of credit; additional by our Consumer Banking, GWIM and Global Banking segments. collateral that counterparties could call if our credit ratings were These deposits are diversified by clients, product type and downgraded; collateral and margin requirements arising from geography, and the majority of our U.S. deposits are insured by market value changes; and potential liquidity required to maintain the FDIC. We consider a substantial portion of our deposits to be businesses and finance customer activities. Changes in certain a stable, low-cost and consistent source of funding. We believe market factors, including, but not limited to, credit rating this deposit funding is generally less sensitive to interest rate downgrades, could negatively impact potential contractual and changes, market volatility or changes in our credit ratings than contingent outflows and the related financial instruments, and in wholesale funding sources. Our lending activities may also be some cases these impacts could be material to our financial financed through secured borrowings, including credit card results. securitizations and securitizations with GSEs, the FHA and private- We consider all sources of funds that we could access during label investors, as well as FHLB loans. each stress scenario and focus particularly on matching available Our trading activities in other regulated entities are primarily sources with corresponding liquidity requirements by legal entity. funded on a secured basis through securities lending and We also use the stress modeling results to manage our asset and repurchase agreements and these amounts will vary based on liability profile and establish limits and guidelines on certain customer activity and market conditions. We believe funding these funding sources and businesses. Basel 3 Liquidity Standards Basel 3 has two liquidity risk-related standards: the LCR and the Net Stable Funding Ratio (NSFR). 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. The LCR regulatory requirement of 100 percent as of January 1, 2017 is applicable to the Corporation on a consolidated basis and to our insured depository institutions. As of December 31, 2016, the consolidated Corporation and its insured depository institutions were above the 2017 LCR requirements. Our LCR may fluctuate from period to period due to normal business flows from customer activity. On December 19, 2016, the Federal Reserve published the final LCR public disclosure requirements. Effective April 1, 2017, the final rule requires us to disclose publicly, on a quarterly basis, quantitative information about our LCR calculation and a discussion of the factors that have a significant effect on our LCR. In April 2016, U.S. banking regulators issued a proposal for an NSFR requirement applicable to U.S. financial institutions following the Basel Committee's final standard in 2014. The U.S. NSFR would apply to the Corporation on a consolidated basis and to our insured depository institutions beginning on January 1, 2018. We expect to meet the NSFR requirement within the regulatory timeline. The standard 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. Diversified Funding Sources We fund our assets primarily with a mix of deposits and secured and unsecured liabilities through a centralized, globally coordinated funding approach diversified across products, programs, markets, currencies and investor groups. The primary benefits of our centralized funding approach 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 52 Bank of America 2016 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 2016, we issued $35.6 billion of long-term debt, consisting of $27.5 billion for Bank of America Corporation, $1.0 billion for Bank of America, N.A. and $7.1 billion of other debt. Table 17 presents our long-term debt by major currency at December 31, 2016 and 2015. Table 17 Long-term Debt by Major Currency (Dollars in millions) U.S. Dollar Euro British Pound Japanese Yen Australian Dollar Canadian Dollar Other December 31 2016 2015 $ 172,082 $ 190,381 28,236 29,797 6,588 3,919 2,900 1,049 2,049 7,080 3,099 2,534 1,428 2,445 Total long-term debt $ 216,823 $ 236,764 Total long-term debt decreased $19.9 billion, or eight percent, in 2016, primarily due to maturities outpacing issuances. 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 the Banking Book on page 83. We may also issue unsecured debt in the form of structured notes for client purposes, certain of which qualify as TLAC eligible debt. During 2016, we issued $6.2 billion of structured notes, a majority of which were 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 note 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. 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 over-the-counter (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 January 24, 2017, Moody’s Investors Services, Inc. (Moody’s) improved its ratings outlook on the Corporation and its subsidiaries, including BANA, to positive from stable, based on the agency’s view that there is an increased likelihood that the Corporation’s profitability will strengthen on a sustainable basis over the next 12 to 18 months while the Corporation continues to adhere to its conservative risk profile, lowering its earnings volatility. The agency concurrently affirmed the current ratings of the Corporation and its subsidiaries, which have not changed since the conclusion of the agency’s previous review of several global investment banking groups, including Bank of America, on May 28, 2015. On December 16, 2016, Standard & Poor’s Global Ratings (S&P) concluded its CreditWatch with positive implications for operating subsidiaries of four U.S. G-SIBs, including Bank of America. As a result, S&P upgraded the long-term senior debt ratings of BANA, MLPF&S, MLI and Bank of America Merrill Lynch International Limited (BAMLI) by one notch, to A+ from A. These ratings actions followed the Federal Reserve’s publication of the TLAC final rule, which provided clarity on which debt instruments will count as external TLAC, and by extension, will also count under S&P’s Additional Loss Absorbing Capacity (ALAC) framework. The ALAC framework details how a BHC’s loss-absorbing debt and equity capital buffers may enable uplift to its operating subsidiaries’ credit ratings. The Federal Reserve’s decision to impermissible allow existing debt containing otherwise acceleration clauses to count as external TLAC improved the Corporation’s ALAC calculation enough to warrant an additional notch of uplift under S&P’s methodology. Following the upgrades, S&P revised the outlook for its ratings to stable on those four operating subsidiaries. The ratings of Bank of America Corporation, which does not receive any ratings uplift under S&P’s ALAC framework, were not impacted by this ratings action and remain on stable outlook. Bank of America 2016 53 On December 13, 2016, 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 the long-term and short-term senior debt ratings of Bank of America Corporation and Bank of America, N.A., and maintained stable outlooks on those ratings. Fitch concurrently revised the outlooks for two of Bank of America’s material international operating subsidiaries, MLI and BAMLI, to stable from positive due to a delay in host country internal TLAC proposals. Table 18 presents the current long-term/short-term senior debt ratings and outlooks expressed by the rating agencies. Table 18 Senior Debt Ratings Bank of America Corporation Bank of America, N.A. Merrill Lynch, Pierce, Fenner & Smith Merrill Lynch International NR = not rated Moody’s Investors Service Standard & Poor’s Global Ratings Long-term Baa1 Short-term P-2 A1 NR NR P-1 NR NR Outlook Positive Positive NR NR Long-term BBB+ Short-term A-2 A+ A+ A+ A-1 A-1 A-1 Outlook Stable Stable Stable Stable Long-term A Fitch Ratings Short-term F1 A+ A+ A F1 F1 F1 Outlook Stable Stable Stable Stable 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 51. For 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. Common Stock Dividends For a summary of our declared quarterly cash dividends on common stock during 2016 and through February 23, 2017, see Note 13 – Shareholders’ Equity to the Consolidated Financial Statements. 54 Bank of America 2016 Credit Risk Management 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. On December 13, 2016, Fitch Ratings (Fitch) completed its outlooks for two of Bank of America’s material international latest semi-annual review of 12 large, complex securities trading operating subsidiaries, MLI and BAMLI, to stable from positive due and universal banks, including Bank of America. The agency to a delay in host country internal TLAC proposals. affirmed the long-term and short-term senior debt ratings of Bank Table 18 presents the current long-term/short-term senior debt of America Corporation and Bank of America, N.A., and maintained ratings and outlooks expressed by the rating agencies. stable outlooks on those ratings. Fitch concurrently revised the Table 18 Senior Debt Ratings Bank of America Corporation Bank of America, N.A. Merrill Lynch, Pierce, Fenner & Smith Merrill Lynch International NR = not rated Baa1 A1 NR NR Moody’s Investors Service Standard & Poor’s Global Ratings Fitch Ratings Long-term Short-term Long-term Short-term Outlook Long-term Short-term P-2 P-1 NR NR Outlook Positive Positive NR NR BBB+ A+ A+ A+ A-2 A-1 A-1 A-1 Stable Stable Stable Stable A A+ A+ A F1 F1 F1 F1 Outlook Stable Stable Stable Stable 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 51. For 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. Common Stock Dividends For a summary of our declared quarterly cash dividends on common stock during 2016 and through February 23, 2017, see Note 13 – Shareholders’ Equity to the Consolidated Financial Statements. Credit Risk Management 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. For more information on our credit risk management activities, see Consumer Portfolio Credit Risk Management below, Commercial Portfolio Credit Risk Management on page 65, Non- U.S. Portfolio on page 73, Provision for Credit Losses on page 74, Allowance for Credit Losses on page 74, and Note 4 – Outstanding Loans and Leases and Note 5 – Allowance for Credit Losses to the Consolidated Financial Statements. 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. Consumer Credit Portfolio Improvement in the U.S. unemployment rate and home prices continued during 2016 resulting in improved credit quality and lower credit losses across most major consumer portfolios compared to 2015. The 30 and 90 days or more past due balances Table 19 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 (5) declined across nearly all consumer loan portfolios during 2016 as a result of improved delinquency trends. Improved credit quality, continued loan balance run-off and sales across the consumer portfolio drove a $1.2 billion decrease in the consumer allowance for loan and lease losses in 2016 to $6.2 billion at December 31, 2016. For additional information, see Allowance for Credit Losses on page 74. For more information on our accounting policies regarding delinquencies, nonperforming status, charge-offs and troubled debt restructurings (TDRs) for the consumer portfolio, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. In connection with an agreement to sell our non-U.S. consumer credit card business, this business, which includes $9.2 billion of non-U.S. credit card loans and related allowance for loan and lease losses of $243 million, was reclassified to assets of business held for sale on the Consolidated Balance Sheet as of December 31, 2016. In this section, all applicable amounts and ratios include these balances, unless otherwise noted. Table 19 presents our outstanding consumer loans and leases, and the PCI loan portfolio. In addition to being included in the “Outstandings” columns in Table 19, 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 61 and Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements. December 31 Outstandings 2016 191,797 66,443 92,278 9,214 94,089 2,499 456,320 1,051 457,371 $ $ 2015 187,911 75,948 89,602 9,975 88,795 2,067 454,298 1,871 456,169 $ $ $ $ Purchased Credit-impaired Loan Portfolio 2016 2015 10,127 3,611 n/a n/a n/a n/a 13,738 n/a 13,738 $ $ 12,066 4,619 n/a n/a n/a n/a 16,685 n/a 16,685 (1) Outstandings include pay option loans of $1.8 billion and $2.3 billion at December 31, 2016 and 2015. We no longer originate pay option loans. (2) Outstandings include auto and specialty lending loans of $48.9 billion and $42.6 billion, unsecured consumer lending loans of $585 million and $886 million, U.S. securities-based lending loans of $40.1 billion and $39.8 billion, non-U.S. consumer loans of $3.0 billion and $3.9 billion, student loans of $497 million and $564 million and other consumer loans of $1.1 billion and $1.0 billion at December 31, 2016 and 2015. (3) Outstandings include consumer finance loans of $465 million and $564 million, consumer leases of $1.9 billion and $1.4 billion and consumer overdrafts of $157 million and $146 million at December 31, 2016 and 2015. (4) Consumer loans accounted for under the fair value option include residential mortgage loans of $710 million and $1.6 billion and home equity loans of $341 million and $250 million at December 31, 2016 and 2015. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements. Includes $9.2 billion of non-U.S. credit card loans, which are included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. (5) n/a = not applicable 54 Bank of America 2016 Bank of America 2016 55 Table 20 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 loans not secured by real estate (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. Table 20 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 2016 2015 2016 2015 $ $ 3,056 2,918 n/a n/a 28 2 6,004 $ $ 4,803 3,337 n/a n/a 24 1 8,165 $ $ 4,793 — 782 66 34 4 5,679 $ $ 7,150 — 789 76 39 3 8,057 1.32% 1.80% 1.24% 1.77% insured loan portfolios (2) 1.45 2.04 0.21 0.23 (1) Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At December 31, 2016 and 2015, residential mortgage included $3.0 billion and $4.3 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 $1.8 billion and $2.9 billion of loans on which interest was still accruing. (2) Balances exclude consumer loans accounted for under the fair value option. At December 31, 2016 and 2015, $48 million and $293 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 21 presents net charge-offs and related ratios for consumer loans and leases. Table 21 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) 2016 2015 2016 2015 $ $ 131 405 2,269 175 134 205 3,319 $ $ 473 636 2,314 188 112 193 3,916 0.07% 0.57 2.58 1.83 0.15 8.95 0.74 0.24% 0.79 2.62 1.86 0.13 9.96 0.84 (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 61. (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 0.09 percent and 0.35 percent for residential mortgage, 0.60 percent and 0.84 percent for home equity and 0.82 percent and 0.99 percent for the total consumer portfolio for 2016 and 2015, respectively. These are the only product classifications that include PCI and fully-insured loans. Net charge-offs, as shown in Tables 21 and 22, exclude write- offs in the PCI loan portfolio of $144 million and $634 million in residential mortgage and $196 million and $174 million in home equity for 2016 and 2015. Net charge-off ratios including the PCI write-offs were 0.15 percent and 0.56 percent for residential mortgage and 0.84 percent and 1.00 percent for home equity in 2016 and 2015. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit- impaired Loan Portfolio on page 61. 56 Bank of America 2016 Table 20 presents consumer nonperforming loans and accruing with FNMA and FHLMC (collectively, the fully-insured loan portfolio) consumer loans past due 90 days or more. Nonperforming loans are reported as accruing as opposed to nonperforming since the do not include past due consumer credit card loans, other principal repayment is insured. Fully-insured loans included in unsecured loans and in general, consumer loans not secured by accruing past due 90 days or more are primarily from our real estate (loans discharged in Chapter 7 bankruptcy are included) repurchases of delinquent FHA loans pursuant to our servicing as these loans are typically charged off no later than the end of agreements with GNMA. Additionally, nonperforming loans and the month in which the loan becomes 180 days past due. Real accruing balances past due 90 days or more do not include the estate-secured past due consumer loans that are insured by the PCI loan portfolio or loans accounted for under the fair value option FHA or individually insured under long-term standby agreements even though the customer may be contractually past due. Table 20 Consumer Credit Quality Consumer loans and leases as a percentage of outstanding consumer loans and leases (2) 1.32% 1.80% 1.24% 1.77% Consumer loans and leases as a percentage of outstanding loans and leases, excluding PCI and fully- insured loan portfolios (2) 1.45 2.04 0.21 0.23 (1) Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At December 31, 2016 and 2015, residential mortgage included $3.0 billion and $4.3 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 $1.8 billion and $2.9 billion of loans on which interest was still accruing. (2) Balances exclude consumer loans accounted for under the fair value option. At December 31, 2016 and 2015, $48 million and $293 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 21 presents net charge-offs and related ratios for consumer loans and leases. Table 21 Consumer Net Charge-offs and Related Ratios December 31 Nonperforming Accruing Past Due 90 Days or More 2016 2015 2016 2015 $ 3,056 2,918 $ 4,803 3,337 $ 4,793 $ 7,150 n/a n/a 28 2 n/a n/a 24 1 — 782 66 34 4 — 789 76 39 3 $ 6,004 $ 8,165 $ 5,679 $ 8,057 Net Charge-offs (1) Net Charge-off Ratios (1, 2) 2016 2015 2016 2015 $ $ 0.07% 0.24% 131 405 2,269 175 134 205 473 636 2,314 188 112 193 $ 3,319 $ 3,916 0.57 2.58 1.83 0.15 8.95 0.74 0.79 2.62 1.86 0.13 9.96 0.84 (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 (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 residential mortgage and $196 million and $174 million in home portfolios, were 0.09 percent and 0.35 percent for residential equity for 2016 and 2015. Net charge-off ratios including the PCI mortgage, 0.60 percent and 0.84 percent for home equity and write-offs were 0.15 percent and 0.56 percent for residential 0.82 percent and 0.99 percent for the total consumer portfolio mortgage and 0.84 percent and 1.00 percent for home equity in for 2016 and 2015, respectively. These are the only product 2016 and 2015. For more information on PCI write-offs, see classifications that include PCI and fully-insured loans. Consumer Portfolio Credit Risk Management – Purchased Credit- Net charge-offs, as shown in Tables 21 and 22, exclude write- impaired Loan Portfolio on page 61. offs in the PCI loan portfolio of $144 million and $634 million in (Dollars in millions) Residential mortgage (1) Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total (2) (Dollars in millions) Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer Other consumer Total page 61. 56 Bank of America 2016 Table 22 presents outstandings, nonperforming balances, net charge-offs, allowance for loan and lease losses and provision for loan and lease losses for the core and non-core portfolio within the consumer real estate portfolio. We categorize consumer real estate loans as core and non-core based on loan and customer characteristics such as origination date, product type, LTV, FICO score and delinquency status consistent with our current consumer and mortgage servicing strategy. Generally, loans that were originated after January 1, 2010, qualified under government- sponsored enterprise underwriting guidelines, or otherwise met our underwriting guidelines in place in 2015 are characterized as core loans. Loans held in legacy private-label securitizations, government-insured loans originated prior to 2010, loan products no longer originated, and loans originated prior to 2010 and classified as nonperforming or modified in a TDR prior to 2016 are generally characterized as non-core loans, and are principally run-off portfolios. Core loans as reported within Table 22 include loans held in the Consumer Banking and GWIM segments, as well as loans held for ALM activities in All Other. For more information on core and non-core loans, see Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements. As shown in Table 22, outstanding core consumer real estate loans increased $9.2 billion during 2016 driven by an increase of $14.7 billion in residential mortgage, partially offset by a $5.5 billion decrease in home equity. The increase in residential mortgage was primarily driven by originations outpacing prepayments in Consumer Banking and GWIM. The decrease in home equity was driven by paydowns outpacing new originations and draws on existing lines. Table 22 Consumer Real Estate Portfolio (1) (Dollars in millions) Core portfolio Residential mortgage Home equity Total core portfolio Non-core portfolio Residential mortgage Home equity Total non-core portfolio Consumer real estate portfolio Residential mortgage Home equity Total consumer real estate portfolio Core portfolio Residential mortgage Home equity Total core portfolio Non-core portfolio Residential mortgage Home equity Total non-core portfolio Consumer real estate portfolio December 31 Outstandings Nonperforming Net Charge-offs (2) 2016 2015 2016 2015 2016 2015 $ 156,497 49,373 205,870 $ 141,795 54,917 196,712 $ 35,300 17,070 52,370 46,116 21,031 67,147 191,797 66,443 $ 258,240 187,911 75,948 $ 263,859 $ $ 1,274 969 2,243 1,782 1,949 3,731 3,056 2,918 5,974 $ $ 1,825 974 2,799 2,978 2,363 5,341 4,803 3,337 8,140 $ $ (29) $ 113 84 160 292 452 131 405 536 101 163 264 372 473 845 473 636 1,109 $ December 31 Allowance for Loan and Lease Losses Provision for Loan and Lease Losses 2016 2015 2016 2015 $ 252 560 812 $ 319 664 983 (98) $ 10 (88) 760 1,178 1,938 1,181 1,750 2,931 (86) (84) (170) (17) (33) (50) (277) 257 (20) Residential mortgage Home equity (294) 224 (70) (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 $710 million and $1.6 billion and home equity loans of $341 million and $250 million at December 31, 2016 and 2015. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements. Total consumer real estate portfolio (184) (74) (258) $ 1,500 2,414 3,914 1,012 1,738 2,750 $ $ $ (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 61. 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 61. Residential Mortgage The residential mortgage portfolio makes up the largest percentage of our consumer loan portfolio at 42 percent of consumer loans and leases at December 31, 2016. Approximately 36 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 34 percent of the residential mortgage portfolio is Bank of America 2016 57 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, increased $3.9 billion in 2016 as retention of new originations was partially offset by loan sales of $6.6 billion and run-off. Loan sales primarily included $3.1 billion of loans in consolidated agency residential mortgage securitization vehicles and $1.9 billion of nonperforming and other delinquent loans. At December 31, 2016 and 2015, the residential mortgage portfolio included $28.7 billion and $37.1 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, 2016 and 2015, $22.3 billion and $33.4 billion had FHA insurance with the remainder protected by long-term standby agreements. At December 31, 2016 and 2015, $7.4 billion and $11.2 billion of the FHA-insured loan population were repurchases of delinquent FHA loans pursuant to our servicing agreements with GNMA. Table 23 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 61. Table 23 Residential Mortgage – Key Credit Statistics (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) 2016 $ 191,797 8,232 4,793 3,056 2015 $ 187,911 11,423 7,150 4,803 2016 $ 152,941 1,835 — 3,056 2015 $ 138,768 1,568 — 4,803 5% 4 9 13 0.07 7% 8 13 17 0.24 3% 3 4 12 0.09 5% 4 6 17 0.35 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 $931 million, or 31 percent, and $1.6 billion, or 34 percent, of nonperforming residential mortgage loans at December 31, 2016 and 2015. Additionally, these vintages accounted for net recoveries of $2 million in 2016 and net charge-offs of $136 million in 2015. (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 $1.7 billion in 2016 as outflows, including sales of $1.4 billion, outpaced new inflows. Of the nonperforming residential mortgage loans at December 31, 2016, $1.0 billion, or 33 percent, were current on contractual payments. Accruing past due 30 days or more increased $267 million due to the timing impact of a consumer real estate payment servicer conversion that occurred during the fourth quarter of 2016. Net charge-offs decreased $342 million to $131 million in 2016, compared to $473 million in 2015. This decrease in net charge-offs was primarily driven by charge-offs related to the consumer relief portion of the settlement with the U.S. Department of Justice (DoJ) of $402 million in 2015. Net charge-offs also included charge-offs of $26 million related to nonperforming loan sales during 2016 compared to recoveries of $127 million in 2015. Additionally, 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. Loans with a refreshed LTV greater than 100 percent represented three percent and four percent of the residential mortgage loan portfolio at December 31, 2016 and 2015. Of the loans with a refreshed LTV greater than 100 percent, 98 percent were performing at both December 31, 2016 and 2015. 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. Of the $152.9 billion in total residential mortgage loans outstanding at December 31, 2016, as shown in Table 24, 37 percent were originated as interest-only loans. The outstanding balance of interest-only residential mortgage loans that have entered the amortization period was $11.0 billion, or 19 percent, at December 31, 2016. 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, 2016, $249 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 $1.8 billion, or one percent for the entire residential mortgage portfolio. In addition, at December 31, 2016, $448 million, or four percent of outstanding interest-only residential 58 Bank of America 2016 in GWIM and represents residential mortgages originated for the insurance with the remainder protected by long-term standby home purchase and refinancing needs of our wealth management agreements. At December 31, 2016 and 2015, $7.4 billion and clients and the remaining portion of the portfolio is primarily in $11.2 billion of the FHA-insured loan population were repurchases Consumer Banking. of delinquent FHA loans pursuant to our servicing agreements with Outstanding balances in the residential mortgage portfolio, GNMA. excluding loans accounted for under the fair value option, Table 23 presents certain residential mortgage key credit increased $3.9 billion in 2016 as retention of new originations statistics on both a reported basis excluding loans accounted for was partially offset by loan sales of $6.6 billion and run-off. Loan under the fair value option, and excluding the PCI loan portfolio, sales primarily included $3.1 billion of loans in consolidated our fully-insured loan portfolio and loans accounted for under the agency residential mortgage securitization vehicles and $1.9 fair value option. Additionally, in the “Reported Basis” columns in billion of nonperforming and other delinquent loans. the table below, accruing balances past due and nonperforming At December 31, 2016 and 2015, the residential mortgage loans do not include the PCI loan portfolio, in accordance with our portfolio included $28.7 billion and $37.1 billion of outstanding accounting policies, even though the customer may be fully-insured loans. On this portion of the residential mortgage contractually past due. As such, the following discussion presents portfolio, we are protected against principal loss as a result of the residential mortgage portfolio excluding the PCI loan portfolio, either FHA insurance or long-term standby agreements that provide the fully-insured loan portfolio and loans accounted for under the for the transfer of credit risk to FNMA and FHLMC. At December fair value option. For more information on the PCI loan portfolio, 31, 2016 and 2015, $22.3 billion and $33.4 billion had FHA see page 61. Table 23 Residential Mortgage – Key Credit Statistics (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 100 Refreshed FICO below 620 2006 and 2007 vintages (2) Net charge-off ratio (3) Refreshed LTV greater than 90 but less than or equal to 100 December 31 Excluding Purchased Credit-impaired and Fully-insured Loans Reported Basis (1) 2016 2015 2016 2015 $ 191,797 $ 187,911 $ 152,941 $ 138,768 8,232 4,793 3,056 5% 4 9 13 0.07 11,423 7,150 4,803 7% 8 13 17 0.24 1,835 — 3,056 3% 3 4 12 0.09 1,568 — 4,803 5% 4 6 17 0.35 (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 $931 million, or 31 percent, and $1.6 billion, or 34 percent, of nonperforming residential mortgage loans at December 31, 2016 and 2015. Additionally, these vintages accounted for net recoveries of $2 million in 2016 and net charge-offs of $136 million in 2015. (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 $1.7 loans with a refreshed LTV greater than 100 percent, 98 percent billion in 2016 as outflows, including sales of $1.4 billion, were performing at both December 31, 2016 and 2015. Loans outpaced new inflows. Of the nonperforming residential mortgage with a refreshed LTV greater than 100 percent reflect loans where loans at December 31, 2016, $1.0 billion, or 33 percent, were the outstanding carrying value of the loan is greater than the most current on contractual payments. Accruing past due 30 days or recent valuation of the property securing the loan. The majority of more increased $267 million due to the timing impact of a these loans have a refreshed LTV greater than 100 percent consumer real estate payment servicer conversion that occurred primarily due to home price deterioration since 2006, partially during the fourth quarter of 2016. offset by subsequent appreciation. Net charge-offs decreased $342 million to $131 million in Of the $152.9 billion in total residential mortgage loans 2016, compared to $473 million in 2015. This decrease in net outstanding at December 31, 2016, as shown in Table 24, 37 charge-offs was primarily driven by charge-offs related to the percent were originated as interest-only loans. The outstanding consumer relief portion of the settlement with the U.S. Department balance of interest-only residential mortgage loans that have of Justice (DoJ) of $402 million in 2015. Net charge-offs also entered the amortization period was $11.0 billion, or 19 percent, included charge-offs of $26 million related to nonperforming loan at December 31, 2016. Residential mortgage loans that have sales during 2016 compared to recoveries of $127 million in 2015. entered the amortization period generally have experienced a Additionally, net charge-offs declined driven by favorable portfolio higher rate of early stage delinquencies and nonperforming status trends and decreased write-downs on loans greater than 180 days compared to the residential mortgage portfolio as a whole. At past due, which were written down to the estimated fair value of December 31, 2016, $249 million, or two percent of outstanding the collateral, less costs to sell, due in part to improvement in interest-only residential mortgages that had entered the home prices and the U.S. economy. amortization period were accruing past due 30 days or more Loans with a refreshed LTV greater than 100 percent compared to $1.8 billion, or one percent for the entire residential represented three percent and four percent of the residential mortgage portfolio. In addition, at December 31, 2016, $448 mortgage loan portfolio at December 31, 2016 and 2015. Of the million, or four percent of outstanding interest-only residential mortgage loans that had entered the amortization period were nonperforming, of which $233 million were contractually current, compared to $3.1 billion, or two percent for the entire residential mortgage portfolio, of which $1.0 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. More than 80 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 24 presents outstandings, nonperforming loans and net charge-offs by certain state concentrations for the residential Table 24 Residential Mortgage State Concentrations mortgage portfolio. The Los Angeles-Long Beach-Santa Ana Metropolitan Statistical Area (MSA) within California represented 15 percent and 14 percent of outstandings at December 31, 2016 and 2015. Loans within this MSA contributed net recoveries of $13 million within the residential mortgage portfolio during 2016 and 2015. In the New York area, the New York-Northern New Jersey- Long Island MSA made up 12 percent and 11 percent of outstandings during 2016 and 2015. Loans within this MSA contributed net charge-offs of $33 million and $101 million within the residential mortgage portfolio during 2016 and 2015. (Dollars in millions) California New York (3) Florida (3) Texas Massachusetts 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) 2016 2015 2016 2015 2016 2015 $ 58,295 14,476 10,213 6,607 5,344 58,006 $ 152,941 28,729 10,127 $ 191,797 $ 48,865 12,696 10,001 6,208 4,799 56,199 $ 138,768 37,077 12,066 $ 187,911 $ $ 554 290 322 132 77 1,681 3,056 $ $ 977 399 534 185 118 2,590 4,803 $ $ (70) $ 18 20 9 3 151 131 $ (49) 57 53 10 8 394 473 (1) Outstandings and nonperforming loans exclude loans accounted for under the fair value option. (2) Net charge-offs exclude $144 million of write-offs in the residential mortgage PCI loan portfolio in 2016 compared to $634 million in 2015. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 61. 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) At December 31, 2016 and 2015, 48 percent and 47 percent of PCI residential mortgage loans were in California. There were no other significant single state concentrations. Home Equity At December 31, 2016, the home equity portfolio made up 15 percent of the consumer portfolio and is comprised of home equity lines of credit (HELOCs), home equity loans and reverse mortgages. At December 31, 2016, our HELOC portfolio had an outstanding balance of $58.6 billion, or 88 percent of the total home equity portfolio compared to $66.1 billion, or 87 percent, at December 31, 2015. 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, 2016, our home equity loan portfolio had an outstanding balance of $5.9 billion, or nine percent of the total home equity portfolio compared to $7.9 billion, or 10 percent, at December 31, 2015. Home equity loans are almost all fixed-rate loans with amortizing payment terms of 10 to 30 years and of the $5.9 billion at December 31, 2016, 56 percent have 25- to 30- year terms. At December 31, 2016, our reverse mortgage portfolio had an outstanding balance, excluding loans accounted for under the fair value option, of $1.9 billion, or three percent of the total home equity portfolio compared to $2.0 billion, or three percent, at December 31, 2015. We no longer originate reverse mortgages. At December 31, 2016, approximately 67 percent of the home equity portfolio was in Consumer Banking, 26 percent was in All Other 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 $9.5 billion in 2016 primarily due to paydowns and charge-offs outpacing new originations and draws on existing lines. Of the total home equity portfolio at December 31, 2016 and 2015, $19.6 billion and $20.3 billion, or 29 percent and 27 percent, were in first-lien positions (31 percent and 28 percent excluding the PCI home equity portfolio). At December 31, 2016, 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 $10.9 billion, or 17 percent of our total home equity portfolio excluding the PCI loan portfolio. Unused HELOCs totaled $47.2 billion and $50.3 billion at December 31, 2016 and 2015. The decrease was primarily due to accounts reaching the end of their draw period, which automatically eliminates open line exposure, as well as customers choosing to close accounts. Both of these more than offset customer paydowns of principal balances and the impact of new production. The HELOC utilization rate was 55 percent and 57 percent at December 31, 2016 and 2015. 58 Bank of America 2016 Bank of America 2016 59 Table 25 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 61. Table 25 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 2016 2015 2016 2015 $ 66,443 566 2,918 $ 75,948 613 3,337 $ 62,832 566 2,918 $ 71,329 613 3,337 5% 8 7 37 0.57 6% 12 7 43 0.79 4% 7 6 34 0.60 6% 11 7 41 0.84 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 $81 million and $89 million and nonperforming loans include $340 million and $396 million of loans where we serviced the underlying first-lien at December 31, 2016 and 2015. (3) These vintages of loans have higher refreshed combined LTV ratios and accounted for 50 percent and 45 percent of nonperforming home equity loans at December 31, 2016 and 2015, and 54 percent of net charge-offs in both 2016 and 2015. (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 $419 million in 2016 as outflows, including sales of $234 million, outpaced new inflows. Of the nonperforming home equity portfolio at December 31, 2016, $1.5 billion, or 50 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, $876 million, or 30 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 $47 million in 2016. 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, 2016, we estimate that $1.0 billion of current and $149 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 $190 million of these combined amounts, with the remaining $980 million serviced by third parties. Of the $1.2 billion of current to 89 days past due junior-lien loans, based on available credit bureau data and our own internal servicing data, 60 Bank of America 2016 we estimate that approximately $428 million had first-lien loans that were 90 days or more past due. Net charge-offs decreased $231 million to $405 million in 2016, compared to $636 million in 2015 driven by favorable portfolio trends due in part to improvement in home prices and the U.S. economy. Additionally, the decrease in net charge-offs was partly attributable to charge-offs of $75 million related to the consumer relief portion of the settlement with the DoJ in 2015. Outstanding balances with refreshed combined loan-to-value (CLTV) greater than 100 percent comprised seven percent and 11 percent of the home equity portfolio at December 31, 2016 and 2015. 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, 95 percent of the customers were current on their home equity loan and 91 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, 2016. Of the $62.8 billion in total home equity portfolio outstandings at December 31, 2016, as shown in Table 26, 52 percent require interest-only payments. The outstanding balance of HELOCs that have entered the amortization period was $14.7 billion at December 31, 2016. 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, 2016, $295 million, or two percent of outstanding HELOCs that had entered the amortization period were accruing past due 30 days or more. In addition, at December 31, 2016, $1.8 billion, or 12 percent of outstanding HELOCs that had entered the amortization period were Table 25 presents certain home equity portfolio key credit not include the PCI loan portfolio, in accordance with our statistics on both a reported basis excluding loans accounted for accounting policies, even though the customer may be under the fair value option, and excluding the PCI loan portfolio contractually past due. As such, the following discussion presents and loans accounted for under the fair value option. Additionally, the home equity portfolio excluding the PCI loan portfolio and loans in the “Reported Basis” columns in the table below, accruing accounted for under the fair value option. For more information on balances past due 30 days or more and nonperforming loans do the PCI loan portfolio, see page 61. Table 25 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 100 Refreshed FICO below 620 2006 and 2007 vintages (3) Net charge-off ratio (4) December 31 Reported Basis (1) Excluding Purchased Credit-impaired Loans 2016 2015 2016 2015 $ 66,443 $ 75,948 $ 62,832 $ 71,329 566 2,918 613 3,337 566 2,918 613 3,337 5% 8 7 37 0.57 6% 12 7 43 0.79 4% 7 6 34 0.60 6% 11 7 41 0.84 (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 $81 million and $89 million and nonperforming loans include $340 million and $396 million of loans where we serviced the underlying first-lien at (3) These vintages of loans have higher refreshed combined LTV ratios and accounted for 50 percent and 45 percent of nonperforming home equity loans at December 31, 2016 and 2015, and 54 December 31, 2016 and 2015. percent of net charge-offs in both 2016 and 2015. (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 we estimate that approximately $428 million had first-lien loans portfolio decreased $419 million in 2016 as outflows, including that were 90 days or more past due. sales of $234 million, outpaced new inflows. Of the nonperforming Net charge-offs decreased $231 million to $405 million in home equity portfolio at December 31, 2016, $1.5 billion, or 50 2016, compared to $636 million in 2015 driven by favorable percent, were current on contractual payments. Nonperforming portfolio trends due in part to improvement in home prices and loans that are contractually current primarily consist of collateral- the U.S. economy. Additionally, the decrease in net charge-offs was dependent TDRs, including those that have been discharged in partly attributable to charge-offs of $75 million related to the Chapter 7 bankruptcy, junior-lien loans where the underlying first- consumer relief portion of the settlement with the DoJ in 2015. lien is 90 days or more past due, as well as loans that have not Outstanding balances with refreshed combined loan-to-value yet demonstrated a sustained period of payment performance (CLTV) greater than 100 percent comprised seven percent and 11 following a TDR. In addition, $876 million, or 30 percent of percent of the home equity portfolio at December 31, 2016 and nonperforming home equity loans, were 180 days or more past 2015. Outstanding balances in the home equity portfolio with a due and had been written down to the estimated fair value of the refreshed CLTV greater than 100 percent reflect loans where our collateral, less costs to sell. Accruing loans that were 30 days or loan and available line of credit combined with any outstanding more past due decreased $47 million in 2016. senior liens against the property are equal to or greater than the In some cases, the junior-lien home equity outstanding balance most recent valuation of the property securing the loan. Depending that we hold is performing, but the underlying first-lien is not. For on the value of the property, there may be collateral in excess of outstanding balances in the home equity portfolio on which we the first-lien that is available to reduce the severity of loss on the service the first-lien loan, we are able to track whether the first- second-lien. Of those outstanding balances with a refreshed CLTV lien loan is in default. For loans where the first-lien is serviced by greater than 100 percent, 95 percent of the customers were a third party, we utilize credit bureau data to estimate the current on their home equity loan and 91 percent of second-lien delinquency status of the first-lien. Given that the credit bureau loans with a refreshed CLTV greater than 100 percent were current database we use does not include a property address for the on both their second-lien and underlying first-lien loans at mortgages, we are unable to identify with certainty whether a December 31, 2016. reported delinquent first-lien mortgage pertains to the same Of the $62.8 billion in total home equity portfolio outstandings property for which we hold a junior-lien loan. For certain loans, we at December 31, 2016, as shown in Table 26, 52 percent require utilize a third-party vendor to combine credit bureau and public interest-only payments. The outstanding balance of HELOCs that record data to better link a junior-lien loan with the underlying first- have entered the amortization period was $14.7 billion at lien mortgage. At December 31, 2016, we estimate that $1.0 December 31, 2016. The HELOCs that have entered the lien loans were behind a delinquent first-lien loan. We service the stage delinquencies and nonperforming status when compared to first-lien loans on $190 million of these combined amounts, with the HELOC portfolio as a whole. At December 31, 2016, $295 the remaining $980 million serviced by third parties. Of the $1.2 million, or two percent of outstanding HELOCs that had entered billion of current to 89 days past due junior-lien loans, based on the amortization period were accruing past due 30 days or more. available credit bureau data and our own internal servicing data, In addition, at December 31, 2016, $1.8 billion, or 12 percent of outstanding HELOCs that had entered the amortization period were 60 Bank of America 2016 nonperforming, of which $868 million were contractually current. Loans in our HELOC portfolio generally have an initial draw period of 10 years and 23 percent of these loans will enter the amortization period in 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 2016, approximately 34 percent of these customers with an outstanding balance did not pay any principal on their HELOCs. Table 26 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 of the outstanding home equity portfolio at both December 31, 2016 and 2015. Loans within this MSA contributed 17 percent and 13 percent of net charge-offs in 2016 and 2015 within the home equity portfolio. The Los Angeles-Long Beach-Santa Ana MSA within California made up 11 percent and 12 percent of the outstanding home equity portfolio in 2016 and 2015. Loans within this MSA contributed zero percent and two percent of net charge-offs in 2016 and 2015 within the home equity portfolio. Refreshed CLTV greater than 90 but less than or equal to 100 Table 26 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) 2016 2015 2016 2015 2016 2015 $ $ 17,563 7,319 5,102 4,720 3,078 25,050 62,832 3,611 66,443 20,356 8,474 5,570 5,249 3,378 28,302 71,329 4,619 75,948 $ $ 829 442 201 271 100 1,075 2,918 $ $ 902 518 230 316 115 1,256 3,337 $ $ 7 76 50 45 12 215 405 $ $ 57 128 51 61 17 322 636 Total home equity loan portfolio $ (1) Outstandings and nonperforming loans exclude loans accounted for under the fair value option. (2) Net charge-offs exclude $196 million of write-offs in the home equity PCI loan portfolio in 2016 compared to $174 million in 2015. For more information on PCI write-offs, see Consumer Portfolio $ Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 61. In these states, foreclosure requires a court order following a legal proceeding (judicial states). (3) (4) Amount excludes the PCI home equity portfolio. (5) At both December 31, 2016 and 2015, 29 percent of PCI home equity loans were in California. 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. For more information on PCI loans, see Note 1 – Summary of Significant Accounting Principles and Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements. Table 27 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 27 Purchased Credit-impaired Loan Portfolio billion of current and $149 million of 30 to 89 days past due junior- amortization period have experienced a higher percentage of early (1) (Dollars in millions) Residential mortgage (1) Home equity Total purchased credit-impaired loan portfolio Residential mortgage Home equity $ $ $ December 31, 2016 Unpaid Principal Balance Gross Carrying Value Related Valuation Allowance Carrying Value Net of Valuation Allowance Percent of Unpaid Principal Balance $ $ $ 10,330 3,689 14,019 12,350 4,650 17,000 10,127 3,611 13,738 $ $ 169 250 419 $ $ 9,958 3,361 13,319 96.40% 91.11 95.01 December 31, 2015 $ $ 12,066 4,619 16,685 338 466 804 11,728 4,153 15,881 94.96% 89.31 93.42 Total purchased credit-impaired loan portfolio Includes pay option loans with an unpaid principal balance of $1.9 billion and a carrying value of $1.8 billion at December 31, 2016. This includes $1.6 billion of loans that were credit-impaired upon acquisition and $226 million of loans that are 90 days or more past due. The total unpaid principal balance of pay option loans with accumulated negative amortization was $303 million, including $16 million of negative amortization. $ $ $ $ The total PCI unpaid principal balance decreased $3.0 billion, or 18 percent, in 2016 primarily driven by payoffs, sales, paydowns and write-offs. During 2016, we sold PCI loans with a carrying value of $549 million compared to sales of $1.4 billion in 2015. Bank of America 2016 61 Of the unpaid principal balance of $14.0 billion at December 31, 2016, $12.3 billion, or 88 percent, was current based on the contractual terms, $949 million, or seven percent, was in early stage delinquency, and $523 million was 180 days or more past due, including $451 million of first-lien mortgages and $72 million of home equity loans. During 2016, we recorded a provision benefit of $45 million for the PCI loan portfolio which included a benefit of $25 million for residential mortgage and $20 million for home equity. This compared to a total provision benefit of $40 million in 2015. The provision benefit in 2016 was primarily driven by continued home price improvement and lower default estimates on second-lien loans. The PCI valuation allowance declined $385 million during 2016 due to write-offs in the PCI loan portfolio of $144 million in residential mortgage and $196 million in home equity, combined with a provision benefit of $45 million. The PCI residential mortgage loan portfolio represented 74 percent of the total PCI loan portfolio at December 31, 2016. Those loans to borrowers with a refreshed FICO score below 620 represented 27 percent of the PCI residential mortgage loan portfolio at December 31, 2016. Loans with a refreshed LTV greater than 90 percent, after consideration of purchase accounting adjustments and the related valuation allowance, represented 23 percent of the PCI residential mortgage loan portfolio and 26 percent based on the unpaid principal balance at December 31, 2016. The PCI home equity portfolio represented 26 percent of the total PCI loan portfolio at December 31, 2016. Those loans with Table 28 U.S. Credit Card State Concentrations a refreshed FICO score below 620 represented 15 percent of the PCI home equity portfolio at December 31, 2016. Loans with a refreshed CLTV greater than 90 percent, after consideration of purchase accounting adjustments and the related valuation allowance, represented 46 percent of the PCI home equity portfolio and 49 percent based on the unpaid principal balance at December 31, 2016. U.S. Credit Card At December 31, 2016, 96 percent of the U.S. credit card portfolio was managed in Consumer Banking with the remainder in GWIM. Outstandings in the U.S. credit card portfolio increased $2.7 billion in 2016 as retail volumes outpaced payments. Net charge-offs decreased $45 million to $2.3 billion in 2016 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 increased $20 million from loan growth while loans 90 days or more past due and still accruing interest decreased $7 million in 2016. Unused lines of credit for U.S. credit card totaled $321.6 billion and $312.5 billion at December 31, 2016 and 2015. The $9.1 billion increase was driven by account growth and lines of credit increases. Table 28 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 2016 2015 2016 2015 2016 2015 $ $ 14,251 7,864 7,037 5,683 4,128 53,315 92,278 $ $ 13,658 7,420 6,620 5,547 3,907 52,450 89,602 $ $ 115 85 65 60 18 439 782 $ $ 115 81 58 57 19 459 789 $ $ 360 245 164 161 56 1,283 2,269 $ $ 358 244 157 162 59 1,334 2,314 Non-U.S. Credit Card Outstandings in the non-U.S. credit card portfolio, which are recorded in All Other, decreased $761 million in 2016 primarily driven by weakening of the British Pound against the U.S. Dollar. Net charge-offs decreased $13 million to $175 million in 2016 due to the same driver. Unused lines of credit for non-U.S. credit card totaled $24.4 billion and $27.9 billion at December 31, 2016 and 2015. The $3.5 billion decrease was driven by weakening of the British Pound against the U.S. Dollar, partially offset by account growth and increases in lines of credit. On December 20, 2016, we entered into an agreement to sell our non-U.S. consumer credit card business to a third party. Subject to regulatory approval, this transaction is expected to close by mid-2017. For more information on the sale of our non-U.S. consumer credit card business, see Recent Events on page 20 and Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. Direct/Indirect Consumer At December 31, 2016, approximately 53 percent of the direct/ indirect portfolio was included in Consumer Banking (consumer auto and specialty lending – automotive, marine, aircraft, recreational vehicle loans and consumer personal loans), and 47 percent was included in GWIM (principally securities-based lending loans). Outstandings in the direct/indirect portfolio increased $5.3 billion in 2016 primarily driven by the consumer auto loan portfolio. Table 29 presents certain state concentrations for the direct/ indirect consumer loan portfolio. 62 Bank of America 2016 Of the unpaid principal balance of $14.0 billion at a refreshed FICO score below 620 represented 15 percent of the December 31, 2016, $12.3 billion, or 88 percent, was current PCI home equity portfolio at December 31, 2016. Loans with a based on the contractual terms, $949 million, or seven percent, refreshed CLTV greater than 90 percent, after consideration of was in early stage delinquency, and $523 million was 180 days purchase accounting adjustments and the related valuation or more past due, including $451 million of first-lien mortgages allowance, represented 46 percent of the PCI home equity portfolio and $72 million of home equity loans. and 49 percent based on the unpaid principal balance at During 2016, we recorded a provision benefit of $45 million December 31, 2016. for the PCI loan portfolio which included a benefit of $25 million for residential mortgage and $20 million for home equity. This compared to a total provision benefit of $40 million in 2015. The provision benefit in 2016 was primarily driven by continued home price improvement and lower default estimates on second-lien loans. The PCI valuation allowance declined $385 million during 2016 due to write-offs in the PCI loan portfolio of $144 million in residential mortgage and $196 million in home equity, combined with a provision benefit of $45 million. The PCI residential mortgage loan portfolio represented 74 percent of the total PCI loan portfolio at December 31, 2016. Those loans to borrowers with a refreshed FICO score below 620 represented 27 percent of the PCI residential mortgage loan portfolio at December 31, 2016. Loans with a refreshed LTV greater than 90 percent, after consideration of purchase accounting adjustments and the related valuation allowance, represented 23 percent of the PCI residential mortgage loan portfolio and 26 percent based on the unpaid principal balance at December 31, 2016. The PCI home equity portfolio represented 26 percent of the total PCI loan portfolio at December 31, 2016. Those loans with Table 28 U.S. Credit Card State Concentrations U.S. Credit Card At December 31, 2016, 96 percent of the U.S. credit card portfolio was managed in Consumer Banking with the remainder in GWIM. Outstandings in the U.S. credit card portfolio increased $2.7 billion in 2016 as retail volumes outpaced payments. Net charge-offs decreased $45 million to $2.3 billion in 2016 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 increased $20 million from loan growth while loans 90 days or more past due and still accruing interest decreased $7 million in 2016. Unused lines of credit for U.S. credit card totaled $321.6 billion and $312.5 billion at December 31, 2016 and 2015. The $9.1 billion increase was driven by account growth and lines of credit increases. credit card portfolio. Table 28 presents certain state concentrations for the U.S. (Dollars in millions) California Florida Texas New York Washington Other U.S. Total U.S. credit card portfolio Non-U.S. Credit Card December 31 Outstandings Net Charge-offs Accruing Past Due 90 Days or More 2016 2015 2016 2015 2016 2015 $ 14,251 $ 13,658 $ 115 $ 115 $ $ 7,864 7,037 5,683 4,128 53,315 92,278 $ 7,420 6,620 5,547 3,907 52,450 85 65 60 18 439 782 $ 89,602 $ $ 360 245 164 161 56 358 244 157 162 59 1,283 2,269 $ 1,334 2,314 $ 81 58 57 19 459 789 consumer credit card business, see Recent Events on page 20 and Note 1 – Summary of Significant Accounting Principles to the Outstandings in the non-U.S. credit card portfolio, which are recorded in All Other, decreased $761 million in 2016 primarily Consolidated Financial Statements. driven by weakening of the British Pound against the U.S. Dollar. Net charge-offs decreased $13 million to $175 million in 2016 Direct/Indirect Consumer due to the same driver. Unused lines of credit for non-U.S. credit card totaled $24.4 billion and $27.9 billion at December 31, 2016 and 2015. The $3.5 billion decrease was driven by weakening of the British Pound against the U.S. Dollar, partially offset by account growth and increases in lines of credit. On December 20, 2016, we entered into an agreement to sell our non-U.S. consumer credit card business to a third party. Subject to regulatory approval, this transaction is expected to close by mid-2017. For more information on the sale of our non-U.S. At December 31, 2016, approximately 53 percent of the direct/ indirect portfolio was included in Consumer Banking (consumer auto and specialty lending – automotive, marine, aircraft, recreational vehicle loans and consumer personal loans), and 47 percent was included in GWIM (principally securities-based lending loans). Outstandings in the direct/indirect portfolio increased $5.3 billion in 2016 primarily driven by the consumer auto loan portfolio. Table 29 presents certain state concentrations for the direct/ indirect consumer loan portfolio. Table 29 Direct/Indirect State Concentrations (Dollars in millions) California Florida Texas New York Georgia Other U.S./Non-U.S. Total direct/indirect loan portfolio December 31 Outstandings Accruing Past Due 90 Days or More Net Charge-offs 2016 2015 2016 2015 2016 2015 $ $ 11,300 9,418 9,406 5,253 3,255 55,457 94,089 $ $ 10,735 8,835 8,514 5,077 2,869 52,765 88,795 $ $ 3 3 5 1 4 18 34 $ $ 3 3 4 1 4 24 39 $ $ 13 29 21 3 9 59 134 $ $ 8 20 17 3 7 57 112 Other Consumer At December 31, 2016, approximately 75 percent of the $2.5 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 30 presents nonperforming consumer loans, leases and foreclosed properties activity during 2016 and 2015. For more information on nonperforming loans, see Note 1 – Summary of Significant Accounting Principles and Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements. During 2016, nonperforming consumer loans declined $2.2 billion to $6.0 billion primarily driven by loan sales of $1.6 billion. Additionally, nonperforming loans declined as outflows 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, 2016, $2.5 billion, or 40 percent of nonperforming consumer real estate loans and foreclosed properties had been written down to their estimated property value less costs to sell, including $2.2 billion of nonperforming loans 180 days or more past due and $363 million of foreclosed properties. In addition, at December 31, 2016, $2.5 billion, or 39 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. in Foreclosed properties decreased $81 million in 2016 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 we acquire the underlying real estate upon foreclosure of the delinquent PCI loan, it is included foreclosed foreclosed properties. PCI-related properties decreased $65 million in 2016. Not included in foreclosed properties at December 31, 2016 was $1.2 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. 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 our 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 30. 62 Bank of America 2016 Bank of America 2016 63 Table 30 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 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) 2016 2015 $ 8,165 $ 10,819 3,492 4,949 (795) (1,604) (1,628) (1,277) (294) (55) (2,161) 6,004 444 (1,018) (1,674) (2,710) (1,769) (432) — (2,654) 8,165 630 431 606 (443) (69) (81) 363 6,367 $ (686) (106) (186) 444 8,609 1.32% 1.80% 1.39 1.89 $ (1) Balances do not include nonperforming LHFS of $69 million and $5 million and nonaccruing TDRs removed from the PCI loan portfolio prior to January 1, 2010 of $27 million and $38 million at December 31, 2016 and 2015 as well as loans accruing past due 90 days or more as presented in Table 20 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, 2016, 36 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 $1.2 billion and $1.4 billion at December 31, 2016 and 2015. (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 30 are net of $73 million and $162 million of charge-offs and write-offs of PCI loans in 2016 and 2015, 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, 2016 and 2015, $428 million and $484 million of such junior-lien home equity loans were included in nonperforming loans and leases. 64 Bank of America 2016 Table 30 Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity (1) and leases in Table 30. Table 31 presents TDRs for the consumer real estate portfolio. Performing TDR balances are excluded from nonperforming loans (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 reductions to foreclosed properties Total foreclosed properties, December 31 (5) 2016 2015 $ 8,165 $ 10,819 3,492 4,949 (795) (1,604) (1,628) (1,277) (294) (55) (2,161) 6,004 444 431 (443) (69) (81) 363 (1,018) (1,674) (2,710) (1,769) (432) — (2,654) 8,165 630 606 (686) (106) (186) 444 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) $ 6,367 $ 8,609 1.32% 1.80% 1.39 1.89 (1) Balances do not include nonperforming LHFS of $69 million and $5 million and nonaccruing TDRs removed from the PCI loan portfolio prior to January 1, 2010 of $27 million and $38 million at December 31, 2016 and 2015 as well as loans accruing past due 90 days or more as presented in Table 20 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, 2016, 36 percent of nonperforming loans were 180 days or more past due. 2015. (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 $1.2 billion and $1.4 billion at December 31, 2016 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, 2016 and 2015, properties. Thereafter, further losses in value as well as gains and $428 million and $484 million of such junior-lien home equity losses on sale are recorded in noninterest expense. New loans were included in nonperforming loans and leases. foreclosed properties included in Table 30 are net of $73 million and $162 million of charge-offs and write-offs of PCI loans in 2016 and 2015, recorded during the first 90 days after transfer. 64 Bank of America 2016 Table 31 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 12,631 2,777 15,408 $ $ 2016 Nonperforming 1,992 $ 1,566 3,558 $ $ $ Performing Total 10,639 1,211 11,850 $ $ 18,372 2,686 21,058 2015 Nonperforming 3,284 $ 1,649 4,933 $ $ $ Performing 15,088 1,037 16,125 (1) Residential mortgage TDRs deemed collateral dependent totaled $3.5 billion and $4.9 billion, and included $1.6 billion and $2.7 billion of loans classified as nonperforming and $1.9 billion and $2.2 billion of loans classified as performing at December 31, 2016 and 2015. (2) Residential mortgage performing TDRs included $5.3 billion and $8.7 billion of loans that were fully-insured at December 31, 2016 and 2015. (3) Home equity TDRs deemed collateral dependent totaled $1.6 billion and $1.6 billion, and included $1.3 billion and $1.3 billion of loans classified as nonperforming and $301 million and $290 million of loans classified as performing at December 31, 2016 and 2015. 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 made through renegotiation programs utilizing direct customer contact, but may also utilize external renegotiation programs. The renegotiated TDR portfolio is excluded in large part from Table 30 as substantially all of the loans remain on accrual status until either charged off or paid in full. At December 31, 2016 and 2015, our renegotiated TDR portfolio was $610 million and $779 million, of which $493 million and $635 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 these considerations 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 36, 39, 44 and 45 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 three percent and four percent of total commercial utilized exposure at December 31, 2016 and 2015, see Commercial Portfolio Credit Risk Management – Industry Concentrations on page 70 and Table 39. 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 our 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 Bank of America 2016 65 accounting hedges. They are carried at fair value with changes in fair value recorded in other income (loss). In addition, we are a member of various securities and derivative exchanges and clearinghouses, both in the U.S. and other countries. As a member, we 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 2016, other than in the higher risk energy sub-sectors, credit quality among large corporate borrowers was strong. While we experienced some deterioration in the energy sector in 2016, oil prices have stabilized, which contributed to a modest improvement in energy-related exposure by year end. Credit quality of commercial real estate borrowers continued to be strong with conservative LTV ratios, stable market rents in most sectors and vacancy rates remaining low. Table 32 Commercial Loans and Leases Outstanding commercial loans and leases increased $17.7 billion during 2016 primarily in U.S. commercial. Nonperforming commercial loans and leases increased $562 million during 2016. Nonperforming commercial loans and leases as a percentage of outstanding loans and leases, excluding loans accounted for under the fair value option, increased during 2016 to 0.38 percent from 0.28 percent at December 31, 2015. Reservable criticized balances increased $424 million to $16.3 billion during 2016 as a result of net downgrades outpacing paydowns, primarily in the energy sector. The increase in nonperforming loans was primarily due to energy and metals mining exposure. The allowance for loan and lease losses for the commercial portfolio increased $409 million to $5.3 billion at December 31, 2016. For additional information, see Allowance for Credit Losses on page 74. Table 32 presents our commercial loans and leases portfolio, and related credit quality information at December 31, 2016 and 2015. (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 2016 $ 270,372 57,355 22,375 89,397 439,499 12,993 452,492 6,034 $ 458,526 2015 $ 252,771 57,199 21,352 91,549 422,871 12,876 435,747 5,067 $ 440,814 $ $ 2016 2015 2016 2015 1,256 72 36 279 1,643 60 1,703 84 1,787 $ $ 867 93 12 158 1,130 82 1,212 13 1,225 $ $ 106 7 19 5 137 71 208 — 208 $ $ 113 3 15 1 132 61 193 — 193 (1) (2) Includes U.S. commercial real estate loans of $54.3 billion and $53.6 billion and non-U.S. commercial real estate loans of $3.1 billion and $3.5 billion at December 31, 2016 and 2015. Includes card-related products. (3) Commercial loans accounted for under the fair value option include U.S. commercial loans of $2.9 billion and $2.3 billion and non-U.S. commercial loans of $3.1 billion and $2.8 billion at December 31, 2016 and 2015. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements. Table 33 presents net charge-offs and related ratios for our commercial loans and leases for 2016 and 2015. The increase in net charge-offs of $80 million in 2016 was primarily due to higher energy sector related losses. Table 33 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) 2016 2015 2016 2015 $ $ 184 (31) 21 120 294 208 502 $ $ 139 (5) 9 54 197 225 422 0.07% (0.05) 0.10 0.13 0.07 1.60 0.11 0.06% (0.01) 0.04 0.06 0.05 1.71 0.10 (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. 66 Bank of America 2016 accounting hedges. They are carried at fair value with changes in Outstanding commercial loans and leases increased $17.7 fair value recorded in other income (loss). billion during 2016 primarily in U.S. commercial. Nonperforming In addition, we are a member of various securities and commercial loans and leases increased $562 million during 2016. derivative exchanges and clearinghouses, both in the U.S. and Nonperforming commercial loans and leases as a percentage of other countries. As a member, we may be required to pay a pro- outstanding loans and leases, excluding loans accounted for under rata share of the losses incurred by some of these organizations the fair value option, increased during 2016 to 0.38 percent from as a result of another member default and under other loss 0.28 percent at December 31, 2015. Reservable criticized scenarios. For additional information, see Note 12 – Commitments balances increased $424 million to $16.3 billion during 2016 as and Contingencies to the Consolidated Financial Statements. a result of net downgrades outpacing paydowns, primarily in the Commercial Credit Portfolio During 2016, other than in the higher risk energy sub-sectors, credit quality among large corporate borrowers was strong. While we experienced some deterioration in the energy sector in 2016, oil prices have stabilized, which contributed to a modest improvement in energy-related exposure by year end. Credit quality of commercial real estate borrowers continued to be strong with conservative LTV ratios, stable market rents in most sectors and vacancy rates remaining low. Table 32 Commercial Loans and Leases energy sector. The increase in nonperforming loans was primarily due to energy and metals mining exposure. The allowance for loan and lease losses for the commercial portfolio increased $409 million to $5.3 billion at December 31, 2016. For additional information, see Allowance for Credit Losses on page 74. Table 32 presents our commercial loans and leases portfolio, and related credit quality information at December 31, 2016 and 2015. Table 34 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 and excludes exposure related to trading account assets. Although funds have not yet been advanced, these exposure types are considered utilized for credit risk management purposes. Table 34 Commercial Credit Exposure by Type Total commercial utilized credit exposure increased $15.3 billion in 2016 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 58 percent and 56 percent at December 31, 2016 and 2015. (Dollars in millions) Loans and leases (5) Derivative assets (6) Standby letters of credit and financial guarantees Debt securities and other investments Loans held-for-sale Commercial letters of credit Bankers’ acceptances Other Total Commercial Utilized (1) December 31 Commercial Unfunded (2, 3, 4) Total Commercial Committed 2016 $ 464,260 42,512 33,135 26,244 6,510 1,464 395 372 $ 574,892 2015 $ 446,832 49,990 33,236 21,709 5,456 1,725 298 317 $ 559,563 2016 $ 366,106 — 660 5,474 3,824 112 13 — $ 376,189 2015 $ 376,478 — 690 4,173 1,203 390 — — $ 382,934 2016 $ 830,366 42,512 33,795 31,718 10,334 1,576 408 372 $ 951,081 2015 $ 823,310 49,990 33,926 25,882 6,659 2,115 298 317 $ 942,497 2016 2015 2016 2015 2016 2015 value option at December 31, 2016 and 2015. (1) Total commercial utilized exposure includes loans of $6.0 billion and $5.1 billion and issued letters of credit with a notional amount of $284 million and $290 million accounted for under the fair (2) Total commercial unfunded exposure includes loan commitments accounted for under the fair value option with a notional amount of $6.7 billion and $10.6 billion at December 31, 2016 and 2015. (3) Excludes unused business card lines which are not legally binding. (4) Includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (e.g. syndicated or participated) to other financial institutions. The distributed amounts were $12.1 billion and $14.3 billion at December 31, 2016 and 2015. Includes credit risk exposure associated with assets under operating lease arrangements of $5.7 billion and $6.0 billion at December 31, 2016 and 2015. (5) 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 $54.3 billion and $53.6 billion and non-U.S. commercial real estate loans of $3.1 billion and $3.5 billion at December 31, 2016 and 2015. (3) Commercial loans accounted for under the fair value option include U.S. commercial loans of $2.9 billion and $2.3 billion and non-U.S. commercial loans of $3.1 billion and $2.8 billion at December 31, 2016 and 2015. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements. (6) Derivative assets are carried at fair value, reflect the effects of legally enforceable master netting agreements and have been reduced by cash collateral of $43.3 billion and $41.9 billion at December 31, 2016 and 2015. Not reflected in utilized and committed exposure is additional non-cash derivative collateral held of $22.9 billion and $23.3 billion at December 31, 2016 and 2015, which consists primarily of other marketable securities. Table 35 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 $424 million, or three percent, in 2016 driven by downgrades, primarily related to our energy exposure, outpacing paydowns and upgrades. Approximately 76 percent and 78 percent of commercial utilized reservable criticized exposure was secured at December 31, 2016 and 2015. Table 33 presents net charge-offs and related ratios for our commercial loans and leases for 2016 and 2015. The increase in net charge-offs of $80 million in 2016 was primarily due to higher energy sector related losses. Table 35 Commercial Utilized Reservable Criticized Exposure Table 33 Commercial Net Charge-offs and Related Ratios December 31 2016 2015 (Dollars in millions) U.S. commercial Commercial real estate (1) Commercial lease financing Non-U.S. commercial (Dollars in millions) U.S. commercial Commercial real estate Commercial lease financing Non-U.S. commercial U.S. small business commercial Total commercial December 31 Outstandings Nonperforming Accruing Past Due 90 Days or More $ 270,372 $ 252,771 $ 1,256 $ 867 $ 106 $ 113 57,355 22,375 89,397 439,499 12,993 452,492 6,034 57,199 21,352 91,549 422,871 12,876 435,747 5,067 72 36 279 1,643 1,703 60 84 93 12 158 1,130 1,212 82 13 7 19 5 137 71 208 — $ 458,526 $ 440,814 $ 1,787 $ 1,225 $ 208 $ 3 15 1 132 61 193 — 193 Net Charge-offs Net Charge-off Ratios (1) 2016 2015 2016 2015 $ 184 $ 139 (31) 21 120 294 208 502 $ $ (5) 9 54 197 225 422 0.07% (0.05) 0.10 0.13 0.07 1.60 0.11 0.06% (0.01) 0.04 0.06 0.05 1.71 0.10 (Dollars in millions) U.S. commercial Commercial real estate Commercial lease financing Non-U.S. commercial U.S. small business commercial Total commercial utilized reservable criticized exposure Amount (1) 10,311 $ 399 810 3,974 15,494 826 16,320 $ (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. (1) Total commercial utilized reservable criticized exposure includes loans and leases of $14.9 billion and $14.5 billion and commercial letters of credit of $1.4 billion at December 31, 2016 and 2015. (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, 2016, 72 percent of the U.S. commercial loan portfolio, excluding small business, was managed in Global Banking, 16 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 $17.6 billion, or seven percent, during 2016 due to growth across all of the commercial businesses. Energy exposure largely drove increases in reservable criticized balances of $346 million, or three percent, and nonperforming loans and leases of $389 million, or 45 percent, during 2016, as well as increases in net charge-offs of $45 million in 2016 compared to 2015. 66 Bank of America 2016 Bank of America 2016 67 Percent (2) 3.56% 0.87 3.31 4.04 3.30 5.95 3.38 Amount (1) 9,965 513 708 3,944 15,130 766 $ 15,896 3.46% $ 0.68 3.62 4.17 3.27 6.36 3.35 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 23 percent and 21 percent of the commercial leases portfolio at December 31, 2016 and 2015. 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 remained relatively unchanged with new originations slightly outpacing paydowns during 2016. real estate loans and During 2016, we continued to see low default rates and solid credit quality in both the residential and non-residential portfolios. Table 36 Outstanding Commercial Real Estate Loans (Dollars in millions) By Geographic Region California Northeast Southwest Southeast Midwest Florida Northwest Illinois Midsouth Non-U.S. Other (1) Total outstanding commercial real estate loans By Property Type Non-residential Office Multi-family rental Shopping centers/retail Hotels / Motels Industrial / Warehouse Multi-Use Unsecured Land and land development Other Total non-residential Residential Total outstanding commercial real estate loans We 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 $22 million, or 20 percent, to $86 million and reservable criticized balances decreased $114 million, or 22 percent, to $399 million at December 31, 2016. The decrease in reservable criticized balances was primarily due to loan resolutions and strong commercial real estate fundamentals in most sectors. Net recoveries were $31 million and $5 million in 2016 and 2015. Table 36 presents outstanding commercial real estate loans by geographic region, based on the geographic location of the collateral, and by property type. December 31 2016 2015 $ $ $ $ 13,450 10,329 7,567 5,630 4,380 3,213 2,430 2,408 2,346 3,103 2,499 57,355 16,643 8,817 8,794 5,550 5,357 2,822 1,730 357 5,595 55,665 1,690 57,355 $ 12,063 10,292 7,789 6,066 3,780 3,330 2,327 2,536 2,435 3,549 3,032 $ 57,199 $ 15,246 8,956 8,594 5,415 5,501 3,003 2,056 539 5,791 55,101 2,098 $ 57,199 (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. At December 31, 2016, total committed non-residential exposure was $76.9 billion compared to $81.0 billion at December 31, 2015, of which $55.7 billion and $55.1 billion were funded loans. Non-residential nonperforming loans and foreclosed properties decreased $13 million, or 14 percent, to $81 million at December 31, 2016 due to decreases across most property types. The non-residential nonperforming loans and foreclosed properties represented 0.14 percent and 0.17 percent of total non-residential loans and foreclosed properties at December 31, 2016 and 2015. Non-residential utilized reservable criticized exposure decreased $105 million, or 21 percent, to $397 million at December 31, 2016 compared to $502 million at December 31, 2015, which represented 0.70 percent and 0.89 percent of non- residential utilized reservable exposure. For the non-residential portfolio, net recoveries increased $24 million to $31 million in 2016 compared to 2015. At December 31, 2016, total committed residential exposure was $3.7 billion compared to $4.1 billion at December 31, 2015, of which $1.7 billion and $2.1 billion were funded secured loans. The residential nonperforming loans and foreclosed properties decreased $8 million, or 57 percent, and residential utilized reservable criticized exposure decreased $8 million, or 73 percent, during 2016. The nonperforming loans, leases and foreclosed properties and the utilized reservable criticized ratios for the residential portfolio were 0.35 percent and 0.16 percent at 68 Bank of America 2016 Commercial Real Estate We use a number of proactive risk mitigation initiatives to reduce Commercial real estate primarily includes commercial loans and adversely rated exposure in the commercial real estate portfolio, leases secured by non-owner-occupied real estate and is including transfers of deteriorating exposures to management by dependent on the sale or lease of the real estate as the primary independent special asset officers and the pursuit of loan source of repayment. The portfolio remains diversified across 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 23 percent and 21 percent of the Nonperforming commercial real estate loans and foreclosed commercial real estate loans and leases portfolio at properties decreased $22 million, or 20 percent, to $86 million December 31, 2016 and 2015. The commercial real estate and reservable criticized balances decreased $114 million, or 22 portfolio is predominantly managed in Global Banking and consists percent, to $399 million at December 31, 2016. The decrease in of loans made primarily to public and private developers, and reservable criticized balances was primarily due to loan resolutions commercial real estate firms. Outstanding loans remained and strong commercial real estate fundamentals in most sectors. relatively unchanged with new originations slightly outpacing Net recoveries were $31 million and $5 million in 2016 and 2015. paydowns during 2016. Table 36 presents outstanding commercial real estate loans During 2016, we continued to see low default rates and solid by geographic region, based on the geographic location of the credit quality in both the residential and non-residential portfolios. collateral, and by property type. Table 36 Outstanding Commercial Real Estate Loans Total outstanding commercial real estate loans (Dollars in millions) By Geographic Region California Northeast Southwest Southeast Midwest Florida Northwest Illinois Midsouth Non-U.S. Other (1) By Property Type Non-residential Office Multi-family rental Shopping centers/retail Hotels / Motels Industrial / Warehouse Multi-Use Unsecured Other Land and land development Total non-residential Residential Hawaii, Wyoming and Montana. Total outstanding commercial real estate loans $ 57,355 $ 57,199 (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, At December 31, 2016, total committed non-residential residential utilized reservable exposure. For the non-residential exposure was $76.9 billion compared to $81.0 billion at portfolio, net recoveries increased $24 million to $31 million in December 31, 2015, of which $55.7 billion and $55.1 billion were 2016 compared to 2015. funded loans. Non-residential nonperforming loans and foreclosed At December 31, 2016, total committed residential exposure properties decreased $13 million, or 14 percent, to $81 million was $3.7 billion compared to $4.1 billion at December 31, 2015, at December 31, 2016 due to decreases across most property of which $1.7 billion and $2.1 billion were funded secured loans. types. The non-residential nonperforming loans and foreclosed The residential nonperforming loans and foreclosed properties properties represented 0.14 percent and 0.17 percent of total decreased $8 million, or 57 percent, and residential utilized non-residential loans and foreclosed properties at December 31, reservable criticized exposure decreased $8 million, or 73 percent, 2016 and 2015. Non-residential utilized reservable criticized during 2016. The nonperforming loans, leases and foreclosed exposure decreased $105 million, or 21 percent, to $397 million properties and the utilized reservable criticized ratios for the at December 31, 2016 compared to $502 million at December 31, residential portfolio were 0.35 percent and 0.16 percent at 2015, which represented 0.70 percent and 0.89 percent of non- December 31, 2016 compared to 0.66 percent and 0.52 percent at December 31, 2015. At December 31, 2016 and 2015, the commercial real estate loan portfolio included $6.8 billion and $7.6 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 $107 million and $108 million, and nonperforming construction and land development loans and foreclosed properties totaled $44 million at both December 31, 2016 and 2015. During a property’s construction 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. Non-U.S. Commercial At December 31, 2016, 77 percent of the non-U.S. commercial loan portfolio was managed in Global Banking and 23 percent in Global Markets. Outstanding loans, excluding loans accounted for under the fair value option, decreased $2.2 billion in 2016 primarily due to payoffs. Net charge-offs increased $66 million to $120 million in 2016 primarily due to higher energy sector related losses in the first half of 2016. For more information on the non-U.S. commercial portfolio, see Non-U.S. Portfolio on page 73. 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 48 percent and 45 percent of the U.S. small business commercial portfolio at December 31, 2016 and 2015. Net charge-offs decreased $17 million to $208 million in 2016 primarily driven by portfolio improvement. Of the U.S. small business commercial net charge- offs, 86 percent and 81 percent were credit card-related products in 2016 and 2015. Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity Table 37 presents the nonperforming commercial loans, leases and foreclosed properties activity during 2016 and 2015. Nonperforming loans do not include loans accounted for under the fair value option. During 2016, nonperforming commercial loans and leases increased $491 million to $1.7 billion primarily due to energy and metals and mining exposure. Approximately 77 percent of commercial nonperforming loans, leases and foreclosed properties were secured and approximately 66 percent were contractually current. Commercial nonperforming loans were carried at approximately 88 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 37 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) Transfers to loans held-for-sale Total net additions 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) 2016 2015 $ 1,212 $ 1,113 2,330 17 (824) (318) (267) (434) (4) (9) 491 1,703 15 1,367 36 (491) (108) (130) (362) (213) — 99 1,212 67 24 207 (25) — (1) 14 1,717 (256) (3) (52) 15 1,227 $ 0.38% 0.28% $ 0.38 0.28 (1) Balances do not include nonperforming LHFS of $195 million and $220 million at December 31, 2016 and 2015. (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. December 31 2016 2015 $ 13,450 $ 12,063 10,329 10,292 $ 57,355 $ 57,199 $ 16,643 $ 15,246 7,567 5,630 4,380 3,213 2,430 2,408 2,346 3,103 2,499 8,817 8,794 5,550 5,357 2,822 1,730 357 5,595 55,665 1,690 7,789 6,066 3,780 3,330 2,327 2,536 2,435 3,549 3,032 8,956 8,594 5,415 5,501 3,003 2,056 539 5,791 55,101 2,098 68 Bank of America 2016 Bank of America 2016 69 Table 38 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. Table 38 Commercial Troubled Debt Restructurings (Dollars in millions) U.S. commercial Commercial real estate Commercial lease financing Non-U.S. commercial U.S. small business commercial Total commercial troubled debt restructurings Total 1,860 140 4 308 2,312 15 2,327 $ $ 2016 Nonperforming 720 $ 45 2 25 792 2 794 $ December 31 Performing 1,140 $ 95 2 283 1,520 13 1,533 $ Total 1,225 118 — 363 1,706 29 1,735 $ $ 2015 Nonperforming 394 $ 27 — 136 557 10 567 $ Performing 831 $ 91 — 227 1,149 19 1,168 $ Real estate, our second largest industry concentration with committed exposure of $83.7 billion, decreased $4.0 billion, or five percent, in 2016. For more information on the commercial real estate and related portfolios, see Commercial Portfolio Credit Risk Management – Commercial Real Estate on page 68. Our energy-related committed exposure decreased $4.6 billion in 2016 to $39.2 billion. Within the higher risk sub-sectors of exploration and production and oil field services, total committed exposure declined $2.8 billion to $15.3 billion at December 31, 2016, or 39 percent of total committed energy exposure. Total utilized exposure to these sub-sectors declined approximately $1.7 billion to $6.7 billion in 2016. Of the total $5.7 billion of reservable utilized exposure to the higher risk sub-sectors, 56 percent was criticized at December 31, 2016. Energy sector net charge-offs increased $141 million to $241 million in 2016, and energy sector reservable criticized exposure increased $910 million in 2016 to $5.5 billion due to low oil prices which impacted the financial performance of energy clients. The energy allowance for credit losses increased $382 million in 2016 to $925 million primarily due to an increase in reserves for the higher risk sub- sectors. Industry Concentrations Table 39 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 $8.6 billion, or one percent, in 2016 to $951.1 billion. Increases in commercial committed exposure were concentrated services, telecommunication services, capital goods and consumer services, partially offset by lower exposure to technology hardware and equipment, banking, and food, beverage and tobacco. equipment healthcare and in 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. The MRC overseas industry limit governance. Diversified financials, our largest industry concentration with committed exposure of $124.5 billion, decreased $3.9 billion, or three percent, in 2016. The decrease was primarily due to a reduction in bridge financing exposure and other commitments. 70 Bank of America 2016 Table 38 presents our commercial TDRs by product type and not classified as nonperforming as they are charged off no later performing status. U.S. small business commercial TDRs are than the end of the month in which the loan becomes 180 days comprised of renegotiated small business card loans and small past due. For more information on TDRs, see Note 4 – Outstanding business loans. The renegotiated small business card loans are Loans and Leases to the Consolidated Financial Statements. Table 39 Commercial Credit Exposure by Industry (1) December 31 Commercial Utilized Total Commercial Committed (2) 2016 $ 81,156 61,203 41,630 37,656 34,278 45,694 39,877 22,578 27,413 19,686 19,669 21,241 19,805 11,349 13,419 16,364 7,991 5,539 7,793 6,317 7,406 5,459 6,042 4,795 4,423 6,109 $ 574,892 2015 $ 79,496 61,759 37,675 35,134 30,790 44,835 45,952 24,012 24,084 21,257 18,316 19,552 19,369 11,396 12,833 17,992 6,617 6,302 6,337 4,717 5,095 4,804 6,053 4,351 4,526 6,309 $ 559,563 2016 $ 124,535 83,658 68,507 64,663 64,202 54,626 47,799 44,357 42,523 39,231 37,145 35,360 27,483 27,140 27,116 21,764 19,790 18,910 18,429 16,925 13,936 12,969 11,460 8,869 6,252 13,432 $ 951,081 2015 $ 128,436 87,650 63,975 57,901 58,583 53,133 53,825 46,013 37,058 43,811 43,164 32,045 27,371 27,849 24,194 23,176 18,362 16,472 24,734 10,645 10,728 11,329 11,165 9,439 5,929 15,510 $ 942,497 (6,677) Table 38 Commercial Troubled Debt Restructurings (Dollars in millions) U.S. commercial Commercial real estate Commercial lease financing Non-U.S. commercial U.S. small business commercial December 31 2016 2015 Total Nonperforming Performing Total Nonperforming Performing $ 1,860 $ 720 $ 1,140 $ 1,225 $ 394 $ 140 4 308 2,312 15 45 2 25 792 2 95 2 283 1,520 13 118 — 363 1,706 29 27 — 136 557 10 831 91 — 227 1,149 19 Total commercial troubled debt restructurings $ 2,327 $ 794 $ 1,533 $ 1,735 $ 567 $ 1,168 Industry Concentrations Table 39 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 $8.6 billion, or one percent, in 2016 to $951.1 billion. Increases in commercial committed exposure were concentrated in healthcare equipment and services, telecommunication services, capital goods and consumer services, partially offset by lower exposure to technology hardware and equipment, banking, and food, beverage and tobacco. 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. The MRC overseas industry limit governance. Real estate, our second largest industry concentration with committed exposure of $83.7 billion, decreased $4.0 billion, or five percent, in 2016. For more information on the commercial real estate and related portfolios, see Commercial Portfolio Credit Risk Management – Commercial Real Estate on page 68. Our energy-related committed exposure decreased $4.6 billion in 2016 to $39.2 billion. Within the higher risk sub-sectors of exploration and production and oil field services, total committed exposure declined $2.8 billion to $15.3 billion at December 31, 2016, or 39 percent of total committed energy exposure. Total utilized exposure to these sub-sectors declined approximately $1.7 billion to $6.7 billion in 2016. Of the total $5.7 billion of reservable utilized exposure to the higher risk sub-sectors, 56 percent was criticized at December 31, 2016. Energy sector net charge-offs increased $141 million to $241 million in 2016, and energy sector reservable criticized exposure increased $910 million in 2016 to $5.5 billion due to low oil prices which impacted the financial performance of energy clients. The energy allowance for credit losses increased $382 million in 2016 to $925 million primarily due to an increase in reserves for the higher risk sub- Diversified financials, our largest industry concentration with committed exposure of $124.5 billion, decreased $3.9 billion, or three percent, in 2016. The decrease was primarily due to a reduction in bridge financing exposure and other commitments. sectors. (Dollars in millions) Diversified financials Real estate (3) Retailing Healthcare equipment and services Capital goods Government and public education Banking Materials Consumer services Energy Food, beverage and tobacco Commercial services and supplies Transportation Utilities Media Individuals and trusts Software and services Pharmaceuticals and biotechnology Technology hardware and equipment Telecommunication services Insurance, including monolines Automobiles and components Consumer durables and apparel Food and staples retailing Religious and social organizations Other Total commercial credit exposure by industry Net credit default protection purchased on total commitments (4) Includes U.S. small business commercial exposure. Includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (e.g., syndicated or participated) to other financial institutions. The distributed amounts were $12.1 billion and $14.3 billion at December 31, 2016 and 2015. 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. (3,477) $ $ (1) (2) (3) (4) Represents net notional credit protection purchased. For additional information, see Commercial Portfolio Credit Risk Management – Risk Mitigation below. 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, 2016 and 2015, 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 $3.5 billion and $6.7 billion. We recorded net losses of $438 million in 2016 compared to net gains of $150 million in 2015 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 48. For additional information, see Trading Risk Management on page 79. Tables 40 and 41 present the maturity profiles and the credit exposure debt ratings of the net credit default protection portfolio at December 31, 2016 and 2015. Table 40 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 2016 2015 56% 39% 41 3 100% 59 2 100% 70 Bank of America 2016 Bank of America 2016 71 Table 41 Net Credit Default Protection by Credit Exposure Debt Rating December 31 2016 2015 Net Notional (1) Percent of Total Net Notional (1) Percent of Total $ (135) (1,884) (871) (477) (81) (29) 3.9% $ 54.2 25.1 13.7 2.3 0.8 (752) (3,030) (2,090) (634) (139) (32) 11.3% 45.4 31.3 9.5 2.1 0.4 $ (3,477) 100.0% $ (6,677) 100.0% (Dollars in millions) Ratings (2, 3) A BBB BB B CCC and below NR (4) Total net credit default protection (1) Represents net credit default protection purchased. (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 42 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 42 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 42 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 43. 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 CVA with credit default swaps (CDS). We hedge other market risks 72 Bank of America 2016 December 31 2016 2015 Contract/ Notional Credit Risk Contract/ Notional Credit Risk $ $ $ $ 603,979 21,165 625,144 $ $ 2,732 433 3,165 $ 928,300 26,427 $ 954,727 $ $ 3,677 1,596 5,273 614,355 25,354 639,709 n/a n/a n/a $ 924,143 39,658 $ 963,801 n/a n/a n/a 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 movement 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 43 Credit Valuation Gains and Losses Gains (Losses) (Dollars in millions) 2016 Hedge Net Gross Credit valuation $ 374 $ (160) $ 214 2015 Hedge Gross $ 255 $ Net (28) $ 227 Table 41 Net Credit Default Protection by Credit Exposure Debt Rating December 31 2016 2015 (Dollars in millions) Notional (1) Total Notional (1) Total Net Percent of Net Percent of Ratings (2, 3) A BBB BB B NR (4) CCC and below Total net credit default protection $ (135) (1,884) 3.9% $ (871) (477) (81) (29) 54.2 25.1 13.7 2.3 0.8 (752) (3,030) (2,090) (634) (139) (32) 11.3% 45.4 31.3 9.5 2.1 0.4 $ (3,477) 100.0% $ (6,677) 100.0% (1) Represents net credit default protection purchased. (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 42 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 42 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 42 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 December 31 2016 2015 Contract/ Notional Credit Risk Credit Risk Contract/ Notional $ $ $ $ 603,979 21,165 625,144 $ $ 2,732 $ 928,300 433 26,427 3,165 $ 954,727 $ $ 3,677 1,596 5,273 614,355 25,354 639,709 n/a n/a n/a $ 924,143 39,658 $ 963,801 n/a n/a n/a 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 43. 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 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 movement 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 43 Credit Valuation Gains and Losses Gains (Losses) (Dollars in millions) 2016 Hedge Gross Net Gross Net 2015 Hedge Credit valuation $ 374 $ (160) $ 214 $ 255 $ (28) $ 227 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 44 presents our 20 largest non-U.S. country exposures. These exposures accounted for 88 percent and 86 percent of our total non-U.S. exposure at December 31, 2016 and 2015. Net country exposure for these 20 countries increased $6.5 billion in 2016 primarily driven by increases in Germany, and to a lesser extent Canada, France and Switzerland. On a product basis, the increase was driven by an increase in funded loans and loan equivalents in Germany and Canada, higher unfunded commitments in Germany and Switzerland, and an increase in securities in France and Canada. internal Non-U.S. exposure is presented on an 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. 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 44 Top 20 Non-U.S. Countries Exposure (Dollars in millions) United Kingdom Germany Canada Japan Brazil China France Switzerland India Australia Hong Kong Netherlands South Korea Singapore Mexico Italy United Arab Emirates Turkey Spain Taiwan 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 2016 Hedges and Credit Default Protection Net Country Exposure at December 31 2016 Increase (Decrease) from December 31 2015 $ $ 29,329 13,202 6,722 12,065 9,118 9,230 3,112 4,050 6,671 4,792 6,425 3,537 4,175 2,633 2,817 2,329 2,104 2,695 1,818 1,417 $ 13,105 8,648 7,159 652 389 722 4,823 5,999 288 2,685 156 2,496 838 199 1,391 1,036 139 50 614 33 $ 6,145 1,979 2,023 2,448 780 714 1,899 499 353 559 441 559 864 699 187 577 570 69 173 341 $ 3,823 2,579 3,803 1,597 3,646 949 5,325 507 2,086 1,249 520 2,296 829 1,937 430 1,246 27 58 894 317 $ 52,402 26,408 19,707 16,762 13,933 11,615 15,159 11,055 9,398 9,285 7,542 8,888 6,706 5,468 4,825 5,188 2,840 2,872 3,499 2,108 (4,669) $ (4,030) (933) (1,751) (267) (730) (4,465) (1,409) (170) (362) (63) (1,490) (600) (50) (341) (1,101) (97) (182) (953) (27) $ 47,733 22,378 18,774 15,011 13,666 10,885 10,694 9,646 9,228 8,923 7,479 7,398 6,106 5,418 4,484 4,087 2,743 2,690 2,546 2,081 (5,513) 8,974 4,042 647 (1,984) 411 2,008 3,383 (1,126) (622) (110) (236) (752) 689 (570) (1,221) (283) (450) (517) (294) $ 128,241 $ 51,422 $ 21,879 $ 34,118 $ 235,660 $ (23,690) $ 211,970 $ 6,476 72 Bank of America 2016 Bank of America 2016 73 Strengthening of the U.S. Dollar, weak commodity prices, signs of slowing growth in China, a protracted recession in Brazil and recent political events in Turkey are driving risk aversion in emerging markets. At December 31, 2016, net exposure to China was $10.9 billion, concentrated in large state-owned companies, subsidiaries of multinational corporations and commercial banks. At December 31, 2016, net exposure to Brazil was $13.7 billion, concentrated in sovereign securities, oil and gas companies and commercial banks. At December 31, 2016, net exposure to Turkey was $2.7 billion, concentrated in commercial banks. The outlook for policy direction and therefore economic performance in the EU is uncertain as a consequence of reduced political cohesion and the lack of clarity following the U.K. Referendum to leave the EU. At December 31, 2016, net exposure to the U.K. was $47.7 billion, concentrated in multinational corporations and sovereign clients. For additional information, see Executive Summary – 2016 Economic and Business Environment on page 20. Table 45 presents countries where total cross-border exposure exceeded one percent of our total assets. At December 31, 2016, the U.K. and France were the only countries where total cross- border exposure exceeded one percent of our total assets. At December 31, 2016, Germany had total cross-border exposure of $18.4 billion representing 0.84 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, 2016. Cross-border exposure includes the components of Country Risk Exposure as detailed in Table 44 as well as the notional amount of cash loaned under secured financing agreements. Local exposure, defined as exposure booked in local offices of a respective country with clients in the same country, is excluded. Table 45 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 $ 2016 2015 2014 2016 2015 2014 $ 2,975 3,264 11 4,956 3,343 4,479 $ 4,557 5,104 2,056 1,205 1,766 2,631 $ 42,105 38,576 34,595 23,193 17,099 14,368 49,637 46,944 36,662 29,354 22,208 21,478 2.27% 2.19 1.74 1.34 1.04 1.02 Provision for Credit Losses The provision for credit losses increased $436 million to $3.6 billion in 2016 compared to 2015. The provision for credit losses was $224 million lower than net charge-offs for 2016, resulting in a reduction in the allowance for credit losses. This compared to a reduction of $1.2 billion in the allowance for credit losses in 2015. The provision for credit losses for the consumer portfolio increased $360 million to $2.6 billion in 2016 compared to 2015 due to a slower pace of credit quality improvement. Included in the provision is a benefit of $45 million related to the PCI loan portfolio for 2016 compared to a benefit of $40 million in 2015. The provision for credit losses for the commercial portfolio, including unfunded lending commitments, increased $76 million to $1.0 billion in 2016 compared to 2015 driven by an increase in energy sector reserves in the first half of 2016 for the higher risk energy sub-sectors. While we experienced some deterioration in the energy sector in 2016, oil prices have stabilized which contributed to a modest improvement in energy-related exposure by year end. 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 74 Bank of America 2016 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 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 for consumer and certain identifiable. The allowance 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 Strengthening of the U.S. Dollar, weak commodity prices, signs Executive Summary – 2016 Economic and Business Environment of slowing growth in China, a protracted recession in Brazil and on page 20. recent political events in Turkey are driving risk aversion in Table 45 presents countries where total cross-border exposure emerging markets. At December 31, 2016, net exposure to China exceeded one percent of our total assets. At December 31, 2016, was $10.9 billion, concentrated in large state-owned companies, the U.K. and France were the only countries where total cross- subsidiaries of multinational corporations and commercial banks. border exposure exceeded one percent of our total assets. At At December 31, 2016, net exposure to Brazil was $13.7 billion, December 31, 2016, Germany had total cross-border exposure of concentrated in sovereign securities, oil and gas companies and $18.4 billion representing 0.84 percent of our total assets. No commercial banks. At December 31, 2016, net exposure to Turkey other countries had total cross-border exposure that exceeded was $2.7 billion, concentrated in commercial banks. 0.75 percent of our total assets at December 31, 2016. The outlook for policy direction and therefore economic Cross-border exposure includes the components of Country performance in the EU is uncertain as a consequence of reduced Risk Exposure as detailed in Table 44 as well as the notional political cohesion and the lack of clarity following the U.K. amount of cash loaned under secured financing agreements. Local Referendum to leave the EU. At December 31, 2016, net exposure exposure, defined as exposure booked in local offices of a to the U.K. was $47.7 billion, concentrated in multinational respective country with clients in the same country, is excluded. corporations and sovereign clients. For additional information, see Table 45 Total Cross-border Exposure Exceeding One Percent of Total Assets (Dollars in millions) United Kingdom France December 31 Public Sector Banks Private Sector $ 2,975 $ 4,557 $ 42,105 $ 2016 2015 2014 2016 2015 2014 3,264 11 4,956 3,343 4,479 5,104 2,056 1,205 1,766 2,631 38,576 34,595 23,193 17,099 14,368 Cross-border Exposure Exposure as a Percent of Total Assets 49,637 46,944 36,662 29,354 22,208 21,478 2.27% 2.19 1.74 1.34 1.04 1.02 Provision for Credit Losses The provision for credit losses increased $436 million to $3.6 billion in 2016 compared to 2015. The provision for credit losses was $224 million lower than net charge-offs for 2016, resulting in a reduction in the allowance for credit losses. This compared to a reduction of $1.2 billion in the allowance for credit losses in 2015. The provision for credit losses for the consumer portfolio increased $360 million to $2.6 billion in 2016 compared to 2015 due to a slower pace of credit quality improvement. Included in the provision is a benefit of $45 million related to the PCI loan portfolio for 2016 compared to a benefit of $40 million in 2015. The provision for credit losses for the commercial portfolio, including unfunded lending commitments, increased $76 million to $1.0 billion in 2016 compared to 2015 driven by an increase in energy sector reserves in the first half of 2016 for the higher risk energy sub-sectors. While we experienced some deterioration in the energy sector in 2016, oil prices have stabilized which contributed to a modest improvement in energy-related exposure by year end. 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 74 Bank of America 2016 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 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, 2016, the loss forecast process resulted in reductions in the residential mortgage and home equity portfolios compared to December 31, 2015. 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 loss given default (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, 2016, the allowance increased for the U.S. commercial and non-U.S. commercial portfolios compared to December 31, 2015. 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 2016, the factors that impacted the allowance for loan and lease losses included improvements in the credit quality of the portfolios driven by continuing improvements in the U.S. economy and labor markets, proactive credit risk management initiatives and the impact of high credit quality originations. Evidencing the improvements in the U.S. economy and labor markets are growth in consumer spending, downward unemployment trends and increases in home prices. In addition to these improvements, in the consumer portfolio, loan sales, returns to performing status, paydowns and charge-offs continued to outpace new nonaccrual loans. During 2016, the allowance for loan and lease losses in the commercial portfolio reflected increased coverage for the energy sector due to low oil prices which impacted the financial performance of energy clients and contributed to an increase in reservable criticized balances. While we experienced some deterioration in the energy sector in 2016, oil prices have stabilized which contributed to a modest improvement in energy-related exposure by year end. 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 47, was $6.2 billion at December 31, 2016, a decrease of $1.2 billion from December 31, 2015. The decrease was primarily in the home equity and residential mortgage portfolios. Reductions in the residential mortgage and home equity portfolios were due to improved home prices, lower nonperforming loans and a decrease in consumer loan balances, as well as write-offs in our PCI loan portfolio. The allowance related to the U.S. credit card and unsecured consumer lending portfolios at December 31, 2016 remained relatively unchanged and in line with the level of delinquencies compared to December 31, 2015. For example, in the U.S. credit card portfolio, accruing loans 30 days or more past due remained relatively unchanged at $1.6 billion at December 31, 2016 (to 1.73 percent from 1.76 percent of outstanding U.S. credit card loans at December 31, 2015), while accruing loans 90 days or more past due decreased to $782 million at December 31, 2016 from $789 million (to 0.85 percent from 0.88 percent of outstanding U.S. credit card loans) at December 31, 2015. See Tables 20 and 21 for additional details on key credit statistics for the credit card and other unsecured consumer lending portfolios. The allowance for loan and lease losses for the commercial portfolio, as presented in Table 47, was $5.3 billion at from December 31, 2016, an December 31, 2015 driven by increased allowance coverage for the higher risk energy sub-sectors as a result of low oil prices. Commercial utilized reservable criticized exposure increased to $16.3 billion at December 31, 2016 from $15.9 billion (to 3.35 percent from 3.38 percent of total commercial utilized reservable exposure) at December 31, 2015, largely due to downgrades outpacing paydowns and upgrades in the energy portfolio. Nonperforming commercial loans increased to $1.7 billion at December 31, 2016 from $1.2 billion (to 0.38 percent from 0.28 percent of outstanding commercial loans excluding loans accounted for under the fair value option) at December 31, 2015 with the increase primarily in the energy and metals and mining sectors. Commercial loans and leases outstanding increased to $458.5 billion at December 31, 2016 from $440.8 billion at December 31, 2015. See Tables 32, 33 and 35 for additional details on key commercial credit statistics. increase of $409 million The allowance for loan and lease losses as a percentage of total loans and leases outstanding was 1.26 percent at December 31, 2016 compared to 1.37 percent at December 31, 2015. The decrease in the ratio was primarily due to improved Bank of America 2016 75 credit quality in the consumer portfolios driven by improved economic conditions and write-offs in the PCI loan portfolio. The December 31, 2016 and 2015 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 1.24 percent and 1.31 percent at December 31, 2016 and 2015. Table 46 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 2016 and 2015. Table 46 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 Less: Allowance included in assets of business held for sale (4) Total allowance for loan and lease losses, December 31 Reserve for unfunded lending commitments, January 1 Provision for unfunded lending commitments Other (3) Reserve for unfunded lending commitments, December 31 Allowance for credit losses, December 31 2016 2015 $ 12,234 $ 14,419 (403) (752) (2,691) (238) (392) (232) (4,708) (567) (10) (30) (133) (740) (5,448) 272 347 422 63 258 27 1,389 175 41 9 13 238 1,627 (3,821) (340) 3,581 (174) 11,480 (243) 11,237 646 16 100 762 11,999 $ (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 — 12,234 528 118 — 646 12,880 $ (1) (2) Includes U.S. small business commercial charge-offs of $253 million and $282 million in 2016 and 2015. Includes U.S. small business commercial recoveries of $45 million and $57 million in 2016 and 2015. (3) Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments and certain other reclassifications. (4) Represents allowance related to the non-U.S. credit card loan portfolio, which is included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. 76 Bank of America 2016 credit quality in the consumer portfolios driven by improved Table 46 presents a rollforward of the allowance for credit economic conditions and write-offs in the PCI loan portfolio. The losses, which includes the allowance for loan and lease losses December 31, 2016 and 2015 ratios above include the PCI loan and the reserve for unfunded lending commitments, for 2016 and portfolio. Excluding the PCI loan portfolio, the allowance for loan 2015. and lease losses as a percentage of total loans and leases outstanding was 1.24 percent and 1.31 percent at December 31, 2016 and 2015. Table 46 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 Less: Allowance included in assets of business held for sale (4) Total allowance for loan and lease losses, December 31 Reserve for unfunded lending commitments, January 1 Provision for unfunded lending commitments Other (3) Reserve for unfunded lending commitments, December 31 Allowance for credit losses, December 31 (1) (2) Includes U.S. small business commercial charge-offs of $253 million and $282 million in 2016 and 2015. Includes U.S. small business commercial recoveries of $45 million and $57 million in 2016 and 2015. (3) Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments and certain other reclassifications. (4) Represents allowance related to the non-U.S. credit card loan portfolio, which is included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. $ 11,999 $ 12,880 2016 2015 $ 12,234 $ 14,419 (403) (752) (2,691) (238) (392) (232) (4,708) (567) (10) (30) (133) (740) (5,448) 272 347 422 63 258 27 1,389 175 41 9 13 238 1,627 (3,821) (340) 3,581 (174) 11,480 (243) 11,237 646 16 100 762 (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 — 12,234 528 118 — 646 Table 46 Allowance for Credit Losses (continued) (Dollars in millions) Loan and allowance ratios (5): Loans and leases outstanding at December 31 (6) Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (6) Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (7) Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (8) Average loans and leases outstanding (6) Net charge-offs as a percentage of average loans and leases outstanding (6, 9) Net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (6) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (6, 10) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (9) 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 (11) 2016 2015 $ 908,812 $ 890,045 1.26% 1.36 1.16 $ 892,255 1.37% 1.63 1.11 $ 869,065 0.43% 0.47 149 3.00 2.76 0.50% 0.59 130 2.82 2.38 $ 3,951 $ 4,518 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 (6, 11) 98% 82% Loan and allowance ratios excluding PCI loans and the related valuation allowance: (5, 12) Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (6) Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (7) Net charge-offs as a percentage of average loans and leases outstanding (6) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (6, 10) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs 1.24% 1.31 0.44 144 2.89 1.31% 1.50 0.51 122 2.64 (5) Loan and allowance ratios include $243 million of non-U.S. credit card allowance for loan and lease losses and $9.2 billion of ending non-U.S. credit card loans, which are included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. (6) Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $7.1 billion and $6.9 billion at December 31, 2016 and 2015. Average loans accounted for under the fair value option were $8.2 billion and $7.7 billion in 2016 and 2015. (7) Excludes consumer loans accounted for under the fair value option of $1.1 billion and $1.9 billion at December 31, 2016 and 2015. (8) Excludes commercial loans accounted for under the fair value option of $6.0 billion and $5.1 billion at December 31, 2016 and 2015. (9) Net charge-offs exclude $340 million and $808 million of write-offs in the PCI loan portfolio in 2016 and 2015. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 61. (10) For more information on our definition of nonperforming loans, see pages 63 and 69. (11) 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. (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 Financial Statements. For reporting purposes, we allocate the allowance for credit losses across products as presented in Table 47. Table 47 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) Less: Allowance included in assets of business held for sale (5) Total allowance for loan and lease losses Reserve for unfunded lending commitments Allowance for credit losses December 31, 2016 December 31, 2015 Amount Percent of Total Percent of Loans and Leases Outstanding (1) Amount Percent of Total Percent of Loans and Leases Outstanding (1) 8.82% 15.14 25.56 2.12 2.13 0.44 54.21 28.97 8.01 1.20 7.61 45.79 100.00% $ $ 1,012 1,738 2,934 243 244 51 6,222 3,326 920 138 874 5,258 11,480 (243) 11,237 762 11,999 0.53% $ 2.62 3.18 2.64 0.26 2.01 1.36 1.17 1.60 0.62 0.98 1.16 1.26 $ 1,500 2,414 2,927 274 223 47 7,385 2,964 967 164 754 4,849 12,234 — 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 0.77 0.82 1.11 1.37 76 Bank of America 2016 Bank of America 2016 77 (5) Represents allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which is included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. (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 $710 million and $1.6 billion and home equity loans of $341 million and $250 million at December 31, 2016 and 2015. Commercial loans accounted for under the fair value option included U.S. commercial loans of $2.9 billion and $2.3 billion and non-U.S. commercial loans of $3.1 billion and $2.8 billion at December 31, 2016 and 2015. Includes allowance for loan and lease losses for U.S. small business commercial loans of $416 million and $507 million at December 31, 2016 and 2015. Includes allowance for loan and lease losses for impaired commercial loans of $273 million and $217 million at December 31, 2016 and 2015. Includes $419 million and $804 million of valuation allowance presented with the allowance for loan and lease losses related to PCI loans at December 31, 2016 and 2015. (4) (3) (2) 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 our historical experience are applied to the unfunded commitments to estimate the funded exposure at default (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 $762 million at December 31, 2016, an increase of $116 million from December 31, 2015. The increase was primarily attributable to increased coverage for the energy sector due to low oil prices which impacted the financial performance of energy clients. 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 our results. For additional information, see Interest Rate Risk Management for the Banking Book on page 83. 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 we are exposed. These responsibilities include ownership of market risk policy, developing and maintaining quantitative risk models, calculating aggregated risk measures, establishing and monitoring position limits consistent with risk appetite, conducting daily reviews and analysis of trading inventory, 78 Bank of America 2016 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. The Enterprise Model Risk Committee (EMRC), a subcommittee of the MRC, is responsible for providing management oversight and approval of model risk management and governance. The EMRC defines model risk standards, consistent with our 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 EMRC oversees that 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 for continued compliance. 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 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 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 our historical experience are applied to the unfunded commitments to estimate the funded exposure at default (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 $762 million at December 31, 2016, an increase of $116 million from December 31, 2015. The increase was primarily attributable to increased coverage for the energy sector due to low oil prices which impacted the financial performance of energy clients. 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 our results. For additional information, see Interest Rate Risk Management for the Banking Book on page 83. 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 we are exposed. These responsibilities include ownership of market risk policy, developing and maintaining quantitative risk models, calculating aggregated risk measures, establishing and monitoring position limits consistent with risk appetite, conducting daily reviews and analysis of trading inventory, 78 Bank of America 2016 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. The Enterprise Model Risk Committee (EMRC), a subcommittee of the MRC, is responsible for providing management oversight and approval of model risk management and governance. The EMRC defines model risk standards, consistent with our 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 EMRC oversees that 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 for continued compliance. 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 85. 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 risk managers limitations. Additionally, their respective independently evaluate the risk of the portfolios under the current market environment and potential future environments. 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. For more information regarding ICAAP, see Capital Management on page 44. 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 so 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 allow for extensive coverage of risks as well as at aggregated 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 review. Certain quantitative market risk measures and corresponding limits have been identified as critical in the Corporation’s Risk Bank of America 2016 79 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 48 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 we are 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, fair value option portfolio, which except for structural foreign currency positions that we choose to exclude with prior regulatory approval. In addition, Table 48 presents our includes substantially all of 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 our total market-based portfolio VaR. Additionally, market risk VaR for trading activities as presented in Table 48 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 48 include market risk to which we are exposed from all business segments, excluding CVA and DVA. The majority of this portfolio is within the Global Markets segment. Table 48 presents year-end, average, high and low daily trading VaR for 2016 and 2015 using a 99 percent confidence level. Table 48 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 2016 2015 Year End Average High (1) Low (1) Year End Average High (1) Low (1) $ $ 8 11 25 19 4 (39) 28 6 34 14 6 (10) 10 (4) 40 $ $ 9 19 30 18 6 (46) 36 5 41 23 11 (21) 13 (6) 48 $ $ 16 30 37 30 12 — 50 — 58 40 22 — 20 — 70 $ $ 5 10 25 11 3 — 24 — 28 12 5 — 8 — 32 $ $ 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 (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 2016 primarily due to reduced exposure to the interest rate and credit markets. 80 Bank of America 2016 daily basis and are approved at least annually by the ERC and the exclude with prior regulatory approval. In addition, Table 48 Board. presents our fair value option portfolio, which includes In periods of market stress, Global Markets senior leadership substantially all of the funded and unfunded exposures for which communicates daily to discuss losses, key risk positions and any we elect the fair value option, and their corresponding hedges. The limit excesses. As a result of this process, the businesses may fair value option portfolio combined with the total market-based selectively reduce risk. trading portfolio VaR represents our total market-based portfolio Table 48 presents the total market-based trading portfolio VaR VaR. Additionally, market risk VaR for trading activities as which is the combination of the covered positions trading portfolio presented in Table 48 differs from VaR used for regulatory capital and the impact from less liquid trading exposures. Covered calculations due to the holding period being used. The holding positions are defined by regulatory standards as trading assets period for VaR used for regulatory capital calculations is 10 days, and liabilities, both on- and off-balance sheet, that meet a defined while for the market risk VaR presented below it is one day. Both set of specifications. These specifications identify the most liquid measures utilize the same process and methodology. trading positions which are intended to be held for a short-term The total market-based portfolio VaR results in Table 48 include horizon and where we are able to hedge the material risk elements market risk to which we are exposed from all business segments, in a two-way market. Positions in less liquid markets, or where excluding CVA and DVA. The majority of this portfolio is within the there are restrictions on the ability to trade the positions, typically Global Markets segment. do not qualify as covered positions. Foreign exchange and Table 48 presents year-end, average, high and low daily trading commodity positions are always considered covered positions, VaR for 2016 and 2015 using a 99 percent confidence level. Table 48 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 2016 2015 Average High (1) Low (1) Average High (1) Low (1) $ $ $ $ $ $ $ $ (39) (46) (36) (46) Year End 8 11 25 19 4 28 6 34 14 6 (10) 10 (4) 40 9 19 30 18 6 36 5 41 23 11 (21) 13 (6) 48 16 30 37 30 12 — 50 — 58 40 22 — 20 — 70 Year End 10 17 32 18 4 45 3 48 35 17 (35) 17 (4) 61 5 10 25 11 3 — 24 — 28 12 5 — 8 — 32 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 5 14 27 9 3 — 26 — 31 17 8 — 10 — 41 (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 2016 primarily due to reduced exposure to the interest rate and credit markets. Appetite Statement. These risk appetite limits are reported on a except for structural foreign currency positions that we choose to The graph below presents the daily total market-based trading portfolio VaR for 2016, corresponding to the data in Table 48. Daily Total Market-Based Trading Portfolio VaR History s n o i l l i M n i s r a l l o D 150 125 100 75 50 25 0 VaR 12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016 Additional VaR statistics produced within our single VaR model are provided in Table 49 at the same level of detail as in Table 48. 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 49 presents average trading VaR statistics at 99 percent and 95 percent confidence levels for 2016 and 2015. Table 49 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 2016 2015 99 percent 9 $ 19 30 18 6 (46) 36 5 41 23 11 (21) 13 (6) 48 $ 95 percent 5 $ 12 18 11 3 (30) 19 3 22 13 8 (13) 8 (4) 26 $ 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 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. We expect the frequency of trading losses in excess of VaR to be in line with the confidence level of the VaR statistic being tested. For example, with a 99 percent confidence level, 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. 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 types of revenue excluded for backtesting are fees, commissions, reserves, net interest income and intraday trading revenues. 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. 80 Bank of America 2016 Bank of America 2016 81 During 2016, 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, DVA and funding valuation adjustment (FVA) gains (losses), 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 revenue can be volatile and is largely driven by general market conditions and customer demand. Also, trading-related revenue is 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 revenue by business is 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 2016 and 2015. During 2016, positive trading-related revenue was recorded for 99 percent of the trading days, of which 84 percent were daily trading gains of over $25 million and the largest loss was $24 million. This compares to 2015 where 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. Histogram of Daily Trading-related Revenue Histogram of Daily Trading-related Revenue s s y y a a D D f f o o r r e e b b m m u u N N 160 160 140 140 120 120 100 100 80 80 60 60 40 40 20 20 0 0 greater than -100 greater than -100 -100 to -75 -100 to -75 -75 to -50 -75 to -50 -50 to -25 -50 to -25 -25 to 0 -25 to 0 0 to 25 0 to 25 25 to 50 25 to 50 50 to 75 50 to 75 75 to 100 75 to 100 greater than 100 Year Ended December 31, 2015 Year Ended December 31, 2015 Year Ended December 31, 2016 Year Ended December 31, 2016 Revenue (dollars in millions) 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 estimated portfolio impacts 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 on page 40. 82 Bank of America 2016 During 2016, there were no days in which there was a on the volume and type of transactions, the level of risk assumed, backtesting excess for our total market-based portfolio VaR, and the volatility of price and rate movements at any given time utilizing a one-day holding period. Total Trading-related Revenue Total trading-related revenue, excluding brokerage fees, and CVA, DVA and funding valuation adjustment (FVA) gains (losses), 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 revenue can be volatile and is largely driven by general market conditions and customer demand. Also, trading-related revenue is dependent within the ever-changing market environment. Significant daily revenue by business is 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 2016 and 2015. During 2016, positive trading-related revenue was recorded for 99 percent of the trading days, of which 84 percent were daily trading gains of over $25 million and the largest loss was $24 million. This compares to 2015 where 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. Histogram of Daily Trading-related Revenue Interest Rate Risk Management for the Banking Book The following discussion presents net interest income for banking book activities. Interest rate risk represents the most significant market risk exposure to our banking book 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 50 presents the spot and 12-month forward rates used in our baseline forecasts at December 31, 2016 and 2015. Table 50 Forward Rates s y a D f o r e b m u N 160 140 120 100 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 Year Ended December 31, 2015 Year Ended December 31, 2016 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 estimated portfolio impacts 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 on page 40. December 31, 2016 Three- month LIBOR 10-Year Swap Federal Funds Spot rates 12-month forward rates Spot rates 12-month forward rates 0.75% 1.25 1.00% 1.51 2.34% 2.49 December 31, 2015 0.50% 1.00 0.61% 1.22 2.19% 2.39 Table 51 shows the pretax dollar impact to forecasted net interest income over the next 12 months from December 31, 2016 and 2015, resulting from instantaneous parallel and non-parallel shocks to the market-based forward curve. Periodically we evaluate the scenarios presented so that they are meaningful in the context of the current rate environment. During 2016, the asset sensitivity of our balance sheet decreased primarily driven by higher long-end 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 44. Table 51 Estimated Banking Book Net Interest Income Sensitivity (Dollars in millions) Curve Change Parallel Shifts +100 bps Short Rate (bps) Long Rate (bps) December 31 2016 2015 instantaneous shift +100 +100 $ 3,370 $ 3,606 -50 bps instantaneous shift -50 -50 (2,900) (3,458) Flatteners Short-end instantaneous change +100 Long-end instantaneous change — — -50 2,473 2,418 (961) (1,767) Steepeners Short-end instantaneous change Long-end instantaneous change -50 — — (1,918) (1,672) +100 928 1,217 The sensitivity analysis in Table 51 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 51 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 our 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 2016 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 environments, balance sheet composition and trends, and the relative mix of our cash and derivative positions. 82 Bank of America 2016 Bank of America 2016 83 Table 52 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, 2016 and 2015. These amounts do not include derivative hedges on our MSRs. Table 52 Asset and Liability Management Interest Rate and Foreign Exchange Contracts December 31, 2016 Expected Maturity (Dollars in millions, average estimated duration in years) Fair Value Receive-fixed interest rate swaps (1) $ 4,055 Total 2017 2018 2019 2020 2021 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 $ 118,603 $ 21,453 $ 25,788 $ 10,283 $ 7,515 $ 5,307 $ 48,257 2.83% 3.64% 2.81% 2.31% 2.07% 3.18% 2.67% 159 $ 22,400 $ 1,527 $ 9,168 $ 2,072 $ 7,975 $ 1.37% 1.84% 1.47% 0.97% 1.08% 213 1.00% $ 1,445 2.45% (26) $ 59,274 $ 20,775 $ 11,027 $ 6,784 $ 1,180 $ 2,799 $ 16,709 Foreign exchange basis swaps (1, 3, 4) (4,233) 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 5 3,180 19 $ 3,159 125,522 26,509 22,724 12,178 12,150 8,365 43,596 1,687 1,673 — — (20,285) (30,199) 197 1,961 37,896 37,896 — — — (8) — — 14 881 6,883 — — 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 — Average Estimated Duration 4.81 2.77 Average Estimated Duration 4.98 3.98 (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, 2016 and 2015, the notional amount of same-currency basis swaps included $59.3 billion and $75.2 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 $1.7 billion at December 31, 2016 was comprised of $1.7 billion in foreign exchange options and $14 million in purchased caps/floors. Option products of $752 million at December 31, 2015 were comprised of $737 million in foreign exchange options and $15 million in purchased caps/floors. (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 $(20.3) billion at December 31, 2016 was comprised of $21.5 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(38.5) billion in net foreign currency forward rate contracts, $(4.6) billion in foreign currency-denominated pay-fixed swaps and $1.3 billion in net foreign currency futures contracts. Foreign exchange contracts of $(25.4) billion at December 31, 2015 were 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 foreign currency futures contracts. 84 Bank of America 2016 Table 52 presents derivatives utilized in our ALM activities average estimated durations of our open ALM derivatives at including those designated as accounting and economic hedging December 31, 2016 and 2015. These amounts do not include instruments and shows the notional amount, fair value, weighted- derivative hedges on our MSRs. average receive-fixed and pay-fixed rates, expected maturity and Table 52 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) $ 4,055 Foreign exchange basis swaps (1, 3, 4) (4,233) 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 159 (26) 3,180 5 19 (81) (70) 57 2,345 (5) (Dollars in millions, average estimated duration in years) Fair Value Receive-fixed interest rate swaps (1) $ 6,291 December 31, 2016 Expected Maturity Total 2017 2018 2019 2020 2021 Thereafter $ 118,603 $ 21,453 $ 25,788 $ 10,283 $ 7,515 $ 5,307 $ 48,257 2.83% 3.64% 2.81% 2.31% 2.07% 3.18% 2.67% $ 22,400 $ 1,527 $ 9,168 $ 2,072 $ 7,975 $ 213 $ 1,445 1.37% 1.84% 1.47% 0.97% 1.08% 1.00% 2.45% $ 59,274 $ 20,775 $ 11,027 $ 6,784 $ 1,180 $ 2,799 $ 16,709 125,522 26,509 22,724 12,178 12,150 8,365 43,596 1,687 1,673 37,896 37,896 $ 3,159 (20,285) (30,199) 197 1,961 881 6,883 — (8) — — — 14 — 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% Average Estimated Duration 4.81 2.77 Average Estimated Duration 4.98 3.98 — — — — — — — — Foreign exchange basis swaps (1, 3, 4) (3,968) $ 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 (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, 2016 and 2015, the notional amount of same-currency basis swaps included $59.3 billion and $75.2 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 $1.7 billion at December 31, 2016 was comprised of $1.7 billion in foreign exchange options and $14 million in purchased caps/floors. Option products of $752 million at December 31, 2015 were comprised of $737 million in foreign exchange options and $15 million in purchased caps/floors. (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 $(20.3) billion at December 31, 2016 was comprised of $21.5 billion in foreign currency-denominated and cross-currency receive-fixed swaps, $(38.5) billion in net foreign currency forward rate contracts, $(4.6) billion in foreign currency-denominated pay-fixed swaps and $1.3 billion in net foreign currency futures contracts. Foreign exchange contracts of $(25.4) billion at December 31, 2015 were 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 foreign currency futures contracts. 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 $1.4 billion and $1.7 billion, on a pretax basis, at December 31, 2016 and 2015. 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, 2016, the pretax net losses are expected to be reclassified into earnings as follows: $205 million, or 14 percent within the next year, 47 percent in years two through five, and 28 percent in years six through ten, with the remaining 11 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, 2016. 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 held-for-investment 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 typically leads 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. 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 2016 and 2015, we recorded gains in mortgage banking income of $366 million and $360 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 29. 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. 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 of FLUs, IRM and Corporate Audit, the three lines of defense in managing compliance risk. The requirements work together to drive a comprehensive risk-based approach for the proactive identification, management and escalation of compliance risks throughout the Corporation. For more information on FLUs and control functions, see Managing Risk on page 40. The Global Compliance – Enterprise Policy also sets the requirements for reporting compliance risk information to executive management as well as the Board or appropriate Board- level committees in support of Global Compliance's responsibility for conducting independent oversight of the Corporation’s compliance risk management activities. The Board provides oversight of compliance risk through its Audit Committee and the 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 on page 44. includes 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 risk management from 84 Bank of America 2016 Bank of America 2016 85 internal governance structure enhances 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 the Board. Our effectiveness of the Corporation’s Operational Risk Management Program and is administered 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 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 Corporate 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 Corporate Operational Risk team functions, senior to businesses, control reports management, management committees, the ERC and the Board. The FLUs 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 Risk and Control Self Assessments (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 product introduction processes. The FLUs and control functions are also responsible for consistently implementing and monitoring adherence to corporate practices. Among the key tools in the risk management process are the RCSAs. The RCSA process, consistent with identification, measurement, monitoring and control, 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. 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. 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. Independent review and challenge to the Corporation’s overall operational risk management framework is performed by the Enterprise Independent Testing Team and reported through the operational risk governance committees and management routines. Insurance maintained by the Corporation may mitigate the impact of operational losses. Certain insurance is purchased to 86 Bank of America 2016 be in compliance with laws, regulations or legal requirements, and in conjunction with specific hedging strategies to reduce adverse financial impacts arising from operational losses. Reputational Risk Management Reputational risk is the risk that negative perceptions of the Corporation’s conduct or business practices may adversely impact its profitability or operations through an inability to establish new or maintain existing customer/client relationships or otherwise impact relationships with key stakeholders, such as investors, regulators, employees and the community. 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 external opinion, communication strategies to mitigate the risk, and informing key stakeholders of potential reputational risks. implementing influence public 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. producing and non-revenue producing units. The Operational Risk be in compliance with laws, regulations or legal requirements, and Management Program addresses the overarching processes for in conjunction with specific hedging strategies to reduce adverse identifying, measuring, monitoring and controlling operational risk, financial impacts arising from operational losses. and reporting operational risk information to management and the Board. Our internal governance structure enhances the Reputational Risk Management effectiveness of the Corporation’s Operational Risk Management Reputational risk is the risk that negative perceptions of the Program and is administered at the enterprise level through formal Corporation’s conduct or business practices may adversely impact oversight by the Board, the ERC, the CRO and a variety of its profitability or operations through an inability to establish new management committees and risk oversight groups aligned to the or maintain existing customer/client relationships or otherwise Corporation’s overall risk governance framework and practices. Of impact relationships with key stakeholders, such as investors, these, the MRC oversees the Corporation’s policies and processes regulators, employees and the community. Reputational risk may for operational risk management. The MRC also serves as an result from many of the Corporation’s activities, including those escalation point for critical operational risk matters within the related to the management of our strategic, operational, Corporation. The MRC reports operational risk activities to the compliance and credit risks. ERC. The independent operational risk management teams The Corporation manages reputational risk through oversee the businesses and control functions to monitor established policies and controls in its businesses and risk adherence to the Operational Risk Management Program and management processes to mitigate reputational risks in a timely advise and challenge operational risk exposures. manner and through proactive monitoring and identification of Within the Global Risk Management organization, the potential reputational risk events. The Corporation has processes Corporate Operational Risk team develops and guides the and procedures in place to respond to events that give rise to strategies, enterprise-wide policies, practices, controls and reputational risk, including educating individuals and organizations monitoring tools for assessing and managing operational risks that influence public opinion, implementing external across the organization. The Corporate Operational Risk team communication strategies to mitigate the risk, and informing key reports results to businesses, control functions, senior stakeholders of potential reputational risks. management, management committees, the ERC and the Board. The Corporation’s organization and governance structure The FLUs and control functions are responsible for assessing, provides oversight of reputational risks, and key risk indicators are monitoring and managing all the risks within their units, including reported regularly and directly to management and the ERC, which operational risks. In addition to enterprise risk management tools provides primary oversight of reputational risk. In addition, each such as loss reporting, scenario analysis and Risk and Control FLU has a committee, which includes representatives from Self Assessments (RCSAs), operational risk executives, working Compliance, Legal and Risk, that is responsible for the oversight in conjunction with senior business executives, have developed of reputational risk. Such committees’ oversight includes providing key tools to help identify, measure, monitor and control risk in each approval for business activities that present elevated levels of business and control function. Examples of these include reputational risks. personnel management practices; data management, data quality controls and related processes; fraud management units; Complex Accounting Estimates cybersecurity controls, processes and systems; transaction Our significant accounting principles, as described in Note 1 – processing, monitoring and analysis; business recovery planning; Summary of Significant Accounting Principles to the Consolidated and new product introduction processes. The FLUs and control Financial Statements, are essential in understanding the MD&A. functions are also responsible for consistently implementing and Many of our significant accounting principles require complex monitoring adherence to corporate practices. judgments to estimate the values of assets and liabilities. We Among the key tools in the risk management process are the have procedures and processes in place to facilitate making these RCSAs. The RCSA process, consistent with identification, judgments. measurement, monitoring and control, is one of our primary The more judgmental estimates are summarized in the following methods for capturing the identification and assessment of discussion. We have identified and described the development of operational risk exposures, including inherent and residual the variables most important in the estimation processes that operational risk ratings, and control effectiveness ratings. The end- involve mathematical models to derive the estimates. In many to-end RCSA process incorporates risk identification and cases, there are numerous alternative judgments that could be assessment of the control environment; monitoring, reporting and used in the process of determining the inputs to the models. Where escalating risk; quality assurance and data validation; and alternatives exist, we have used the factors that we believe integration with the risk appetite. Key operational risk indicators represent the most reasonable value in developing the inputs. have been developed and are used to assist in identifying trends Actual performance that differs from our estimates of the key and issues on an enterprise, business and control function level. variables could impact our results of operations. Separate from This results in a comprehensive risk management view that the possible future impact to our results of operations from input enables understanding of and action on operational risks and and model variables, the value of our lending portfolio and market- controls for our processes, products, activities and systems. sensitive assets and liabilities may change subsequent to the Independent review and challenge to the Corporation’s overall balance sheet date, often significantly, due to the nature and operational risk management framework is performed by the magnitude of future credit and market conditions. Such credit and Enterprise Independent Testing Team and reported through the market conditions may change quickly and in unforeseen ways and operational risk governance committees and management the resulting volatility could have a significant, negative effect on routines. future operating results. These fluctuations would not be indicative Insurance maintained by the Corporation may mitigate the of deficiencies in our models or inputs. impact of operational losses. Certain insurance is purchased to 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, 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, 2016 would have increased by $51 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 $127 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, 2016 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 $2.8 billion at December 31, 2016. The allowance for loan and lease losses as a percentage of total loans and leases at December 31, 2016 was 1.26 percent and these hypothetical increases in the allowance would raise the ratio to 1.60 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 Financial Accounting Standards Board's (FASB) proposed standard on accounting for credit losses, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. Fair Value of Financial Instruments We are, under applicable accounting guidance, required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. We classify fair value measurements of financial instruments based on the three-level fair value hierarchy in the guidance. 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 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 value determination and fair 86 Bank of America 2016 Bank of America 2016 87 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. Level 3 Assets and Liabilities Financial assets and liabilities, and MSRs 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. Level 3 financial assets and liabilities include certain loans, MBS, ABS, CDOs, CLOs, structured liabilities and highly structured, complex or long-dated derivative contracts and MSRs. The fair value of these Level 3 financial assets and liabilities and MSRs 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. Total recurring Level 3 assets were $14.5 billion, or 0.66 percent of total assets, and total recurring Level 3 liabilities were $7.2 billion, or 0.37 percent of total liabilities, at December 31, 2016 compared to $18.1 billion or 0.84 percent and $7.5 billion or 0.40 percent at December 31, 2015. 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 2016 and 2015, 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. 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 88 Bank of America 2016 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. Consistent with the applicable accounting guidance, we monitor relevant tax authorities and change our estimates of accrued income taxes and/or net deferred tax assets due to changes in income tax laws and their interpretation by the courts and regulatory authorities. These revisions of our estimates, which also may result from our income tax planning and from the resolution of income tax audit matters, may be material to our operating results for any given period. 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 12 under Item 1A. Risk Factors of our 2016 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. 2016 Annual Goodwill Impairment Testing 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 book capital, tangible 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 specific reporting unit, market equity risk premium and in certain cases an unsystematic (company-specific) risk factor. We use our internal forecasts to estimate future cash flows and actual results may differ from forecasted results. its data with a higher degree of reliance applied to those that are in reductions to future tax liabilities, and many of these attributes more directly observable and lesser reliance applied to those can expire if not utilized within certain periods. We consider the developed through their own internal modeling. Similarly, broker need for valuation allowances to reduce net deferred tax assets quotes that are executable are given a higher level of reliance than to the amounts that we estimate are more-likely-than-not to be indicative broker quotes, which are not executable. These realized. processes and controls are performed independently of the Consistent with the applicable accounting guidance, we monitor business. For additional information, see Note 20 – Fair Value relevant tax authorities and change our estimates of accrued Measurements and Note 21 – Fair Value Option to the Consolidated income taxes and/or net deferred tax assets due to changes in Financial Statements. Level 3 Assets and Liabilities Financial assets and liabilities, and MSRs 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. Level 3 financial assets and liabilities include certain loans, MBS, ABS, CDOs, CLOs, structured liabilities and highly structured, complex or long-dated derivative contracts and MSRs. The fair value of these Level 3 financial assets and liabilities and MSRs 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. Total recurring Level 3 assets were $14.5 billion, or 0.66 percent of total assets, and total recurring Level 3 liabilities were $7.2 billion, or 0.37 percent of total liabilities, at December 31, 2016 compared to $18.1 billion or 0.84 percent and $7.5 billion or 0.40 percent at December 31, 2015. 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 2016 and 2015, 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. 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 88 Bank of America 2016 income tax laws and their interpretation by the courts and regulatory authorities. These revisions of our estimates, which also may result from our income tax planning and from the resolution of income tax audit matters, may be material to our operating results for any given period. 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 12 under Item 1A. Risk Factors of our 2016 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. 2016 Annual Goodwill Impairment Testing 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 book capital, tangible 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 specific reporting unit, market equity risk premium and in certain cases an unsystematic (company-specific) risk factor. 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, 2016 for all of our reporting units that had goodwill. We also evaluated the non-U.S. consumer card business within All Other, as this 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, 2016 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. Under the income approach, we updated our assumptions to reflect the current market environment. The discount rates used in the June 30, 2016 annual goodwill impairment test ranged from 8.9 percent to 12.7 percent depending on the relative risk of a reporting unit. Cumulative average growth rates developed by management for revenues and expenses in each reporting unit ranged from negative 3.2 percent to positive 5.9 percent. Our market capitalization remained below our recorded book value during 2016. We do not believe that our current market capitalization reflects the aggregate fair value of our individual reporting units with assigned goodwill, as our market capitalization does not include consideration of individual reporting unit control premiums. Additionally, while the impact of recent regulatory changes has been considered in the reporting units' forecasts and valuations, overall regulatory and market uncertainties persist that we believe further impact our 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. In 2015, we completed our annual goodwill impairment test as of June 30, 2015 for all of our reporting units that had goodwill. 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 $250 million in the representations and warranties liability as of December 31, 2016. 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 39, as well as Note 7 – Representations and Warranties Obligations and Corporate Guarantees and Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. 2015 Compared to 2014 The following discussion and analysis provide a comparison of our results of operations for 2015 and 2014. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes. Table 7 and Note 24 – Business Segment Information to the Consolidated Financial Statements contain financial data to supplement this discussion. Overview Net Income Net income was $15.8 billion, or $1.31 per diluted share in 2015 compared to $5.5 billion, or $0.42 per diluted share in 2014. The increase in net income for 2015 compared to 2014 was primarily driven by a decrease of $15.2 billion in litigation expense. Net Interest Income Net interest income decreased $1.8 billion to $39.0 billion in 2015 compared to 2014. The net interest yield decreased 11 bps to 2.14 percent in 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 redemption of certain trust preferred securities, partially offset by lower funding costs, higher trading-related net interest income, lower rates paid on deposits and commercial loan growth. Noninterest Income Noninterest income was $44.0 billion in 2015, a decrease of $1.1 billion compared to 2014, which was driven by the following factors: Investment banking income decreased $493 million driven by lower debt and equity issuance fees, partially offset by higher advisory fees. Bank of America 2016 89 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. Mortgage banking income increased $801 million primarily due to a benefit for representations and warranties in 2015 compared to a provision in 2014, and to a lesser extent, improved MSR net-of-hedge performance and an increase in core production revenue, partially offset by a decline in servicing fees. Other income decreased $1.2 billion primarily due to DVA gains of $407 million in 2014 compared to DVA losses of $633 million in 2015 and an $869 million decrease in equity investment income 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. These declines were partially offset by higher gains on asset sales and lower PPI costs in 2015. Provision for Credit Losses The provision for credit losses was $3.2 billion in 2015, an increase of $886 million 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 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, 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. Net charge-offs totaled $4.3 billion, or 0.50 percent of average loans and leases in 2015 compared to $4.4 billion, or 0.49 percent in 2014. 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. Noninterest Expense Noninterest expense was $57.7 billion in 2015, a decrease of $17.9 billion compared to 2014, primarily driven by a decrease of $15.2 billion in litigation expense as well as the following factors: 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. Income Tax Expense The income tax expense was $6.2 billion on pretax income of $22.1 billion in 2015 compared to income tax expense of $2.4 billion on pretax income of $8.0 billion in 2014. The effective tax rate for 2015 was 28.2 percent and was driven by our recurring tax preferences and tax benefits related to certain non-U.S. restructurings, partially offset by a $290 million charge for the impact of the U.K. tax law changes. The effective tax rate for 2014 was 30.7 percent and 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. 90 Bank of America 2016 Trading account profits increased $164 million. Excluding DVA, in 2014. The decrease in net charge-offs was primarily due to trading account profits decreased $330 million driven by credit quality improvement in the consumer portfolio, partially declines in credit-related products reflecting lower client activity, offset by higher net charge-offs in the commercial portfolio primarily partially offset by strong performance in equity derivatives, due to lower net recoveries in commercial real estate and higher increased client activity in equities in the Asia-Pacific region, energy-related net charge-offs. improvement in currencies on higher client flows and increased volatility. Mortgage banking income increased $801 million primarily due to a benefit for representations and warranties in 2015 compared to a provision in 2014, and to a lesser extent, improved MSR net-of-hedge performance and an increase in core production revenue, partially offset by a decline in servicing fees. Other income decreased $1.2 billion primarily due to DVA gains of $407 million in 2014 compared to DVA losses of $633 million in 2015 and an $869 million decrease in equity investment income 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. These declines were partially offset by higher gains on asset sales and lower PPI costs in 2015. Provision for Credit Losses The provision for credit losses was $3.2 billion in 2015, an increase of $886 million 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 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, 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. Noninterest Expense Noninterest expense was $57.7 billion in 2015, a decrease of $17.9 billion compared to 2014, primarily driven by a decrease of $15.2 billion in litigation expense as well as the following factors: 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. Income Tax Expense The income tax expense was $6.2 billion on pretax income of $22.1 billion in 2015 compared to income tax expense of $2.4 billion on pretax income of $8.0 billion in 2014. The effective tax rate for 2015 was 28.2 percent and was driven by our recurring tax preferences and tax benefits related to certain non-U.S. restructurings, partially offset by a $290 million charge for the impact of the U.K. tax law changes. The effective tax rate for 2014 was 30.7 percent and 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 Net charge-offs totaled $4.3 billion, or 0.50 percent of average loans and leases in 2015 compared to $4.4 billion, or 0.49 percent charges. Business Segment Operations Consumer Banking Consumer Banking recorded net income of $6.6 billion in 2015 compared to $6.3 billion in 2014 with the increase 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 $362 million to $20.4 billion in 2015 as the beneficial impact of an increase in investable assets as a result of higher deposit balances was 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 $59 million to $11.1 billion in 2015 primarily driven by higher card income and the impact on revenue of certain divestitures, partially offset by lower mortgage banking income and service charges. The provision for credit losses decreased $124 million to $2.3 billion in 2015 driven by continued improvement in credit quality primarily related to our small business and credit card portfolios. Noninterest expense decreased $674 million to $18.7 billion in 2015 primarily driven by lower operating and personnel expenses, partially offset by higher fraud costs in advance of EMV chip implementation. Global Wealth & Investment Management GWIM recorded net income of $2.6 billion in 2015 compared to $2.9 billion in 2014 with the decrease driven by a decrease in revenue and increases in noninterest expense and the provision for credit losses. Net interest income decreased $303 million to $5.5 billion in 2015 due to the impact of the allocation of ALM activities, partially offset by the impact of loan and deposit growth. Noninterest income, primarily investment and brokerage services, decreased $66 million to $12.5 billion in 2015 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 $107 million to $13.9 billion in 2015 primarily due to higher amortization of previously issued stock awards and investments in client-facing professionals, partially offset by lower revenue- related expenses. Global Banking Global Banking recorded net income of $5.3 billion in 2015 compared to $5.8 billion in 2014 with the decrease primarily driven by lower revenue and higher provision for credit losses, partially offset by lower noninterest expense. Revenue decreased $645 million to $17.6 billion in 2015 primarily due to lower net interest income. The decline in net interest income reflects the impact of the allocation of the ALM activities, including liquidity costs as well as loan spread compression, partially offset by loan growth. The provision for credit losses increased $361 million to $686 million in 2015 driven by energy exposure and loan growth. Noninterest expense decreased $325 million to $8.5 billion in 2015 primarily due to lower litigation expense and technology initiative costs. Global Markets Global Markets recorded net income of $2.4 billion in 2015 compared to $2.6 billion in 2014. Excluding net DVA, net income increased $170 million to $2.9 billion in 2015 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 from declines in credit-related businesses, lower investment banking fees and lower equity investment gains 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 in 2015 compared to losses of $240 million in 2014. Noninterest expense decreased $615 million to $11.4 billion in 2015 largely due to lower litigation expense and, to a lesser extent, lower revenue-related incentive compensation and support costs. All Other All Other recorded a net loss of $1.1 billion in 2015 compared to a net loss of $12.0 billion in 2014 with the improvement primarily driven by a $15.2 billion decrease in litigation expense, which is included in noninterest expense, as well as an $862 million increase in mortgage banking income, primarily due to lower representations and warranties provision. These were partially offset by a $950 million decrease in net interest income primarily driven by a $612 million charge in 2015 related to the discount on certain trust preferred securities. 90 Bank of America 2016 Bank of America 2016 91 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 – Nonperforming Loans, Leases and Foreclosed Properties Table VI – Accruing Loans and Leases Past Due 90 Days or More Table VII – Allowance for Credit Losses Table VIII – Allocation of the Allowance for Credit Losses by Product Type Table IX – Selected Loan Maturity Data Table X – Non-exchange Traded Commodity Related Contracts Table XI – Non-exchange Traded Commodity Related Contract Maturities Table XII – Selected Quarterly Financial Data Table XIII – Quarterly Average Balances and Interest Rates – FTE Basis Table XIV – Quarterly Supplemental Financial Data Table XV – Five-year Reconciliations to GAAP Financial Measures Table XVI – Quarterly Reconciliations to GAAP Financial Measures Page 93 94 95 97 98 98 99 101 102 102 102 103 105 106 106 107 92 Bank of America 2016 Statistical Tables Table of Contents (Dollars in millions) Earning assets 2016 Interest Income/ Expense Average Balance Yield/ Rate Average Balance 2015 Interest Income/ Expense Yield/ Rate Average Balance 2014 Interest Income/ Expense Yield/ Rate Table I Average Balances and Interest Rates – FTE Basis 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 – Nonperforming Loans, Leases and Foreclosed Properties Table VI – Accruing Loans and Leases Past Due 90 Days or More Table VII – Allowance for Credit Losses Table VIII – Allocation of the Allowance for Credit Losses by Product Type Table IX – Selected Loan Maturity Data Table X – Non-exchange Traded Commodity Related Contracts Table XI – Non-exchange Traded Commodity Related Contract Maturities Table XII – Selected Quarterly Financial Data Table XIII – Quarterly Average Balances and Interest Rates – FTE Basis Table XIV – Quarterly Supplemental Financial Data Table XV – Five-year Reconciliations to GAAP Financial Measures Table XVI – Quarterly Reconciliations to GAAP Financial Measures Page 93 94 95 97 98 98 99 101 102 102 102 103 105 106 106 107 Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks $ 133,374 $ 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 (1) Other earning assets Total earning assets (6) Cash and due from banks (1) Other assets, less allowance for loan and lease losses (1) 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 9,026 216,161 129,766 418,289 188,250 71,760 87,905 9,527 91,853 2,295 451,590 276,887 57,547 21,146 93,263 448,843 900,433 59,775 1,866,824 27,893 295,254 $ 2,189,971 $ 49,495 $ 589,737 48,594 32,889 720,715 3,891 1,437 59,183 64,511 605 140 1,118 4,563 9,263 6,488 2,713 8,170 926 2,296 75 20,668 8,101 1,773 627 2,337 12,838 33,506 2,762 51,957 5 294 133 160 592 32 9 382 423 785,226 1,015 2,350 1,018 5,578 9,961 213,258 72,779 228,617 1,299,880 437,335 186,479 266,277 $ 2,189,971 369 146 988 4,547 9,233 6,967 2,984 8,085 1,051 2,040 56 21,183 6,883 1,521 628 2,008 11,040 32,223 2,890 50,396 7 273 162 95 537 31 5 288 324 861 2,387 1,343 5,958 0.45% $ 136,391 $ 1.55 0.52 3.52 2.23 3.45 3.78 9.29 9.72 2.50 3.26 4.58 2.93 3.08 2.97 2.51 2.86 3.72 4.62 2.78 9,556 211,471 137,837 390,849 201,366 81,070 88,244 10,104 84,585 1,938 467,307 248,354 52,136 19,802 89,188 409,480 876,787 62,040 1,824,931 28,921 306,345 $ 2,160,197 0.01% $ 0.05 0.27 0.49 0.08 0.82 0.64 0.65 0.66 0.13 1.10 1.40 2.44 0.77 46,498 $ 543,133 54,679 29,976 674,286 4,473 1,492 54,767 60,732 735,018 246,295 76,772 240,059 420,842 189,230 251,981 $ 2,160,197 1,298,144 10,549 308 170 1,039 4,716 9,051 8,462 3,340 8,313 1,200 2,099 139 23,553 6,630 1,432 658 2,196 10,916 34,469 2,812 52,565 3 316 264 108 691 61 2 326 389 0.27% $ 113,999 $ 1.53 0.47 3.30 2.38 3.46 3.68 9.16 10.40 2.41 2.86 4.53 2.77 2.92 3.17 2.25 2.70 3.68 4.66 2.76 11,032 222,483 145,686 351,437 237,270 89,705 88,962 11,511 82,409 2,029 511,886 230,172 47,525 19,226 89,894 386,817 898,703 66,128 1,809,468 27,079 308,846 $ 2,145,393 0.01% $ 46,270 $ 518,893 66,797 31,507 663,467 8,744 1,740 60,729 71,213 0.05 0.30 0.32 0.08 0.70 0.33 0.53 0.53 0.12 0.97 1.75 2.48 0.81 734,680 1,080 2,579 1,576 5,700 10,935 257,678 87,152 253,607 1,333,117 389,527 184,432 238,317 $ 2,145,393 0.27% 1.54 0.47 3.24 2.57 3.57 3.72 9.34 10.42 2.55 6.86 4.60 2.88 3.01 3.42 2.44 2.82 3.84 4.25 2.90 0.01% 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 2.08% 0.22 2.30% Net interest income/yield on earning assets $ 41,996 2.01% 0.24 2.25% 1.95% 0.24 2.19% $ 39,847 $ 41,630 92 Bank of America 2016 Bank of America 2016 93 (1) Includes assets of the Corporation's non-U.S. consumer credit card business, which are included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. (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 estimated life of the loan. Includes non-U.S. consumer loans of $3.4 billion, $4.0 billion and $4.4 billion in 2016, 2015 and 2014, respectively. Includes consumer finance loans of $514 million, $619 million and $1.1 billion; consumer leases of $1.6 billion, $1.2 billion and $819 million, and consumer overdrafts of $173 million, $156 million and $149 million in 2016, 2015 and 2014, respectively. Includes U.S. commercial real estate loans of $54.2 billion, $49.0 billion and $46.0 billion, and non-U.S. commercial real estate loans of $3.4 billion, $3.1 billion and $1.6 billion in 2016, 2015 and 2014, respectively. Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets by $176 million, $59 million and $58 million in 2016, 2015 and 2014, respectively. Interest expense includes the impact of interest rate risk management contracts, which decreased interest expense on the underlying liabilities by $2.1 billion, $2.4 billion and $2.5 billion in 2016, 2015 and 2014, respectively. For additional information, see Interest Rate Risk Management for the Banking Book on page 83. (7) The yield on long-term debt excluding the $612 million adjustment related to the redemption of 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 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 2015 to 2016 From 2014 to 2015 Due to Change in (1) Due to Change in (1) Volume Rate Net Change Volume Rate Net Change $ (9) $ 245 $ 236 $ 60 $ 1 $ (8) 28 (265) 722 (454) (343) (33) (60) 174 10 787 159 42 90 2 102 281 (692) (25) 72 118 (65) 82 9 431 93 (43) 239 (104) (24) $ — $ (1) (13) 55 $ (2) $ 22 (16) 10 (4) — 26 5 4 68 (6) 130 16 30 (479) (271) 85 (125) 256 19 (515) 1,218 252 (1) 329 1,798 1,283 (128) 1,561 (23) (45) (250) 994 (1,273) (324) (71) (147) 58 (6) 523 137 19 (20) (175) 61 (24) (51) (169) 182 (1) (6) 81 (812) (222) (32) (157) (2) (117) (77) (270) (48) (49) (168) 253 (1,495) (356) (228) (149) (59) (83) (2,370) 253 89 (30) (188) 124 (2,246) 78 $ (2,169) $ 2 10 (45) (6) (30) — (30) $ 2 (53) (57) (7) — 3 (8) (2) $ 21 (29) 65 55 1 4 94 99 154 4 (43) (102) (13) (154) (30) 3 (38) (65) (219) (192) short-term borrowings Trading account liabilities Long-term debt (233) 258 (386) $ (1,783) (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 increase (decrease) in net interest income (325) (380) (588) 2,149 (186) (299) (69) (288) (256) (92) (47) 557 $ (318) 281 (37) (116) (76) in rate for that category. The unallocated change in rate or volume variance is allocated between the rate and volume variances. 94 Bank of America 2016 (Dollars in millions) Increase (decrease) in interest income banks 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 (1,273) (1,495) From 2015 to 2016 From 2014 to 2015 Due to Change in (1) Due to Change in (1) Volume Rate Volume Rate Net Change Net Change $ (9) $ 245 $ 236 $ 60 $ 1 $ (8) 28 (265) 722 (454) (343) (33) (60) 174 10 787 159 42 90 22 (16) 10 (4) — 26 2 102 281 (692) (25) 72 118 (65) 82 9 431 93 (43) 239 (1) (13) 55 5 4 68 (318) (69) (288) 281 (256) (92) (6) 130 16 30 (479) (271) 85 (125) 256 19 (515) 1,218 252 (1) 329 1,798 1,283 (128) 21 (29) 65 55 1 4 94 99 154 (37) (325) (380) (588) (23) (45) (250) 994 (324) (71) (147) 58 (6) 523 137 19 (20) 2 10 (45) (6) (30) — (30) (116) (186) (299) (1) (6) 81 (812) (222) (32) (157) (2) (117) (77) (270) (48) (49) (168) (53) (57) (7) — 3 (8) (76) (47) 557 (104) (24) (175) 253 $ 1,561 (2,246) 78 $ (2,169) $ (2) $ — $ (2) $ $ 2 $ 61 (24) (51) (169) 182 (356) (228) (149) (59) (83) 253 89 (30) (188) 124 4 (43) (102) (13) (154) (30) 3 (38) (65) (219) (192) (233) 258 (386) Federal funds purchased, securities loaned or sold under agreements to repurchase and Net increase (decrease) in net interest income $ 2,149 $ (1,783) (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. Table II Analysis of Changes in Net Interest Income – FTE Basis Table III Preferred Stock Cash Dividend Summary (1) December 31, 2016 Preferred Stock Series B (2) Series D (3) Series E (3) (2,370) 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) For footnotes see next page. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 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 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 0.25000 0.25556 Floating Floating Floating Floating Adjustable $ Adjustable Adjustable Adjustable Adjustable 6.625% $ 6.625 6.625 6.625 6.625 1,011.11111 1,022.22222 1,022.22222 1,011.11111 1,000.00 1,011.11111 1,022.22222 1,022.22222 1,011.11111 0.4140625 0.4140625 0.4140625 0.4140625 0.4140625 Outstanding Notional Amount (in millions) 1 Declaration Date Record Date Payment Date January 26, 2017 October 27, 2016 July 27, 2016 April 27, 2016 January 21, 2016 April 11, 2017 January 11, 2017 October 11, 2016 July 11, 2016 April 11, 2016 April 25, 2017 January 25, 2017 October 25, 2016 July 25, 2016 April 25, 2016 654 January 9, 2017 February 28, 2017 March 14, 2017 6.204% $ October 10, 2016 November 30, 2016 December 14, 2016 July 7, 2016 April 15, 2016 August 31, 2016 September 14, 2016 May 31, 2016 June 14, 2016 March 14, 2016 January 11, 2016 February 29, 2016 317 January 9, 2017 January 31, 2017 February 15, 2017 Floating $ October 10, 2016 October 31, 2016 November 15, 2016 July 7, 2016 April 15, 2016 July 29, 2016 April 29, 2016 August 15, 2016 May 16, 2016 January 11, 2016 January 29, 2016 February 16, 2016 Floating Floating Floating Floating 141 January 9, 2017 February 28, 2017 March 15, 2017 Floating $ 1,000.00 October 10, 2016 November 30, 2016 December 15, 2016 July 7, 2016 April 15, 2016 January 11, 2016 January 9, 2017 August 31, 2016 September 15, 2016 May 31, 2016 February 29, 2016 February 28, 2017 June 15, 2016 March 15, 2016 March 15, 2017 October 10, 2016 November 30, 2016 December 15, 2016 August 31, 2016 September 15, 2016 October 10, 2016 December 15, 2016 July 7, 2016 September 15, 2016 May 31, 2016 February 29, 2016 March 15, 2017 June 15, 2016 March 15, 2016 June 15, 2016 March 15, 2016 April 3, 2017 January 3, 2017 October 3, 2016 July 1, 2016 April 1, 2016 July 7, 2016 April 15, 2016 January 11, 2016 January 9, 2017 April 15, 2016 January 11, 2016 January 9, 2017 July 7, 2016 January 15, 2017 January 30, 2017 Fixed-to-floating $ July 15, 2016 August 1, 2016 Fixed-to-floating January 11, 2016 January 15, 2016 February 1, 2016 Fixed-to-floating December 16, 2016 September 16, 2016 June 17, 2016 March 18, 2016 January 1, 2017 October 1, 2016 July 1, 2016 April 1, 2016 January 30, 2017 October 31, 2016 August 1, 2016 May 2, 2016 7.25% $ 7.25 7.25 7.25 October 10, 2016 October 31, 2016 November 15, 2016 Fixed-to-floating $ April 15, 2016 January 26, 2017 April 30, 2016 March 26, 2017 October 27, 2016 December 26, 2016 July 27, 2016 September 25, 2016 April 27, 2016 January 21, 2016 June 25, 2016 March 26, 2016 May 16, 2016 Fixed-to-floating April 10, 2017 January 10, 2017 October 11, 2016 July 11, 2016 April 11, 2016 6.00% $ 6.00 6.00 6.00 6.00 October 10, 2016 November 15, 2016 December 1, 2016 Fixed-to-floating April 15, 2016 May 15, 2016 June 1, 2016 Fixed-to-floating October 10, 2016 December 1, 2016 December 19, 2016 Fixed-to-floating April 15, 2016 June 1, 2016 June 17, 2016 Fixed-to-floating $ $ October 10, 2016 November 15, 2016 December 9, 2016 August 15, 2016 September 9, 2016 July 7, 2016 April 15, 2016 January 11, 2016 January 9, 2017 May 15, 2016 February 15, 2016 February 15, 2017 June 9, 2016 March 9, 2016 March 6, 2017 Fixed-to-floating $ 6.625 6.625 6.625 6.625 July 7, 2016 August 15, 2016 September 6, 2016 Fixed-to-floating January 11, 2016 February 15, 2016 March 7, 2016 Fixed-to-floating December 16, 2016 September 16, 2016 June 17, 2016 March 18, 2016 September 16, 2016 March 18, 2016 January 1, 2017 October 1, 2016 July 1, 2016 April 1, 2016 October 1, 2016 April 1, 2016 January 27, 2017 October 27, 2016 July 27, 2016 April 27, 2016 October 24, 2016 6.50% $ 6.50 6.50 6.50 Fixed-to-floating $ April 25, 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 January 9, 2017 February 15, 2017 March 9, 2017 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 94 Bank of America 2016 Bank of America 2016 95 Table III Preferred Stock Cash Dividend Summary (1) (continued) December 31, 2016 Outstanding Notional Amount (in millions) Declaration Date Record Date Payment Date Per Annum Dividend Rate Dividend Per Share 1,900 January 9, 2017 March 1, 2017 March 17, 2017 Fixed-to-floating $ July 7, 2016 September 1, 2016 September 19, 2016 Fixed-to-floating 1,100 1,000 900 January 11, 2016 December 16, 2016 September 16, 2016 June 17, 2016 March 18, 2016 January 9, 2017 March 1, 2016 January 1, 2017 October 1, 2016 July 1, 2016 April 1, 2016 March 17, 2016 Fixed-to-floating January 30, 2017 October 31, 2016 July 29, 2016 April 29, 2016 6.20% $ 6.20 6.20 6.20 February 15, 2017 March 10, 2017 Fixed-to-floating $ July 7, 2016 August 15, 2016 September 12, 2016 Fixed-to-floating December 16, 2016 September 16, 2016 June 17, 2016 January 1, 2017 October 1, 2016 July 1, 2016 January 25, 2017 October 25, 2016 July 25, 2016 6.00% $ 6.00 6.00 98 January 9, 2017 February 15, 2017 February 28, 2017 Floating $ 30.50 30.50 30.50 0.3875 0.3875 0.3875 0.3875 31.50 31.50 0.375 0.375 0.375 0.18750 0.18750 0.18750 0.18750 0.18750 0.19167 0.19167 0.19167 0.18750 0.19167 Floating Floating Floating Floating Floating Floating Floating Floating Floating $ 6.375% $ 0.3984375 6.375 6.375 6.375 6.375 Floating $ Floating Floating Floating Floating Floating $ Floating Floating Floating Floating 0.3984375 0.3984375 0.3984375 0.3984375 0.25556 0.25556 0.25556 0.25000 0.25556 0.25556 0.25556 0.25556 0.25000 0.25556 October 10, 2016 November 15, 2016 November 28, 2016 July 7, 2016 April 15, 2016 January 11, 2016 January 9, 2017 August 15, 2016 May 15, 2016 February 15, 2016 February 15, 2017 August 30, 2016 May 31, 2016 February 29, 2016 February 28, 2017 October 10, 2016 November 15, 2016 November 28, 2016 July 7, 2016 April 15, 2016 January 11, 2016 January 9, 2017 August 15, 2016 May 15, 2016 February 15, 2016 February 15, 2017 August 30, 2016 May 31, 2016 February 29, 2016 February 28, 2017 October 10, 2016 November 15, 2016 November 28, 2016 July 7, 2016 April 15, 2016 January 11, 2016 January 9, 2017 August 15, 2016 May 15, 2016 February 15, 2016 February 15, 2017 August 29, 2016 May 31, 2016 February 29, 2016 February 28, 2017 October 10, 2016 November 15, 2016 November 28, 2016 299 653 210 July 7, 2016 April 15, 2016 August 15, 2016 May 15, 2016 January 11, 2016 February 15, 2016 422 January 9, 2017 February 1, 2017 August 30, 2016 May 31, 2016 February 29, 2016 February 21, 2017 October 10, 2016 November 1, 2016 November 21, 2016 July 7, 2016 April 15, 2016 August 1, 2016 May 1, 2016 August 22, 2016 May 23, 2016 January 11, 2016 February 1, 2016 February 22, 2016 Preferred Stock Series AA (4, 5) Series CC (3) Series DD (4,5) Series EE (3) Series 1 (6) Series 2 (6) Series 3 (6) Series 4 (6) Series 5 (6) $ $ $ $ $ $ $ $ $ (1) Preferred stock cash dividend summary is as of February 23, 2017. (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. 96 Bank of America 2016 Table III Preferred Stock Cash Dividend Summary (1) (continued) Table IV Outstanding Loans and Leases (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 Less: Loans of business held for sale (7) Total loans and leases 2016 2015 December 31 2014 2013 2012 $ 191,797 66,443 92,278 9,214 94,089 2,499 456,320 1,051 457,371 283,365 57,355 22,375 89,397 452,492 6,034 458,526 (9,214) $ 906,683 $ 187,911 75,948 89,602 9,975 88,795 2,067 454,298 1,871 456,169 265,647 57,199 21,352 91,549 435,747 5,067 440,814 — $ 896,983 $ 216,197 85,725 91,879 10,465 80,381 1,846 486,493 2,077 488,570 233,586 47,682 19,579 80,083 380,930 6,604 387,534 — $ 876,104 $ 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 (1) (2) (3) Includes pay option loans of $1.8 billion, $2.3 billion, $3.2 billion, $4.4 billion and $6.7 billion, and non-U.S. residential mortgage loans of $2 million, $2 million, $2 million, $0 and $93 million at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. The Corporation no longer originates pay option loans. Includes auto and specialty lending loans of $48.9 billion, $42.6 billion, $37.7 billion, $38.5 billion and $35.9 billion, unsecured consumer lending loans of $585 million, $886 million, $1.5 billion, $2.7 billion and $4.7 billion, U.S. securities-based lending loans of $40.1 billion, $39.8 billion, $35.8 billion, $31.2 billion and $28.3 billion, non-U.S. consumer loans of $3.0 billion, $3.9 billion, $4.0 billion, $4.7 billion and $8.3 billion, student loans of $497 million, $564 million, $632 million, $4.1 billion and $4.8 billion, and other consumer loans of $1.1 billion, $1.0 billion, $761 million, $1.0 billion and $1.2 billion at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. Includes consumer finance loans of $465 million, $564 million, $676 million, $1.2 billion and $1.4 billion, consumer leases of $1.9 billion, $1.4 billion, $1.0 billion, $606 million and $34 million, and consumer overdrafts of $157 million, $146 million, $162 million, $176 million and $177 million at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. Series 1 (6) 98 January 9, 2017 February 15, 2017 February 28, 2017 Floating $ October 10, 2016 November 15, 2016 November 28, 2016 Preferred Stock Series AA (4, 5) Series CC (3) Series DD (4,5) Series EE (3) Series 2 (6) Series 3 (6) Series 4 (6) December 31, 2016 Outstanding Notional Amount (in millions) 1,100 1,000 900 299 653 210 $ $ $ $ $ $ $ $ $ Declaration Date Record Date Payment Date Per Annum Dividend Rate Dividend Per Share 1,900 January 9, 2017 March 1, 2017 March 17, 2017 Fixed-to-floating $ July 7, 2016 September 1, 2016 September 19, 2016 Fixed-to-floating March 17, 2016 Fixed-to-floating March 1, 2016 January 1, 2017 October 1, 2016 July 1, 2016 April 1, 2016 January 30, 2017 October 31, 2016 July 29, 2016 April 29, 2016 July 7, 2016 August 15, 2016 September 12, 2016 Fixed-to-floating February 15, 2017 March 10, 2017 Fixed-to-floating $ January 1, 2017 October 1, 2016 July 1, 2016 January 25, 2017 October 25, 2016 July 25, 2016 January 11, 2016 December 16, 2016 September 16, 2016 June 17, 2016 March 18, 2016 January 9, 2017 December 16, 2016 September 16, 2016 June 17, 2016 July 7, 2016 April 15, 2016 January 11, 2016 January 9, 2017 July 7, 2016 April 15, 2016 January 11, 2016 January 9, 2017 July 7, 2016 April 15, 2016 January 11, 2016 January 9, 2017 October 10, 2016 November 15, 2016 November 28, 2016 August 15, 2016 May 15, 2016 February 15, 2016 February 15, 2017 August 15, 2016 May 15, 2016 February 15, 2016 February 15, 2017 August 15, 2016 May 15, 2016 February 15, 2016 February 15, 2017 August 30, 2016 May 31, 2016 February 29, 2016 February 28, 2017 August 30, 2016 May 31, 2016 February 29, 2016 February 28, 2017 August 29, 2016 May 31, 2016 February 29, 2016 February 28, 2017 August 30, 2016 May 31, 2016 February 29, 2016 February 21, 2017 October 10, 2016 November 15, 2016 November 28, 2016 July 7, 2016 April 15, 2016 August 15, 2016 May 15, 2016 January 11, 2016 February 15, 2016 October 10, 2016 November 1, 2016 November 21, 2016 July 7, 2016 April 15, 2016 August 1, 2016 May 1, 2016 August 22, 2016 May 23, 2016 January 11, 2016 February 1, 2016 February 22, 2016 30.50 30.50 30.50 0.3875 0.3875 0.3875 0.3875 31.50 31.50 0.375 0.375 0.375 0.18750 0.18750 0.18750 0.18750 0.18750 0.19167 0.19167 0.19167 0.18750 0.19167 0.3984375 0.3984375 0.3984375 0.3984375 0.25556 0.25556 0.25556 0.25000 0.25556 0.25556 0.25556 0.25556 0.25000 0.25556 6.20% $ 6.20 6.20 6.20 6.00% $ 6.00 6.00 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 $ October 10, 2016 November 15, 2016 November 28, 2016 6.375% $ 0.3984375 Series 5 (6) 422 January 9, 2017 February 1, 2017 Floating $ (1) Preferred stock cash dividend summary is as of February 23, 2017. (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. (7) Represents non-U.S. credit card loans, which are included in assets of business held for sale on the Consolidated Balance Sheet. 96 Bank of America 2016 Bank of America 2016 97 (4) Consumer loans accounted for under the fair value option were residential mortgage loans of $710 million, $1.6 billion, $1.9 billion, $2.0 billion and $1.0 billion, and home equity loans of $341 million, $250 million, $196 million, $147 million and $0 at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. Commercial loans accounted for under the fair value option were U.S. commercial loans of $2.9 billion, $2.3 billion, $1.9 billion, $1.5 billion and $2.3 billion, and non-U.S. commercial loans of $3.1 billion, $2.8 billion, $4.7 billion, $6.4 billion and $5.7 billion at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. Includes U.S. small business commercial loans, including card-related products, of $13.0 billion, $12.9 billion, $13.3 billion, $13.3 billion and $12.6 billion at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. Includes U.S. commercial real estate loans of $54.3 billion, $53.6 billion, $45.2 billion, $46.3 billion and $37.2 billion, and non-U.S. commercial real estate loans of $3.1 billion, $3.5 billion, $2.5 billion, $1.6 billion and $1.5 billion at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. (6) (5) Table V Nonperforming Loans, Leases and Foreclosed Properties (1) (Dollars in millions) Consumer Residential mortgage Home equity Direct/Indirect consumer Other consumer Total consumer (2) Commercial U.S. commercial Commercial real estate Commercial lease financing Non-U.S. commercial U.S. small business commercial Total commercial (3) Total nonperforming loans and leases Foreclosed properties Total nonperforming loans, leases and foreclosed properties 2016 2015 December 31 2014 2013 2012 $ $ 3,056 2,918 28 2 6,004 1,256 72 36 279 1,643 60 1,703 7,707 377 8,084 $ $ 4,803 3,337 24 1 8,165 867 93 12 158 1,130 82 1,212 9,377 459 9,836 $ $ 6,889 3,901 28 1 10,819 701 321 3 1 1,026 87 1,113 11,932 697 12,629 $ $ 11,712 4,075 35 18 15,840 819 322 16 64 1,221 88 1,309 17,149 623 17,772 $ $ 15,055 4,282 92 2 19,431 1,484 1,513 44 68 3,109 115 3,224 22,655 900 23,555 (2) (1) Balances do not include PCI loans even though the customer may be contractually past due. PCI loans were recorded at fair value upon acquisition and accrete interest income over the remaining life of the loan. In addition, balances do not include foreclosed properties insured by certain government-guaranteed loans, principally FHA-insured loans, that entered foreclosure of $1.2 billion, $1.4 billion, $1.1 billion, $1.4 billion and $2.5 billion at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. In 2016, $1.0 billion in interest income was estimated to be contractually due on $6.0 billion of consumer loans and leases classified as nonperforming at December 31, 2016, as presented in the table above, plus $12.5 billion of TDRs classified as performing at December 31, 2016. Approximately $653 million of the estimated $1.0 billion in contractual interest was received and included in interest income for 2016. In 2016, $185 million in interest income was estimated to be contractually due on $1.7 billion of commercial loans and leases classified as nonperforming at December 31, 2016, as presented in the table above, plus $1.5 billion of TDRs classified as performing at December 31, 2016. Approximately $105 million of the estimated $185 million in contractual interest was received and included in interest income for 2016. (3) Table VI Accruing Loans and Leases Past Due 90 Days or More (1) (Dollars in millions) Consumer Residential mortgage (2) 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 accruing loans and leases past due 90 days or more (3) 2016 2015 December 31 2014 2013 2012 $ $ 4,793 782 66 34 4 5,679 106 7 19 5 137 71 208 5,887 $ $ 7,150 789 76 39 3 8,057 113 3 15 1 132 61 193 8,250 $ $ 11,407 866 95 64 1 12,433 110 3 40 — 153 67 220 12,653 $ $ 16,961 1,053 131 408 2 18,555 47 21 41 17 126 78 204 18,759 $ $ 22,157 1,437 212 545 2 24,353 65 29 15 — 109 120 229 24,582 (1) Our policy is to classify consumer real estate-secured loans as nonperforming at 90 days past due, except the PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the fair value option as referenced in footnote 3. (2) Balances are fully-insured loans. (3) Balances exclude loans accounted for under the fair value option. At December 31, 2016, 2015, 2014, and 2013 $1 million, $1 million, $5 million and $8 million of loans accounted for under the fair value option were past due 90 days or more and still accruing interest. At December 31, 2012, there were no loans accounted for under the fair value option that were past due 90 days or more and still accruing interest. 98 Bank of America 2016 Table V Nonperforming Loans, Leases and Foreclosed Properties (1) Total nonperforming loans, leases and foreclosed properties $ 8,084 $ 9,836 $ 12,629 $ 17,772 $ 23,555 (1) Balances do not include PCI loans even though the customer may be contractually past due. PCI loans were recorded at fair value upon acquisition and accrete interest income over the remaining life of the loan. In addition, balances do not include foreclosed properties insured by certain government-guaranteed loans, principally FHA-insured loans, that entered foreclosure of $1.2 billion, $1.4 billion, $1.1 billion, $1.4 billion and $2.5 billion at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. (2) In 2016, $1.0 billion in interest income was estimated to be contractually due on $6.0 billion of consumer loans and leases classified as nonperforming at December 31, 2016, as presented in the table above, plus $12.5 billion of TDRs classified as performing at December 31, 2016. Approximately $653 million of the estimated $1.0 billion in contractual interest was received and included (3) In 2016, $185 million in interest income was estimated to be contractually due on $1.7 billion of commercial loans and leases classified as nonperforming at December 31, 2016, as presented in the table above, plus $1.5 billion of TDRs classified as performing at December 31, 2016. Approximately $105 million of the estimated $185 million in contractual interest was received and included in interest income for 2016. in interest income for 2016. Table VI Accruing Loans and Leases Past Due 90 Days or More (1) 2016 2015 2014 2013 2012 December 31 $ $ 3,056 2,918 $ 4,803 3,337 $ 11,712 $ 15,055 4,075 4,282 8,165 10,819 15,840 19,431 28 2 6,004 1,256 72 36 279 1,643 60 1,703 7,707 377 24 1 867 93 12 158 1,130 82 1,212 9,377 459 6,889 3,901 28 1 701 321 3 1 1,026 87 1,113 11,932 697 35 18 819 322 16 64 1,221 88 1,309 17,149 623 92 2 1,484 1,513 44 68 3,109 115 3,224 22,655 900 2016 2015 2014 2013 2012 December 31 $ 4,793 $ 7,150 $ 11,407 $ 16,961 $ 22,157 1,053 1,437 5,679 8,057 12,433 18,555 24,353 782 66 34 4 106 19 7 5 137 71 208 789 76 39 3 113 3 15 1 132 61 193 866 95 64 1 110 3 40 — 153 67 220 131 408 2 47 21 41 17 126 78 204 212 545 2 65 29 15 — 109 120 229 (Dollars in millions) Consumer Residential mortgage Home equity Direct/Indirect consumer Other consumer Total consumer (2) Commercial U.S. commercial Commercial real estate Commercial lease financing Non-U.S. commercial U.S. small business commercial Total commercial (3) Total nonperforming loans and leases Foreclosed properties (Dollars in millions) Consumer Residential mortgage (2) 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 fair value option as referenced in footnote 3. (2) Balances are fully-insured loans. and still accruing interest. Table VII 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 Less: Allowance included in assets of business held for sale (4) Total allowance for loan and lease losses, December 31 Reserve for unfunded lending commitments, January 1 Provision for unfunded lending commitments Other (3) Reserve for unfunded lending commitments, December 31 Allowance for credit losses, December 31 2016 2015 2014 2013 2012 $ 12,234 $ 14,419 $ 17,428 $ 24,179 $ 33,783 (403) (752) (2,691) (238) (392) (232) (4,708) (567) (10) (30) (133) (740) (5,448) (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) 272 347 422 63 258 27 1,389 175 41 9 13 238 1,627 (3,821) (340) 3,581 (174) 11,480 (243) 11,237 646 16 100 762 11,999 393 339 424 87 271 31 1,545 172 35 10 5 222 1,767 (4,338) (808) 3,043 (82) 12,234 — 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 — 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 — 17,428 513 (18) (11) 484 17,912 (3,276) (4,573) (5,360) (835) (1,258) (274) (15,576) (1,309) (719) (32) (36) (2,096) (17,672) 165 331 728 254 495 42 2,015 368 335 38 8 749 2,764 (14,908) (2,820) 8,310 (186) 24,179 — 24,179 714 (141) (60) 513 24,692 $ Includes U.S. small business commercial charge-offs of $253 million, $282 million, $345 million, $457 million and $799 million in 2016, 2015, 2014, 2013 and 2012, respectively. Includes U.S. small business commercial recoveries of $45 million, $57 million, $63 million, $98 million and $100 million in 2016, 2015, 2014, 2013 and 2012, respectively. $ $ $ $ (1) (2) Total accruing loans and leases past due 90 days or more (3) $ 5,887 $ 8,250 $ 12,653 $ 18,759 $ 24,582 (1) Our policy is to classify consumer real estate-secured loans as nonperforming at 90 days past due, except the PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the (3) Balances exclude loans accounted for under the fair value option. At December 31, 2016, 2015, 2014, and 2013 $1 million, $1 million, $5 million and $8 million of loans accounted for under the fair value option were past due 90 days or more and still accruing interest. At December 31, 2012, there were no loans accounted for under the fair value option that were past due 90 days or more (3) Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments and certain other reclassifications. (4) Represents allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which is included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. 98 Bank of America 2016 Bank of America 2016 99 Table VII Allowance for Credit Losses (continued) (Dollars in millions) Loan and allowance ratios (5): Loans and leases outstanding at December 31 (6) Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (6) Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (7) Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (8) Average loans and leases outstanding (6) Net charge-offs as a percentage of average loans and leases outstanding (6, 9) Net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (6) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (6, 10) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (9) 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 2016 2015 2014 2013 2012 $ 908,812 $ 890,045 $ 867,422 $ 918,191 $ 898,817 1.26% 1.37% 1.66% 1.90% 2.69% 1.36 1.16 1.63 1.11 2.05 1.16 2.53 1.03 3.81 0.90 $ 892,255 $ 869,065 $ 888,804 $ 909,127 $ 890,337 0.43% 0.50% 0.49% 0.87% 1.67% 0.47 149 3.00 2.76 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 excluded from nonperforming loans and leases at December 31 (11) $ 3,951 $ 4,518 $ 5,944 $ 7,680 $ 12,021 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 (6, 11) Loan and allowance ratios excluding PCI loans and the related valuation allowance: (5, 12) Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (6) Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (7) Net charge-offs as a percentage of average loans and leases outstanding (6) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (6, 10) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs 98% 82% 71% 57% 54% 1.24% 1.31% 1.51% 1.67% 2.14% 1.31 0.44 144 2.89 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 (5) Loan and allowance ratios include $243 million of non-U.S. credit card allowance for loan and lease losses and $9.2 billion of ending non-U.S. credit card loans, which are included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. (6) Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $7.1 billion, $6.9 billion, $8.7 billion, $10.0 billion and $9.0 billion at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. Average loans accounted for under the fair value option were $8.2 billion, $7.7 billion, $9.9 billion, $9.5 billion and $8.4 billion in 2016, 2015, 2014, 2013 and 2012, respectively. (7) Excludes consumer loans accounted for under the fair value option of $1.1 billion, $1.9 billion, $2.1 billion, $2.2 billion and $1.0 billion at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. (8) Excludes commercial loans accounted for under the fair value option of $6.0 billion, $5.1 billion, $6.6 billion, $7.9 billion and $8.0 billion at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. (9) Net charge-offs exclude $340 million, $808 million, $810 million, $2.3 billion and $2.8 billion of write-offs in the PCI loan portfolio in 2016, 2015, 2014, 2013 and 2012 respectively. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 61. (10) For more information on our definition of nonperforming loans, see pages 63 and 69. (11) 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 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 Financial Statements. 100 Bank of America 2016 Table VII Allowance for Credit Losses (continued) Table VIII Allocation of the Allowance for Credit Losses by Product Type (Dollars in millions) Loan and allowance ratios (5): 2016 2015 2014 2013 2012 Loans and leases outstanding at December 31 (6) $ 908,812 $ 890,045 $ 867,422 $ 918,191 $ 898,817 1.26% 1.37% 1.66% 1.90% 2.69% Net charge-offs as a percentage of average loans and leases outstanding (6, 9) 0.43% 0.50% 0.49% 0.87% 1.67% $ 892,255 $ 869,065 $ 888,804 $ 909,127 $ 890,337 Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (6) Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (7) Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (8) Average loans and leases outstanding (6) Net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (6) leases at December 31 (6, 10) Allowance for loan and lease losses as a percentage of total nonperforming loans and Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (9) 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 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 (6, 11) Loan and allowance ratios excluding PCI loans and the related valuation allowance: (5, 12) Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (6) Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (7) Net charge-offs as a percentage of average loans and leases outstanding (6) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (6, 10) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs 1.36 1.16 0.47 149 3.00 2.76 1.31 0.44 144 2.89 1.63 1.11 0.59 130 2.82 2.38 1.50 0.51 122 2.64 2.05 1.16 0.58 121 3.29 2.78 1.79 0.50 107 2.91 2.53 1.03 1.13 102 2.21 1.70 2.17 0.90 87 1.89 3.81 0.90 1.99 107 1.62 1.36 2.95 1.73 82 1.25 98% 82% 71% 57% 54% 1.24% 1.31% 1.51% 1.67% 2.14% excluded from nonperforming loans and leases at December 31 (11) $ 3,951 $ 4,518 $ 5,944 $ 7,680 $ 12,021 2014, 2013 and 2012, respectively. respectively. respectively. (5) Loan and allowance ratios include $243 million of non-U.S. credit card allowance for loan and lease losses and $9.2 billion of ending non-U.S. credit card loans, which are included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. (6) Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $7.1 billion, $6.9 billion, $8.7 billion, $10.0 billion and $9.0 billion at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. Average loans accounted for under the fair value option were $8.2 billion, $7.7 billion, $9.9 billion, $9.5 billion and $8.4 billion in 2016, 2015, (7) Excludes consumer loans accounted for under the fair value option of $1.1 billion, $1.9 billion, $2.1 billion, $2.2 billion and $1.0 billion at December 31, 2016, 2015, 2014, 2013 and 2012, (8) Excludes commercial loans accounted for under the fair value option of $6.0 billion, $5.1 billion, $6.6 billion, $7.9 billion and $8.0 billion at December 31, 2016, 2015, 2014, 2013 and 2012, (9) Net charge-offs exclude $340 million, $808 million, $810 million, $2.3 billion and $2.8 billion of write-offs in the PCI loan portfolio in 2016, 2015, 2014, 2013 and 2012 respectively. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 61. (10) For more information on our definition of nonperforming loans, see pages 63 and 69. (11) 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 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 Financial Statements. (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) Less: Allowance included in assets of business held for sale (4) Total allowance for loan and lease losses 11,237 Reserve for unfunded lending commitments Allowance for credit losses 762 $ 11,999 2016 2015 December 31 2014 2013 2012 Amount Percent of Total Amount Percent of Total Amount Percent of Total Amount Percent of Total Amount Percent of Total $ 1,012 1,738 2,934 243 244 51 6,222 3,326 920 138 874 5,258 11,480 (243) 8.82% $ 1,500 2,414 2,927 274 223 47 7,385 2,964 967 164 754 4,849 12,234 15.14 25.56 2.12 2.13 0.44 54.21 28.97 8.01 1.20 7.61 45.79 100.00% 12.26% $ 2,900 3,035 19.73 3,320 23.93 369 2.24 299 1.82 0.38 59 9,982 60.36 2,619 24.23 1,016 7.90 153 1.34 6.17 649 4,437 39.64 14,419 100.00% 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% 23.43% $ 7,088 7,845 25.44 4,718 22.55 600 2.63 718 2.39 0.58 104 21,073 77.02 1,885 13.74 846 5.26 78 0.68 3.30 297 3,106 22.98 24,179 100.00% 29.31% 32.45 19.51 2.48 2.97 0.43 87.15 7.80 3.50 0.32 1.23 12.85 100.00% — 12,234 646 $ 12,880 — 14,419 528 $ 14,947 — 17,428 484 $ 17,912 — 24,179 513 $ 24,692 (1) (2) (3) Includes allowance for loan and lease losses for U.S. small business commercial loans of $416 million, $507 million, $536 million, $462 million and $642 million at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. Includes allowance for loan and lease losses for impaired commercial loans of $273 million, $217 million, $159 million, $277 million and $475 million at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. Includes $419 million, $804 million, $1.7 billion, $2.5 billion and $5.5 billion of valuation allowance presented with the allowance for loan and lease losses related to PCI loans at December 31, 2016, 2015, 2014, 2013 and 2012, respectively. (4) Represents allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which is included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. 100 Bank of America 2016 Bank of America 2016 101 Table IX 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. Table X Non-exchange Traded Commodity Related Contracts (Dollars in millions) Net fair value of contracts outstanding, January 1, 2016 Effect of legally enforceable master netting agreements Gross fair value of contracts outstanding, January 1, 2016 Contracts realized or otherwise settled Fair value of new contracts Other changes in fair value Gross fair value of contracts outstanding, December 31, 2016 Less: Legally enforceable master netting agreements Net fair value of contracts outstanding, December 31, 2016 Table XI Non-exchange Traded Commodity Related 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 December 31, 2016 Due in One Year or Less $ $ 74,191 11,555 33,971 119,717 Due After One Year Through Five Years $ $ 167,670 38,826 53,270 259,766 27% 60% $ $ 17,396 242,370 259,766 $ $ $ $ Due After Five Years 44,424 3,871 8,373 56,668 $ $ Total 286,285 54,252 95,614 436,151 13% 100% 25,636 31,032 56,668 2016 Asset Positions Liability Positions $ $ 8,299 3,244 11,543 (5,420) 2,421 (1,323) 7,221 (1,480) 5,741 $ $ 7,313 3,244 10,557 (5,853) 2,210 (482) 6,432 (1,480) 4,952 2016 Asset Positions Liability Positions $ $ 2,727 1,418 625 2,451 7,221 (1,480) 5,741 $ $ 2,931 1,219 554 1,728 6,432 (1,480) 4,952 102 Bank of America 2016 Table IX Selected Loan Maturity Data (1, 2) Table XII Selected Quarterly Financial Data (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. Table X Non-exchange Traded Commodity Related Contracts (Dollars in millions) Net fair value of contracts outstanding, January 1, 2016 Effect of legally enforceable master netting agreements Gross fair value of contracts outstanding, January 1, 2016 Contracts realized or otherwise settled Fair value of new contracts Other changes in fair value Gross fair value of contracts outstanding, December 31, 2016 Less: Legally enforceable master netting agreements Net fair value of contracts outstanding, December 31, 2016 (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 Table XI Non-exchange Traded Commodity Related Contract Maturities December 31, 2016 Due After One Year Through Five Years Due After Five Years 38,826 53,270 3,871 8,373 Due in One Year or Less 74,191 11,555 33,971 $ $ 167,670 $ 44,424 $ 286,285 Total 54,252 95,614 $ 119,717 $ 259,766 $ 56,668 $ 436,151 27% 60% 13% 100% $ 17,396 242,370 259,766 $ $ $ 25,636 31,032 56,668 2016 Asset Positions Liability Positions $ $ 8,299 3,244 11,543 (5,420) 2,421 (1,323) 7,221 (1,480) 7,313 3,244 10,557 (5,853) 2,210 (482) 6,432 (1,480) $ 5,741 $ 4,952 2016 Asset Positions Liability Positions $ $ 2,727 1,418 625 2,451 7,221 2,931 1,219 554 1,728 6,432 (1,480) (1,480) $ 5,741 $ 4,952 (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 before income taxes Income tax expense 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 Four quarter trailing return on average assets (1) Return on average common shareholders’ equity Return on average tangible common shareholders’ equity (2) Return on average shareholders' equity 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 Market capitalization 2016 Quarters 2015 Quarters Fourth Third Second First Fourth Third Second First $ 10,292 $ 10,201 $ 10,118 $ 10,485 $ 9,698 19,990 774 13,161 6,055 1,359 4,696 4,335 10,170 10,959 11,434 21,635 850 13,481 7,304 2,349 4,955 4,452 10,250 11,000 11,168 21,286 976 13,493 6,817 2,034 4,783 4,422 10,328 11,059 10,305 20,790 997 14,816 4,977 1,505 3,472 3,015 10,370 11,100 9,686 9,896 19,582 810 14,010 4,762 1,478 3,284 2,954 10,399 11,153 $ 9,900 $ 9,517 $ 9,855 11,092 20,992 806 13,939 6,247 1,628 4,619 4,178 10,444 11,197 11,523 21,040 780 13,959 6,301 1,736 4,565 4,235 10,488 11,238 11,496 21,351 765 15,826 4,760 1,392 3,368 2,986 10,519 11,267 0.85% 0.82 0.90% 0.76 0.88% 0.74 0.64% 0.73 0.60% 0.73 0.84% 0.74 0.85% 0.52 0.64% 0.42 7.04 9.92 6.91 9.38 12.20 12.24 17.68 0.43 0.40 0.075 24.04 16.95 22.10 23.16 15.63 7.27 10.28 7.33 9.98 12.30 12.28 17.32 0.43 0.41 0.075 24.19 17.14 15.65 16.19 12.74 7.40 10.54 7.25 9.93 12.23 12.13 11.73 0.43 0.41 0.05 23.71 16.71 13.27 15.11 12.18 5.11 7.33 5.36 7.40 12.03 11.98 17.13 0.29 0.28 0.05 23.14 16.19 13.52 16.43 11.16 $ $ 4.99 7.19 5.07 7.04 11.95 11.79 17.57 0.28 0.27 0.05 22.53 15.62 16.83 17.95 15.38 $ $ 7.16 10.40 7.22 10.08 11.88 11.70 12.48 0.40 0.38 0.05 22.40 15.50 15.58 18.45 15.26 7.43 10.85 7.29 10.24 11.70 11.67 12.36 0.40 0.38 0.05 21.89 15.00 17.02 17.67 15.41 $ $ 5.37 7.91 5.55 7.87 11.68 11.50 17.62 0.28 0.27 0.05 21.67 14.80 15.39 17.90 15.15 $ $ $ $ $ $ $ $ $ $ $ 222,163 $ 158,438 $ 135,577 $ 139,427 $ 174,700 $ 162,457 $ 178,231 $ 161,909 (1) Calculated as total net income for four consecutive quarters divided by annualized average assets for four consecutive quarters. (2) Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios, see Supplemental Financial Data on page 26, and for corresponding reconciliations to GAAP financial measures, see Statistical Table XVI. (3) For more information on the impact of the PCI loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 55. (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 63 and corresponding Table 30, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 69 and corresponding Table 37. (6) Asset quality metrics as of December 31, 2016 include $243 million of non-U.S. credit card allowance for loan and lease losses and $9.2 billion of non-U.S. credit card loans, which are included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. (7) 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. (8) Net charge-offs exclude $70 million, $83 million, $82 million and $105 million of write-offs in the PCI loan portfolio in the fourth, third, second and first quarters of 2016, respectively, and $82 million, $148 million, $290 million and $288 million in the fourth, third, second and first quarters of 2015, respectively. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 61. (9) Risk-based capital ratios are reported under Basel 3 Advanced - Transition beginning in the fourth quarter of 2015. Prior to fourth quarter of 2015, we were required to report risk-based capital ratios under Basel 3 Standardized - Transition only. For additional information, see Capital Management on page 44. 102 Bank of America 2016 Bank of America 2016 103 Table XII Selected Quarterly Financial Data (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) 2016 Quarters 2015 Quarters Fourth Third Second First Fourth Third Second First $ 908,396 $ 900,594 $ 899,670 $ 892,984 $ 886,156 $ 877,429 $ 876,178 $ 876,169 2,208,039 1,250,948 220,587 245,139 270,360 2,189,490 2,188,241 2,173,922 2,180,507 2,168,930 2,151,966 2,138,832 1,227,186 1,213,291 1,198,455 1,186,051 1,159,231 1,146,789 1,130,725 227,269 243,679 268,899 233,061 240,376 265,354 233,654 237,229 260,423 237,384 234,800 257,074 240,520 231,524 253,798 242,230 228,774 251,048 240,127 225,477 245,863 Allowance for credit losses (4) Nonperforming loans, leases and foreclosed properties (5) $ 11,999 8,084 $ 12,459 8,737 $ 12,587 8,799 $ 12,696 9,281 $ 12,880 9,836 $ 13,318 10,336 $ 13,656 11,565 $ 14,213 12,101 Allowance for loan and lease losses as a percentage of total loans and leases outstanding (5, 6) 1.26% 1.30% 1.32% 1.35% 1.37% 1.45% 1.50% 1.58% Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5, 6) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio (5, 6) Amounts included in allowance for loan and lease losses for loans and 149 144 140 135 142 135 136 129 130 122 129 120 122 111 122 110 leases that are excluded from nonperforming loans and leases (7) $ 3,951 $ 4,068 $ 4,087 $ 4,138 $ 4,518 $ 4,682 $ 5,050 $ 5,492 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, 7) 98% 91% 93% 90% 82% 81% 75% 73% Net charge-offs (8) $ 880 $ 888 $ 985 $ 1,068 $ 1,144 $ 932 $ 1,068 $ 1,194 Annualized net charge-offs as a percentage of average loans and leases outstanding (5, 8) Annualized net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (5) Annualized net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (5) Nonperforming loans and leases as a percentage of total loans and leases outstanding (5, 6) Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (5, 6) Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs (6, 8) Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs, excluding the PCI loan portfolio (6) Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs and PCI write-offs (6) Capital ratios at period end (9) Risk-based capital: Common equity tier 1 capital Tier 1 capital Total capital Tier 1 leverage Tangible equity (2) Tangible common equity (2) For footnotes see page 104. 0.39% 0.40% 0.44% 0.48% 0.52% 0.43% 0.49% 0.56% 0.39 0.42 0.85 0.89 3.28 3.16 3.04 11.0% 12.4 14.3 8.9 9.2 8.1 0.40 0.43 0.93 0.97 3.31 3.18 3.03 11.0% 12.4 14.2 9.1 9.4 8.2 0.45 0.48 0.94 0.98 2.99 2.85 2.76 10.6% 12.0 13.9 8.9 9.3 8.1 0.49 0.53 0.99 1.04 2.81 2.67 2.56 10.3% 11.5 13.4 8.7 9.1 7.9 0.53 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 1.12 1.18 3.42 3.18 2.95 11.6% 12.9 15.8 8.5 8.8 7.8 0.50 0.63 1.23 1.32 3.05 2.79 2.40 11.2% 12.5 15.5 8.5 8.6 7.6 0.58 0.70 1.30 1.40 2.82 2.55 2.28 11.1% 12.3 15.3 8.4 8.6 7.5 104 Bank of America 2016 2016 Quarters 2015 Quarters Fourth Third Second First Fourth Third Second First $ 908,396 $ 900,594 $ 899,670 $ 892,984 $ 886,156 $ 877,429 $ 876,178 $ 876,169 2,208,039 1,250,948 220,587 245,139 270,360 2,189,490 2,188,241 2,173,922 2,180,507 2,168,930 2,151,966 2,138,832 1,227,186 1,213,291 1,198,455 1,186,051 1,159,231 1,146,789 1,130,725 227,269 243,679 268,899 233,061 240,376 265,354 233,654 237,229 260,423 237,384 234,800 257,074 240,520 231,524 253,798 242,230 228,774 251,048 240,127 225,477 245,863 Nonperforming loans, leases and foreclosed properties (5) 8,084 8,737 8,799 9,281 9,836 10,336 11,565 12,101 $ 11,999 $ 12,459 $ 12,587 $ 12,696 $ 12,880 $ 13,318 $ 13,656 $ 14,213 and leases outstanding (5, 6) 1.26% 1.30% 1.32% 1.35% 1.37% 1.45% 1.50% 1.58% leases that are excluded from nonperforming loans and leases (7) $ 3,951 $ 4,068 $ 4,087 $ 4,138 $ 4,518 $ 4,682 $ 5,050 $ 5,492 149 144 140 135 142 135 136 129 130 122 129 120 122 111 122 110 (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) Allowance for loan and lease losses as a percentage of total loans Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5, 6) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio (5, 6) Amounts included in allowance for loan and lease losses for loans and 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, 7) Net charge-offs (8) Annualized net charge-offs as a percentage of average loans and leases outstanding (5, 8) Annualized net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (5) Annualized net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (5) Nonperforming loans and leases as a percentage of total loans and leases outstanding (5, 6) Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (5, 6) Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs (6, 8) Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs, excluding the PCI loan portfolio (6) Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs and PCI write-offs (6) Capital ratios at period end (9) Risk-based capital: Common equity tier 1 capital Tier 1 capital Total capital Tier 1 leverage Tangible equity (2) Tangible common equity (2) For footnotes see page 104. 98% 91% 93% 90% 82% 81% 75% 73% $ 880 $ 888 $ 985 $ 1,068 $ 1,144 $ 932 $ 1,068 $ 1,194 0.39% 0.40% 0.44% 0.48% 0.52% 0.43% 0.49% 0.56% 0.39 0.42 0.85 0.89 3.28 3.16 3.04 11.0% 12.4 14.3 8.9 9.2 8.1 0.40 0.43 0.93 0.97 3.31 3.18 3.03 11.0% 12.4 14.2 9.1 9.4 8.2 0.45 0.48 0.94 0.98 2.99 2.85 2.76 10.6% 12.0 13.9 8.9 9.3 8.1 0.49 0.53 0.99 1.04 2.81 2.67 2.56 10.3% 11.5 13.4 8.7 9.1 7.9 0.53 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 1.12 1.18 3.42 3.18 2.95 11.6% 12.9 15.8 8.5 8.8 7.8 0.50 0.63 1.23 1.32 3.05 2.79 2.40 11.2% 12.5 15.5 8.5 8.6 7.6 0.58 0.70 1.30 1.40 2.82 2.55 2.28 11.1% 12.3 15.3 8.4 8.6 7.5 Table XII Selected Quarterly Financial Data (continued) Table XIII Quarterly Average Balances and Interest Rates – FTE Basis (Dollars in millions) Earning assets Fourth Quarter 2016 Fourth 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 $ 125,820 $ 0.46% $ 148,102 1.57 10,120 $ 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 (1) Other earning assets Total earning assets (6) Cash and due from banks (1) Other assets, less allowance for loan and lease losses (1) 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 9,745 218,200 126,731 430,719 191,003 68,021 89,521 9,051 93,527 2,462 453,585 283,491 57,540 21,436 92,344 454,811 908,396 64,501 145 39 315 1,131 2,273 1,621 618 2,105 192 598 25 5,159 2,119 453 145 589 3,306 8,465 731 1,884,112 13,099 27,452 296,475 $ 2,208,039 1 78 32 53 164 4 2 109 115 279 542 240 1,512 2,573 $ 50,132 $ 604,155 47,625 34,904 736,816 2,918 1,346 60,123 64,387 801,203 207,679 71,598 220,587 1,301,067 449,745 186,867 270,360 $ 2,208,039 108 41 214 1,141 2,470 1,644 715 2,045 258 530 11 5,203 1,790 408 155 530 2,883 8,086 748 1 68 37 25 131 7 2 71 80 211 519 272 1,895 2,897 1,847,171 12,808 29,503 303,833 $ 2,180,507 0.01% $ 0.05 0.57 3.55 2.11 3.39 3.63 9.35 8.43 2.54 3.99 4.53 2.97 3.13 2.71 2.54 2.89 3.71 4.52 2.77 0.27 0.60 0.09 0.48 0.74 0.73 0.71 0.14 1.04 1.33 2.74 0.79 207,585 134,797 399,338 189,650 77,109 88,623 10,155 87,858 2,039 455,434 261,727 56,126 20,422 92,447 430,722 886,156 61,073 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 1,290,010 438,214 195,209 257,074 $ 2,180,507 1.98% 0.25 2.23% $ 10,526 $ 9,911 0.29% 1.61 0.41 3.37 2.48 3.47 3.69 9.15 10.07 2.40 2.09 4.55 2.72 2.89 3.03 2.27 2.66 3.63 4.87 2.76 0.01% 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 1.87% 0.27 2.14% (1) Includes assets of the Corporation's non-U.S. consumer credit card business, which are included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. (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 estimated life of the loan. Includes non-U.S. consumer loans of $3.1 billion and $4.0 billion in the fourth quarter of 2016 and 2015. Includes consumer finance loans of $478 million and $578 million; consumer leases of $1.8 billion and $1.3 billion, and consumer overdrafts of $177 million and $174 million in the fourth quarter of 2016 and 2015, respectively. Includes U.S. commercial real estate loans of $54.3 billion and $52.8 billion, and non-U.S. commercial real estate loans of $3.2 billion and $3.3 billion in the fourth quarter of 2016 and 2015, respectively. Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets by $21 million and $32 million in the fourth quarter of 2016 and 2015. Interest expense includes the impact of interest rate risk management contracts, which decreased interest expense on the underlying liabilities by $332 million and $681 million in the fourth quarter of 2016 and 2015. For additional information, see Interest Rate Risk Management for the Banking Book on page 83. (7) The yield on long-term debt excluding the $612 million adjustment related to the redemption of certain trust preferred securities was 2.15 percent for the fourth quarter of 2015. The yield on long- term debt excluding the adjustment is a non-GAAP financial measure. 104 Bank of America 2016 Bank of America 2016 105 Table XIV 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 Net interest yield Efficiency ratio 2016 Quarters 2015 Quarters Fourth Third Second First Fourth Third Second First $ 10,526 20,224 $ 10,429 21,863 $ 10,341 21,509 $ 10,700 21,005 $ 9,911 19,807 $ 10,127 21,219 $ 9,739 21,262 $ 10,070 21,566 2.23% 2.23% 2.23% 2.33% 2.14% 2.19% 2.16% 2.26% 61.66 (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. The Corporation believes that this presentation allows for comparison of amounts from both taxable and tax-exempt sources and is consistent with industry practices. For more information on these performance measures and ratios, see Supplemental Financial Data on page 26 and for corresponding reconciliations to GAAP financial measures, see Statistical Table XVI. 65.70 70.54 65.65 62.73 70.73 73.39 65.08 Table XV Five-year Reconciliations to GAAP Financial Measures (1) (Dollars in millions, shares in thousands) Reconciliation of net interest income to net interest income on a fully taxable-equivalent basis 2016 2015 2014 2013 2012 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 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 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 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 41,096 900 41,996 83,701 900 84,601 7,247 900 8,147 241,621 (69,750) (3,382) 1,644 170,133 266,277 (69,750) (3,382) 1,644 194,789 241,620 (69,744) (2,989) 1,545 170,432 266,840 (69,744) (2,989) 1,545 $ $ $ $ $ $ $ $ $ $ $ $ $ 38,958 889 39,847 82,965 889 83,854 6,234 889 7,123 230,173 (69,772) (4,201) 1,852 158,052 251,981 (69,772) (4,201) 1,852 179,860 233,903 (69,761) (3,768) 1,716 162,090 256,176 (69,761) (3,768) 1,716 $ $ $ $ $ $ $ $ $ $ $ $ $ 40,779 851 41,630 85,894 851 86,745 2,443 851 3,294 222,907 (69,809) (5,109) 2,090 150,079 238,317 (69,809) (5,109) 2,090 165,489 224,167 (69,777) (4,612) 1,960 151,738 243,476 (69,777) (4,612) 1,960 $ $ $ $ $ $ $ $ $ $ $ $ $ 40,719 859 41,578 87,502 859 88,361 4,194 859 5,053 218,340 (69,910) (6,132) 2,328 144,626 233,819 (69,910) (6,132) 2,328 160,105 219,124 (69,844) (5,574) 2,166 145,872 232,475 (69,844) (5,574) 2,166 40,135 901 41,036 82,798 901 83,699 (1,320) 901 (419) 216,999 (69,974) (7,366) 2,593 142,252 235,681 (69,974) (7,366) 2,593 160,934 218,194 (69,976) (6,684) 2,428 143,962 236,962 (69,976) (6,684) 2,428 $ 195,652 $ 184,363 $ 171,047 $ 159,223 $ 162,730 $ 2,187,702 $ 2,144,287 $ 2,104,539 (69,744) (2,989) 1,545 (69,761) (3,768) 1,716 (69,777) (4,612) 1,960 $ 2,116,514 $ 2,072,474 $ 2,032,110 $ 2,102,064 (69,844) (5,574) 2,166 $ 2,028,812 $ 2,209,981 (69,976) (6,684) 2,428 $ 2,135,749 (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 26. 106 Bank of America 2016 (Dollars in millions, except per share information) Fully taxable-equivalent basis data (1) Net interest income Total revenue, net of interest expense Net interest yield Efficiency ratio $ 10,526 20,224 $ 10,429 $ 10,341 $ 10,700 $ 9,911 $ 10,127 $ 9,739 $ 10,070 21,863 21,509 21,005 19,807 21,219 21,262 21,566 2.23% 65.08 2.23% 61.66 2.23% 62.73 2.33% 70.54 2.14% 70.73 2.19% 65.70 2.16% 65.65 2.26% 73.39 (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. The Corporation believes that this presentation allows for comparison of amounts from both taxable and tax-exempt sources and is consistent with industry practices. For more information on these performance measures and ratios, see Supplemental Financial Data on page 26 and for corresponding reconciliations to GAAP financial measures, see Statistical Table XVI. Table XV Five-year Reconciliations to GAAP Financial Measures (1) (Dollars in millions, shares in thousands) 2016 2015 2014 2013 2012 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 Total revenue, net of interest expense on a fully taxable-equivalent basis Reconciliation of income tax expense (benefit) to income tax expense (benefit) on a fully taxable-equivalent Income tax expense (benefit) on a fully taxable-equivalent basis Reconciliation of average common shareholders’ equity to average tangible common shareholders’ equity Reconciliation of average shareholders’ equity to average tangible shareholders’ equity Reconciliation of year-end common shareholders’ equity to year-end tangible common shareholders’ equity taxable-equivalent basis Total revenue, net of interest expense Fully taxable-equivalent adjustment basis Income tax expense (benefit) Fully taxable-equivalent adjustment Common shareholders’ equity Goodwill Intangible assets (excluding MSRs) Related deferred tax liabilities Tangible common shareholders’ equity Shareholders’ equity Goodwill Intangible assets (excluding MSRs) Related deferred tax liabilities Tangible shareholders’ equity Common shareholders’ equity Goodwill Intangible assets (excluding MSRs) Related deferred tax liabilities Tangible common shareholders’ equity Shareholders’ equity Goodwill Intangible assets (excluding MSRs) Related deferred tax liabilities Tangible shareholders’ equity Assets Goodwill Intangible assets (excluding MSRs) Related deferred tax liabilities Tangible assets Reconciliation of year-end shareholders’ equity to year-end tangible shareholders’ equity Reconciliation of year-end assets to year-end tangible assets $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 41,096 900 41,996 83,701 900 84,601 7,247 900 8,147 241,621 (69,750) (3,382) 1,644 170,133 266,277 (69,750) (3,382) 1,644 194,789 241,620 (69,744) (2,989) 1,545 170,432 266,840 (69,744) (2,989) 1,545 $ $ $ $ $ $ $ $ $ $ $ $ $ 38,958 889 39,847 82,965 889 83,854 6,234 889 7,123 230,173 (69,772) (4,201) 1,852 251,981 (69,772) (4,201) 1,852 233,903 (69,761) (3,768) 1,716 256,176 (69,761) (3,768) 1,716 $ $ $ $ $ $ $ $ $ $ $ $ $ 40,779 851 41,630 85,894 851 86,745 2,443 851 3,294 222,907 (69,809) (5,109) 2,090 238,317 (69,809) (5,109) 2,090 224,167 (69,777) (4,612) 1,960 243,476 (69,777) (4,612) 1,960 $ $ $ $ $ $ $ $ $ $ $ $ $ 40,719 859 41,578 87,502 859 88,361 4,194 859 5,053 218,340 (69,910) (6,132) 2,328 233,819 (69,910) (6,132) 2,328 219,124 (69,844) (5,574) 2,166 232,475 (69,844) (5,574) 2,166 40,135 901 41,036 82,798 901 83,699 (1,320) 901 (419) 216,999 (69,974) (7,366) 2,593 235,681 (69,974) (7,366) 2,593 218,194 (69,976) (6,684) 2,428 236,962 (69,976) (6,684) 2,428 179,860 165,489 160,105 160,934 158,052 150,079 144,626 142,252 162,090 151,738 145,872 143,962 $ 195,652 $ 184,363 $ 171,047 $ 159,223 $ 162,730 $ 2,187,702 $ 2,144,287 $ 2,104,539 $ 2,102,064 $ 2,209,981 (69,744) (2,989) 1,545 (69,761) (3,768) 1,716 (69,777) (4,612) 1,960 (69,844) (5,574) 2,166 (69,976) (6,684) 2,428 $ 2,116,514 $ 2,072,474 $ 2,032,110 $ 2,028,812 $ 2,135,749 (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 26. Table XIV Quarterly Supplemental Financial Data Table XVI Quarterly Reconciliations to GAAP Financial Measures (1) 2016 Quarters 2015 Quarters Fourth Third Second First Fourth Third Second First (Dollars in millions) Fourth Third Second First Fourth Third Second First 2016 Quarters 2015 Quarters 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 $ $ 10,292 234 10,526 $ $ 10,201 228 10,429 $ $ 10,118 223 10,341 $ $ 10,485 215 10,700 $ $ 9,686 225 9,911 $ $ 9,900 227 10,127 $ $ 9,517 222 9,739 $ $ 9,855 215 10,070 Total revenue, net of interest expense Fully taxable-equivalent adjustment $ 19,990 $ 234 21,635 228 $ 21,286 $ 20,790 $ 19,582 $ 20,992 $ 21,040 $ 21,351 223 215 225 227 222 215 Total revenue, net of interest expense on a fully taxable-equivalent basis $ 20,224 $ 21,863 $ 21,509 $ 21,005 $ 19,807 $ 21,219 $ 21,262 $ 21,566 Reconciliation of income tax expense to income tax expense on a fully taxable-equivalent basis Income tax expense Fully taxable-equivalent adjustment Income tax expense 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 $ $ 1,359 234 1,593 $ $ 2,349 228 2,577 $ $ 2,034 223 2,257 $ $ 1,505 215 1,720 $ $ 1,478 225 1,703 $ $ 1,628 227 1,855 $ $ 1,736 222 1,958 $ $ 1,392 215 1,607 $ 245,139 $ 243,679 $ 240,376 $ 237,229 $ 234,800 $ 231,524 $ 228,774 (69,745) (3,091) 1,580 (69,744) (69,751) (69,761) (69,761) (69,774) (69,775) (3,276) 1,628 (3,480) 1,662 (3,687) 1,707 (3,888) 1,753 (4,099) 1,811 (4,307) 1,885 Tangible common shareholders’ equity $ 173,883 $ 172,287 $ 168,807 $ 165,488 $ 162,904 $ 159,462 $ 156,577 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 $ 270,360 $ 268,899 $ 265,354 $ 260,423 $ 257,074 $ 253,798 $ 251,048 (69,745) (3,091) 1,580 (69,744) (69,751) (69,761) (69,761) (69,774) (69,775) (3,276) 1,628 (3,480) 1,662 (3,687) 1,707 (3,888) 1,753 (4,099) 1,811 (4,307) 1,885 $ 199,104 $ 197,507 $ 193,785 $ 188,682 $ 185,178 $ 181,736 $ 178,851 $ 241,620 $ 244,863 $ 242,206 $ 238,662 $ 233,903 $ 233,588 $ 229,251 (69,744) (2,989) 1,545 (69,744) (69,744) (69,761) (69,761) (69,761) (69,775) (3,168) 1,588 (3,352) 1,637 (3,578) 1,667 (3,768) 1,716 (3,973) 1,762 (4,188) 1,813 Tangible common shareholders’ equity $ 170,432 $ 173,539 $ 170,747 $ 166,990 $ 162,090 $ 161,616 $ 157,101 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 $ 266,840 $ 270,083 $ 267,426 $ 263,004 $ 256,176 $ 255,861 $ 251,524 (69,744) (2,989) 1,545 (69,744) (69,744) (69,761) (69,761) (69,761) (69,775) (3,168) 1,588 (3,352) 1,637 (3,578) 1,667 (3,768) 1,716 (3,973) 1,762 (4,188) 1,813 $ 195,652 $ 198,759 $ 195,967 $ 191,332 $ 184,363 $ 183,889 $ 179,374 $ 2,187,702 $2,195,314 $2,186,966 $2,185,726 $2,144,287 $2,152,962 (69,744) (2,989) 1,545 (69,744) (69,744) (69,761) (69,761) (69,761) (3,168) 1,588 (3,352) 1,637 (3,578) 1,667 (3,768) 1,716 (3,973) 1,762 $ 2,116,514 $2,123,990 $2,115,507 $2,114,054 $2,072,474 $2,080,990 $2,148,899 (69,775) (4,188) 1,813 $2,076,749 $2,143,644 (69,776) (4,391) 1,900 $2,071,377 $ 225,477 (69,776) (4,518) 1,959 $ 153,142 $ 245,863 (69,776) (4,518) 1,959 $ 173,528 $ 228,011 (69,776) (4,391) 1,900 $ 155,744 $ 250,284 (69,776) (4,391) 1,900 $ 178,017 (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 26. 106 Bank of America 2016 Bank of America 2016 107 Glossary Alt-A Mortgage – A type of U.S. mortgage that is considered riskier than A-paper, or "prime," and less risky than "subprime," the riskiest category. Alt-A interest rates 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- trust assets excluding brokerage assets discretionary administered for clients. Trust assets encompass a broad range of asset types including real estate, private company ownership interest, personal property and investments. 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. Banking Book – All on- and off-balance sheet financial instruments of the Corporation except for those positions that are held for trading purposes. 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 premiums or discounts, less net charge- offs and interest payments applied as a reduction of principal under the cost recovery method for loans that have been on nonaccrual status. 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 – Client assets which are held in brokerage accounts, including non-discretionary brokerage and fee-based assets that 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 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 CDS 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. 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. LTV is calculated as the outstanding carrying value of the loan divided by the estimated value of the property securing 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. 108 Bank of America 2016 Glossary Alt-A Mortgage – A type of U.S. mortgage that is considered riskier Credit Derivatives – Contractual agreements that provide than A-paper, or "prime," and less risky than "subprime," the protection against a credit event on one or more referenced riskiest category. Alt-A interest rates therefore tend to be between obligations. The nature of a credit event is established by the those of prime and subprime consumer real estate loans. Typically, protection purchaser and the protection seller at the inception of Alt-A mortgages are characterized by borrowers with less than full the transaction, and such events generally include bankruptcy or 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. 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 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 CDS 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. of the assets’ market values. AUM reflects assets that are Debit Valuation Adjustment (DVA) – A portfolio adjustment required generally managed for institutional, high net worth and retail to properly reflect the Corporation’s own credit risk exposure as clients, and are distributed through various investment products part of the fair value of derivative instruments and/or structured including mutual funds, other commingled vehicles and separate liabilities. accounts. Banking Book – All on- and off-balance sheet financial instruments required to include funding costs on uncollateralized derivatives of the Corporation except for those positions that are held for and derivatives where the Corporation is not permitted to use the trading purposes. collateral it receives. Funding Valuation Adjustment (FVA) – A portfolio adjustment Carrying Value (with respect to loans) – The amount at which a loan Interest Rate Lock Commitment (IRLC) – Commitment with a loan is recorded on the balance sheet. For loans recorded at amortized applicant in which the loan terms, including interest rate and price, cost, carrying value is the unpaid principal balance net of are guaranteed for a designated period of time subject to credit unamortized deferred loan origination fees and costs and approval. unamortized purchase premiums or discounts, less net charge- offs and interest payments applied as a reduction of principal under the cost recovery method for loans that have been on nonaccrual status. 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 – Client assets which are held in brokerage accounts, including non-discretionary brokerage and fee-based assets that 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. 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. LTV is calculated as the outstanding carrying value of the loan divided by the estimated value of the property securing 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. Matched Book – Repurchase and resale agreements or securities borrowed and loaned transactions where the overall asset and liability position is similar in size and/or maturity. Generally, these are entered into to accommodate customers where the Corporation earns the interest rate spread. 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 certain of 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. Mortgage Servicing Rights (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 – Includes 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. Loans accounted for under the fair value option, PCI loans and LHFS are not reported as nonperforming loans and leases. Credit card receivables, residential mortgage loans that are insured by the FHA or through long-term credit protection agreements with FNMA and FHLMC (fully-insured loan portfolio) and certain other consumer loans are not placed on nonaccrual status and are, therefore, not reported as nonperforming loans and leases. Pay Option Loans – Pay option adjustable-rate mortgages 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. Prompt Corrective Action (PCA) – A framework established by the U.S. banking regulators requiring banks to maintain certain levels 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. 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. 108 Bank of America 2016 Bank of America 2016 109 ICAAP IMM IRLC IRM ISDA LCR LGD LHFS LIBOR LTV MBS MD&A Internal Capital Adequacy Assessment Process Internal models methodology Interest rate lock commitment Independent risk management International Swaps and Derivatives Association, Inc. Liquidity Coverage Ratio Loss given default Loans held-for-sale London InterBank Offered Rate Loan-to-value Mortgage-backed securities Management’s Discussion and Analysis of Financial Condition and Results of Operations Mortgage insurance MI MLGWM Merrill Lynch Global Wealth Management MLI MLPCC MLPF&S Merrill Lynch, Pierce, Fenner & Smith Merrill Lynch International Merrill Lynch Professional Clearing Corp MRC MSA MSR NPR NSFR OAS OCC OCI OTC OTTI PCA PCI PPI RCSAs RMBS RSU SBLC SCCL SEC SLR TDR TLAC VA VaR VIE Incorporated Management Risk Committee Metropolitan Statistical Area Mortgage servicing right Notice of proposed rulemaking Net Stable Funding Ratio Option-adjusted spread 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 Restricted stock unit Standby letter of credit Single-Counterparty Credit Limits Securities and Exchange Commission Supplementary leverage ratio Troubled debt restructurings Total Loss-Absorbing Capacity U.S. Department of Veterans Affairs Value-at-Risk Variable interest entity Acronyms ABS AFS ALM AUM BANA BHC bps CCAR CDO CDS CGA CLO CLTV CVA DIF DoJ DVA EAD EMV EPS ERC FASB FCA FDIC FHA FHLB FHLMC FICC FICO FLUs FNMA FTE FVA GAAP GLS GM&CA GNMA GPI GSE G-SIB GWIM HELOC HQLA HTM Asset-backed securities Available-for-sale Asset and liability management Assets under management Bank of America, National Association Bank holding company basis points Comprehensive Capital Analysis and Review Collateralized debt obligation Credit default swap Corporate General Auditor Collateralized loan obligation Combined loan-to-value Credit valuation adjustment Deposit Insurance Fund U.S. Department of Justice Debit valuation adjustment Exposure at default Europay, Mastercard and Visa Earnings per common share Enterprise Risk Committee Financial Accounting Standards Board Financial Conduct Authority Federal Deposit Insurance Corporation Federal Housing Administration 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 Liquidity Sources Global Marketing and Corporate Affairs Government National Mortgage Association Global Principal Investments Government-sponsored enterprise Global systemically important bank Global Wealth & Investment Management Home equity line of credit High Quality Liquid Assets Held-to-maturity 110 Bank of America 2016 Bank of America, National Association International Swaps and Derivatives Association, ICAAP Internal Capital Adequacy Assessment Process IMM IRLC IRM ISDA LCR LGD LHFS LIBOR LTV MBS MI MLI MRC MSA MSR NPR NSFR OAS OCC OCI OTC OTTI PCA PCI PPI RSU SBLC SCCL SEC SLR TDR TLAC VA VaR VIE Internal models methodology Interest rate lock commitment Independent risk management Inc. Liquidity Coverage Ratio Loss given default Loans held-for-sale London InterBank Offered Rate Loan-to-value Mortgage-backed securities MD&A Management’s Discussion and Analysis of Financial Condition and Results of Operations Mortgage insurance MLGWM Merrill Lynch Global Wealth Management Merrill Lynch International MLPCC Merrill Lynch Professional Clearing Corp MLPF&S Merrill Lynch, Pierce, Fenner & Smith Incorporated Management Risk Committee Metropolitan Statistical Area Mortgage servicing right Notice of proposed rulemaking Net Stable Funding Ratio Option-adjusted spread 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 Restricted stock unit Standby letter of credit Single-Counterparty Credit Limits Securities and Exchange Commission Supplementary leverage ratio Troubled debt restructurings Total Loss-Absorbing Capacity U.S. Department of Veterans Affairs Value-at-Risk Variable interest entity RCSAs RMBS Risk and Control Self Assessments Residential mortgage-backed securities ABS AFS ALM AUM BANA BHC bps CCAR CDO CDS CGA CLO CLTV CVA DIF DoJ DVA EAD EMV EPS ERC FASB FCA FDIC FHA FHLB FICC FICO FLUs FTE FVA GAAP Acronyms Asset-backed securities Available-for-sale Asset and liability management Assets under management Bank holding company basis points Comprehensive Capital Analysis and Review Collateralized debt obligation Credit default swap Corporate General Auditor Collateralized loan obligation Combined loan-to-value Credit valuation adjustment Deposit Insurance Fund U.S. Department of Justice Debit valuation adjustment Exposure at default Europay, Mastercard and Visa Earnings per common share Enterprise Risk Committee Financial Accounting Standards Board Financial Conduct Authority Federal Deposit Insurance Corporation Federal Housing Administration Federal Home Loan Bank FHLMC Freddie Mac Fixed-income, currencies and commodities Fair Isaac Corporation (credit score) Front line units FNMA Fannie Mae Fully taxable-equivalent Funding valuation adjustment Accounting principles generally accepted in the United States of America Global Liquidity Sources Global Marketing and Corporate Affairs Government National Mortgage Association Global Principal Investments Government-sponsored enterprise Global systemically important bank Global Wealth & Investment Management Home equity line of credit High Quality Liquid Assets Held-to-maturity GLS GM&CA GNMA GPI GSE G-SIB GWIM HELOC HQLA HTM 110 Bank of America 2016 Financial Statements and Notes Table of Contents Financial Statements and Notes Table of Contents Consolidated Statement of Income Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Income Consolidated Statement of Changes in Shareholders’ Equity Consolidated Statement of Comprehensive Income Consolidated Statement of Cash Flows Consolidated Balance Sheet Note 1 – Summary of Significant Accounting Principles Consolidated Statement of Changes in Shareholders’ Equity Note 2 – Derivatives Consolidated Statement of Cash Flows Note 3 – Securities Note 1 – Summary of Significant Accounting Principles Note 4 – Outstanding Loans and Leases Note 2 – Derivatives Note 5 – Allowance for Credit Losses Note 3 – Securities Note 6 – Securitizations and Other Variable Interest Entities Note 4 – Outstanding Loans and Leases Note 7 – Representations and Warranties Obligations and Corporate Guarantees Note 5 – Allowance for Credit Losses Note 8 – Goodwill and Intangible Assets Note 6 – Securitizations and Other Variable Interest Entities Note 9 – Deposits Note 7 – Representations and Warranties Obligations and Corporate Guarantees Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings Note 8 – Goodwill and Intangible Assets Note 11 – Long-term Debt Note 9 – Deposits Note 12 – Commitments and Contingencies Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings Note 13 – Shareholders’ Equity Note 11 – Long-term Debt Note 14 – Accumulated Other Comprehensive Income (Loss) Note 12 – Commitments and Contingencies Note 15 – Earnings Per Common Share Note 13 – Shareholders’ Equity Note 16 – Regulatory Requirements and Restrictions Note 14 – Accumulated Other Comprehensive Income (Loss) Note 17 – Employee Benefit Plans Note 15 – Earnings Per Common Share Note 18 – Stock-based Compensation Plans Note 16 – Regulatory Requirements and Restrictions Note 19 – Income Taxes Note 17 – Employee Benefit Plans Note 20 – Fair Value Measurements Note 18 – Stock-based Compensation Plans Note 21 – Fair Value Option Note 19 – Income Taxes Note 22 – Fair Value of Financial Instruments Note 20 – Fair Value Measurements Note 23 – Mortgage Servicing Rights Note 21 – Fair Value Option Note 24 – Business Segment Information Note 22 – Fair Value of Financial Instruments Note 25 – Parent Company Information Note 23 – Mortgage Servicing Rights Note 26 – Performance by Geographical Area Note 24 – Business Segment Information Note 25 – Parent Company Information Note 26 – Performance by Geographical Area Page 114 115 Page 116 114 118 115 119 116 120 118 129 119 139 120 143 129 155 139 157 143 163 155 165 157 166 163 166 165 169 166 172 166 178 169 181 172 182 178 183 181 184 182 191 183 191 184 194 191 205 191 208 194 209 205 210 208 212 209 214 210 212 214 Bank of America 2016 111 Bank of America 2016 111 Report of Management on Internal Control Over Financial Reporting Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2016 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, 2016, 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, 2016. audited 2016 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. 112 Bank of America 2016 Report of Management on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Bank of America Corporation and Subsidiaries The management of Bank of America Corporation is responsible Management assessed the effectiveness of the Corporation’s for establishing and maintaining adequate internal control over internal control over financial reporting as of December 31, 2016 financial reporting. based on the framework set forth by the Committee of Sponsoring The Corporation’s internal control over financial reporting is a Organizations of the Treadway Commission in Internal Control – process designed to provide reasonable assurance regarding the Integrated Framework (2013). Based on that assessment, reliability of financial reporting and the preparation of financial management concluded that, as of December 31, 2016, the statements for external purposes in accordance with accounting Corporation’s internal control over financial reporting is effective. principles generally accepted in the United States of America. The The Corporation’s internal control over financial reporting as of Corporation’s internal control over financial reporting includes December 31, 2016 has been audited by those policies and procedures that (i) pertain to the maintenance PricewaterhouseCoopers, LLP, an independent registered public of records that, in reasonable detail, accurately and fairly reflect accounting firm, as stated in their accompanying report which the transactions and dispositions of the assets of the Corporation; expresses an unqualified opinion on the effectiveness of the (ii) provide reasonable assurance that transactions are recorded Corporation’s internal control over financial reporting as of as necessary to permit preparation of financial statements in December 31, 2016. 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. Brian T. Moynihan Chairman, Chief Executive Officer and President Paul M. Donofrio Chief Financial Officer Bank of America Corporation and Subsidiaries 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, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 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, 2016, 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 and evaluating the design and operating effectiveness of internal financial 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. As discussed in Note 1 to the consolidated financial statements, the Corporation changed the manner in which it accounts for the amortization of premiums and the accretion of discounts related to certain debt securities in 2016. 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 23, 2017 112 Bank of America 2016 Bank of America 2016 113 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 Trading account profits Mortgage banking income Gains on sales of debt securities Other income 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) 2016 2015 2014 $ 33,228 9,167 1,118 4,423 3,121 51,057 1,015 2,350 1,018 5,578 9,961 41,096 5,851 7,638 12,745 5,241 6,902 1,853 490 1,885 42,605 83,701 $ 31,918 9,178 988 4,397 3,026 49,507 861 2,387 1,343 5,958 10,549 38,958 5,959 7,381 13,337 5,572 6,473 2,364 1,138 1,783 44,007 82,965 34,145 9,010 1,039 4,561 2,959 51,714 1,080 2,579 1,576 5,700 10,935 40,779 5,944 7,443 13,284 6,065 6,309 1,563 1,481 3,026 45,115 85,894 3,597 3,161 2,275 31,616 4,038 1,804 1,703 1,971 730 3,007 746 9,336 54,951 25,153 7,247 17,906 1,682 16,224 $ $ 32,868 4,093 2,039 1,811 2,264 834 3,115 823 9,887 57,734 22,070 6,234 15,836 1,483 14,353 $ $ 33,787 4,260 2,125 1,829 2,472 936 3,144 1,259 25,844 75,656 7,963 2,443 5,520 1,044 4,476 $ $ $ $ 1.58 1.50 0.25 10,284,147 11,035,657 $ 1.37 1.31 0.20 10,462,282 11,213,992 $ 0.43 0.42 0.12 10,527,818 10,584,535 114 Bank of America 2016 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) 2016 2015 2014 (Dollars in millions) Consolidated Statement of Comprehensive Income Federal funds sold and securities borrowed or purchased under agreements to resell $ 33,228 $ 31,918 $ 34,145 51,057 49,507 51,714 Net income Other comprehensive income (loss), net-of-tax: Net change in 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 2016 2015 2014 $ 17,906 $ 15,836 $ 5,520 (1,345) (156) 182 (524) (87) (1,930) 15,976 $ (1,580) 615 584 394 (123) (110) 15,726 $ 4,149 — 616 (943) (157) 3,665 9,185 $ 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 Trading account profits Mortgage banking income Gains on sales of debt securities Other income 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 9,167 1,118 4,423 3,121 1,015 2,350 1,018 5,578 9,961 41,096 5,851 7,638 12,745 5,241 6,902 1,853 490 1,885 42,605 83,701 4,038 1,804 1,703 1,971 730 3,007 746 9,336 54,951 25,153 7,247 17,906 1,682 16,224 1.58 1.50 0.25 9,178 988 4,397 3,026 861 2,387 1,343 5,958 10,549 38,958 5,959 7,381 13,337 5,572 6,473 2,364 1,138 1,783 44,007 82,965 4,093 2,039 1,811 2,264 834 3,115 823 9,887 57,734 22,070 6,234 15,836 1,483 14,353 1.37 1.31 0.20 9,010 1,039 4,561 2,959 1,080 2,579 1,576 5,700 10,935 40,779 5,944 7,443 13,284 6,065 6,309 1,563 1,481 3,026 45,115 85,894 4,260 2,125 1,829 2,472 936 3,144 1,259 25,844 75,656 7,963 2,443 5,520 1,044 4,476 0.43 0.42 0.12 3,597 3,161 2,275 31,616 32,868 33,787 $ $ $ $ $ $ $ $ $ Average common shares issued and outstanding (in thousands) Average diluted common shares issued and outstanding (in thousands) 10,284,147 10,462,282 10,527,818 11,035,657 11,213,992 10,584,535 114 Bank of America 2016 Bank of America 2016 115 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 $49,750 and $55,143 measured at fair value) Trading account assets (includes $106,057 and $107,776 pledged as collateral) Derivative assets Debt securities: Carried at fair value (includes $29,804 and $29,810 pledged as collateral) Held-to-maturity, at cost (fair value – $115,285 and $84,046; $8,233 and $9,074 pledged as collateral) Total debt securities Loans and leases (includes $7,085 and $6,938 measured at fair value and $31,805 and $37,767 pledged as collateral) Allowance for loan and lease losses Loans and leases, net of allowance Premises and equipment, net Mortgage servicing rights Goodwill Intangible assets Loans held-for-sale (includes $4,026 and $4,818 measured at fair value) Customer and other receivables Assets of business held for sale Other assets (includes $13,802 and $14,320 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 n/a = not applicable December 31 2016 2015 $ 30,719 117,019 147,738 9,861 198,224 180,209 42,512 313,660 117,071 430,731 906,683 (11,237) 895,446 9,139 2,747 68,969 2,922 9,066 58,759 10,670 120,709 $ 2,187,702 $ 31,265 128,088 159,353 7,744 192,482 176,527 49,990 322,380 84,508 406,888 896,983 (12,234) 884,749 9,485 3,087 69,761 3,768 7,453 58,312 n/a 114,688 $ 2,144,287 $ $ 5,773 56,001 (1,032) 54,969 188 1,596 62,526 $ $ 6,344 72,946 (1,320) 71,626 284 1,530 79,784 116 Bank of America 2016 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 $49,750 and $55,143 measured at fair Trading account assets (includes $106,057 and $107,776 pledged as collateral) Carried at fair value (includes $29,804 and $29,810 pledged as collateral) Held-to-maturity, at cost (fair value – $115,285 and $84,046; $8,233 and $9,074 pledged as collateral) Loans and leases (includes $7,085 and $6,938 measured at fair value and $31,805 and $37,767 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 Goodwill Intangible assets Customer and other receivables Assets of business held for sale Total assets Loans held-for-sale (includes $4,026 and $4,818 measured at fair value) Other assets (includes $13,802 and $14,320 measured at fair value) 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 n/a = not applicable Total assets of consolidated variable interest entities Assets of consolidated variable interest entities included in total assets above (isolated to settle the liabilities of the variable interest entities) December 31 2016 2015 $ 30,719 $ 31,265 117,019 147,738 9,861 198,224 180,209 42,512 313,660 117,071 430,731 906,683 (11,237) 895,446 9,139 2,747 68,969 2,922 9,066 58,759 10,670 128,088 159,353 7,744 192,482 176,527 49,990 322,380 84,508 406,888 896,983 (12,234) 884,749 9,485 3,087 69,761 3,768 7,453 58,312 n/a 120,709 114,688 $ 2,187,702 $ 2,144,287 $ 5,773 $ 56,001 (1,032) 54,969 188 1,596 6,344 72,946 (1,320) 71,626 284 1,530 $ 62,526 $ 79,784 Bank of America Corporation and Subsidiaries Consolidated Balance Sheet (continued) (Dollars in millions) Liabilities Deposits in U.S. offices: Noninterest-bearing Interest-bearing (includes $731 and $1,116 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 $35,766 and $24,574 measured at fair value) Trading account liabilities Derivative liabilities Short-term borrowings (includes $2,024 and $1,325 measured at fair value) Accrued expenses and other liabilities (includes $14,630 and $13,899 measured at fair value and $762 and $646 of reserve for unfunded lending commitments) Long-term debt (includes $30,037 and $30,097 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 – 3,887,329 and 3,767,790 shares Common stock and additional paid-in capital, $0.01 par value; authorized – 12,800,000,000 shares; issued and outstanding – 10,052,625,604 and 10,380,265,063 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 $10,417 and $11,304 of non-recourse debt) All other liabilities (includes $38 and $20 of non-recourse liabilities) Total liabilities of consolidated variable interest entities December 31 2016 2015 $ 438,125 750,891 $ 422,237 703,761 12,039 59,879 1,260,934 9,916 61,345 1,197,259 170,291 174,291 63,031 39,480 23,944 66,963 38,450 28,098 146,359 146,286 216,823 1,920,862 236,764 1,888,111 25,220 22,273 147,038 151,042 101,870 (7,288) 266,840 $ 2,187,702 88,219 (5,358) 256,176 $ 2,144,287 $ $ 348 10,646 41 11,035 $ $ 681 14,073 21 14,775 116 Bank of America 2016 Bank of America 2016 117 See accompanying Notes to Consolidated Financial Statements. See accompanying Notes to Consolidated Financial Statements. Common Stock and Additional Paid-in Capital Shares 10,591,808 Amount $ 155,293 $ Preferred Stock $ 13,352 Retained Earnings 71,517 5,520 Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Bank of America Corporation and Subsidiaries Consolidated Statement of Changes in Shareholders’ Equity (Dollars in millions, shares in thousands) Balance, December 31, 2013 Net income Net change in debt and marketable equity securities Net change in derivatives Employee benefit plan adjustments Net change in foreign currency translation adjustments Dividends declared: 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 5,957 19,309 25,866 (101,132) 10,516,542 (160) (1,675) 153,458 Net income Net change in 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 declared: Common Preferred Issuance of preferred stock Common stock issued under employee plans and related tax effects Common stock repurchased Balance, December 31, 2015 Net income Net change in 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 declared: Common Preferred 2,964 22,273 4,054 (140,331) 10,380,265 (42) (2,374) 151,042 $ (7,687) $ 4,149 616 (943) (157) (4,022) (1,226) (1,580) 615 584 394 (123) (5,358) (1,345) (156) 182 (524) (87) (1,262) (1,044) 74,731 1,226 15,836 (2,091) (1,483) 88,219 17,906 (2,573) (1,682) 232,475 5,520 4,149 616 (943) (157) (1,262) (1,044) 5,957 (160) (1,675) 243,476 — 15,836 (1,580) 615 584 394 (123) (2,091) (1,483) 2,964 (42) (2,374) 256,176 17,906 (1,345) (156) 182 (524) (87) (2,573) (1,682) 2,947 1,108 (5,112) 266,840 Issuance of preferred stock Common stock issued under employee plans and related tax effects Common stock repurchased Balance, December 31, 2016 2,947 $ 25,220 5,111 (332,750) 10,052,626 $ 1,108 (5,112) 147,038 $ 101,870 $ (7,288) $ 118 Bank of America 2016 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 $ 13,352 10,591,808 $ 155,293 $ 71,517 $ (7,687) $ 232,475 Common stock issued under employee plans and related tax effects Cumulative adjustment for accounting change related to debit 5,957 25,866 (101,132) (160) (1,675) 19,309 10,516,542 153,458 74,731 (4,022) 243,476 Common stock issued under employee plans and related tax effects 2,964 4,054 (140,331) (42) (2,374) 22,273 10,380,265 151,042 (5,358) 256,176 Common stock issued under employee plans and related tax effects 2,947 5,111 (332,750) 1,108 (5,112) $ 25,220 10,052,626 $ 147,038 $ 101,870 $ (7,288) $ 266,840 (Dollars in millions, shares in thousands) Balance, December 31, 2013 Net income Net change in debt and marketable equity securities Net change in derivatives Employee benefit plan adjustments Net change in foreign currency translation adjustments Dividends declared: Common Preferred Issuance of preferred stock Common stock repurchased Balance, December 31, 2014 valuation adjustments Net income Dividends declared: Common Preferred Issuance of preferred stock Common stock repurchased Balance, December 31, 2015 Net income Dividends declared: Common Preferred Issuance of preferred stock Common stock repurchased Balance, December 31, 2016 Net change in 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 Net change in 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 5,520 (1,262) (1,044) 1,226 15,836 (2,091) (1,483) 88,219 17,906 (2,573) (1,682) 4,149 616 (943) (157) (1,226) (1,580) 615 584 394 (123) (1,345) (156) 182 (524) (87) 5,520 4,149 616 (943) (157) (1,262) (1,044) 5,957 (160) (1,675) — 15,836 (1,580) 615 584 394 (123) (2,091) (1,483) 2,964 (42) (2,374) 17,906 (1,345) (156) 182 (524) (87) (2,573) (1,682) 2,947 1,108 (5,112) 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 Realized debit valuation adjustments on structured liabilities Depreciation and premises improvements amortization Amortization of intangibles Net amortization of premium/discount on debt securities Deferred income taxes Stock-based compensation 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 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 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 (decrease) 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 2016 2015 2014 $ 17,906 $ 15,836 $ 5,520 3,597 (490) 17 1,511 730 3,134 5,841 1,235 (33,107) 31,376 (866) (13,802) (35) 1,259 18,306 3,161 (1,138) 556 1,555 834 2,613 2,924 28 2,275 (1,481) — 1,586 936 1,699 1,147 78 (37,933) 36,204 (39,358) 38,528 2,550 2,645 730 (2,218) 28,347 5,866 5,894 9,702 (1,597) 30,795 (2,117) (5,742) 50 (659) 4,030 (1,495) 79,371 100,768 (189,061) 145,079 84,988 (219,412) 126,399 79,704 (247,902) 18,677 (39,899) 18,230 (12,283) (31,194) 299 (192) (63,143) 63,675 (4,000) (4,014) 35,537 (51,849) 2,947 (5,112) (4,194) 14 (22) 32,982 240 (11,615) 159,353 147,738 12,872 (36,575) 22,316 (12,629) (51,895) 333 (39) (55,571) 7,889 (13,274) 28,765 (10,609) 19,160 1,577 (2,504) (8,260) 78,347 (26,986) (3,074) (335) 3,171 (14,827) 43,670 (40,365) 2,964 (2,374) (3,574) 16 (39) 48,585 (597) 20,764 138,589 $ 159,353 51,573 (53,749) 5,957 (1,675) (2,306) 34 (44) (12,201) (3,067) 7,267 131,322 $ 138,589 $ 10,510 1,633 (590) $ 10,623 2,326 (151) 11,082 2,558 (144) $ $ 118 Bank of America 2016 Bank of America 2016 119 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, 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 other 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. Certain prior-year amounts have been reclassified to conform to current-year presentation. On December 20, 2016, the Corporation entered into an agreement to sell its non-U.S. consumer credit card business to a third party. Subject to regulatory approval, this transaction is expected to close by mid-2017. After closing, the Corporation will retain substantially all payment protection insurance (PPI) exposure above existing reserves. The Corporation has considered this exposure in its estimate of a small after-tax gain on the sale. This transaction will reduce risk-weighted assets and goodwill upon closing, benefiting regulatory capital. At December 31, 2016, the assets of this business, which are presented in the assets of business held for sale line on the Consolidated Balance Sheet, included consumer credit card receivables of $9.2 billion, an allowance for loan losses of $243 million, goodwill of $775 million, available-for-sale (AFS) debt securities of $619 million and all other assets of $305 million. Liabilities are primarily comprised of intercompany borrowings. This business is included in All Other for reporting purposes. Change in Accounting Method Effective July 1, 2016, the Corporation changed its accounting method under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 310-20, Nonrefundable fees and other costs, from the prepayment method (also referred to as the retrospective method) to the contractual method. 120 Bank of America 2016 The Corporation believes that the contractual method is the preferable method of accounting because it is consistent with the accounting method used by peer institutions in terms of net interest income. Additionally, the contractual method better aligns with the Corporation's asset and liability management (ALM) strategy. The following is the impact of the change in accounting method on the annual periods presented in the consolidated financial statements herein. The impact is expressed as an increase/ (decrease) as compared to amounts originally reported. For 2015 and 2014: net interest income — $(141) million and $989 million, gains on sales of debt securities — $47 million and $127 million, and net income — $(52) million, or $0.00 per diluted share and $687 million, or $0.06 per diluted share, respectively. The change in accounting method decreased retained earnings $980 million at January 1, 2014. Since the change in accounting method was effective July 1, 2016 and the financial results under the prepayment method as compared to the contractual method would not affect future management decisions, the Corporation did not undertake the operational effort and cost to maintain separate systems of record for the prepayment method to enable a calculation of the impact of the change subsequent to the effective date. As a result, the impact of the change in accounting method for 2016 is not disclosed. New Accounting Pronouncements In August 2016 and November 2016, the FASB issued new accounting guidance that addresses classification of certain cash receipts and cash payments, including changes in restricted cash, in the statement of cash flows. This new accounting guidance will result in some changes in classification in the Consolidated Statement of Cash Flows, which the Corporation does not expect will be significant, and will not have any impact on its consolidated financial position or results of operations. The new guidance is effective on January 1, 2018, on a retrospective basis, with early adoption permitted. In June 2016, the FASB issued new accounting guidance that will require the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity (HTM) debt securities and other debt instruments measured at amortized cost. The impairment model for AFS debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than- temporary. The new guidance is effective on January 1, 2020, with early adoption permitted on January 1, 2019. The Corporation is in the process of identifying and implementing required changes to loan loss estimation models and processes and evaluating the impact of this new accounting guidance, which at the date of adoption is expected to increase the allowance for credit losses with a resulting negative adjustment to retained earnings. In March 2016, the FASB issued new accounting guidance that simplifies certain aspects of the accounting for share-based Bank of America Corporation and Subsidiaries Notes to Consolidated Financial Statements NOTE 1 Summary of Significant Accounting Principles Bank of America 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 other 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. Certain prior-year amounts have been reclassified to conform to current-year presentation. On December 20, 2016, the Corporation entered into an agreement to sell its non-U.S. consumer credit card business to a third party. Subject to regulatory approval, this transaction is expected to close by mid-2017. After closing, the Corporation will retain substantially all payment protection insurance (PPI) exposure above existing reserves. The Corporation has considered this exposure in its estimate of a small after-tax gain on the sale. This transaction will reduce risk-weighted assets and goodwill upon closing, benefiting regulatory capital. At December 31, 2016, the assets of this business, which are presented in the assets of business held for sale line on the Consolidated Balance Sheet, included consumer credit card receivables of $9.2 billion, an allowance for loan losses of $243 million, goodwill of $775 million, available-for-sale (AFS) debt securities of $619 million and all other assets of $305 million. Liabilities are primarily comprised of intercompany borrowings. This business is included in All Other for reporting purposes. Change in Accounting Method Effective July 1, 2016, the Corporation changed its accounting method under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 310-20, Nonrefundable fees and other costs, from the prepayment method (also referred to as the retrospective method) to the contractual method. 120 Bank of America 2016 The Corporation believes that the contractual method is the preferable method of accounting because it is consistent with the accounting method used by peer institutions in terms of net interest income. Additionally, the contractual method better aligns with the Corporation's asset and liability management (ALM) strategy. The following is the impact of the change in accounting method on the annual periods presented in the consolidated financial statements herein. The impact is expressed as an increase/ (decrease) as compared to amounts originally reported. For 2015 and 2014: net interest income — $(141) million and $989 million, gains on sales of debt securities — $47 million and $127 million, and net income — $(52) million, or $0.00 per diluted share and $687 million, or $0.06 per diluted share, respectively. The change in accounting method decreased retained earnings $980 million at January 1, 2014. Since the change in accounting method was effective July 1, 2016 and the financial results under the prepayment method as compared to the contractual method would not affect future management decisions, the Corporation did not undertake the operational effort and cost to maintain separate systems of record for the prepayment method to enable a calculation of the impact of the change subsequent to the effective date. As a result, the impact of the change in accounting method for 2016 is not disclosed. New Accounting Pronouncements In August 2016 and November 2016, the FASB issued new accounting guidance that addresses classification of certain cash receipts and cash payments, including changes in restricted cash, in the statement of cash flows. This new accounting guidance will result in some changes in classification in the Consolidated Statement of Cash Flows, which the Corporation does not expect will be significant, and will not have any impact on its consolidated financial position or results of operations. The new guidance is effective on January 1, 2018, on a retrospective basis, with early adoption permitted. In June 2016, the FASB issued new accounting guidance that will require the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity (HTM) debt securities and other debt instruments measured at amortized cost. The impairment model for AFS debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than- temporary. The new guidance is effective on January 1, 2020, with early adoption permitted on January 1, 2019. The Corporation is in the process of identifying and implementing required changes to loan loss estimation models and processes and evaluating the impact of this new accounting guidance, which at the date of adoption is expected to increase the allowance for credit losses with a resulting negative adjustment to retained earnings. In March 2016, the FASB issued new accounting guidance that simplifies certain aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new guidance is effective on January 1, 2017. The Corporation does not expect the provisions of this new accounting guidance to have a material impact on its consolidated financial position or results of operations. In February 2016, the FASB issued new accounting guidance that requires substantially all leases to be recorded as assets and liabilities on the balance sheet. Upon adoption, for leases where the Corporation is lessee, the Corporation will record a right of use asset and a lease payment obligation associated with arrangements previously accounted for as operating leases. Lessor accounting is largely unchanged from existing GAAP. This new accounting guidance is effective on January 1, 2019, using a modified retrospective transition that will be applied to all prior periods presented. The Corporation is in the process of reviewing its existing lease portfolios, as well as other service contracts for embedded leases, to evaluate the impact of the new accounting guidance on the financial statements, as well as the impact to regulatory capital and risk-weighted assets. The effect of the adoption will depend on its lease portfolio at the time of transition; however, the Corporation does not expect the new accounting guidance to have a material impact on its consolidated results of operations. Upon completion of the inventory review and consideration of system requirements, the Corporation will evaluate the impacts of adopting the new accounting guidance on its disclosures. 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. In 2015, 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 Corporation does not expect the remaining provisions of this new accounting guidance to have a material impact on its consolidated financial position or results of operations. In May 2014, the FASB issued new accounting guidance for recognizing revenue from contracts with customers, which is effective on January 1, 2018. While the new guidance does not apply to revenue associated with loans or securities, the Corporation has been working to identify the customer contracts within the scope of the new guidance and assess the related revenues to determine if any accounting or internal control changes will be required for the new provisions. While the assessment is not complete, the timing of the Corporation’s revenue recognition is not expected to materially change. The classification of certain contract costs continues to be evaluated and the final interpretation may impact the presentation of certain contract costs. Overall, the Corporation does not expect the new guidance to have a material impact on its consolidated financial position or results of operations. The next phase of the Corporation’s implementation work will be to evaluate any changes that may be required to the Corporation’s applicable disclosures. Significant Accounting Principles 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. Securities Financing Agreements Securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase (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 acquisition or sale price 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 monitor the market value of the principal amount loaned under resale agreements and obtain collateral from or return collateral pledged to counterparties when appropriate. Securities financing agreements do not create material credit risk due to these collateral provisions; therefore, an allowance for loan losses is unnecessary. 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, 2016 and 2015, the fair value of this collateral was $452.1 billion and $458.9 billion, of which $372.0 billion and $383.5 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. Bank of America 2016 121 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. 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). 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 management activities that are both 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, futures and forward settlement contracts, and option contracts. include derivatives 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 122 Bank of America 2016 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 In addition, the Corporation obtains collateral in connection fair value of derivatives that serve to mitigate certain risks with its derivative contracts. Required collateral levels vary associated with mortgage servicing rights (MSRs), interest rate depending on the credit risk rating and the type of counterparty. lock commitments (IRLCs) and first mortgage loans held-for-sale Generally, the Corporation accepts collateral in the form of cash, (LHFS) that are originated by the Corporation are recorded in U.S. Treasury securities and other marketable securities. Based mortgage banking income. Changes in the fair value of derivatives on provisions contained in master netting agreements, the that serve to mitigate interest rate risk and foreign currency risk Corporation nets cash collateral received against derivative are included in other income (loss). Credit derivatives are also assets. The Corporation also pledges collateral on its own used by the Corporation to mitigate the risk associated with various derivative positions which can be applied against derivative credit exposures. The changes in the fair value of these derivatives 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 management activities include derivatives that are both 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, futures and forward settlement contracts, and option contracts. 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 122 Bank of America 2016 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. 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 ALM and other strategic activities, are generally reported at fair value as 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 that 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 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. For AFS debt securities the Corporation intends to hold, an analysis is performed to determine how much of the decline in fair value is related to the issuer’s credit and how much is related to market factors (e.g., interest rates). If any of the decline in fair value is due to credit, an other- than-temporary impairment (OTTI) loss is recognized in the Consolidated Statement of Income for that amount. If any of the decline in fair value is related to market factors, that amount is recognized in accumulated OCI. In certain instances, the credit loss may exceed the total decline in fair value, in which case, the difference is due to market factors and is recognized as an unrealized gain in accumulated OCI. If the Corporation intends to sell or believes it is more-likely-than-not that it will be required to sell the debt security, it is written down to fair value 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 or accreted to interest income at a constant effective yield over the contractual lives 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 the specific investment identification method. income, are determined using Certain equity investments held by Global Principal Investments (GPI), 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. 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). 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 residential mortgage and 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. Bank of America 2016 123 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 increased 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 the PCI pool’s nonaccretable difference and then against the allowance for credit losses. If, upon subsequent valuation, reclassification through a 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 excluding loans and unfunded lending commitments accounted for under the fair value option. 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 124 Bank of America 2016 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. 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 loans 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 and the amount of loss in the event of default. For consumer loans secured by residential real estate, using statistical modeling methodologies, the Corporation estimates the number of 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 (CLTV), 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). The severity or loss given default 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 with the loan portfolio, 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 models also incorporate 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. 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. For impaired loans, which include nonperforming commercial loans as well as consumer and commercial loans and leases modified in a troubled debt restructuring (TDR), management measures impairment primarily based on the present value of Purchased Credit-impaired Loans estimated probable credit losses on these unfunded credit Purchased loans with evidence of credit quality deterioration as instruments based on utilization assumptions. Lending-related of the purchase date for which it is probable that the Corporation credit exposures deemed to be uncollectible, excluding loans will not receive all contractually required payments receivable are carried at fair value, are charged off against these accounts. Write- accounted for as purchased credit-impaired (PCI) loans. Evidence offs on PCI loans on which there is a valuation allowance are of credit quality deterioration since origination may include past recorded against the valuation allowance. For additional due status, refreshed credit scores and refreshed loan-to-value information, see Purchased Credit-impaired Loans in this Note. (LTV) ratios. At acquisition, PCI loans are recorded at fair value The Corporation performs periodic and systematic detailed with no allowance for credit losses, and accounted for individually reviews of its lending portfolios to identify credit risks and to or aggregated in pools based on similar risk characteristics such assess the overall collectability of those portfolios. The allowance as credit risk, collateral type and interest rate risk. The Corporation on certain homogeneous consumer loan portfolios, which estimates the amount and timing of expected cash flows for each generally consist of consumer real estate loans within the loan or pool of loans. The expected cash flows in excess of the Consumer Real Estate portfolio segment and credit card loans amount paid for the loans is referred to as the accretable yield within the Credit Card and Other Consumer portfolio segment, is and is recorded as interest income over the remaining estimated based on aggregated portfolio segment evaluations generally by life of the loan or pool of loans. The excess of the PCI loans’ product type. Loss forecast models are utilized for these portfolios contractual principal and interest over the expected cash flows is which consider a variety of factors including, but not limited to, referred to as the nonaccretable difference. Over the life of the historical loss experience, estimated defaults or foreclosures PCI loans, the expected cash flows continue to be estimated using based on portfolio trends, delinquencies, bankruptcies, economic models that incorporate management’s estimate of current conditions and credit scores and the amount of loss in the event assumptions such as default rates, loss severity and prepayment of default. speeds. If, upon subsequent valuation, the Corporation For consumer loans secured by residential real estate, using determines it is probable that the present value of the expected statistical modeling methodologies, the Corporation estimates the cash flows has decreased, a charge to the provision for credit number of loans that will default based on the individual loan losses is recorded with a corresponding increase in the allowance attributes aggregated into pools of homogeneous loans with for credit losses. If it is probable that there is a significant increase similar attributes. The attributes that are most significant to the in the present value of expected cash flows, the allowance for probability of default and are used to estimate defaults include credit losses is reduced or, if there is no remaining allowance for refreshed LTV or, in the case of a subordinated lien, refreshed credit losses related to these PCI loans, the accretable yield is combined LTV (CLTV), borrower credit score, months since increased through a reclassification from nonaccretable origination (referred to as vintage) and geography, all of which are difference, resulting in a prospective increase in interest income. further broken down by present collection status (whether the loan Reclassifications to or from nonaccretable difference can also is current, delinquent, in default or in bankruptcy). The severity or occur for changes in the PCI loans’ estimated lives. If a loan within loss given default is estimated based on the refreshed LTV for first a PCI pool is sold, foreclosed, forgiven or the expectation of any mortgages or CLTV for subordinated liens. The estimates are future proceeds is remote, the loan is removed from the pool at based on the Corporation’s historical experience with the loan its proportional carrying value. If the loan’s recovery value is less portfolio, adjusted to reflect an assessment of environmental than the loan’s carrying value, the difference is first applied against factors not yet reflected in the historical data underlying the loss the PCI pool’s nonaccretable difference and then against the estimates, such as changes in real estate values, local and 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 excluding loans and unfunded lending commitments accounted for under the fair value option. 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 national economies, underwriting standards and the regulatory environment. The probability of default models also incorporate 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. 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. For impaired loans, which include nonperforming commercial loans as well as consumer and commercial loans and leases modified in a troubled debt restructuring (TDR), management measures impairment primarily based on the present value of 124 Bank of America 2016 payments expected to be received, discounted at the loans’ original effective contractual interest rates. Credit card loans are 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, the Corporation initially estimates the fair value of the collateral securing these consumer real estate-secured 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. 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. Loans accounted for under the fair value option, PCI loans and LHFS are not reported as nonperforming. 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. 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. 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. 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. Accrued interest receivable is reversed when loans and leases are placed on nonaccrual status. Interest collections on nonaccruing 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. 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. 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 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 Bank of America 2016 125 maximize collections. Loans that are carried at fair value, LHFS and PCI loans are not classified as TDRs. 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. 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 generally 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, for loans that have been placed on a fixed payment plan, 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. 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 126 Bank of America 2016 circumstances indicate a potential impairment, at the reporting unit level. A reporting unit 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 goodwill, as measured by allocated equity. 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. 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 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. 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 Corporation consolidates 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 its involvement with the VIE and evaluates the impact of changes in governing documents and its financial interests in the VIE. The consolidation status of the VIEs with which the Corporation is involved may change as a result of such reassessments. 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 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, and other loans, the Corporation maximize collections. Loans that are carried at fair value, LHFS circumstances indicate a potential impairment, at the reporting and PCI loans are not classified as TDRs. unit level. A reporting unit is a business segment or one level below Loans and leases whose contractual terms have been modified a business segment. The goodwill impairment analysis is a two- in a TDR and are current at the time of restructuring may remain step test. The first step of the goodwill impairment test involves on accrual status if there is demonstrated performance prior to comparing the fair value of each reporting unit with its carrying the restructuring and payment in full under the restructured terms value, including goodwill, as measured by allocated equity. For is expected. Otherwise, the loans are placed on nonaccrual status purposes of goodwill impairment testing, the Corporation utilizes and reported as nonperforming, except for fully-insured consumer allocated equity as a proxy for the carrying value of its reporting real estate loans, until there is sustained repayment performance units. Allocated equity in the reporting units is comprised of for a reasonable period, generally six months. If accruing TDRs allocated capital plus capital for the portion of goodwill and cease to perform in accordance with their modified contractual intangibles specifically assigned to the reporting unit. If the fair terms, they are placed on nonaccrual status and reported as value of the reporting unit exceeds its carrying value, goodwill of nonperforming TDRs. the reporting unit is considered not impaired; however, if the Secured consumer loans that have been discharged in Chapter carrying value of the reporting unit exceeds its fair value, the 7 bankruptcy and have not been reaffirmed by the borrower are second step must be performed to measure potential impairment. classified as TDRs at the time of discharge. Such loans are placed The second step involves calculating an implied fair value of on nonaccrual status and written down to the estimated collateral goodwill which is the excess of the fair value of the reporting unit, value less costs to sell no later than at the time of discharge. If as determined in the first step, over the aggregate fair values of these loans are contractually current, interest collections are the assets, liabilities and identifiable intangibles as if the reporting generally recorded in interest income on a cash basis. Consumer unit was being acquired in a business combination. If the implied real estate-secured loans for which a binding offer to restructure fair value of goodwill exceeds the goodwill assigned to the reporting has been extended are also classified as TDRs. Credit card and unit, there is no impairment. If the goodwill assigned to a reporting other unsecured consumer loans that have been renegotiated in unit exceeds the implied fair value of goodwill, an impairment a TDR generally remain on accrual status until the loan is either charge is recorded for the excess. An impairment loss recognized paid in full or charged off, which occurs no later than the end of cannot exceed the amount of goodwill assigned to a reporting unit. the month in which the loan becomes 180 days past due or, for An impairment loss establishes a new basis in the goodwill and loans that have been placed on a fixed payment plan, 120 days subsequent reversals of goodwill impairment losses are not past due. permitted under applicable accounting guidance. A loan that had previously been modified in a TDR and is For intangible assets subject to amortization, an impairment subsequently refinanced under current underwriting standards at loss is recognized if the carrying value of the intangible asset is a market rate with no concessionary terms is accounted for as a not recoverable and exceeds fair value. The carrying value of the 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 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. cost or fair value. The Corporation accounts for certain LHFS, Variable Interest Entities including residential mortgage LHFS, under the fair value option. A VIE is an entity that lacks equity investors or whose equity Loan origination costs related to LHFS that the Corporation investors do not have a controlling financial interest in the entity accounts for under the fair value option are recognized in through their equity investments. The Corporation consolidates a noninterest expense when incurred. Loan origination costs for VIE if it has both the power to direct the activities of the VIE that LHFS carried at the lower of cost or fair value are capitalized as most significantly impact the VIE’s economic performance and an part of the carrying value of the loans and recognized as a reduction obligation to absorb losses or the right to receive benefits that of noninterest income upon the sale of such loans. LHFS that are could potentially be significant to the VIE. On a quarterly basis, on nonaccrual status and are reported as nonperforming, as the Corporation reassesses its involvement with the VIE and defined in the policy herein, are reported separately from evaluates the impact of changes in governing documents and its 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. 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 126 Bank of America 2016 financial interests in the VIE. The consolidation status of the VIEs with which the Corporation is involved may change as a result of such reassessments. 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 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, and other 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 representations and than standard 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 its assets, 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 HTM 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 fair values based on the present value of the associated expected future cash flows. 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. Under this guidance, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. A hierarchy is established which categorizes fair value measurements into three levels based on the inputs to the valuation technique with the highest priority given to unadjusted quoted prices in active markets and the lowest priority given to unobservable inputs. The Corporation categorizes its fair value measurements of financial instruments based on this 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 (MBS) 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 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. fair value 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. Bank of America 2016 127 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. Revenue Recognition Revenue is recorded when earned, which is generally over the period services are provided and no contingencies exist. 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. Uncollected fees are included in 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. 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. 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 which 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, excluding unvested common shares subject to repurchase or cancellation. Net income (loss) allocated to common shareholders 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 (RSUs), outstanding warrants and the dilution resulting from the conversion of convertible preferred stock, if applicable. 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. When the functional currency of a foreign operation is the local currency, 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 and losses and related hedge gains and losses are reported as a component of accumulated OCI, net- of-tax. When the foreign entity’s functional currency is 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. 128 Bank of America 2016 Income tax benefits are recognized and measured based upon the weighted-average common shares outstanding plus amounts a two-step model: first, a tax position must be more-likely-than-not representing the dilutive effect of stock options outstanding, to be sustained based solely on its technical merits in order to be restricted stock, restricted stock units (RSUs), outstanding recognized, and second, the benefit is measured as the largest warrants and the dilution resulting from the conversion of dollar amount of that position that is more-likely-than-not to be convertible preferred stock, if applicable. sustained upon settlement. The difference between the benefit In an exchange of non-convertible preferred stock, income recognized and the tax benefit claimed on a tax return is referred allocated to common shareholders is adjusted for the difference to as an unrecognized tax benefit. The Corporation records income between the carrying value of the preferred stock and the fair value tax-related interest and penalties, if applicable, within income tax of the consideration exchanged. In an induced conversion of expense. Revenue Recognition Revenue is recorded when earned, which is generally over the period services are provided and no contingencies exist. The 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. following summarizes the Corporation’s revenue recognition Foreign Currency Translation policies as they relate to certain noninterest income line items in Assets, liabilities and operations of foreign branches and the Consolidated Statement of Income. subsidiaries are recorded based on the functional currency of each Card income includes fees such as interchange, cash advance, entity. When the functional currency of a foreign operation is the annual, late, over-limit and other miscellaneous fees. Uncollected local currency, the assets, liabilities and operations are translated, fees are included in customer card receivables balances with an for consolidation purposes, from the local currency to the U.S. amount recorded in the allowance for loan and lease losses for Dollar reporting currency at period-end rates for assets and estimated uncollectible card receivables. Uncollected fees are liabilities and generally at average rates for results of operations. written off when a card receivable reaches 180 days past due. The resulting unrealized gains and losses and related hedge gains Service charges include fees for insufficient funds, overdrafts and losses are reported as a component of accumulated OCI, net- and other banking services. Uncollected fees are included in of-tax. When the foreign entity’s functional currency is the U.S. outstanding loan balances with an amount recorded for estimated Dollar, the resulting remeasurement gains or losses on foreign uncollectible service fees receivable. Uncollected fees are written currency-denominated assets or liabilities are included in off when a fee receivable reaches 60 days past due. earnings. Investment and brokerage services revenue consists primarily of asset management fees and brokerage income. 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 which 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, excluding unvested common shares subject to repurchase or cancellation. Net income (loss) allocated to common shareholders 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 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. 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, 2016 and 2015. 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, 2016 (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) Total Trading and Other Risk Management Derivatives Qualifying Accounting Hedges $ $ 16,977.7 5,609.5 1,146.2 1,178.7 $ 385.0 2.2 — 53.3 $ $ 390.9 2.2 — 53.3 $ 386.9 2.1 52.2 — 5.9 — — — 4.2 1.7 — — — — — — — — — — — — 58.8 60.5 — 8.9 3.4 0.9 — 23.9 2.5 3.6 — 2.0 8.1 0.4 54.6 58.8 — 8.9 3.4 0.9 — 23.9 2.5 3.6 — 2.0 8.1 0.4 1,828.6 3,410.7 356.6 342.4 189.7 68.7 431.5 385.5 48.2 49.1 29.3 28.9 604.0 21.2 614.4 25.4 Total $ 388.9 2.1 52.2 — 65.0 57.4 9.4 — 4.0 0.9 21.4 — 5.1 0.5 1.9 — 10.3 1.5 2.0 — — — 6.2 0.8 — — — — — — — — — — — — — — 9.0 $ $ 7.5 0.2 628.3 (545.3) (43.5) 39.5 58.8 56.6 9.4 — 4.0 0.9 21.4 — 5.1 0.5 1.9 — 10.3 1.5 7.5 0.2 619.3 $ 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. 10.7 1.0 619.3 $ — — 11.8 $ $ $ 10.7 1.0 631.1 (545.3) (43.3) 42.5 128 Bank of America 2016 Bank of America 2016 129 Gross Derivative Assets Gross Derivative Liabilities December 31, 2015 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 6,237.6 1,313.8 1,393.3 $ 439.6 1.1 — 58.9 $ $ 447.0 1.1 — 58.9 $ 440.8 1.3 57.6 — 7.4 — — — 0.9 1.2 — — — — — — — — — — — — 50.1 47.2 — 10.2 3.3 2.1 — 23.8 4.7 3.8 — 4.2 14.4 0.2 — — 9.5 $ $ 15.3 2.3 688.6 (596.7) (41.9) 50.0 $ 52.2 45.8 10.6 — 3.8 1.2 21.1 — 7.1 0.7 4.4 — 14.8 1.9 13.1 0.4 676.8 $ Total $ 442.0 1.3 57.6 — 55.0 46.1 10.6 — 3.8 1.2 21.1 — 7.1 0.7 4.4 — 14.8 1.9 1.2 — — — 2.8 0.3 — — — — — — — — — — — — — — 4.3 $ $ 13.1 0.4 681.1 (596.7) (45.9) 38.5 2,149.9 4,104.3 467.2 439.9 201.2 72.8 347.6 320.3 47.0 45.6 36.6 37.4 928.3 26.4 924.1 39.7 49.2 46.0 — 10.2 3.3 2.1 — 23.8 4.7 3.8 — 4.2 14.4 0.2 15.3 2.3 679.1 $ 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 cash and securities collateral held and posted 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 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. 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, 2016 and 2015 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 130 Bank of America 2016 (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 $ 21,706.8 $ 439.6 $ 7.4 $ 447.0 $ 440.8 $ 1.2 $ 442.0 6,237.6 1,313.8 1,393.3 2,149.9 4,104.3 467.2 439.9 201.2 72.8 347.6 320.3 47.0 45.6 36.6 37.4 928.3 26.4 924.1 39.7 1.1 — 58.9 49.2 46.0 — 10.2 3.3 2.1 — 23.8 4.7 3.8 — 4.2 14.4 0.2 15.3 2.3 — — — 0.9 1.2 — — — — — — — — — — — — — — 1.1 — 58.9 50.1 47.2 — 10.2 3.3 2.1 — 23.8 4.7 3.8 — 4.2 14.4 0.2 15.3 2.3 1.3 57.6 — 52.2 45.8 10.6 — 3.8 1.2 21.1 — 7.1 0.7 4.4 — 14.8 1.9 13.1 0.4 — — — 2.8 0.3 — — — — — — — — — — — — — — 1.3 57.6 — 55.0 46.1 10.6 — 3.8 1.2 21.1 — 7.1 0.7 4.4 — 14.8 1.9 13.1 0.4 Gross derivative assets/liabilities $ 679.1 $ 9.5 $ 688.6 $ 676.8 $ 4.3 $ 681.1 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. 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, 2016 and 2015 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 (596.7) (41.9) 50.0 $ (596.7) (45.9) 38.5 $ 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 cash and securities collateral held and posted 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, 2015 Offsetting of Derivatives (Dollars in billions) Interest rate contracts Over-the-counter 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 (1) Total derivative assets/liabilities Less: Financial instruments collateral (2) December 31, 2016 December 31, 2015 Derivative Assets Derivative Liabilities Derivative Assets Derivative Liabilities $ $ 267.3 177.2 $ 258.2 182.8 $ 309.3 197.0 124.3 0.3 15.6 11.4 3.7 1.1 — 15.3 4.3 426.2 12.5 181.8 (398.2) (8.9) (181.5) 31.9 10.6 42.5 (13.5) 29.0 126.7 0.3 13.7 10.8 4.9 1.0 — 14.7 4.3 418.2 11.8 187.4 (392.6) (8.9) (187.3) 28.6 10.9 39.5 (10.5) 29.0 $ 103.2 0.1 16.6 10.0 7.3 1.8 0.1 24.6 6.5 461.0 11.8 203.7 (426.6) (8.7) (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 1.8 0.1 22.9 6.4 450.5 11.0 208.3 (425.7) (8.7) (208.2) 27.2 11.3 38.5 (6.5) 32.0 Total net derivative assets/liabilities (1) Consists of derivatives entered into under master netting agreements where the enforceability of these agreements is uncertain. (2) 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 in the mortgage business 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. 130 Bank of America 2016 Bank of America 2016 131 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 2016, 2015 and 2014, 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. (2) Amounts are recorded in interest income on debt securities. (3) Amounts relating to commodity inventory are recorded in trading account profits. Derivative 2016 Hedged Item Hedge Ineffectiveness $ $ $ $ $ $ (1,488) $ (941) 227 (17) (2,219) $ (718) $ (1,898) 105 15 (2,496) $ $ 2,144 (2,212) (35) 21 (82) $ 646 944 (286) 17 1,321 $ $ 2015 (77) $ 1,812 (127) (11) 1,597 $ 2014 (2,935) $ 2,120 3 (15) (827) $ (842) 3 (59) — (898) (795) (86) (22) 4 (899) (791) (92) (32) 6 (909) 132 Bank of America 2016 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 2016, 2015 and 2014, 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) 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. (2) Amounts are recorded in interest income on debt securities. (3) Amounts relating to commodity inventory are recorded in trading account profits. Total Total Total 2016 Hedged Item Hedge Ineffectiveness Derivative (1,488) $ $ $ $ $ $ $ $ (2,219) $ 1,321 $ 2015 (718) $ (77) $ (2,496) $ 1,597 $ 2014 2,144 $ (2,935) $ (941) 227 (17) (1,898) 105 15 (2,212) (35) 21 646 944 (286) 17 1,812 (127) (11) 2,120 3 (15) (82) $ (827) $ (842) 3 (59) — (898) (795) (86) (22) 4 (899) (791) (92) (32) 6 (909) Cash Flow and Net Investment Hedges The table below summarizes certain information related to cash flow hedges and net investment hedges for 2016, 2015 and 2014. Of the $895 million after-tax net loss ($1.4 billion on a pretax basis) on derivatives in accumulated OCI for 2016, $128 million after-tax ($206 million on a pretax basis) 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 2016 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) $ $ $ $ $ $ $ $ $ (340) $ 41 (299) $ (553) $ (32) (585) $ 1 — 1 1,636 $ 3 $ (325) 2015 2014 (974) $ 91 (883) $ (2) — (2) 153 $ (298) (1,119) $ 359 (760) $ (4) — (4) 21 $ (503) 95 (40) 55 3,010 68 127 195 3,021 $ $ $ $ $ $ (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. 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 2016, 2015 and 2014. 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) 2016 2015 2014 132 Bank of America 2016 Bank of America 2016 133 (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. 1,017 Interest rate risk on mortgage banking income (1) 16 Credit risk on loans (2) (3,683) Interest rate and foreign currency risk on ALM activities (3) 600 Price risk on restricted stock awards (4) (9) 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 $533 million, $714 million and $776 million for 2016, 2015 and 2014, respectively. 254 (22) (222) (267) 11 461 (107) (754) 9 5 $ $ $ 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 through derivatives (e.g., interest rate and/or credit), but the Corporation does not retain control over the assets transferred. Through December 31, 2016 and 2015, the Corporation transferred $6.6 billion and $7.9 billion of primarily non-U.S. government-guaranteed MBS to a third-party trust and received gross cash proceeds of $6.6 billion and $7.9 billion at the transfer dates. At December 31, 2016 and 2015, the fair value of these securities was $6.3 billion and $7.2 billion. Derivative assets of $43 million and $24 million and liabilities of $10 million and $29 million were recorded at December 31, 2016 and 2015, and are included in credit derivatives in the derivative instruments table on page 130. 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 following table, 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 2016, 2015 and 2014. The difference between total trading account profits in the following table and in the Consolidated Statement of Income represents trading activities in business segments other than Global Markets. This table includes debit valuation and funding valuation adjustment (DVA/FVA) gains (losses). Global Markets results in Note 24 – Business Segment Information are presented on a fully taxable-equivalent (FTE) basis. The following table is not presented on an FTE basis. 134 Bank of America 2016 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 through derivatives (e.g., interest rate and/or credit), but the Corporation does not retain control over the assets transferred. Through December 31, 2016 and 2015, the Corporation transferred $6.6 billion and $7.9 billion of primarily non-U.S. government-guaranteed MBS to a third-party trust and received gross cash proceeds of $6.6 billion and $7.9 billion at the transfer dates. At December 31, 2016 and 2015, the fair value of these securities was $6.3 billion and $7.2 billion. Derivative assets of $43 million and $24 million and liabilities of $10 million and $29 million were recorded at December 31, 2016 and 2015, and are included in credit derivatives in the derivative instruments table on page 130. 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 following table, 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 2016, 2015 and 2014. The difference between total trading account profits in the following table and in the Consolidated Statement of Income represents trading activities in business segments other than Global Markets. This table includes debit valuation and funding valuation adjustment (DVA/FVA) gains (losses). Global Markets results in Note 24 – Business Segment Information are presented on a fully taxable-equivalent (FTE) basis. The following table is not presented on an FTE basis. The results for 2016 and 2015 were impacted by the adoption of new accounting guidance in 2015 on recognition and measurement of financial instruments. As such, amounts in the "Other" column for 2016 and 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 include such amounts. For more information on the implementation of 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 2016 Trading Account Profits Net Interest Income Other (1) Total $ $ $ $ $ $ 1,608 1,360 1,915 1,258 409 6,550 1,300 1,322 2,115 910 462 6,109 983 1,177 1,954 1,404 508 6,026 $ $ $ $ $ $ 1,397 (10) 15 2,587 (20) 3,969 $ $ 304 (154) 2,072 425 40 2,687 $ $ 3,309 1,196 4,002 4,270 429 13,206 2015 $ 1,307 (10) 56 2,361 (81) 3,633 946 7 (79) 2,563 (123) 3,314 2014 $ $ $ (263) $ (117) 2,146 452 62 2,280 2,344 1,195 4,317 3,723 443 $ 12,022 466 (128) 2,307 617 108 3,370 $ 2,395 1,056 4,182 4,584 493 $ 12,710 (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 $2.1 billion, $2.2 billion and $2.2 billion for 2016, 2015 and 2014, 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, 2016 and 2015 are summarized in the following table. 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. 134 Bank of America 2016 Bank of America 2016 135 December 31, 2016 Carrying Value Less than One Year One to Three Years Three to Five Years Over Five Years Total $ $ $ $ $ $ $ $ $ $ 10 771 781 16 127 143 924 $ $ — $ 70 70 $ 64 1,053 1,117 — 10 10 1,127 12 22 34 $ $ $ $ 535 908 1,443 — 2 2 1,445 542 60 602 $ $ $ $ 783 3,339 4,122 — 1 1 4,123 1,423 1,318 2,741 121,083 84,755 205,838 12,792 6,638 19,430 225,268 84 672 756 5 171 176 932 267 61 328 $ $ $ $ $ $ Maximum Payout/Notional 143,200 67,160 210,360 — 5,127 5,127 215,487 $ $ 116,540 41,001 157,541 — 589 589 158,130 $ $ 21,905 18,711 40,616 — 208 208 40,824 December 31, 2015 Carrying Value 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 $ $ $ $ $ $ $ $ $ $ 1,392 6,071 7,463 16 140 156 7,619 1,977 1,470 3,447 402,728 211,627 614,355 12,792 12,562 25,354 639,709 3,448 9,676 13,124 5 417 422 13,546 2,971 1,560 4,531 $ 149,177 81,596 230,773 $ 280,658 135,850 416,508 $ 178,990 53,299 232,289 9,758 20,917 30,675 $ 261,448 — 6,989 6,989 $ 423,497 — 1,371 1,371 $ 233,660 $ $ 26,352 18,221 44,573 $ 635,177 288,966 924,143 — 623 623 45,196 9,758 29,900 39,658 $ 963,801 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 136 Bank of America 2016 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, 2016 Carrying Value Less than One Year One to Three Years Three to Five Years Over Five Years Total $ 10 $ 64 $ $ 783 $ $ 121,083 $ 143,200 $ 116,540 $ $ 402,728 $ 1,127 1,445 4,123 7,619 771 781 16 127 143 924 — $ 70 70 $ 1,053 1,117 — 10 10 12 22 34 $ $ $ 535 908 1,443 — 2 2 542 60 602 Maximum Payout/Notional 84,755 205,838 67,160 210,360 41,001 157,541 12,792 6,638 19,430 — 5,127 5,127 — 589 589 December 31, 2015 Carrying Value 672 756 5 171 176 932 267 61 328 $ $ $ 3,035 3,516 — 236 236 57 118 175 $ $ $ 2,203 2,386 4,589 — 8 8 444 117 561 Maximum Payout/Notional 3,339 4,122 — 1 1 1,423 1,318 2,741 21,905 18,711 40,616 — 208 208 3,583 4,263 — 2 2 2,203 1,264 3,467 1,392 6,071 7,463 16 140 156 1,977 1,470 3,447 211,627 614,355 12,792 12,562 25,354 3,448 9,676 13,124 5 417 422 2,971 1,560 4,531 $ $ $ $ $ $ $ $ $ $ $ $ 3,752 4,597 4,265 13,546 $ 225,268 $ 215,487 $ 158,130 $ 40,824 $ 639,709 $ 84 $ 481 $ $ 680 $ $ $ $ $ $ $ $ 149,177 $ 280,658 $ 178,990 $ 26,352 $ 635,177 81,596 230,773 135,850 416,508 53,299 232,289 18,221 44,573 288,966 924,143 9,758 20,917 30,675 — 6,989 6,989 — 1,371 1,371 — 623 623 9,758 29,900 39,658 $ 261,448 $ 423,497 $ 233,660 $ 45,196 $ 963,801 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 $4.7 billion and $490.7 billion at December 31, 2016, and $8.2 billion and $706.0 billion at December 31, 2015. Credit-related notes in the table on page 137 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 130, 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, 2016 and 2015, the Corporation held cash and securities collateral of $85.5 billion and $78.9 billion, and posted cash and securities collateral of $71.1 billion and $62.7 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, 2016, 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 $1.8 billion, including $1.0 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, 2016 and 2015, the liability recorded for these derivative contracts was $46 million and $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, 2016 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, 2016 Second One incremental incremental notch notch $ 498 $ 310 866 492 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, 2016 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, 2016 Second One incremental incremental notch notch $ 691 $ 459 1,324 1,026 136 Bank of America 2016 Bank of America 2016 137 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 Valuation Adjustments on Derivatives Gains (Losses) (Dollars in millions) 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. 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 movement 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 2016, 2015 and 2014. 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. 2016 2015 2014 Gross Net Gross Net Gross Net 191 Derivative assets (CVA) (1) (497) Derivative assets/liabilities (FVA) (1) (150) Derivative liabilities (DVA) (1) (1) At December 31, 2016, 2015 and 2014, cumulative CVA reduced the derivative assets balance by $1.0 billion, $1.4 billion and $1.6 billion, cumulative FVA reduced the net derivatives balance by 255 $ 16 (18) 374 $ 186 24 227 16 (153) 214 102 (141) (497) (28) (22) $ $ $ $ $296 million, $481 million and $497 million, and cumulative DVA reduced the derivative liabilities balance by $774 million, $750 million and $769 million, respectively. 138 Bank of America 2016 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. 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 movement 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 2016, 2015 and 2014. 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. Valuation Adjustments on Derivatives Gains (Losses) (Dollars in millions) Derivative assets (CVA) (1) Derivative assets/liabilities (FVA) (1) Derivative liabilities (DVA) (1) (1) At December 31, 2016, 2015 and 2014, cumulative CVA reduced the derivative assets balance by $1.0 billion, $1.4 billion and $1.6 billion, cumulative FVA reduced the net derivatives balance by $296 million, $481 million and $497 million, and cumulative DVA reduced the derivative liabilities balance by $774 million, $750 million and $769 million, respectively. 2016 2015 2014 Gross Net Gross Net Gross Net $ 374 $ $ 255 $ 227 $ (22) $ 186 24 214 102 (141) 16 (18) 16 (153) (497) (28) 191 (497) (150) 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, 2016 and 2015. 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 Other taxable securities, substantially all asset-backed securities Total taxable securities Tax-exempt securities Total available-for-sale debt securities Less: Available-for-sale securities of business held for sale (2) Other debt securities carried at fair value Total debt securities carried at fair value Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities Total debt securities (3) Available-for-sale marketable equity securities (4) Available-for-sale debt securities Mortgage-backed securities: December 31, 2016 Gross Gross Unrealized Unrealized Losses Gains Fair Value Amortized Cost $ $ $ 190,809 8,296 12,594 1,863 213,562 48,800 6,372 10,573 279,307 17,272 296,579 (619) 19,748 315,708 117,071 432,779 325 $ $ $ 640 85 21 181 927 204 13 64 1,208 72 1,280 — 121 1,401 248 1,649 51 $ $ $ (1,963) $ (51) (293) (31) (2,338) (752) (3) (23) (3,116) (184) (3,300) — (149) (3,449) (2,034) (5,483) $ (1) $ 189,486 8,330 12,322 2,013 212,151 48,252 6,382 10,614 277,399 17,160 294,559 (619) 19,720 313,660 115,285 428,945 375 December 31, 2015 $ $ $ Tax-exempt securities 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 Other taxable securities, substantially all asset-backed securities 228,947 10,985 7,165 3,179 250,276 25,277 5,767 10,445 291,765 14,008 305,773 16,607 322,380 84,046 406,426 Available-for-sale marketable equity securities (4) 425 (1) At December 31, 2016 and 2015, the underlying collateral type included approximately 60 percent and 71 percent prime, 19 percent and 15 percent Alt-A, and 21 percent and 14 percent subprime. (2) Represents AFS debt securities of business held for sale of which there were no unrealized gains or losses at December 31, 2016. (3) The Corporation had debt securities from FNMA and FHLMC that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $156.4 billion and $48.7 billion, and a fair value of $154.4 billion and $48.3 billion at December 31, 2016. Debt securities from FNMA and FHLMC that exceeded 10 percent of shareholders’ equity had an amortized cost of $145.8 billion and $53.3 billion, and a fair value of $145.5 billion and $53.2 billion at December 31, 2015. (1,470) $ (55) (65) (71) (1,661) (9) (3) (84) (1,757) (33) (1,790) (174) (1,964) (792) (2,756) $ — $ 229,356 10,892 7,200 3,031 250,479 25,075 5,743 10,475 291,772 13,978 305,750 16,678 322,428 84,508 406,936 326 1,061 148 30 219 1,458 211 27 54 1,750 63 1,813 103 1,916 330 2,246 99 Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities Other debt securities carried at fair value Total debt securities carried at fair value Total available-for-sale debt securities Total debt securities (3) $ $ $ $ $ $ (4) Classified in other assets on the Consolidated Balance Sheet. At December 31, 2016, the accumulated net unrealized loss on AFS debt securities included in accumulated OCI was $1.3 billion, net of the related income tax benefit of $721 million. At December 31, 2016 and 2015, the Corporation had nonperforming AFS debt securities of $121 million and $188 million. The following table presents the components of other debt securities carried at fair value where the changes in fair value are reported in other income. In 2016, the Corporation recorded unrealized mark-to-market net gains of $51 million and realized net losses of $128 million, compared to unrealized mark-to-market net gains of $62 million and realized net losses of $324 million in 2015. These amounts exclude hedge results. 138 Bank of America 2016 Bank of America 2016 139 Other Debt Securities Carried at Fair Value Gains and Losses on Sales of AFS Debt Securities (Dollars in millions) Mortgage-backed securities: Agency-collateralized mortgage obligations Non-agency residential $ Total mortgage-backed securities Non-U.S. securities (1) Other taxable securities, substantially all asset-backed securities Total 240 267 $ 19,720 $ 16,607 (1) These securities are primarily used to satisfy certain international regulatory liquidity requirements. The gross realized gains and losses on sales of AFS debt securities for 2016, 2015 and 2014 are presented in the following table. December 31 2016 2015 (Dollars in millions) Gross gains Gross losses $ 5 3,139 3,144 16,336 7 3,490 3,497 12,843 Net gains on sales of AFS debt securities Income tax expense attributable to realized net gains on sales of AFS debt securities 2016 520 (30) 490 2015 $ 1,174 (36) $ 1,138 2014 $ 1,504 (23) $ 1,481 186 $ 432 $ 563 $ $ $ The table below presents the fair value and the associated gross unrealized losses on AFS debt securities and whether these securities have had gross unrealized losses for less than 12 months or for 12 months or longer at December 31, 2016 and 2015. 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 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, 2016 Twelve Months or Longer Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses $ $ 135,210 3,229 9,018 212 147,669 28,462 52 762 176,945 4,782 181,727 (1,846) $ (25) (293) (1) (2,165) (752) (1) (5) (2,923) (148) (3,071) $ 3,770 1,028 — 204 5,002 — 142 1,438 6,582 1,873 8,455 $ (117) $ 138,980 4,257 9,018 416 152,671 28,462 194 2,200 183,527 6,655 190,182 (26) — (13) (156) — (2) (18) (176) (36) (212) (1,963) (51) (293) (14) (2,321) (752) (3) (23) (3,099) (184) (3,283) 94 (1) 401 (16) 495 (17) AFS debt securities $ 181,821 $ (3,072) $ 8,856 $ (228) $ 190,677 $ (3,300) 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 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 December 31, 2015 $ $ $ 115,502 2,536 4,587 553 123,178 1,172 — 4,936 129,286 4,400 133,686 (1,082) $ (19) (65) (5) (1,171) (5) — (67) (1,243) (12) (1,255) 13,083 1,212 — 723 15,018 190 134 869 16,211 1,877 18,088 $ (388) $ 128,585 3,748 4,587 1,276 138,196 1,362 134 5,805 145,497 6,277 151,774 (36) — (33) (457) (4) (3) (17) (481) (21) (502) (1,470) (55) (65) (38) (1,628) (9) (3) (84) (1,724) (33) (1,757) 481 (19) 98 (14) 579 (33) AFS debt securities $ 134,167 $ (1,274) $ 18,186 $ (516) $ 152,353 $ (1,790) (1) Includes OTTI AFS debt securities on which an OTTI loss, primarily related to changes in interest rates, remains in accumulated OCI. 140 Bank of America 2016 Other Debt Securities Carried at Fair Value Gains and Losses on Sales of AFS Debt Securities Agency-collateralized mortgage obligations $ 5 $ Net gains on sales of AFS debt securities December 31 2016 2015 (Dollars in millions) Gross gains Gross losses 3,139 3,144 16,336 7 3,490 3,497 12,843 2016 2015 2014 520 (30) 490 $ 1,174 $ 1,504 (36) (23) $ 1,138 $ 1,481 $ $ $ Income tax expense attributable to realized net gains on sales of AFS debt securities 186 $ 432 $ 563 The table below presents the fair value and the associated The Corporation recorded OTTI losses on AFS debt securities in 2016, 2015 and 2014 as presented in the following table. Substantially all OTTI losses in 2016, 2015 and 2014 consisted of credit losses on non-agency residential mortgage-backed securities (RMBS) and were recorded in other income in the Consolidated Statement of Income. Net Credit-related Impairment Losses Recognized in Earnings 240 267 gross unrealized losses on AFS debt securities and whether these (Dollars in millions) (1) These securities are primarily used to satisfy certain international regulatory liquidity months or for 12 months or longer at December 31, 2016 and $ 19,720 $ 16,607 securities have had gross unrealized losses for less than 12 The gross realized gains and losses on sales of AFS debt securities for 2016, 2015 and 2014 are presented in the following 2015. Total OTTI losses Less: non-credit portion of total OTTI losses recognized in OCI Net credit-related impairment losses recognized in earnings $ $ 2016 2015 2014 (31) $ (111) $ (30) 12 30 14 (19) $ (81) $ (16) The table below presents a rollforward of the credit losses recognized in earnings in 2016, 2015 and 2014 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 2016 2015 2014 $ 266 $ 200 $ 184 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 2 17 52 29 (32) (15) 14 2 — Balance, December 31 $ 253 $ 266 $ 200 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 (Dollars in millions) Mortgage-backed securities: Non-agency residential Total mortgage-backed securities Non-U.S. securities (1) Other taxable securities, substantially all asset-backed securities Total requirements. table. 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 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 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 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 December 31, 2016 Less than Twelve Months Twelve Months or Longer Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses $ 135,210 $ (1,846) $ $ (117) $ 138,980 $ (1,963) 3,229 9,018 212 147,669 28,462 52 762 176,945 4,782 181,727 (25) (293) (1) (2,165) (752) (1) (5) (2,923) (148) (3,071) 3,770 1,028 — 204 5,002 — 142 1,438 6,582 1,873 8,455 (26) — (13) (156) — (2) (18) (176) (36) (212) 4,257 9,018 416 152,671 28,462 194 2,200 183,527 6,655 190,182 94 (1) 401 (16) 495 (17) December 31, 2015 $ 115,502 $ (1,082) $ 13,083 $ (388) $ 128,585 $ (1,470) (1,171) 15,018 (457) 138,196 (1,628) 2,536 4,587 553 123,178 1,172 — 4,936 129,286 4,400 133,686 (19) (65) (5) (5) — (67) (1,243) (12) (1,255) 1,212 — 723 190 134 869 16,211 1,877 18,088 (36) — (33) (4) (3) (17) (481) (21) (502) 3,748 4,587 1,276 1,362 134 5,805 145,497 6,277 151,774 481 (19) 98 (14) 579 (33) (51) (293) (14) (2,321) (752) (3) (23) (3,099) (184) (3,283) (55) (65) (38) (9) (3) (84) (1,724) (33) (1,757) AFS debt securities $ 181,821 $ (3,072) $ 8,856 $ (228) $ 190,677 $ (3,300) AFS debt securities $ 134,167 $ (1,274) $ 18,186 $ (516) $ 152,353 $ (1,790) (1) Includes OTTI AFS debt securities on which an OTTI loss, primarily related to changes in interest rates, remains in accumulated OCI. 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, 2016. 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. 13.8% 20.1 20.4 4.6% 8.8 0.7 27.0% 36.5 77.4 Annual constant prepayment speed and loss severity rates are projected considering collateral characteristics such as loan-to- value (LTV), creditworthiness of borrowers as measured using Fair Isaac Corporation (FICO) scores, and geographic concentrations. The weighted-average severity by collateral type was 17.0 percent for prime, 18.8 percent for Alt-A and 30.4 percent for subprime at December 31, 2016. Additionally, default rates are projected by considering collateral characteristics including, but not limited to, LTV, FICO score and geographic concentration. Weighted-average life default rates by collateral type were 13.9 percent for prime, 21.7 percent for Alt-A and 20.9 percent for subprime at December 31, 2016. 140 Bank of America 2016 Bank of America 2016 141 The remaining contractual maturity distribution and yields of the Corporation’s debt securities carried at fair value and HTM debt securities at December 31, 2016 are summarized in the table below. Actual duration and yields may differ as prepayments on the loans underlying the mortgages or other ABS are passed through to the Corporation. Maturities of Debt Securities Carried at Fair Value and Held-to-maturity Debt Securities (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, 2016 Due after Five Years through Ten Years Due after Ten Years Total Amortized cost of 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 (2) Other taxable securities, substantially all asset-backed securities Total taxable securities Tax-exempt securities $ 2 — 48 — 50 517 21,164 2,040 23,771 646 4.50% $ — 8.60 — 8.32 0.47 0.25 1.77 0.40 1.13 47 — 558 — 605 34,898 1,097 5,102 41,702 6,563 Total amortized cost of debt securities carried at fair value (2) Amortized cost of HTM debt securities (3) $ 24,417 $ — 0.42 $ 48,265 — $ 26 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 (2) Other taxable securities, substantially all asset-backed securities Total taxable securities Tax-exempt securities Total debt securities carried at fair value (2) Fair value of HTM debt securities (3) $ 2 — 48 — 50 517 21,165 2,036 23,768 646 $ 24,414 $ — $ 48 — 559 — 607 34,784 1,100 5,078 41,569 6,561 4.45% $ — 1.96 — 2.15 1.57 1.92 1.63 1.59 1.49 1.58 4.01 381 — 11,632 12 12,025 13,234 206 2,279 27,744 7,846 $ 35,590 $ 971 $ 382 — 11,378 19 11,779 12,788 208 2,303 27,078 7,754 2.56% $190,379 3.23% $190,809 3.23% — 2.47 0.01 2.46 1.58 1.30 2.71 2.05 1.57 1.95 2.32 8,300 356 5,016 204,051 151 240 1,396 205,838 2,217 $ 208,055 $ 116,074 3.18 2.58 8.50 3.36 5.42 6.60 3.18 3.36 1.53 3.34 3.01 8,300 12,594 5,028 216,731 48,800 22,707 10,817 299,055 17,272 $ 316,327 $ 117,071 3.18 2.47 8.48 3.31 1.57 0.41 2.08 2.76 1.52 2.69 3.01 $189,054 $189,486 8,335 337 5,133 202,859 163 245 1,437 204,704 2,199 $ 206,903 $ 114,300 8,335 12,322 5,152 215,295 48,252 22,718 10,854 297,119 17,160 $ 314,279 $ 115,285 $ 48,130 $ 26 $ 34,832 $ 959 (1) The average yield is computed based on a constant effective interest rate over the contractual life of each security. The average yield considers the contractual coupon and the amortization of (2) premiums and accretion of discounts, excluding the effect of related hedging derivatives. Includes $619 million of amortized cost and fair value for AFS debt securities of business held for sale. These AFS debt securities mature in one year or less and have an average yield of 0.21 percent. (3) Substantially all U.S. agency MBS. 142 Bank of America 2016 The remaining contractual maturity distribution and yields of the Corporation’s debt securities carried at fair value and HTM debt securities at December 31, 2016 are summarized in the table below. Actual duration and yields may differ as prepayments on the loans underlying the mortgages or other ABS are passed through to the Corporation. 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, 2016 and 2015. Maturities of Debt Securities Carried at Fair Value and Held-to-maturity Debt Securities (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 Due after Ten Years Total December 31, 2016 Due after Five Years through Ten Years $ 4.50% $ 4.45% $ 2.56% $190,379 3.23% $190,809 3.23% Amortized cost of 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 (2) securities Total taxable securities Tax-exempt securities Other taxable securities, substantially all asset-backed 2 — 48 — 50 517 21,164 2,040 23,771 646 8.60 — — 8.32 0.47 0.25 1.77 0.40 1.13 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 (2) Other taxable securities, substantially all asset-backed securities Total taxable securities Tax-exempt securities 2 — 48 — 50 517 21,165 2,036 23,768 646 $ 24,414 $ — 47 — 558 — 605 34,898 1,097 5,102 41,702 6,563 48 — 559 — 607 34,784 1,100 5,078 41,569 6,561 1.96 — — 2.15 1.57 1.92 1.63 1.59 1.49 1.58 4.01 381 — 11,632 12 12,025 13,234 206 2,279 27,744 7,846 382 — 11,378 19 11,779 12,788 208 2,303 27,078 7,754 3.18 2.47 8.48 3.31 1.57 0.41 2.08 2.76 1.52 2.69 3.01 — 2.47 0.01 2.46 1.58 1.30 2.71 2.05 1.57 1.95 2.32 8,300 356 5,016 204,051 151 240 1,396 205,838 2,217 $ 208,055 $ 116,074 8,335 337 5,133 202,859 163 245 1,437 204,704 2,199 $ 206,903 $ 114,300 3.18 2.58 8.50 3.36 5.42 6.60 3.18 3.36 1.53 3.34 3.01 8,300 12,594 5,028 216,731 48,800 22,707 10,817 299,055 17,272 $ 316,327 $ 117,071 8,335 12,322 5,152 215,295 48,252 22,718 10,854 297,119 17,160 $ 314,279 $ 115,285 Total amortized cost of debt securities carried at fair value (2) Amortized cost of HTM debt securities (3) $ 24,417 $ — 0.42 $ 48,265 — $ 26 $ 35,590 $ 971 Total debt securities carried at fair value (2) Fair value of HTM debt securities (3) $ 48,130 $ 26 $ 34,832 $ 959 premiums and accretion of discounts, excluding the effect of related hedging derivatives. (2) Includes $619 million of amortized cost and fair value for AFS debt securities of business held for sale. These AFS debt securities mature in one year or less and have an average yield of 0.21 percent. (3) Substantially all U.S. agency MBS. $ $ $ $189,054 $189,486 (Dollars in millions) Consumer real estate Core portfolio Residential mortgage Home equity Non-core 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) $ $ $ 1,340 239 1,338 260 472 37 272 26 3,984 425 105 674 136 341 27 79 8 1,795 1,213 451 5,343 832 782 66 34 6 8,727 December 31, 2016 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) $ 2,978 795 $ 153,519 48,578 7,355 1,228 1,595 130 385 40 14,506 17,818 12,231 $ 10,127 3,611 90,683 9,084 93,704 2,459 428,076 13,738 Total consumer loans and leases 3,984 1,795 8,727 14,506 428,076 13,738 $ 1,051 1,051 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) Total commercial loans and leases Total consumer and commercial loans and leases (10) Less: Loans of business held for sale (10) 952 20 167 348 96 1,583 263 10 21 4 49 347 400 56 27 5 84 572 1,615 86 215 357 229 2,502 268,757 57,269 22,160 89,040 12,764 449,990 1,583 347 572 2,502 449,990 6,034 6,034 $ 5,567 $ 2,142 $ 9,299 $ 17,008 $ 878,066 $ 13,738 $ 7,085 $ 915,897 Total loans and leases (11) 100.00% Percentage of outstandings (10) (1) Consumer real estate loans 30-59 days past due includes fully-insured loans of $1.1 billion and nonperforming loans of $266 million. Consumer real estate loans 60-89 days past due includes fully- 95.87% 1.86% 1.50% 0.77% 0.61% 1.02% 0.23% Total Outstandings $ 156,497 49,373 35,300 17,070 92,278 9,214 94,089 2,499 456,320 1,051 457,371 270,372 57,355 22,375 89,397 12,993 452,492 6,034 458,526 (9,214) $ 906,683 (1) The average yield is computed based on a constant effective interest rate over the contractual life of each security. The average yield considers the contractual coupon and the amortization of insured loans of $547 million and nonperforming loans of $216 million. (2) Consumer real estate includes fully-insured loans of $4.8 billion. (3) Consumer real estate includes $2.5 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 $1.8 billion. The Corporation no longer originates this product. (6) Total outstandings includes auto and specialty lending loans of $48.9 billion, unsecured consumer lending loans of $585 million, U.S. securities-based lending loans of $40.1 billion, non-U.S. consumer loans of $3.0 billion, student loans of $497 million and other consumer loans of $1.1 billion. (7) Total outstandings includes consumer finance loans of $465 million, consumer leases of $1.9 billion and consumer overdrafts of $157 million. (8) Consumer loans accounted for under the fair value option were residential mortgage loans of $710 million and home equity loans of $341 million. Commercial loans accounted for under the fair value option were U.S. commercial loans of $2.9 billion and non-U.S. commercial loans of $3.1 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 $54.3 billion and non-U.S. commercial real estate loans of $3.1 billion. (10) Includes non-U.S. credit card loans, which are included in assets of business held for sale on the Consolidated Balance Sheet. (11) The Corporation pledged $143.1 billion of loans to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Bank (FHLB). This amount is not included in the parenthetical disclosure of loans and leases pledged as collateral on the Consolidated Balance Sheet as there were no related outstanding borrowings. 142 Bank of America 2016 Bank of America 2016 143 Total Outstandings $ 141,795 54,917 46,116 21,031 89,602 9,975 88,795 2,067 454,298 1,871 456,169 252,771 57,199 21,352 91,549 12,876 435,747 5,067 5,067 6,938 5,067 440,814 $ 896,983 $ 1,871 1,871 December 31, 2015 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) $ 1,214 200 2,045 335 454 39 227 18 4,532 $ $ 368 93 1,167 174 332 31 62 3 2,230 1,414 579 8,439 1,170 789 76 42 4 12,513 $ 2,996 872 $ 138,799 54,045 11,651 1,679 1,575 146 331 25 19,275 22,399 14,733 $ 12,066 4,619 88,027 9,829 88,464 2,042 418,338 16,685 (Dollars in millions) Consumer real estate Core portfolio Residential mortgage Home equity Non-core 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 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 36 150 6 83 719 148 11 29 1 41 230 332 82 20 1 72 507 924 129 199 8 196 1,456 251,847 57,070 21,153 91,541 12,680 434,291 Total commercial loans and leases Total loans and leases (10) 719 5,251 $ 230 2,460 507 13,020 $ 1,456 20,731 $ 434,291 $ 852,629 $ $ 16,685 $ Percentage of outstandings 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- 95.06% 0.59% 1.86% 1.45% 0.77% 0.27% 2.31% 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. (10) The Corporation pledged $149.4 billion of loans to secure potential borrowing capacity with the Federal Reserve Bank and FHLB. This amount is not included in the parenthetical disclosure of loans and leases pledged as collateral on the Consolidated Balance Sheet as there were no related outstanding borrowings. In connection with an agreement to sell the Corporation's non- U.S. consumer credit card business, this business, which includes $9.2 billion of non-U.S. credit card loans and related allowance for loan and lease losses of $243 million, was reclassified to assets of business held for sale on the Consolidated Balance Sheet as of December 31, 2016. In this Note, all applicable amounts include these balances, unless otherwise noted. For more information, see Note 1 – Summary of Significant Accounting Principles. The Corporation categorizes consumer real estate loans as core and non-core based on loan and customer characteristics such as origination date, product type, LTV, FICO score and delinquency status consistent with its current consumer and mortgage servicing strategy. Generally, loans that were originated after January 1, 2010, qualified under government-sponsored enterprise underwriting guidelines, or otherwise met the Corporation's underwriting guidelines in place in 2015 are characterized as core loans. Loans held in legacy private-label securitizations, government-insured loans originated prior to 2010, loan products no longer originated, and loans originated prior to 2010 and classified as nonperforming or modified in a TDR prior to 2016 are generally characterized as non-core loans, and are principally run-off portfolios. The Corporation has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $6.4 billion and $3.7 billion at December 31, 2016 and 2015, 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, 2016 and 2015, $428 million and $484 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 144 Bank of America 2016 December 31, 2015 30-59 Days Past Due (1) 60-89 Days Past Due (1) 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 Residential mortgage $ 1,214 $ $ 1,414 $ 2,996 $ 138,799 $ 141,795 (Dollars in millions) Consumer real estate Core portfolio Home equity Non-core 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) 200 2,045 335 454 39 227 18 444 36 150 6 83 719 368 93 1,167 174 332 31 62 3 148 11 29 1 41 230 579 872 54,045 8,439 1,170 11,651 1,679 22,399 14,733 $ 12,066 4,619 789 76 42 4 332 82 20 1 72 507 1,575 146 331 25 88,027 9,829 88,464 2,042 924 129 199 8 196 251,847 57,070 21,153 91,541 12,680 1,456 434,291 54,917 46,116 21,031 89,602 9,975 88,795 2,067 454,298 1,871 456,169 252,771 57,199 21,352 91,549 12,876 435,747 5,067 440,814 $ 1,871 1,871 5,067 5,067 6,938 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 Total commercial loans and leases 719 230 507 1,456 434,291 Total loans and leases (10) $ 5,251 $ 2,460 $ 13,020 $ 20,731 $ 852,629 $ 16,685 $ $ 896,983 Percentage of outstandings 0.59% 0.27% 1.45% 2.31% 95.06% 1.86% 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- 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. (10) The Corporation pledged $149.4 billion of loans to secure potential borrowing capacity with the Federal Reserve Bank and FHLB. This amount is not included in the parenthetical disclosure of loans and leases pledged as collateral on the Consolidated Balance Sheet as there were no related outstanding borrowings. In connection with an agreement to sell the Corporation's non- prior to 2010 and classified as nonperforming or modified in a U.S. consumer credit card business, this business, which includes TDR prior to 2016 are generally characterized as non-core loans, $9.2 billion of non-U.S. credit card loans and related allowance and are principally run-off portfolios. for loan and lease losses of $243 million, was reclassified to The Corporation has entered into long-term credit protection assets of business held for sale on the Consolidated Balance agreements with FNMA and FHLMC on loans totaling $6.4 billion Sheet as of December 31, 2016. In this Note, all applicable and $3.7 billion at December 31, 2016 and 2015, providing full amounts include these balances, unless otherwise noted. For credit protection on residential mortgage loans that become more information, see Note 1 – Summary of Significant Accounting severely delinquent. All of these loans are individually insured and Principles. therefore the Corporation does not record an allowance for credit The Corporation categorizes consumer real estate loans as losses related to these loans. core and non-core based on loan and customer characteristics such as origination date, product type, LTV, FICO score and delinquency status consistent with its current consumer and mortgage servicing strategy. Generally, loans that were originated after January 1, 2010, qualified under government-sponsored enterprise underwriting guidelines, or otherwise met the Corporation's underwriting guidelines in place in 2015 are characterized as core loans. Loans held in legacy private-label securitizations, government-insured loans originated prior to 2010, loan products no longer originated, and loans originated 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, 2016 and 2015, $428 million and $484 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, 2016, nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms were $543 million of which $332 million were current on their contractual payments, while $181 million were 90 days or more past due. Of the contractually current nonperforming loans, approximately 81 percent were discharged in Chapter 7 bankruptcy over 12 months ago, and approximately 70 percent were discharged 24 months or more ago. During 2016, the Corporation sold nonperforming and other delinquent consumer real estate loans with a carrying value of $2.2 billion, including $549 million of PCI loans, compared to $3.2 billion, including $1.4 billion of PCI loans, in 2015. The Corporation recorded net charge-offs related to these sales of $30 million during 2016 and net recoveries of $133 million during 2015. Gains related to these sales of $75 million and $173 million were recorded in other income in the Consolidated Statement of Income during 2016 and 2015. 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, 2016 and 2015. 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 Non-core 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 December 31 Nonperforming Loans and Leases Accruing Past Due 90 Days or More 2016 2015 2016 2015 $ $ 1,274 969 $ 1,825 974 $ 486 — 382 — 1,782 1,949 n/a n/a 28 2 6,004 2,978 2,363 n/a n/a 24 1 8,165 4,307 — 782 66 34 4 5,679 6,768 — 789 76 39 3 8,057 U.S. commercial Commercial real estate Commercial lease financing Non-U.S. commercial U.S. small business commercial 113 3 15 1 61 193 8,250 (1) Residential mortgage loans in the core and non-core portfolios accruing past due 90 days or more are fully-insured loans. At December 31, 2016 and 2015, residential mortgage includes $3.0 billion and $4.3 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 $1.8 billion and $2.9 billion of loans on which interest is still accruing. 867 93 12 158 82 1,212 9,377 Total commercial Total loans and leases 1,256 72 36 279 60 1,703 7,707 106 7 19 5 71 208 5,887 $ $ $ $ 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 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. FICO scores are typically refreshed quarterly or more frequently. Certain borrowers (e.g., borrowers that have had debts discharged in a bankruptcy proceeding) may not have their FICO scores updated. 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. 144 Bank of America 2016 Bank of America 2016 145 The following tables present certain credit quality indicators for the Corporation’s Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at December 31, 2016 and 2015. Consumer Real Estate – Credit Quality Indicators (1) (Dollars in millions) Refreshed LTV (4) December 31, 2016 Core Portfolio Residential Mortgage (2) Non-core Residential Mortgage (2) Residential Mortgage PCI (3) Core Portfolio Home Equity (2) Non-core Home Equity (2) Home Equity PCI Less than or equal to 90 percent $ 129,737 $ 14,280 $ 7,811 $ 47,171 $ 8,480 $ 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 $ $ 3,634 1,872 21,254 156,497 2,479 5,094 22,629 105,041 21,254 $ $ $ $ 1,446 1,972 7,475 25,173 3,198 2,807 4,512 7,181 7,475 $ $ 1,021 1,295 — 10,127 2,741 2,241 2,916 2,229 — $ $ 1,006 1,196 — 49,373 1,254 2,853 10,069 35,197 — $ $ 1,668 3,311 — 13,459 2,692 3,094 3,176 4,497 — $ 156,497 $ 25,173 $ 10,127 $ 49,373 $ 13,459 $ 1,942 630 1,039 — 3,611 559 636 1,069 1,347 — 3,611 (1) Excludes $1.1 billion of loans accounted for under the fair value option. (2) Excludes PCI loans. (3) Includes $1.6 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, 2016 U.S. Credit Card Non-U.S. Credit Card Direct/Indirect Consumer Other Consumer (1) $ 4,431 $ — $ 1,478 $ 12,364 34,828 40,655 — — — — 9,214 2,070 12,491 33,420 44,630 $ 92,278 $ 9,214 $ 94,089 $ 187 222 404 1,525 161 2,499 (1) At December 31, 2016, 19 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 $43.1 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $499 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, 2016, 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, 2016 U.S. Commercial Commercial Real Estate Commercial Lease Financing Non-U.S. Commercial U.S. Small Business Commercial (2) $ 261,214 $ 56,957 $ 21,565 $ 85,689 $ 9,158 398 810 3,708 453 71 200 591 1,741 3,264 6,673 $ 270,372 $ 57,355 $ 22,375 $ 89,397 $ 12,993 (1) Excludes $6.0 billion of loans accounted for under the fair value option. (2) U.S. small business commercial includes $755 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, 2016, 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. 146 Bank of America 2016 The following tables present certain credit quality indicators for the Corporation’s Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at December 31, 2016 and 2015. Consumer Real Estate – Credit Quality Indicators (1) Consumer Real Estate – Credit Quality Indicators (1) Less than or equal to 90 percent $ 129,737 $ 14,280 $ 7,811 $ 47,171 $ 8,480 $ Greater than 90 percent but less than or equal to 100 percent December 31, 2016 Core Portfolio Residential Mortgage (2) Non-core Residential Mortgage (2) Residential Mortgage PCI (3) Core Portfolio Home Equity (2) Non-core Home Equity (2) Home Equity PCI $ $ 3,634 1,872 21,254 156,497 2,479 5,094 22,629 105,041 21,254 $ $ $ $ 1,446 1,972 7,475 25,173 3,198 2,807 4,512 7,181 7,475 $ $ 1,021 1,295 — 10,127 2,741 2,241 2,916 2,229 — $ $ 1,006 1,196 — 49,373 1,254 2,853 10,069 35,197 — $ $ 1,668 3,311 — 13,459 2,692 3,094 3,176 4,497 — $ 156,497 $ 25,173 $ 10,127 $ 49,373 $ 13,459 $ (1) Excludes $1.1 billion of loans accounted for under the fair value option. (2) Excludes PCI loans. (3) Includes $1.6 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 (1) At December 31, 2016, 19 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 $43.1 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $499 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, 2016, 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. December 31, 2016 U.S. Credit Card Non-U.S. Credit Card Direct/Indirect Consumer Other Consumer (1) $ 4,431 $ — $ 1,478 $ 12,364 34,828 40,655 — — — — 9,214 2,070 12,491 33,420 44,630 $ 92,278 $ 9,214 $ 94,089 $ 187 222 404 1,525 161 2,499 December 31, 2016 U.S. Commercial Commercial Real Estate Commercial Lease Financing Non-U.S. Commercial Commercial (2) U.S. Small Business $ 261,214 $ 56,957 $ 21,565 $ 85,689 $ 9,158 398 810 3,708 (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 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 1,942 630 1,039 — 3,611 559 636 1,069 1,347 — 3,611 453 71 200 591 1,741 3,264 6,673 (Dollars in millions) Refreshed LTV (4) December 31, 2015 Core Portfolio Residential Mortgage (2) Non-core Residential Mortgage (2) Residential Mortgage PCI (3) Core Portfolio Home Equity (2) Non-core Home Equity (2) Home Equity PCI Less than or equal to 90 percent $ 110,023 $ 16,481 $ 8,655 $ 51,262 $ 8,347 $ 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 $ $ 4,038 2,638 25,096 141,795 3,129 5,472 22,486 85,612 25,096 $ $ $ $ 2,224 3,364 11,981 34,050 4,749 3,762 5,138 8,420 11,981 $ $ 1,403 2,008 — 12,066 3,798 2,586 3,187 2,495 — $ $ 1,858 1,797 — 54,917 1,322 3,295 12,180 38,120 — $ $ 2,190 5,875 — 16,412 3,490 3,862 3,451 5,609 — $ 141,795 $ 34,050 $ 12,066 $ 54,917 $ 16,412 $ 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) At December 31, 2015, 27 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 $ 20,644 $ 87,905 $ 8,849 511 708 3,644 571 96 184 543 1,627 3,027 6,828 $ 252,771 $ 57,199 $ 21,352 $ 91,549 $ 12,876 (1) Excludes $6.0 billion of loans accounted for under the fair value option. (2) U.S. small business commercial includes $755 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, 2016, 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. $ 270,372 $ 57,355 $ 22,375 $ 89,397 $ 12,993 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. (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 (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. 146 Bank of America 2016 Bank of America 2016 147 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 155. 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 $1.4 billion were included in TDRs at December 31, 2016, of which $543 million were classified as nonperforming and $555 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. 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. 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. foreclosure proceedings were At December 31, 2016 and 2015, 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 $363 million and $444 million at December 31, 2016 and 2015. The carrying value of consumer real estate loans, including fully-insured and PCI loans, for which in process as of formal December 31, 2016 was $4.8 billion. During 2016 and 2015, the Corporation reclassified $1.4 billion and $2.1 billion of consumer real estate loans to foreclosed properties or, for properties acquired upon foreclosure of certain government-guaranteed loans to other assets. The loans), (principally FHA-insured reclassifications represent non-cash investing activities and, accordingly, are not reflected on the Consolidated Statement of Cash Flows. 148 Bank of America 2016 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 155. 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 $1.4 billion were included in TDRs at December 31, 2016, of which $543 million were classified as nonperforming and $555 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. 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. 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. At December 31, 2016 and 2015, 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 $363 million and $444 million at December 31, 2016 and 2015. The carrying value of consumer real estate loans, including fully-insured and PCI loans, for which formal foreclosure proceedings were in process as of December 31, 2016 was $4.8 billion. During 2016 and 2015, the Corporation reclassified $1.4 billion and $2.1 billion of consumer real estate loans to foreclosed properties or, for properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans), to other assets. The reclassifications represent non-cash investing activities and, accordingly, are not reflected on the Consolidated Statement of Cash Flows. The table below provides the unpaid principal balance, carrying value and related allowance at December 31, 2016 and 2015, and the average carrying value and interest income recognized for 2016, 2015 and 2014 for impaired loans in the Corporation’s Consumer Real Estate portfolio segment. 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, 2016 December 31, 2015 Unpaid Principal Balance Carrying Value Related Allowance Unpaid Principal Balance Carrying Value Related Allowance $ $ $ $ $ 8,695 1,953 3,936 824 12,631 2,777 11,151 3,704 4,041 910 15,192 4,614 $ $ $ 2016 Average Carrying Value Interest Income Recognized (1) 10,178 1,906 5,067 852 $ $ 360 90 167 24 $ $ $ $ $ — $ — 14,888 3,545 6,624 1,047 21,512 4,592 $ $ 219 137 219 137 2015 Average Carrying Value Interest Income Recognized (1) 13,867 1,777 7,290 785 $ $ 403 89 236 24 $ $ $ $ $ 11,901 1,775 6,471 911 18,372 2,686 $ $ $ 2014 — — 399 235 399 235 Average Carrying Value Interest Income Recognized (1) 15,065 1,486 10,826 743 $ $ 490 87 411 25 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. 21,157 2,562 25,891 2,229 15,245 2,758 901 112 639 113 527 114 $ $ $ $ $ $ (1) The table below presents the December 31, 2016, 2015 and 2014 unpaid principal balance, carrying value, and average pre- and post-modification interest rates on consumer real estate loans that were modified in TDRs during 2016, 2015 and 2014, 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. Consumer Real Estate – TDRs Entered into During 2016, 2015 and 2014 (1) (Dollars in millions) Residential mortgage Home equity Total Residential mortgage Home equity Total Residential mortgage Home equity $ $ $ $ $ December 31, 2016 2016 Unpaid Principal Balance Carrying Value Pre- Modification Interest Rate Post- Modification Interest Rate (2) Net Charge-offs (3) $ $ $ $ $ 1,130 849 1,979 2,986 1,019 4,005 5,940 863 6,803 1,017 649 1,666 December 31, 2015 2,655 775 3,430 4.73% 3.95 4.40 4.98% 3.54 4.61 4.16% $ 2.72 3.54 $ 4.43% $ 3.17 4.11 $ 11 61 72 97 84 181 2015 December 31, 2014 2014 5,120 592 5,712 5.28% 4.00 5.12 4.93% $ 3.33 4.73 $ 72 99 171 Total $ (1) During 2016, 2015 and 2014, the Corporation forgave principal of $13 million, $396 million and $53 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, 2016, 2015 and 2014 due to sales and other dispositions. $ 148 Bank of America 2016 Bank of America 2016 149 The table below presents the December 31, 2016, 2015 and 2014 carrying value for consumer real estate loans that were modified in a TDR during 2016, 2015 and 2014, by type of modification. Consumer Real Estate – Modification Programs (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 TDRs Entered into During 2016 Residential Mortgage Home Equity TDRs Entered into During 2015 Residential Mortgage Home Equity TDRs Entered into During 2014 Residential Mortgage Home Equity $ $ 116 2 22 140 84 24 10 4 122 597 158 1,017 $ $ 35 11 1 47 151 16 62 71 300 234 68 649 $ $ $ 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 $ $ $ 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 (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. The table below presents the carrying value of consumer real estate loans that entered into payment default during 2016, 2015 and 2014 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 (1) (Dollars in millions) 2016 2015 2014 Residential Mortgage Home Equity Residential Mortgage Home Equity Residential Mortgage Home Equity $ Modifications under government programs Modifications under proprietary programs Loans discharged in Chapter 7 bankruptcy (2) Trial modifications (3) $ Total modifications Includes loans with a carrying value of $613 million, $1.8 billion and $2.0 billion that entered into payment default during 2016, 2015 and 2014, respectively, but were no longer held by the Corporation as of December 31, 2016, 2015 and 2014 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 trial modification offers to which the customer did not respond. 452 263 238 2,997 3,950 696 714 481 2,231 4,122 259 133 136 714 1,242 4 12 70 56 142 5 24 47 181 257 3 63 22 110 198 $ $ $ $ $ $ $ $ $ $ (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 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. 150 Bank of America 2016 Consumer Real Estate – Modification Programs (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) TDRs Entered into During 2016 TDRs Entered into During 2015 TDRs Entered into During 2014 Residential Mortgage Home Equity Residential Mortgage Home Equity Residential Mortgage Home Equity $ 116 $ $ 408 $ $ 643 $ 2 22 140 84 24 10 4 122 597 158 35 11 1 47 151 16 62 71 300 234 68 649 4 46 458 191 69 124 34 418 1,516 263 23 7 — 30 28 10 44 95 177 452 116 775 16 98 757 244 71 66 40 421 3,421 521 56 18 1 75 22 2 75 47 146 182 189 592 Total modifications $ 1,017 $ $ 2,655 $ $ 5,120 $ (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. The table below presents the carrying value of consumer real monthly payments (not necessarily consecutively) since estate loans that entered into payment default during 2016, 2015 modification. Payment defaults on a trial modification where the and 2014 that were modified in a TDR during the 12 months borrower has not yet met the terms of the agreement are included preceding payment default. A payment default for consumer real in the table below if the borrower is 90 days or more past due estate TDRs is recognized when a borrower has missed three three months after the offer to modify is made. Consumer Real Estate – TDRs Entering Payment Default That Were Modified During the Preceding 12 Months (1) (Dollars in millions) Modifications under government programs Modifications under proprietary programs Loans discharged in Chapter 7 bankruptcy (2) Trial modifications (3) Total modifications 2016 2015 2014 Residential Mortgage Home Equity Residential Mortgage Home Equity Residential Mortgage Home Equity $ $ $ 259 133 136 714 1,242 $ 3 63 22 110 198 $ $ 452 263 238 2,997 3,950 $ $ 5 24 47 181 257 $ $ 696 714 481 2,231 4,122 $ $ 4 12 70 56 142 (1) Includes loans with a carrying value of $613 million, $1.8 billion and $2.0 billion that entered into payment default during 2016, 2015 and 2014, respectively, but were no longer held by the Corporation as of December 31, 2016, 2015 and 2014 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 trial modification offers to which the customer did not respond. (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 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. The table below presents the December 31, 2016, 2015 and 2014 carrying value for consumer real estate loans that were modified in a TDR during 2016, 2015 and 2014, by type of modification. The table below provides the unpaid principal balance, carrying value and related allowance at December 31, 2016 and 2015, and the average carrying value and interest income recognized for 2016, 2015 and 2014 on TDRs within the Credit Card and Other Consumer portfolio segment. Impaired Loans – Credit Card and Other Consumer (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, 2016 December 31, 2015 Unpaid Principal Balance Carrying Value (1) Related Allowance Unpaid Principal Balance Carrying Value (1) Related Allowance $ $ $ $ $ $ $ $ 49 479 88 3 479 88 52 $ $ $ 22 485 100 3 485 100 25 — $ $ $ 128 61 — 128 61 — $ $ $ 50 598 109 17 598 109 67 $ $ $ 21 611 126 21 611 126 42 — 176 70 4 176 70 4 2016 2015 2014 Average Carrying Value Interest Income Recognized (2) Average Carrying Value Interest Income Recognized (2) Average Carrying Value Interest Income Recognized (2) $ $ 20 — 556 111 10 — — $ — $ 31 3 1 — $ $ 22 — 749 145 51 — — $ — $ 43 4 3 — $ $ 27 33 1,148 210 180 23 — 2 71 6 9 1 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. 1,148 210 207 56 749 145 73 — 556 111 30 — 43 4 3 — 71 6 9 3 31 3 1 — $ $ $ $ $ $ (1) (2) The table below provides information on the Corporation’s primary modification programs for the Credit Card and Other Consumer TDR portfolio at December 31, 2016 and 2015. Credit Card and Other Consumer – 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) U.S. credit card Non-U.S. credit card Direct/Indirect consumer $ Total TDRs by program type $ 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 220 11 2 233 $ $ 313 21 11 345 $ $ 264 7 1 272 $ $ 296 10 7 313 $ $ 1 82 22 105 $ $ 2 95 24 121 $ $ 485 100 25 610 $ $ 611 126 42 779 88.99% 38.47 90.49 80.79 88.74% 44.25 89.12 81.55 (1) Other TDRs for non-U.S. credit card include modifications of accounts that are ineligible for a fixed payment plan. December 31 150 Bank of America 2016 Bank of America 2016 151 The table below provides information on the Corporation’s Credit Card and Other Consumer TDR portfolio including the December 31, 2016, 2015 and 2014 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of loans that were modified in TDRs during 2016, 2015 and 2014, and net charge-offs recorded during the period in which the modification occurred. Credit Card and Other Consumer – TDRs Entered into During 2016, 2015 and 2014 (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 Total Includes accrued interest and fees. (1) 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 13 percent of new U.S. credit card TDRs, 90 percent of new non-U.S. credit card TDRs and 14 percent of new direct/indirect consumer TDRs may be in payment default within 12 months after modification. Loans that entered into payment default during 2016, 2015 and 2014 that had been modified in a TDR during the preceding 12 months were $30 million, $43 million and $56 million for U.S. credit card, $127 million, $152 million and $200 million for non-U.S. credit card, and $2 million, $3 million and $5 million for direct/indirect consumer. Commercial Loans Impaired commercial loans include nonperforming loans and TDRs (both performing and nonperforming). 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 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 Unpaid Principal Balance December 31, 2016 Pre- Modification Interest Rate Carrying Value (1) Post- Modification Interest Rate 2016 Net Charge-offs $ $ $ $ $ $ 163 66 21 250 205 74 19 298 276 91 27 394 $ $ $ $ $ $ 172 75 13 260 17.54% 23.99 3.44 18.73 5.47% $ 0.52 3.29 3.93 $ December 31, 2015 2015 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 $ 15 50 9 74 26 63 9 98 37 91 14 142 extensions of maturity at a concessionary (below market) rate of interest, payment 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. 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, 2016 and 2015, remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were $461 million and $187 million. Commercial foreclosed properties totaled $14 million and $15 million at December 31, 2016 and 2015. 152 Bank of America 2016 The table below provides information on the Corporation’s Credit Card and Other Consumer TDR portfolio including the December 31, 2016, 2015 and 2014 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of loans that were modified in TDRs during 2016, 2015 and 2014, and net charge-offs recorded during the period in which the modification occurred. The table below provides the unpaid principal balance, carrying value and related allowance at December 31, 2016 and 2015, and the average carrying value and interest income recognized for 2016, 2015 and 2014 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. Credit Card and Other Consumer – TDRs Entered into During 2016, 2015 and 2014 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 Commercial lease financing Non-U.S. commercial U.S. small business commercial (1) Total U.S. commercial Commercial real estate Commercial lease financing 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 Commercial lease financing Non-U.S. commercial U.S. small business commercial (1) Total December 31, 2016 December 31, 2015 Unpaid Principal Balance Carrying Value Related Allowance Unpaid Principal Balance Carrying Value Related Allowance $ $ $ $ $ $ $ $ $ $ $ $ $ 860 77 130 2,018 243 6 545 85 2,878 320 6 675 85 827 71 130 1,569 96 4 432 73 2,396 167 4 562 73 2016 Average Carrying Value Interest Income Recognized (2) $ $ 787 67 34 1,569 92 2 409 87 14 — 1 59 4 — 14 1 — $ — — $ $ 132 10 — 104 27 132 10 — 104 27 566 82 4 1,350 328 — 531 105 1,916 410 — 535 105 2015 Average Carrying Value Interest Income Recognized (2) $ $ 688 75 29 953 216 — 125 109 14 1 1 48 7 — 7 1 $ $ $ $ $ $ $ $ 541 77 4 1,157 107 — 381 101 1,698 184 — 385 101 — — — 115 11 — 56 35 115 11 — 56 35 2014 Average Carrying Value Interest Income Recognized (2) $ $ 546 166 15 1,198 632 — 52 151 12 3 — 51 16 — 3 3 (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 Total (1) Includes accrued interest and fees. 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 13 percent of new U.S. credit card TDRs, 90 percent of new non-U.S. credit card TDRs and 14 percent of new direct/indirect consumer TDRs may be in payment default within 12 months after modification. Loans that entered into payment default during 2016, 2015 and 2014 that had been modified in a TDR during the preceding 12 months were $30 million, $43 million and $56 million for U.S. credit card, $127 million, $152 million and $200 million for non-U.S. credit card, and $2 million, $3 million and $5 million for direct/indirect consumer. Commercial Loans Impaired commercial loans include nonperforming loans and TDRs (both performing and nonperforming). 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 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 December 31, 2016 2016 Unpaid Principal Balance Pre- Post- Carrying Value (1) Modification Interest Rate Modification Interest Rate Net Charge-offs December 31, 2015 2015 5.08% $ $ $ $ $ $ $ 163 $ 250 $ 66 21 74 19 91 27 205 $ 298 $ 276 $ 394 $ 172 75 13 260 218 86 12 316 301 106 19 426 17.54% 23.99 3.44 18.73 17.07% 24.05 5.95 18.58 16.64% 24.90 8.66 18.32 5.47% $ 0.52 3.29 3.93 0.53 5.19 3.84 0.68 4.90 4.03 $ $ $ 15 50 9 74 26 63 9 98 37 91 14 142 December 31, 2014 2014 5.15% $ extensions of maturity at a concessionary (below market) rate of interest, payment 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. 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, 2016 and 2015, remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were $461 million and $187 million. Commercial foreclosed properties totaled $14 million and $15 million at December 31, 2016 and 2015. U.S. commercial Commercial real estate Commercial lease financing 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. 1,641 291 — 154 109 1,744 798 — 67 151 2,356 159 2 443 87 62 8 — 8 1 63 19 — 3 3 73 4 — 15 1 (1) (2) $ $ $ $ $ $ 152 Bank of America 2016 Bank of America 2016 153 Purchased Credit-impaired Loans The table below 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 2016 and 2015 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, 2015 Accretion Disposals/transfers Reclassifications from nonaccretable difference Accretable yield, December 31, 2015 Accretion Disposals/transfers Reclassifications from nonaccretable difference Accretable yield, December 31, 2016 $ $ 5,608 (861) (465) 287 4,569 (722) (486) 444 3,805 During 2016, the Corporation sold PCI loans with a carrying value of $549 million, which excludes the related allowance of $60 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 $9.1 billion and $7.5 billion at December 31, 2016 and 2015. Cash and non-cash proceeds from sales and paydowns of loans originally classified as LHFS were $32.6 billion, $41.2 billion and $40.1 billion for 2016, 2015 and 2014, respectively. Cash used for originations and purchases of LHFS totaled $33.1 billion, $37.9 billion and $39.4 billion for 2016, 2015 and 2014, respectively. The table below presents the December 31, 2016, 2015 and 2014 unpaid principal balance and carrying value of commercial loans that were modified as TDRs during 2016, 2015 and 2014, 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 2016, 2015 and 2014 (Dollars in millions) U.S. commercial Commercial real estate Commercial lease financing 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, 2016 Unpaid Principal Balance Carrying Value 2016 Net Charge-offs 1,556 77 6 255 1 1,895 $ $ 1,482 77 4 253 1 1,817 December 31, 2015 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 $ $ $ $ $ 86 1 2 48 — 137 2015 28 — — 3 31 2014 49 8 — — 57 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 $140 million, $105 million and $103 million for U.S. commercial and $34 million, $25 million and $211 million for commercial real estate at December 31, 2016, 2015 and 2014, respectively. 154 Bank of America 2016 Purchased Credit-impaired Loans The table below 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 2016 and 2015 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. The table below presents the December 31, 2016, 2015 and 2014 unpaid principal balance and carrying value of commercial loans that were modified as TDRs during 2016, 2015 and 2014, 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 2016, 2015 and 2014 Total $ 1,895 $ 1,817 $ 137 (Dollars in millions) U.S. commercial Commercial real estate Commercial lease financing 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) U.S. commercial Commercial real estate Non-U.S. commercial U.S. small business commercial (1) December 31, 2016 2016 Unpaid Principal Balance Carrying Value Net Charge-offs $ 1,556 $ 1,482 $ 77 6 255 1 42 329 14 818 346 44 3 77 4 253 1 42 326 11 785 346 43 3 86 1 2 48 — 28 — — 3 31 49 8 — — 57 Total $ 1,238 $ 1,158 $ December 31, 2014 2014 $ $ $ 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 $140 million, $105 million and $103 million for U.S. commercial and $34 million, $25 million and $211 million for commercial real estate at December 31, 2016, 2015 and 2014, respectively. Rollforward of Accretable Yield (Dollars in millions) Accretable yield, January 1, 2015 Accretion Disposals/transfers December 31, 2015 2015 $ 853 $ 779 $ Reclassifications from nonaccretable difference Accretable yield, December 31, 2015 Accretion Disposals/transfers $ 5,608 (861) (465) 287 4,569 (722) (486) 444 Reclassifications from nonaccretable difference Accretable yield, December 31, 2016 $ 3,805 During 2016, the Corporation sold PCI loans with a carrying value of $549 million, which excludes the related allowance of $60 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 Loans Held-for-sale The Corporation had LHFS of $9.1 billion and $7.5 billion at December 31, 2016 and 2015. Cash and non-cash proceeds from sales and paydowns of loans originally classified as LHFS were $32.6 billion, $41.2 billion and $40.1 billion for 2016, 2015 and 2014, respectively. Cash used for originations and purchases of LHFS totaled $33.1 billion, $37.9 billion and $39.4 billion for 2016, 2015 and 2014, respectively. Total $ 1,211 $ 1,177 $ for Credit Losses. (1) U.S. small business commercial TDRs are comprised of renegotiated small business card loans. NOTE 5 Allowance for Credit Losses The table below summarizes the changes in the allowance for credit losses by portfolio segment for 2016, 2015 and 2014. (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 Less: Allowance included in assets of business held for sale (2) Total allowance for loan and lease losses, December 31 Reserve for unfunded lending commitments, January 1 Provision for unfunded lending commitments Other (1) 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 Reserve for unfunded lending commitments, December 31 Allowance for credit losses, December 31 2016 Consumer Real Estate Credit Card and Other Consumer Commercial Total Allowance $ $ $ $ $ $ 3,914 (1,155) 619 (536) (340) (258) (30) 2,750 — 2,750 — — — — 2,750 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 $ $ $ $ $ $ 3,471 (3,553) 770 (2,783) — 2,826 (42) 3,472 (243) 3,229 — — — — 3,229 $ $ 2015 $ 4,047 (3,620) 813 (2,807) — 2,278 (47) 3,471 — — — 3,471 4,905 (4,149) 871 (3,278) — 2,458 (38) 4,047 — — — 4,047 $ 2014 $ $ 4,849 (740) 238 (502) — 1,013 (102) 5,258 — 5,258 646 16 100 762 6,020 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 $ $ $ $ $ $ 12,234 (5,448) 1,627 (3,821) (340) 3,581 (174) 11,480 (243) 11,237 646 16 100 762 11,999 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 (1) Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments and certain other reclassifications. (2) Represents allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which is included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. In 2016, 2015 and 2014, for the PCI loan portfolio, the Corporation recorded a provision benefit of $45 million, $40 million and $31 million, respectively. Write-offs in the PCI loan portfolio totaled $340 million, $808 million and $810 million during 2016, 2015 and 2014, respectively. Write-offs included $60 million, $234 million and $317 million associated with the sale of PCI loans during 2016, 2015 and 2014, respectively. The valuation allowance associated with the PCI loan portfolio was $419 million, $804 million and $1.7 billion at December 31, 2016, 2015 and 2014, respectively. 154 Bank of America 2016 Bank of America 2016 155 The table below presents the allowance and the carrying value of outstanding loans and leases by portfolio segment at December 31, 2016 and 2015. 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 Less: Assets of business held for sale (5) Allowance for loan and lease losses (6) Carrying value (3) Total Total allowance for loan and lease losses Carrying value (3, 4) Total 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, 2016 Consumer Real Estate Credit Card and Other Consumer Commercial Total $ 356 15,408 $ 2.31% $ 189 610 30.98% 273 3,202 8.53% $ 818 19,220 4.26% $ 1,975 229,094 $ 3,283 197,470 $ 4,985 449,290 $ 10,243 875,854 0.86% 1.66% 1.11% 1.17% $ 419 13,738 3.05% n/a n/a $ 2,750 258,240 $ $ n/a n/a n/a (243) (9,214) n/a n/a n/a n/a n/a $ $ 419 13,738 3.05% (243) (9,214) 3,229 188,866 $ 5,258 452,492 $ 11,237 899,598 1.06% 1.71% 1.16% 1.25% December 31, 2015 $ 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 $ 4,632 433,379 $ 10,329 849,155 1.10% 1.70% 1.07% 1.22% $ 804 16,685 4.82% n/a n/a n/a n/a n/a n/a $ 804 16,685 4.82% Allowance for loan and lease losses Carrying value (3, 4) Allowance as a percentage of carrying value (4) 1.37% 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. $ 12,234 890,045 4,849 435,747 3,471 190,439 3,914 263,859 1.82% 1.48% 1.11% $ $ $ (1) (2) Allowance for loan and lease losses includes $27 million and $35 million related to impaired U.S. small business commercial at December 31, 2016 and 2015. (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 $7.1 billion and $6.9 billion at December 31, 2016 and 2015. (5) Represents allowance for loan and lease losses and loans related to the non-U.S. credit card portfolio, which is included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. Includes $61 million of allowance for loan and lease losses related to impaired loans and TDRs and $182 million related to loans collectively evaluated for impairment. (6) n/a = not applicable 156 Bank of America 2016 The table below presents the allowance and the carrying value of outstanding loans and leases by portfolio segment at December 31, 2016 and 2015. Allowance and Carrying Value by Portfolio Segment December 31, 2016 Consumer Real Estate Credit Card and Other Consumer Commercial Total $ 356 $ $ 273 $ 818 15,408 2.31% 30.98% 3,202 8.53% 19,220 4.26% 189 610 $ 1,975 $ 3,283 $ 4,985 $ 10,243 229,094 197,470 449,290 875,854 0.86% 1.66% 1.11% 1.17% $ 419 13,738 3.05% n/a n/a n/a $ n/a n/a (243) (9,214) n/a n/a n/a n/a n/a $ 419 13,738 3.05% $ (243) (9,214) $ 2,750 $ 3,229 $ 5,258 $ 11,237 258,240 188,866 452,492 899,598 1.06% 1.71% 1.16% 1.25% December 31, 2015 $ 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 $ 10,329 226,116 189,660 433,379 849,155 1.10% 1.70% 1.07% 1.22% $ 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 $ 12,234 263,859 190,439 435,747 890,045 1.48% 1.82% 1.11% 1.37% NOTE 6 Securitizations and Other Variable Interest Entities The Corporation utilizes VIEs in the ordinary course of business to support its own and its customers’ financing and investing needs. The Corporation routinely 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, 2016 and 2015, 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, 2016 and 2015, 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. As a result of new accounting guidance, which was effective on January 1, 2016, the Corporation identified certain limited partnerships and similar entities that are now considered to be VIEs and are included in the unconsolidated VIE tables in this Note at December 31, 2016. The Corporation had a maximum loss exposure of $6.1 billion related to these VIEs, which had total assets of $16.7 billion. The Corporation invests in ABS issued by third-party VIEs with which it has no other form of involvement and enters into certain First-lien Mortgage Securitizations commercial lending arrangements that may also incorporate the use of VIEs to hold collateral. These securities and loans are 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 common trust funds managed within Global Wealth & Investment Management (GWIM), to provide investment opportunities for clients. These VIEs, which are generally not consolidated by the Corporation, as applicable, 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 2016 or 2015 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 2016, 2015 and 2014. Residential Mortgage (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 Less: Assets of business held for sale (5) Allowance for loan and lease losses (6) Carrying value (3) Total Total allowance for loan and lease losses Carrying value (3, 4) Total 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) 156 Bank of America 2016 (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 $27 million and $35 million related to impaired U.S. small business commercial at December 31, 2016 and 2015. (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 $7.1 billion and $6.9 billion at December 31, 2016 and 2015. (5) Represents allowance for loan and lease losses and loans related to the non-U.S. credit card portfolio, which is included in assets of business held for sale on the Consolidated Balance Sheet at (6) Includes $61 million of allowance for loan and lease losses related to impaired loans and TDRs and $182 million related to loans collectively evaluated for impairment. December 31, 2016. n/a = not applicable 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 $487 million, $750 million and $715 million net of hedges, during 2016, 2015 and 2014, respectively are not included in the table above. (3) 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. The Corporation may also repurchase loans from securitization trusts to perform modifications. The majority of repurchased loans are FHA-insured mortgages collateralizing GNMA securities. In addition to cash proceeds as reported in the table above, the Corporation received securities with an initial fair value of $4.2 billion, $22.3 billion and $5.4 billion in connection with first-lien mortgage securitizations in 2016, 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 2016, 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 Bank of America 2016 157 Cash proceeds from new securitizations (1) Gain on securitizations (2) Repurchases from securitization trusts (3) (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 (Dollars in millions) 2016 Agency 2015 2014 Commercial Mortgage 2015 2014 2016 Non-agency - Subprime 2015 27,164 $ 894 3,716 24,201 $ 370 3,611 7,945 $ 49 — 3,887 $ 38 — 36,905 371 5,155 5,710 68 — — $ — — — $ — — 809 49 — 2014 2016 $ $ $ involvement, were $1.1 billion, $1.4 billion and $1.8 billion in 2016, 2015 and 2014. Servicing advances on consumer mortgage loans, including securitizations where the Corporation has continuing involvement, were $6.2 billion and $7.8 billion at December 31, 2016 and 2015. For more information on MSRs, see Note 23 – Mortgage Servicing Rights. During 2016 and 2015, the Corporation deconsolidated residential mortgage securitization vehicles with total assets of $3.8 billion and $4.5 billion, and total liabilities of $628 million and $0 following the sale of retained interests or MSRs to third parties, after which the Corporation no longer had a controlling financial interest through the unilateral ability to liquidate the vehicles or as a servicer of the loans. Of the balances deconsolidated in 2016, $706 million of assets and $628 million of liabilities represent non-cash investing and financing activities and, accordingly, are not reflected on the Consolidated Statement of Cash Flows. Gains on sale of $125 million and $287 million related to the deconsolidations were recorded in other income in the Consolidated Statement of Income. The table below summarizes select information related to first- lien mortgage securitization trusts in which the Corporation held a variable interest at December 31, 2016 and 2015. 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 All other assets Total assets On-balance sheet liabilities Long-term debt All other liabilities Total liabilities $ $ $ $ $ $ $ $ $ Residential Mortgage Non-agency Agency Prime Subprime Alt-A Commercial Mortgage 2016 2015 2016 2015 December 31 2016 2015 2016 2015 2016 2015 22,661 $ 28,192 $ 757 $ 1,027 $ 2,750 $ 2,905 $ 560 $ 622 $ 344 $ 326 1,399 $ 17,620 3,630 1,297 24,369 2,511 $ 20 $ 441 — 42 613 — $ 112 $ 2,235 — $ 94 2,479 — 118 $ 305 — $ 99 340 — 51 $ — 64 59 — 37 — — — — 12 22,661 $ — — — — 15 28,192 265,332 $ 313,613 1 8 — — 28 498 $ 1 12 — — 40 $ 708 $ 16,280 $ 20,366 23 2 — — — 37 3 — — — 2,372 $ 2,613 $ $ 19,373 $ 27,854 1 23 — — 113 560 $ 2 28 — — 153 $ 622 $ 35,788 $ 44,055 14 54 13 25 — 221 $ 22 54 13 48 — $ 233 $ 23,826 $ 34,243 18,084 $ 26,878 434 $ 17,223 427 18,084 $ 1,101 25,328 449 26,878 $ $ $ — $ 4 4 $ — $ 1 1 $ — $ 65 $ — $ 232 — $ — — — $ — $ — — $ — $ 111 — 111 46 — 46 $ $ $ — $ — — — $ — $ — — $ 188 675 54 917 840 — 840 $ $ $ $ $ 25 $ — $ — $ 99 $ — — 99 $ 74 $ — 74 $ — $ — — — $ — $ — — $ — $ — — — $ — $ — — $ — — — — — — — — (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 2016 and 2015, the Corporation recognized $7 million and $34 million of credit-related impairment losses in earnings on those securities classified as AFS debt securities and none on HTM securities. (3) Not included in the table above are all other assets of $189 million and $222 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 $189 million and $222 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, 2016 and 2015. (4) Principal balance outstanding includes loans the Corporation transferred with which it has continuing involvement, which may include servicing the loans. 158 Bank of America 2016 involvement, were $1.1 billion, $1.4 billion and $1.8 billion in financial interest through the unilateral ability to liquidate the 2016, 2015 and 2014. Servicing advances on consumer mortgage vehicles or as a servicer of the loans. Of the balances loans, including securitizations where the Corporation has deconsolidated in 2016, $706 million of assets and $628 million continuing involvement, were $6.2 billion and $7.8 billion at of liabilities represent non-cash investing and financing activities December 31, 2016 and 2015. For more information on MSRs, and, accordingly, are not reflected on the Consolidated Statement see Note 23 – Mortgage Servicing Rights. of Cash Flows. Gains on sale of $125 million and $287 million During 2016 and 2015, the Corporation deconsolidated related to the deconsolidations were recorded in other income in residential mortgage securitization vehicles with total assets of the Consolidated Statement of Income. $3.8 billion and $4.5 billion, and total liabilities of $628 million The table below summarizes select information related to first- and $0 following the sale of retained interests or MSRs to third lien mortgage securitization trusts in which the Corporation held parties, after which the Corporation no longer had a controlling a variable interest at December 31, 2016 and 2015. First-lien Mortgage VIEs (Dollars in millions) Unconsolidated VIEs Maximum loss exposure (1) On-balance sheet assets Senior securities held (2): Trading account assets Residential Mortgage Non-agency Subprime December 31 Agency Prime Alt-A Commercial Mortgage 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 22,661 $ 28,192 $ 757 $ 1,027 $ 2,750 $ 2,905 $ 560 $ 622 $ 344 $ 326 $ $ $ $ $ $ $ $ $ 1,399 $ 1,297 $ 20 $ 42 $ 112 $ 94 $ 118 $ 99 $ 51 $ 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) 17,620 3,630 24,369 2,511 — — — — 12 — — — — 15 441 — 1 8 — — 28 613 — 1 12 — — 40 — 23 2 — — — 2,235 2,479 305 — 1 23 — — 113 340 — 2 28 — — 153 622 — 64 14 54 13 25 — Total retained positions 22,661 $ 28,192 $ 498 $ 708 $ 2,372 $ 2,613 $ 560 $ $ 221 $ 233 Principal balance outstanding (4) 265,332 $ 313,613 $ 16,280 $ 20,366 $ 19,373 $ 27,854 $ 35,788 $ 44,055 $ 23,826 $ 34,243 Consolidated VIEs Maximum loss exposure (1) On-balance sheet assets Trading account assets On-balance sheet liabilities Loans and leases All other assets Total assets Long-term debt All other liabilities Total liabilities 18,084 $ 26,878 — $ 65 $ — $ 232 25 $ — $ — $ $ $ 434 $ 17,223 427 1,101 25,328 449 — $ 4 4 $ — $ 1 1 $ 18,084 $ 26,878 $ — $ 99 $ — $ — $ — $ — $ — $ 99 $ — $ — $ — — — $ — — $ 111 — 111 46 — 46 $ $ $ — — — $ — $ — — $ — — — — 74 $ — 74 $ — $ — — $ — — — $ — — $ (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 2016 and 2015, the Corporation recognized $7 million and $34 million of credit-related impairment losses in earnings on those securities classified as AFS debt securities and none on HTM securities. (3) Not included in the table above are all other assets of $189 million and $222 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 $189 million and $222 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, 2016 and 2015. (4) Principal balance outstanding includes loans the Corporation transferred with which it has continuing involvement, which may include servicing the loans. — 37 3 — — — 188 675 54 917 840 — 840 $ $ $ $ $ 59 — 37 22 54 13 48 — — — — — — — — — 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, 2016 and 2015. Home Equity Loan, Credit Card and Other Asset-backed VIEs (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 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 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 $ 2,732 $ 3,988 $ — $ — $ 9,906 $ 13,046 $ 1,635 $ 1,572 $ 47 $ 63 — $ 46 — — $ 57 — — — — 46 $ — — — 57 4,274 $ 5,883 $ $ — $ — — — — — — $ — $ — $ — — 902 $ 1,248 4,341 7,370 2,338 6,569 27 70 — 17 — 70 — — — — $ 9,906 $ 13,046 — $ 22,155 $ 35,362 149 $ 231 $ 25,859 $ 32,678 $ 420 $ 354 — $ 244 (16) 7 235 $ — $ — $ — $ 321 (18) 20 323 35,135 (1,007) 793 43,194 (1,293) 342 $ 34,921 $ 42,243 $ 1,428 $ — — — 1,428 $ 771 — — — 771 $ $ $ $ $ $ — $ — — 2 — — — — — — $ — — — 2 2,406 $ 2,518 1,442 $ 1,973 1,454 $ 1,984 — — 1 1,454 $ 1,985 — — — $ $ $ $ $ $ $ $ $ $ $ $ $ $ — $ 47 — — — — 47 $ 174 $ — $ — $ — — — — $ — 53 — — — 10 63 314 — — — — — — — $ — — — $ — — — — 9,550 15 9,062 $ 9,565 (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. 1,008 — 1,008 $ 108 — 108 $ 183 — 183 417 — 417 9,049 13 $ $ $ $ $ 348 $ 12 — 360 $ 681 12 — 693 — $ — $ — $ — $ — $ — $ (2) At December 31, 2016 and 2015, loans and leases in the consolidated credit card trust included $17.6 billion and $24.7 billion of seller’s interest. (3) At December 31, 2016 and 2015, 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 2016 and 2015, the Corporation recognized $2 million and $5 million of credit-related impairment losses in earnings on those securities classified as AFS debt securities and none on HTM securities. (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 the Corporation has continuing involvement, which may include servicing the loan. 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 2016 and 2015, 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 the 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, 2016 and 2015, home equity loan securitizations in rapid amortization for which the Corporation has a subordinate funding obligation, including both consolidated and unconsolidated trusts, had $2.7 billion and $4.0 billion of trust certificates outstanding that were held by third parties. 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, performance of the loans, the amount of subsequent draws and the timing of related cash flows. During 2016 and 2015, amounts actually funded by the Corporation under this obligation totaled $1 million and $7 million. 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. 158 Bank of America 2016 Bank of America 2016 159 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 2016, $750 million of new senior debt securities were issued to third-party investors from the credit card securitization trust compared to $2.3 billion issued during 2015. The Corporation held subordinate securities issued by the credit card securitization trust with a notional principal amount of $7.5 billion at both December 31, 2016 and 2015. These securities serve as a form of credit enhancement to the senior debt securities and have a stated interest rate of zero percent. There were $121 million of these subordinate securities issued during 2016 and $371 million issued during 2015. Resecuritization Trusts The Corporation transfers trading securities, typically MBS, into resecuritization vehicles at the request of customers seeking securities with specific characteristics. The Corporation may also resecuritize debt securities carried at fair value, including AFS 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 $23.4 billion, $30.7 billion and $14.4 billion of securities in 2016, 2015 and 2014. Resecuritizations in 2014 included $1.5 billion of AFS debt securities, and gains on sale of $85 million were recorded. There were no resecuritizations of AFS debt securities during 2016 and 2015. Other securities transferred into resecuritization vehicles during 2016, 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. During 2016, 2015 and 2014, resecuritization proceeds included securities with an initial fair value of $3.3 billion, $9.8 billion and $4.6 billion, including $6.9 billion and $747 million which were classified as HTM during 2015 and 2014. Substantially all of the other securities received as resecuritization proceeds were classified as trading securities and were categorized 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 at both December 31, 2016 and 2015. The weighted-average remaining life of bonds held in the trusts at December 31, 2016 was 5.6 years. There were no material write-downs or downgrades of assets or issuers during 2016 and 2015. 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, 2016 and 2015, the Corporation serviced assets or otherwise had continuing involvement with automobile and other securitization trusts with outstanding balances of $174 million and $314 million, including trusts collateralized by other loans of $174 million and $189 million and automobile loans of $0 and $125 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. 160 Bank of America 2016 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, 2016 and 2015. 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) 2016 Unconsolidated 17,707 $ December 31 Total Consolidated 23,821 2,591 75 6,648 (33) 652 13,525 23,458 395 2,983 3,378 68,400 $ $ $ $ $ $ 6,295 2,300 — 3,317 (9) 284 664 6,556 3,025 5 3,030 6,556 $ $ $ $ $ $ $ $ 233 75 3,249 (24) 464 13,156 17,153 — $ 2,959 2,959 62,095 $ $ Consolidated $ $ $ $ $ $ 6,114 2,358 — 3,399 (9) 188 369 6,305 395 24 419 6,305 $ $ $ $ $ 2015 Unconsolidated 12,916 $ $ $ $ 366 126 3,389 (23) 1,025 6,925 11,808 — $ 2,697 2,697 49,190 $ $ Total 19,211 2,666 126 6,706 (32) 1,309 7,589 18,364 3,025 2,702 5,727 55,746 The derecognition of assets and liabilities represents non-cash $9.8 billion and $4.6 billion, including $6.9 billion and $747 million investing and financing activities and, accordingly, is not reflected which were classified as HTM during 2015 and 2014. Substantially on the Consolidated Statement of Cash Flows. Credit Card Securitizations all of the other securities received as resecuritization proceeds were classified as trading securities and were categorized as Level 2 within the fair value hierarchy. The Corporation securitizes originated and purchased credit card loans. The Corporation’s continuing involvement with the Municipal Bond Trusts securitization trust includes servicing the receivables, retaining an The Corporation administers municipal bond trusts that hold highly- undivided interest (seller’s interest) in the receivables, and holding rated, long-term, fixed-rate municipal bonds. The trusts obtain certain retained interests including senior and subordinate financing by issuing floating-rate trust certificates that reprice on securities, subordinate interests in accrued interest and fees on a weekly or other short-term basis to third-party investors. The the securitized receivables, and cash reserve accounts. The Corporation may transfer assets into the trusts and may also serve seller’s interest in the trust, which is pari passu to the investors’ as remarketing agent and/or liquidity provider for the trusts. The interest, is classified in loans and leases. floating-rate investors have the right to tender the certificates at During 2016, $750 million of new senior debt securities were specified dates. Should the Corporation be unable to remarket the issued to third-party investors from the credit card securitization tendered certificates, it may be obligated to purchase them at par trust compared to $2.3 billion issued during 2015. under standby liquidity facilities. The Corporation also provides The Corporation held subordinate securities issued by the credit enhancement to investors in certain municipal bond trusts credit card securitization trust with a notional principal amount of whereby the Corporation guarantees the payment of interest and $7.5 billion at both December 31, 2016 and 2015. These principal on floating-rate certificates issued by these trusts in the securities serve as a form of credit enhancement to the senior event of default by the issuer of the underlying municipal bond. debt securities and have a stated interest rate of zero percent. The Corporation’s liquidity commitments to unconsolidated There were $121 million of these subordinate securities issued municipal bond trusts, including those for which the Corporation during 2016 and $371 million issued during 2015. was transferor, totaled $1.6 billion at both December 31, 2016 and 2015. The weighted-average remaining life of bonds held in the trusts at December 31, 2016 was 5.6 years. There were no material write-downs or downgrades of assets or issuers during Resecuritization Trusts The Corporation transfers trading securities, typically MBS, into resecuritization vehicles at the request of customers seeking securities with specific characteristics. The Corporation may also 2016 and 2015. resecuritize debt securities carried at fair value, including AFS Automobile and Other Securitization Trusts securities, within its investment portfolio for purposes of improving The Corporation transfers automobile and other loans into liquidity and capital, and managing credit or interest rate risk. securitization trusts, typically to improve liquidity or manage credit Generally, there are no significant ongoing activities performed in risk. At December 31, 2016 and 2015, the Corporation serviced a resecuritization trust and no single investor has the unilateral assets or otherwise had continuing involvement with automobile ability to liquidate the trust. and other securitization trusts with outstanding balances of $174 The Corporation resecuritized $23.4 billion, $30.7 billion and million and $314 million, including trusts collateralized by other $14.4 billion of securities in 2016, 2015 and 2014. loans of $174 million and $189 million and automobile loans of Resecuritizations in 2014 included $1.5 billion of AFS debt $0 and $125 million. securities, and gains on sale of $85 million were recorded. There During 2015, the Corporation deconsolidated a student loan were no resecuritizations of AFS debt securities during 2016 and trust with total assets of $515 million and total liabilities of $449 2015. Other securities transferred into resecuritization vehicles million following the transfer of servicing and sale of retained during 2016, 2015 and 2014, were measured at fair value with interests to third parties. No gain or loss was recorded as a result changes in fair value recorded in trading account profits or other of the deconsolidation. The derecognition of assets and liabilities income prior to the resecuritization and no gain or loss on sale represents non-cash investing and financing activities and, was recorded. During 2016, 2015 and 2014, resecuritization accordingly, is not reflected on the Consolidated Statement of Cash proceeds included securities with an initial fair value of $3.3 billion, Flows. Includes $229 million and $2.8 billion of long-term debt at December 31, 2016 and 2015 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 $2.9 billion and $3.9 billion at December 31, 2016 and 2015, 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 $323 million and $691 million at December 31, 2016 and 2015, 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. 160 Bank of America 2016 Bank of America 2016 161 The Corporation’s maximum loss exposure to consolidated and unconsolidated CDOs totaled $430 million and $543 million at December 31, 2016 and 2015. This exposure is calculated on a gross basis and does not reflect any benefit from insurance purchased from third parties. At December 31, 2016, the Corporation had $127 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. 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, 2016 and 2015, the Corporation’s consolidated investment vehicles had total assets of $846 million and $397 million. The Corporation also held investments in unconsolidated vehicles with total assets of $17.3 billion and $14.7 billion at December 31, 2016 and 2015. The Corporation’s maximum loss exposure associated with both consolidated and unconsolidated investment vehicles totaled $5.1 billion at both December 31, 2016 and 2015 comprised primarily of on-balance sheet assets less non-recourse liabilities. In prior periods, 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. At both December 31, 2016 and 2015 the Corporation retained senior interests in such receivables with a maximum loss exposure and funding obligation of $150 million, including a funded balance of $75 million and $122 million respectively, 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 $2.6 billion and $2.8 billion at December 31, 2016 and 2015. 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. The Corporation's Tax Credit Vehicles The Corporation holds investments in unconsolidated limited partnerships and similar entities that construct, own and operate affordable housing, wind and solar projects. An unrelated third party is typically the general partner or managing member and has control over the significant activities of the vehicle. The Corporation earns a return primarily through the receipt of tax credits allocated to the projects. The maximum loss exposure included in the Other VIEs table was $12.6 billion at December 31, 2016 which includes the impact of the adoption of the new accounting guidance on determining whether limited partnerships and similar entities are VIEs. The maximum loss exposure included in this table was $6.5 billion at December 31, 2015 and primarily relates to affordable housing. The Corporation’s risk of loss is generally mitigated by policies requiring that the project qualify for the expected tax credits prior to making its investment. in affordable housing investments partnerships, which are reported in other assets on the Consolidated Balance Sheet, totaled $7.4 billion and $7.1 billion, including unfunded commitments to provide capital contributions of $2.7 billion and $2.4 billion at December 31, 2016 and December 31, 2015. The unfunded commitments are expected to be paid over the next five years. During 2016 and 2015, the Corporation recognized tax credits and other tax benefits from investments in affordable housing partnerships of $1.1 billion and $928 million, and reported pretax losses in other noninterest income of $789 million and $629 million. Tax credits are recognized as part of the Corporation's annual effective tax rate used to determine tax expense in a given quarter. Accordingly, the portion of a year's expected tax benefits recognized in any given quarter may differ from 25 percent. The Corporation may from time to time be asked to invest additional amounts to support a troubled affordable housing project. Such additional investments have not been and are not expected to be significant. 162 Bank of America 2016 The Corporation’s maximum loss exposure to consolidated and significant residual interest. The net investment represents the unconsolidated CDOs totaled $430 million and $543 million at Corporation’s maximum loss exposure to the trusts in the unlikely December 31, 2016 and 2015. This exposure is calculated on a event that the leveraged lease investments become worthless. gross basis and does not reflect any benefit from insurance Debt issued by the leveraged lease trusts is non-recourse to the purchased from third parties. At December 31, 2016, the Corporation had $127 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. Tax Credit Vehicles Corporation’s behalf. Investment Vehicles The Corporation holds investments in unconsolidated limited partnerships and similar entities that construct, own and operate affordable housing, wind and solar projects. An unrelated third party is typically the general partner or managing member and has control over the significant activities of the vehicle. The Corporation The Corporation sponsors, invests in or provides financing, which earns a return primarily through the receipt of tax credits allocated may be in connection with the sale of assets, to a variety of to the projects. The maximum loss exposure included in the Other investment vehicles that hold loans, real estate, debt securities VIEs table was $12.6 billion at December 31, 2016 which includes or other financial instruments and are designed to provide the the impact of the adoption of the new accounting guidance on desired investment profile to investors or the Corporation. At determining whether limited partnerships and similar entities are December 31, 2016 and 2015, the Corporation’s consolidated VIEs. The maximum loss exposure included in this table was $6.5 investment vehicles had total assets of $846 million and $397 billion at December 31, 2015 and primarily relates to affordable million. The Corporation also held investments in unconsolidated housing. The Corporation’s risk of loss is generally mitigated by vehicles with total assets of $17.3 billion and $14.7 billion at policies requiring that the project qualify for the expected tax December 31, 2016 and 2015. The Corporation’s maximum loss credits prior to making its investment. exposure associated with both consolidated and unconsolidated The Corporation's investments in affordable housing investment vehicles totaled $5.1 billion at both December 31, partnerships, which are reported in other assets on the 2016 and 2015 comprised primarily of on-balance sheet assets Consolidated Balance Sheet, totaled $7.4 billion and $7.1 billion, less non-recourse liabilities. including unfunded commitments to provide capital contributions In prior periods, the Corporation transferred servicing advance of $2.7 billion and $2.4 billion at December 31, 2016 and receivables to independent third parties in connection with the December 31, 2015. The unfunded commitments are expected to sale of MSRs. Portions of the receivables were transferred into be paid over the next five years. During 2016 and 2015, the unconsolidated securitization trusts. At both December 31, 2016 Corporation recognized tax credits and other tax benefits from and 2015 the Corporation retained senior interests in such investments in affordable housing partnerships of $1.1 billion and receivables with a maximum loss exposure and funding obligation $928 million, and reported pretax losses in other noninterest of $150 million, including a funded balance of $75 million and income of $789 million and $629 million. Tax credits are $122 million respectively, which were classified in other debt recognized as part of the Corporation's annual effective tax rate securities carried at fair value. Leveraged Lease Trusts The Corporation’s net investment in consolidated leveraged lease trusts totaled $2.6 billion and $2.8 billion at December 31, 2016 and 2015. 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 used to determine tax expense in a given quarter. Accordingly, the portion of a year's expected tax benefits recognized in any given quarter may differ from 25 percent. The Corporation may from time to time be asked to invest additional amounts to support a troubled affordable housing project. Such additional investments have not been and are not expected to be significant. NOTE 7 Representations and Warranties Obligations and Corporate Guarantees 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 or in the form of whole loans. In connection with these transactions, the Corporation or certain of various its subsidiaries or representations 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 investors, securitization trusts, guarantors, insurers or other parties (collectively, repurchases). and warranties. Breaches companies made legacy of 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, certain of which have been for significant amounts, in lieu of a loan-by-loan review process, including settlements with the GSEs, four monoline insurers and Bank of New York Mellon (BNY Mellon), as trustee for certain securitization trusts. 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, indemnification 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. 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, mortgage insurance (MI) or mortgage guarantee payments. Claims remain outstanding until the underlying loan is repurchased, the claim is rescinded by the counterparty, the Corporation determines that limitations has expired, or the applicable statute of representations and warranties claims with respect to the applicable trust are settled, and fully and finally released. The Corporation does not include duplicate claims in the amounts disclosed. from a counterparty received The table below presents unresolved repurchase claims at December 31, 2016 and 2015. 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. 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 (1) Monolines GSEs December 31 2016 2015 $ 16,685 $ 16,748 1,583 9 1,599 17 Total unresolved repurchase claims by counterparty, net of duplicate claims $ 18,277 $ 18,364 (1) Includes $11.9 billion of claims based on individual file reviews and $4.8 billion of claims submitted without individual file reviews at both December 31, 2016 and 2015. During 2016, the Corporation received $647 million in new repurchase claims, including $440 million of claims that are deemed time-barred. During 2016, $734 million in claims were resolved, including $477 million that are deemed time-barred. 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 $1.3 billion and $1.4 billion at December 31, 2016 and 2015. 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. 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 companies made legacy 162 Bank of America 2016 Bank of America 2016 163 to demand repurchase of loans directly or the right to access loan files directly. warranties liability and the corresponding estimated range of possible loss. At December 31, 2016 and 2015, for loans originated between 2004 and 2008, the notional amount of unresolved repurchase claims submitted by private-label securitization trustees, whole- loan investors, including third-party securitization sponsors, and others was $16.6 billion and $16.7 billion. The notional amount of unresolved repurchase claims at December 31, 2016 and 2015 includes $5.6 billion and $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 or will otherwise realize the benefit of any repurchase claims paid. The notional amount of outstanding unresolved repurchase claims remained relatively unchanged in 2016 compared to 2015. Outstanding repurchase claims remained 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. For time-barred claims, the counterparty is informed that the claim is denied on the basis of the statute of limitations and the claim is treated as resolved. For timely claims, if the Corporation, after review, does not believe a claim is valid, it will deny the claim and generally indicate a reason for the denial. If the counterparty agrees with the Corporation's denial of the claim, the counterparty may rescind the claim. If there is a 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 is denied and the Corporation does not hear from the counterparty for six months, the Corporation views the claim as inactive; however, such claims remain in the outstanding claims balance until resolution. 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 outstanding 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. Liability for Representations and Warranties and Corporate Guarantees and Estimated Range of Possible Loss 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. range of possible The Corporation’s representations and warranties liability and the corresponding estimated loss at December 31, 2016 considers, among other things, the repurchase experience implied in the settlements with BNY Mellon and other counterparties. Since the securitization trusts that were included in the settlement with BNY Mellon differ from other securitization trusts where the possibility of timely claims exists, the Corporation adjusted the repurchase experience implied in the settlement in order to determine the representations and 164 Bank of America 2016 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 Payments Provision (benefit) 2016 2015 $ 11,326 $ 12,081 4 (9,097) 106 6 (722) (39) Liability for representations and warranties and corporate guarantees, December 31 (1) $ 2,339 $ 11,326 (1) In February 2016, the Corporation made an $8.5 billion settlement payment to BNY Mellon as part of the settlement with BNY Mellon. The representations and warranties liability represents the Corporation’s best estimate of probable incurred losses as of December 31, 2016. However, it is reasonably possible that future representations and warranties losses may occur in excess of the amounts recorded for these exposures. 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, 2016. 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, 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 settlement with BNY Mellon 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, such as investors or trustees successfully challenging or avoiding the application of the relevant statute of limitations, could result in significant increases to future provisions and/or the estimated range of possible loss. to demand repurchase of loans directly or the right to access loan warranties liability and the corresponding estimated range of NOTE 8 Goodwill and Intangible Assets Goodwill The table below presents goodwill balances by business segment and All Other at December 31, 2016 and 2015. The reporting units utilized for goodwill impairment testing are the operating segments or one level below. Goodwill (Dollars in millions) Consumer Banking Global Wealth & Investment Management Global Banking Global Markets All Other Less: Goodwill of business held for sale (1) Total goodwill December 31 2016 2015 $ $ 30,123 9,681 23,923 5,197 820 (775) 68,969 $ $ 30,123 9,698 23,923 5,197 820 — 69,761 (1) Reflects the goodwill assigned to the non-U.S. consumer credit card business, which is included in assets of business held for sale on the Consolidated Balance Sheet. During 2016, the Corporation completed its annual goodwill impairment test as of June 30, 2016 for all applicable reporting units. Based on the results of the annual goodwill impairment test, the Corporation determined there was no impairment. Intangible Assets The table below presents the gross and net carrying values and accumulated amortization for intangible assets at December 31, 2016 and 2015. Intangible Assets (1, 2) (Dollars in millions) Purchased credit card and affinity relationships Core deposit and other intangibles (3) Customer relationships Total intangible assets (4) 2016 December 31 Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value 2015 Accumulated Amortization Net Carrying Value $ $ 6,830 3,836 3,887 14,553 $ $ 6,243 2,046 3,275 11,564 $ $ 587 1,790 612 2,989 $ $ 7,006 3,922 3,927 14,855 $ $ 6,111 1,986 2,990 11,087 $ $ 895 1,936 937 3,768 files directly. possible loss. At December 31, 2016 and 2015, for loans originated between The table below presents a rollforward of the liability for 2004 and 2008, the notional amount of unresolved repurchase representations and warranties and corporate guarantees. claims submitted by private-label securitization trustees, whole- loan investors, including third-party securitization sponsors, and others was $16.6 billion and $16.7 billion. The notional amount of unresolved repurchase claims at December 31, 2016 and 2015 includes $5.6 billion and $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 or will otherwise realize the benefit of any repurchase claims paid. The notional amount of outstanding unresolved repurchase claims remained relatively unchanged in 2016 compared to 2015. Outstanding repurchase claims remained 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. For time-barred claims, the counterparty is informed that the claim is denied on the basis of the statute of limitations and the claim is treated as resolved. For timely claims, if the Corporation, after review, does not believe a claim is valid, it will deny the claim and generally indicate a reason for the denial. If the counterparty agrees with the Corporation's denial of the claim, the counterparty may rescind the claim. If there is a 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 is denied and the Corporation does not hear from the counterparty for six months, the Corporation views the claim as inactive; however, such claims remain in the outstanding claims balance until resolution. 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 outstanding 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. Liability for Representations and Warranties and Corporate Guarantees and Estimated Range of Possible Loss 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. The Corporation’s representations and warranties liability and the corresponding estimated range of possible loss at December 31, 2016 considers, among other things, the repurchase experience implied in the settlements with BNY Mellon and other counterparties. Since the securitization trusts that were included in the settlement with BNY Mellon differ from other securitization trusts where the possibility of timely claims exists, the Corporation adjusted the repurchase experience implied in the settlement in order to determine the representations and 164 Bank of America 2016 Representations and Warranties and Corporate Guarantees (Dollars in millions) Liability for representations and warranties and corporate guarantees, January 1 Additions for new sales Payments Provision (benefit) 2016 2015 $ 11,326 $ 12,081 4 (9,097) 106 6 (722) (39) Liability for representations and warranties and corporate guarantees, December 31 (1) $ 2,339 $ 11,326 (1) In February 2016, the Corporation made an $8.5 billion settlement payment to BNY Mellon as part of the settlement with BNY Mellon. The representations and warranties liability represents the Corporation’s best estimate of probable incurred losses as of December 31, 2016. However, it is reasonably possible that future representations and warranties losses may occur in excess of the amounts recorded for these exposures. 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, 2016. 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, 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. Future provisions and/or ranges of possible loss for representations and warranties may be significantly impacted if actual experiences are different from the Corporation’s assumptions in predictive models, including, without limitation, the actual repurchase rates on loans in trusts not settled as part of the settlement with BNY Mellon 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, such as investors or trustees successfully challenging or avoiding the application of the relevant statute of limitations, could result in significant increases to future provisions and/or the estimated range of possible loss. Amortization of intangibles expense was $730 million, $834 million and $936 million for 2016, 2015 and 2014. The Corporation estimates aggregate amortization expense will be $638 million, $559 million, $120 million, $60 million, and $3 million for the years ended 2017, 2018, 2019, 2020, and 2021. Bank of America 2016 165 Includes $1.6 billion at both December 31, 2016 and 2015 of intangible assets associated with trade names that have an indefinite life and, accordingly, are not amortized. Includes $67 million of intangible assets assigned to the non-U.S. consumer credit card business, which is included in assets of business held for sale on the Consolidated Balance Sheet. (1) Excludes fully amortized intangible assets. (2) At December 31, 2016 and 2015, none of the intangible assets were impaired. (3) (4) NOTE 9 Deposits The Corporation had U.S. certificates of deposit and other U.S. time deposits of $100 thousand or more totaling $32.9 billion and $28.3 billion at December 31, 2016 and 2015. Non-U.S. certificates of deposit and other non-U.S. time deposits of $100 thousand or more totaled $14.7 billion and $14.1 billion at December 31, 2016 and 2015. The Corporation also had aggregate time deposits of $18.3 billion in denominations that met or exceeded the Federal Deposit Insurance Corporation (FDIC) insurance limit at December 31, 2016. The table below presents the contractual maturities for time deposits of $100 thousand or more at December 31, 2016. 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 $ 16,112 8,688 $ 14,580 2,746 $ $ 2,206 3,243 32,898 14,677 The scheduled contractual maturities for total time deposits at December 31, 2016 are presented in the table below. Contractual Maturities of Total Time Deposits (Dollars in millions) Due in 2017 Due in 2018 Due in 2019 Due in 2020 Due in 2021 Thereafter Total time deposits U.S. Non-U.S. Total $ $ 53,584 3,081 1,131 1,475 406 483 60,160 $ $ 11,528 1,702 47 250 1,238 19 14,784 $ $ 65,112 4,783 1,178 1,725 1,644 502 74,944 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 Average during year Maximum month-end balance during year Federal funds purchased and securities loaned or sold under agreements to repurchase Average during year Maximum month-end balance during year Short-term borrowings Average during year Maximum month-end balance during year n/a = not applicable 2016 2015 Amount Rate Amount Rate $ 216,161 225,015 0.52% $ 211,471 226,502 n/a $ 183,818 196,631 0.97% $ 213,497 235,232 n/a 0.47% n/a 0.89% n/a 29,440 33,051 1.95 n/a 32,798 40,110 1.49 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 $9.3 billion and $16.8 billion at December 31, 2016 and 2015. These short-term bank notes, along with 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. 166 Bank of America 2016 Offsetting of Securities Financing Agreements The Corporation enters into securities financing agreements to accommodate customers (also referred to as "matched-book transactions"), obtain securities to cover short positions, and to finance inventory positions. 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, 2016 and 2015. 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 Securities Financing Agreements agreements. For more information on the offsetting of derivatives, see Note 2 – Derivatives. 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 (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, 2016 Gross Assets/ Liabilities Amounts Offset Net Balance Sheet Amount Financial Instruments Net Assets/ Liabilities $ $ $ $ $ $ 326,970 299,028 14,448 313,476 347,281 329,078 13,235 342,313 $ $ $ $ $ $ (128,746) $ 198,224 (128,746) $ — (128,746) $ 170,282 14,448 184,730 December 31, 2015 (154,799) $ 192,482 (154,799) $ — (154,799) $ 174,279 13,235 187,514 $ $ $ $ $ $ (154,974) $ 43,250 (140,774) $ (14,448) (155,222) $ 29,508 — 29,508 (144,332) $ 48,150 (135,737) $ (13,235) (148,972) $ 38,542 — 38,542 (1) Excludes repurchase activity of $10.1 billion and $9.3 billion reported in loans and leases on the Consolidated Balance Sheet at December 31, 2016 and 2015. NOTE 9 Deposits The Corporation had U.S. certificates of deposit and other U.S. aggregate time deposits of $18.3 billion in denominations that time deposits of $100 thousand or more totaling $32.9 billion met or exceeded the Federal Deposit Insurance Corporation (FDIC) and $28.3 billion at December 31, 2016 and 2015. Non-U.S. insurance limit at December 31, 2016. 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 $14.7 billion and $14.1 billion at more at December 31, 2016. December 31, 2016 and 2015. The Corporation also had The scheduled contractual maturities for total time deposits at December 31, 2016 are presented in the table below. 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 2017 Due in 2018 Due in 2019 Due in 2020 Due in 2021 Thereafter Total time deposits Borrowings Three Months Over Three Months to or Less Twelve Months Thereafter Total $ 16,112 $ 14,580 $ 8,688 2,746 $ 2,206 3,243 32,898 14,677 U.S. Non-U.S. Total $ 53,584 $ 11,528 $ 65,112 3,081 1,131 1,475 406 483 1,702 47 250 1,238 19 4,783 1,178 1,725 1,644 502 $ 60,160 $ 14,784 $ 74,944 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 Federal funds purchased and securities loaned or sold under agreements to repurchase Average during year Maximum month-end balance during year Average during year Maximum month-end balance during year Short-term borrowings Average during year Maximum month-end balance during year n/a = not applicable 2016 2015 Amount Rate Amount Rate $ 216,161 0.52% $ 211,471 225,015 n/a 226,502 $ 183,818 0.97% $ 213,497 196,631 n/a 235,232 0.47% n/a 0.89% n/a 29,440 33,051 1.95 n/a 32,798 40,110 1.49 n/a Bank of America, N.A. maintains a global program to offer up December 31, 2016 and 2015. These short-term bank notes, to a maximum of $75 billion outstanding at any one time, of bank along with FHLB advances, U.S. Treasury tax and loan notes, and notes with fixed or floating rates and maturities of at least seven term federal funds purchased, are included in short-term days from the date of issue. Short-term bank notes outstanding borrowings on the Consolidated Balance Sheet. under this program totaled $9.3 billion and $16.8 billion at 166 Bank of America 2016 Bank of America 2016 167 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, 2016 and 2015, the Corporation had no outstanding repurchase-to-maturity transactions. Remaining Contractual Maturity (Dollars in millions) Securities sold under agreements to repurchase Securities loaned Other Total 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 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, 2016 After 30 Days Through 90 Days Greater than 90 Days (1) $ $ $ $ 129,853 8,564 14,448 152,865 126,694 39,772 13,235 179,701 $ $ $ $ 77,780 6,602 — 84,382 $ $ 31,851 1,473 — 33,324 December 31, 2015 86,879 363 — 87,242 $ $ 43,216 2,352 — 45,568 $ $ $ $ 40,752 2,153 — 42,905 27,514 2,288 — 29,802 $ $ $ $ Total 280,236 18,792 14,448 313,476 284,303 44,775 13,235 342,313 December 31, 2016 Securities Sold Under Agreements to Repurchase Securities Loaned Other Total $ $ $ $ 153,184 11,086 24,007 84,171 7,788 280,236 142,572 11,767 32,323 87,849 9,792 284,303 $ $ $ $ — $ 1,630 11,175 5,987 — 18,792 $ 70 127 14,196 55 — 14,448 December 31, 2015 — $ 265 13,350 31,160 — 44,775 $ 27 278 12,929 1 — 13,235 $ $ $ $ 153,254 12,843 49,378 90,213 7,788 313,476 142,599 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 help 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. 168 Bank of America 2016 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, 2016 and 2015, the Corporation had no outstanding repurchase-to-maturity transactions. December 31, 2016 After 30 Days Through 90 Days Overnight and 30 Days or Continuous Less Greater than 90 Days (1) Total $ $ 129,853 $ 77,780 $ 31,851 $ 40,752 $ 280,236 8,564 14,448 6,602 — 1,473 — 2,153 — 18,792 14,448 152,865 $ 84,382 $ 33,324 $ 42,905 $ 313,476 Securities sold under agreements to repurchase $ 126,694 $ 86,879 $ 43,216 $ 27,514 $ 284,303 December 31, 2015 39,772 13,235 363 — 2,352 — 2,288 — 44,775 13,235 $ 179,701 $ 87,242 $ 45,568 $ 29,802 $ 342,313 Remaining Contractual Maturity Securities sold under agreements to repurchase (Dollars in millions) Securities loaned Other Total 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 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 December 31, 2016 Securities Sold Under Agreements to Repurchase Securities Loaned $ 153,184 $ — $ 70 $ 153,254 Other Total 127 14,196 55 — 12,843 49,378 90,213 7,788 $ 280,236 $ 18,792 $ 14,448 $ 313,476 $ 142,572 $ — $ 27 $ 142,599 December 31, 2015 11,086 24,007 84,171 7,788 11,767 32,323 87,849 9,792 1,630 11,175 5,987 — 265 13,350 31,160 — 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 help 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. 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, 2016 and 2015, and the related contractual rates and maturity dates as of December 31, 2016. (Dollars in millions) Notes issued by Bank of America Corporation Senior notes: Fixed, with a weighted-average rate of 4.25%, ranging from 0.39% to 8.40%, due 2017 to 2046 Floating, with a weighted-average rate of 1.73%, ranging from 0.19% to 5.64%, due 2017 to 2044 Senior structured notes Subordinated notes: Fixed, with a weighted-average rate of 4.87%, ranging from 2.40% to 8.57%, due 2017 to 2045 Floating, with a weighted-average rate of 0.83%, ranging from 0.23% to 2.52%, due 2017 to 2026 Junior subordinated notes (related to trust preferred securities): Fixed, with a weighted-average rate of 6.91%, ranging from 5.25% to 8.05%, due 2027 to 2067 Floating, with a weighted-average rate of 1.60%, ranging from 1.43% to 1.99%, 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 1.67%, ranging from 0.02% to 2.05%, due 2017 to 2018 Floating, with a weighted-average rate of 1.66%, ranging from 0.94% to 2.86%, due 2017 to 2041 Subordinated notes: Fixed, with a weighted-average rate of 5.66%, ranging from 5.30% to 6.10%, due 2017 to 2036 Floating, with a weighted-average rate of 1.26%, ranging from 0.85% to 1.26%, due 2017 to 2019 Advances from Federal Home Loan Banks: Fixed, with a weighted-average rate of 5.31%, ranging from 0.01% to 7.72%, due 2017 to 2034 Floating Securitizations and other BANA VIEs (1) Other Total notes issued by Bank of America, N.A. Other debt Senior notes: Fixed, with a weighted-average rate of 5.50%, due 2017 to 2021 Structured liabilities Nonbank VIEs (1) Other Total other debt Total long-term debt December 31 2016 2015 $ 108,933 13,164 17,049 $ 109,861 13,900 17,548 26,047 4,350 27,216 5,029 3,280 552 173,375 5,295 553 179,402 5,936 3,383 4,424 598 162 — 9,164 3,084 26,751 7,483 4,942 4,815 1,401 172 6,000 9,756 2,985 37,554 1 15,171 1,482 43 16,697 $ 216,823 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. 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, 2016 and 2015, the amount of foreign currency-denominated debt translated into U.S. Dollars included in total long-term debt was $44.7 billion and $46.4 billion. Foreign currency contracts may be used to convert certain foreign currency-denominated debt into U.S. Dollars. At December 31, 2016, long-term debt of consolidated VIEs in the table above included debt of credit card, home equity and all other VIEs of $9.0 billion, $108 million and $1.5 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, 4.36 percent and 1.52 percent, respectively, at December 31, 2016, and 3.80 percent, 4.61 percent and 0.96 percent, respectively, at December 31, 2015. 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. Debt outstanding of $75 million at December 31, 2016 was issued by a 100 percent owned finance subsidiary of the parent company and is unconditionally guaranteed by the parent company. The following table shows the carrying value for aggregate long-term debt as of annual contractual maturities of December 31, 2016. 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 security. In both cases, the Corporation or a subsidiary may be required to settle the obligation for cash or other securities 168 Bank of America 2016 Bank of America 2016 169 prior to the contractual maturity date. These borrowings are reflected in the table as maturing at their contractual maturity date. During 2016, the Corporation had total long-term debt maturities and redemptions in the aggregate of $51.6 billion consisting of $30.6 billion for Bank of America Corporation, $11.6 billion for Bank of America, N.A. and $9.4 billion of other debt. 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. 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 2017 2018 2019 2020 2021 Thereafter Total $ 17,913 3,931 4,760 — 26,604 $ 19,765 3,137 2,603 — 25,505 $ 17,858 1,341 1,431 — 20,630 $ 12,168 969 — — 13,137 $ 10,382 409 349 — 11,140 $ 44,011 7,262 21,254 3,832 76,359 $ 122,097 17,049 30,397 3,832 173,375 3,649 3,328 9 3,549 2,718 13,253 1 3,860 246 — 4,107 43,964 $ 5,649 — 9 2,300 102 8,060 — 1,288 27 — 1,315 34,880 — 1 14 3,200 105 3,320 — 1,261 15 — 1,276 25,226 $ $ — — 12 — 10 22 — — 2 — — 2 — 977 — — 977 14,136 $ — 756 — — 756 11,898 $ $ 21 1,693 116 115 149 2,094 — 7,029 1,194 43 8,266 86,719 9,319 5,022 162 9,164 3,084 26,751 1 15,171 1,482 43 16,697 $ 216,823 (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 redeemable preferred security Securities are mandatorily 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 170. 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. 170 Bank of America 2016 prior to the contractual maturity date. These borrowings are billion for Bank of America, N.A. and $9.4 billion of other debt. The Trust Securities Summary table details the outstanding Trust Securities and the related Notes previously issued which remained reflected in the table as maturing at their contractual maturity date. During 2015, the Corporation had total long-term debt maturities outstanding at December 31, 2016. During 2016, the Corporation had total long-term debt and redemptions in the aggregate of $40.4 billion consisting of maturities and redemptions in the aggregate of $51.6 billion $25.3 billion for Bank of America Corporation, $6.6 billion for Bank consisting of $30.6 billion for Bank of America Corporation, $11.6 of America, N.A. and $8.5 billion of other debt. Trust Securities Summary (1) (Dollars in millions) December 31, 2016 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 May 2006 May 2007 February 1997 January 1997 December 1998 June 1997 June 1998 January 1997 June 1997 November 2006 December 2006 August 2007 27 5 658 1 131 103 79 53 102 70 200 1,495 1,050 750 $ 27 5 678 1 March 2035 August 2035 May 2036 June 2056 5.63% 5.25 6.63 Semi-Annual Semi-Annual Semi-Annual Any time Any time 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 June 2027 1,496 November 2036 1,051 December 2066 751 September 2067 8.05 7.00 6.45 7.375 Semi-Annual Only under special event Quarterly On or after 11/01/11 Quarterly Quarterly On or after 12/11 On or after 9/12 $ 4,724 $ 4,773 Issuer Bank of America Capital Trust VI Capital Trust VII (2) 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 V Merrill Lynch Capital Trust I Capital Trust III Total (1) Bank of America Capital Trust VIII, Countrywide Capital IV and Merrill Lynch Capital Trust II were redeemed during 2016. (2) Notes are denominated in British Pound. Presentation currency is U.S. Dollar. Total Bank of America Corporation 26,604 25,505 20,630 13,137 11,140 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 Total Bank of America, N.A. Other Other debt Senior notes Structured liabilities Nonbank VIEs (1) Other Total other debt Total long-term debt Advances from Federal Home Loan Banks Securitizations and other Bank VIEs (1) 2017 2018 2019 2020 2021 Thereafter Total $ 17,913 $ 19,765 $ 17,858 $ 12,168 $ 10,382 $ 44,011 $ 122,097 3,931 4,760 — 3,649 3,328 9 3,549 2,718 13,253 1 3,860 246 — 4,107 3,137 2,603 — 5,649 — 9 2,300 102 8,060 — 27 — 1,341 1,431 — — 1 14 3,200 105 3,320 — 15 — 1,288 1,261 1,315 1,276 969 — — — — 12 — 10 22 — 977 — — 977 409 349 — — — 2 — — 2 — 756 — — 756 7,262 21,254 3,832 76,359 17,049 30,397 3,832 173,375 2,094 26,751 21 1,693 116 115 149 — 7,029 1,194 43 8,266 9,319 5,022 162 9,164 3,084 1 15,171 1,482 43 16,697 (1) Represents the total long-term debt included in the liabilities of consolidated VIEs on the Consolidated Balance Sheet. $ 43,964 $ 34,880 $ 25,226 $ 14,136 $ 11,898 $ 86,719 $ 216,823 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 170. 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. 170 Bank of America 2016 Bank of America 2016 171 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 or participated) to other financial institutions. The distributed amounts were $12.1 billion and $14.3 billion at December 31, 2016 and 2015. At December 31, 2016, the carrying value of these commitments, excluding commitments accounted for under the fair value option, was $779 million, including deferred revenue of $17 million and a reserve for unfunded lending commitments of $762 million. At December 31, 2015, the comparable amounts were $664 million, $18 million and $646 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 $7.0 billion and $10.9 billion at December 31, 2016 and 2015 that are accounted for under the fair value option. However, the table below excludes cumulative net fair value of $173 million and $658 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. Credit Extension Commitments (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, 2016 Expire After One Year Through Three Years Expire After Three Years Through Five Years Expire After Five Years Expire in One Year or Less $ $ $ $ 82,609 8,806 19,165 1,285 111,865 377,773 489,638 84,884 7,074 19,584 1,650 113,192 370,127 483,319 $ $ $ $ 133,063 10,701 10,754 103 154,621 — 154,621 $ $ 152,854 2,644 3,225 114 158,837 — 158,837 December 31, 2015 119,272 18,438 9,903 165 147,778 — 147,778 $ $ 158,920 5,126 3,385 258 167,689 — 167,689 $ $ $ $ 22,129 25,050 1,027 53 48,259 — 48,259 37,112 19,697 1,218 54 58,081 — 58,081 $ $ $ $ Total 390,655 47,201 34,171 1,555 473,582 377,773 851,355 400,188 50,335 34,090 2,127 486,740 370,127 856,867 (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 $8.3 billion at December 31, 2016, and $25.5 billion and $8.4 billion at December 31, 2015. Amounts in the table include consumer SBLCs of $376 million and $164 million at December 31, 2016 and 2015. (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, 2016 and 2015, the Corporation had commitments to purchase loans (e.g., residential mortgage and commercial real estate) of $767 million and $729 million, and commitments to purchase commercial loans of $636 million and $874 million, which upon settlement will be included in loans or LHFS. At both December 31, 2016 and 2015, the Corporation had commitments to purchase commodities, primarily liquefied natural gas of $1.9 billion, which upon settlement will be included in trading account assets. At December 31, 2016 and 2015, the Corporation had commitments to enter into resale and forward-dated resale and securities borrowing agreements of $48.9 billion and $88.6 billion, and commitments to enter into forward-dated repurchase and securities lending agreements of $24.4 billion and $53.7 billion. These commitments expire within the next 12 months. The Corporation has entered into agreements to purchase retail automotive loans from certain auto loan originators. These agreements provide for stated purchase amounts and contain cancellation provisions that allow the Corporation to terminate its commitment to purchase at any time, with a minimum notification period. At December 31, 2016 and 2015, the Corporation’s maximum purchase commitment was $475 million and $1.2 billion. In addition, the Corporation has a commitment to originate or purchase auto loans and leases from a strategic partner up to $2.4 billion in 2017, with this commitment expiring on December 31, 2017. 172 Bank of America 2016 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 these commitments, excluding commitments accounted for under the fair value option, was $779 million, including deferred revenue of $17 million and a reserve for unfunded lending commitments of $762 million. At December 31, 2015, the comparable amounts were $664 million, $18 million and $646 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 $7.0 billion and $10.9 billion at December 31, The Corporation enters into commitments to extend credit such 2016 and 2015 that are accounted for under the fair value option. as loan commitments, SBLCs and commercial letters of credit to However, the table below excludes cumulative net fair value of meet the financing needs of its customers. The table below $173 million and $658 million on these commitments, which is includes the notional amount of unfunded legally binding lending classified in accrued expenses and other liabilities. For more commitments net of amounts distributed (e.g., syndicated or information regarding the Corporation’s loan commitments participated) to other financial institutions. The distributed accounted for under the fair value option, see Note 21 – Fair Value amounts were $12.1 billion and $14.3 billion at December 31, Option. 2016 and 2015. At December 31, 2016, the carrying value of Total credit extension commitments $ 489,638 $ 154,621 $ 158,837 $ 48,259 $ Credit Extension Commitments (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, 2016 and 2015. (2) Includes business card unused lines of credit. December 31, 2016 Expire After Expire After One Year Through Three Years Three Expire After Years Through Five Years Five Years Expire in One Year or Less $ 82,609 $ 133,063 $ 152,854 $ 22,129 $ 390,655 8,806 19,165 1,285 111,865 377,773 10,701 10,754 103 154,621 — 2,644 3,225 114 158,837 — December 31, 2015 7,074 19,584 1,650 113,192 370,127 18,438 9,903 165 147,778 — 5,126 3,385 258 167,689 — 25,050 1,027 48,259 53 — 19,697 1,218 58,081 54 — $ 84,884 $ 119,272 $ 158,920 $ 37,112 $ 400,188 Total 47,201 34,171 1,555 473,582 377,773 851,355 50,335 34,090 2,127 486,740 370,127 856,867 Total credit extension commitments $ 483,319 $ 147,778 $ 167,689 $ 58,081 $ (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 $8.3 billion at December 31, 2016, and $25.5 billion and $8.4 billion at December 31, 2015. Amounts in the table include consumer SBLCs of $376 million and $164 million Legally binding commitments to extend credit generally have At December 31, 2016 and 2015, the Corporation had specified rates and maturities. Certain of these commitments have commitments to enter into resale and forward-dated resale and adverse change clauses that help to protect the Corporation securities borrowing agreements of $48.9 billion and $88.6 billion, against deterioration in the borrower’s ability to pay. Other Commitments At December 31, 2016 and 2015, the Corporation had commitments to purchase loans (e.g., residential mortgage and commercial real estate) of $767 million and $729 million, and commitments to purchase commercial loans of $636 million and $874 million, which upon settlement will be included in loans or LHFS. At both December 31, 2016 and 2015, the Corporation had commitments to purchase commodities, primarily liquefied natural gas of $1.9 billion, which upon settlement will be included in trading account assets. 172 Bank of America 2016 and commitments to enter into forward-dated repurchase and securities lending agreements of $24.4 billion and $53.7 billion. These commitments expire within the next 12 months. The Corporation has entered into agreements to purchase retail automotive loans from certain auto loan originators. These agreements provide for stated purchase amounts and contain cancellation provisions that allow the Corporation to terminate its commitment to purchase at any time, with a minimum notification period. At December 31, 2016 and 2015, the Corporation’s maximum purchase commitment was $475 million and $1.2 billion. In addition, the Corporation has a commitment to originate or purchase auto loans and leases from a strategic partner up to $2.4 billion in 2017, with this commitment expiring on December 31, 2017. The Corporation is a party to operating leases for certain of its premises and equipment. Commitments under these leases are approximately $2.3 billion, $2.1 billion, $1.8 billion, $1.6 billion and $1.3 billion for 2017 through 2021, respectively, and $4.5 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, 2016 and 2015, the notional amount of these guarantees totaled $13.9 billion and $13.8 billion. At December 31, 2016 and 2015, the Corporation’s maximum exposure related to these guarantees totaled $3.2 billion and $3.1 billion, with estimated maturity dates between 2031 and 2039. The net fair value including the fee receivable associated with these guarantees was $4 million and $12 million at December 31, 2016 and 2015, 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 2016 and 2015, the sponsored entities processed and settled $731.4 billion and $669.0 billion of transactions and recorded losses of $33 million and $22 million. A significant portion of this activity was processed by a joint venture in which the Corporation holds a 49 percent ownership, and is recorded in other assets on the Consolidated Balance Sheet and in All Other. At December 31, 2016 and 2015, the carrying value of the Corporation's investment in the merchant services joint venture was $2.9 billion and $3.0 billion. At December 31, 2016 and 2015, the sponsored merchant processing servicers held as collateral $188 million and $181 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, 2016 and 2015, the maximum potential exposure for sponsored transactions totaled $325.7 billion and $277.1 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. 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 $6.7 billion and $6.0 billion Bank of America 2016 173 at December 31, 2016 and 2015. 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 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. On December 20, 2016, the Corporation entered into an agreement to sell its non- U.S. consumer credit card business to a third party. Subject to regulatory approval, this transaction is expected to close by mid-2017. After closing, the Corporation will retain substantially all PPI exposure above existing reserves. The Corporation has considered this exposure in its estimate of a small after-tax gain on the sale. In August 2016, the FCA issued a further consultation paper on the treatment of certain PPI claims and expects to finalize guidance by the first quarter of 2017. The reserve for PPI claims was $252 million and $360 million at December 31, 2016 and 2015. The Corporation recorded expense of $145 million and $319 million in 2016 and 2015. FDIC In 2016, the FDIC implemented a surcharge of 4.5 cents per $100 of their assessment base, after making certain adjustments, on insured depository institutions with total assets of $10 billion or more. The FDIC expects the surcharge to be in effect for approximately two years. If the Deposit Insurance Fund (DIF) reserve ratio does not reach 1.35 percent by December 31, 2018, the FDIC will impose a shortfall assessment on any bank subject to the surcharge. The surcharge increased the Corporation’s deposit insurance assessment for 2016 by approximately $200 million, and the Corporation expects approximately $100 million of expense per quarter related to the surcharge in the future. The FDIC has also adopted regulations that establish a long-term target DIF ratio of greater than two percent, which would be expected to impose additional deposit insurance costs on the Corporation. Deposit insurance assessment rates are subject to change by the FDIC, and can be impacted by the overall economy, the stability of the banking industry as a whole, and regulations or regulatory interpretations. 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 174 Bank of America 2016 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. for 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 both 2016 and 2015. 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 $1.5 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. at December 31, 2016 and 2015. The estimated maturity dates theories or involve a large number of parties, the Corporation of these obligations extend up to 2040. The Corporation has made generally cannot predict what the eventual outcome of the pending no material payments under these guarantees. matters will be, what the timing of the ultimate resolution of these In the normal course of business, the Corporation periodically matters will be, or what the eventual loss, fines or penalties related guarantees the obligations of its affiliates in a variety of to each pending matter may be. transactions including ISDA-related transactions and non-ISDA In accordance with applicable accounting guidance, the related transactions such as commodities trading, repurchase Corporation establishes an accrued liability when those matters agreements, prime brokerage agreements and other transactions. present loss contingencies that are both probable and estimable. Payment Protection Insurance Claims Matter In the U.K., the Corporation previously sold 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. On December 20, 2016, the Corporation entered into an agreement to sell its non- U.S. consumer credit card business to a third party. Subject to regulatory approval, this transaction is expected to close by mid-2017. After closing, the Corporation will retain substantially all PPI exposure above existing reserves. The Corporation has considered this exposure in its estimate of a small after-tax gain on the sale. In August 2016, the FCA issued a further consultation paper on the treatment of certain PPI claims and expects to finalize guidance by the first quarter of 2017. The reserve for PPI claims was $252 million and $360 million at December 31, 2016 and 2015. The Corporation recorded expense of $145 million and $319 million in 2016 and 2015. FDIC In 2016, the FDIC implemented a surcharge of 4.5 cents per $100 of their assessment base, after making certain adjustments, on insured depository institutions with total assets of $10 billion or more. The FDIC expects the surcharge to be in effect for approximately two years. If the Deposit Insurance Fund (DIF) reserve ratio does not reach 1.35 percent by December 31, 2018, the FDIC will impose a shortfall assessment on any bank subject to the surcharge. The surcharge increased the Corporation’s deposit insurance assessment for 2016 by approximately $200 million, and the Corporation expects approximately $100 million of expense per quarter related to the surcharge in the future. The FDIC has also adopted regulations that establish a long-term target DIF ratio of greater than two percent, which would be expected to impose additional deposit insurance costs on the Corporation. Deposit insurance assessment rates are subject to change by the FDIC, and can be impacted by the overall economy, the stability of the banking industry as a whole, and regulations or regulatory interpretations. 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 174 Bank of America 2016 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 both 2016 and 2015. 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 $1.5 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. Ambac Bond Insurance Litigation Ambac Assurance Corporation and the Segregated Account of Ambac Assurance Corporation (together, Ambac) have filed five separate lawsuits against the Corporation and its subsidiaries relating to bond insurance policies Ambac provided on certain securitized pools of HELOCs, first-lien subprime home equity loans, fixed-rate second-lien mortgage loans and negative amortization pay option adjustable-rate mortgage loans. Ambac alleges that they have paid or will pay claims as a result of defaults in the underlying loans and assert that the defendants misrepresented the characteristics of the underlying loans and/or breached certain contractual the underwriting and servicing of the loans. In those actions where the Corporation is named as a defendant, Ambac contends the Corporation is liable on various successor and vicarious liability theories. representations and warranties regarding Ambac v. Countrywide I The Corporation, Countrywide and other Countrywide entities are named as defendants in an action filed on September 29, 2010 in New York Supreme Court. Ambac claims damages in excess of $2.2 billion, 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. The parties filed cross-appeals with the First Department, which are pending. Ambac v. Countrywide II On December 30, 2014, Ambac filed a complaint in New York Supreme Court against the same defendants, claiming fraudulent inducement against Countrywide, and successor and vicarious liability against the Corporation. Ambac claims damages in excess of $600 million plus punitive damages. On December 19, 2016, the court granted in part and denied in part Countrywide's motion to dismiss the complaint. Ambac v. Countrywide III On December 30, 2014, Ambac filed an action in Wisconsin state court against Countrywide. The complaint seeks damages in excess of $350 million plus punitive damages. Countrywide has challenged the Wisconsin courts' jurisdiction over it. Following a ruling by the lower court that jurisdiction did not exist, the Court of Appeals of Wisconsin reversed. Countrywide sought review by the Wisconsin Supreme Court, which has agreed to decide the issue. The appeal is pending. Ambac v. Countrywide IV On July 21, 2015, Ambac filed an action in New York Supreme Court against Countrywide asserting the same claims for fraudulent inducement that Ambac asserted in Ambac v. Countrywide III. Ambac simultaneously moved to stay the action pending resolution of its appeal in Ambac v. Countrywide III. Countrywide moved to dismiss the complaint. On September 20, 2016, the court granted Ambac's motion to stay the action pending resolution of the Wisconsin Supreme Court appeal in Ambac v. Countrywide III. Ambac v. First Franklin On April 16, 2012, Ambac filed an action against BANA, First Franklin and various Merrill Lynch entities, including Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S), in New York Supreme Court relating to guaranty insurance Ambac provided on a First Franklin securitization sponsored by Merrill Lynch. The complaint alleges fraudulent inducement and breach of contract, including 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. 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 granted in part and denied in part defendants’ motion to dismiss the complaint. On September 17, 2015, the court granted Ambac’s motion to strike defendants’ affirmative defense of unclean hands. ATM Access Fee Litigation On January 10, 2012, a putative consumer class action was filed against Visa, Inc., MasterCard, Inc., and several financial institutions, including Bank of America Corporation and Bank of America, N.A. (collectively “Bank of America”), alleging that surcharges paid at bank ATMs are artificially inflated by Visa and MasterCard rules and regulations. The network rules are alleged to be the product of a conspiracy between Visa, MasterCard and banks in violation of Section 1 of the Sherman Act. Plaintiffs seek both injunctive relief, and monetary damages equal to treble the damages they claim to have sustained as a result of the alleged violations. Bank of America, along with all other co-defendants, moved to dismiss the complaint on January 30, 2012. On February 13, 2013, the District Court granted the motion and dismissed the case. The plaintiffs moved the District Court for leave to file amended complaints, and on December 19, 2013, the District Court denied the motions to amend. On January 14, 2014, plaintiffs filed a notice of appeal in the United States Court of Appeals for the District of Columbia Circuit (the “D.C. Circuit”). On August 4, 2015, the D.C. Circuit vacated the District Court’s decision and remanded the case to the District Court for further proceedings. On September 3, 2015, the networks and bank defendants filed petitions for re-hearing or re- hearing en banc before the D.C. Circuit. In a per curium order, the D.C. Circuit denied the petitions on September 28, 2015. On January 27, 2016, defendants filed a petition for certiorari with the United States Supreme Court. On June 28, 2016, the U.S. Supreme Court granted defendants’ petition for a writ of certiorari seeking review of the decision of the D.C. Circuit. On November 17, 2016, the U.S. Supreme Court ordered that the writ of certiorari be dismissed as improvidently granted. Deposit Insurance Assessment On January 9, 2017, the FDIC filed suit against BANA in federal district court in the District of Columbia alleging failure to pay a December 15, 2016 invoice for additional deposit insurance assessments and interest in the amount of $542 million for the quarters ending June 30, 2013 through December 31, 2014. The Bank of America 2016 175 FDIC asserts this claim based on BANA’s alleged underreporting of counterparty exposures that resulted in underpayment of assessments for those quarters. The FDIC also has raised the prospect that it will seek to assert that BANA underpaid its assessments for the quarters ending June 30, 2012 through March 31, 2013. BANA disagrees with the FDIC’s interpretation of the regulations as they existed during the relevant time period, and intends to defend itself against the FDIC’s claims. 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 bank holding companies, 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. On June 30, 2016, the Second Circuit Court of Appeals vacated the judgment approving the settlement and remanded the case for further proceedings. On November 23, 2016, counsel for the class filed a certiorari petition with the United States Supreme Court seeking review of the Second Circuit decision. As a result of the Second Circuit’s decision, the Interchange class case was remanded to the district court, and the parties are in the process of coordinating the case with the already-pending actions brought by merchants who had opted out of the class settlement, as described below. Following district court approval of the class settlement agreement, a number of class members opted out of the settlement, and many filed individual actions against the defendants. The Corporation was named as a defendant in one such individual action, as well as one action brought by cardholders (the “Cardholder Action”). In addition, a number of these individual actions were filed that do not name the Corporation as a defendant. As a result of various loss-sharing agreements, however, the Corporation remains liable for any settlement or judgment in these individual suits where it is not named as a defendant. Now that Interchange has been remanded to the district court, these individual actions will be coordinated as individual merchant lawsuits alongside the Interchange class case. On November 26, 2014, the court granted defendants’ motion to dismiss the Sherman Act claim in the Cardholder Action. Plaintiffs appealed that dismissal to the Second Circuit Court of 176 Bank of America 2016 Appeals. On October 17, 2016, the Second Circuit issued a summary order affirming the dismissal and, on October 31, 2016, it denied plaintiffs' petition for rehearing en banc. LIBOR, Other Reference Rates, Foreign Exchange (FX) and Bond Trading Matters 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 also continue to conduct investigations concerning conduct and systems and controls of panel banks in connection with the setting of LIBOR and other reference rates as well as the trading of government, sovereign, supranational, and agency bonds. The Corporation is responding to and cooperating with these investigations. In addition, the Corporation, BANA and certain Merrill Lynch entities have been named as defendants along with most of the other LIBOR panel banks in a number 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. 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), Securities Exchange Act of 1934 (Exchange Act), common law fraud, and breach of contract claims, and seek compensatory, treble and punitive damages, and injunctive relief. Beginning in March 2013, in a series of rulings, the court dismissed antitrust, RICO, Exchange Act 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. On May 23, 2016, the U.S. Court of Appeals for the Second Circuit reversed the district court’s dismissal of the antitrust claims and remanded for further proceedings in the district court, and on December 20, 2016, the district court dismissed certain plaintiffs’ antitrust claims in their entirety and substantially limited the scope of the remaining antitrust claims. On October 20, 2016, defendants filed a petition for a writ of certiorari to the U.S. Supreme Court to review the Second Circuit’s decision and, on January 17, 2017, the U.S. Supreme Court denied the defendants’ petition. Certain antitrust, CEA, and state law claims remain pending in the district court against the Corporation, BANA and certain Merrill Lynch entities, 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 Exchange Act and state law claims. In addition, the Corporation, BANA and MLPF&S 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, in which plaintiffs allege that they sustained losses as a result of the defendants’ alleged conspiracy to manipulate the prices of over-the-counter FX transactions and FX transactions on an exchange. Plaintiffs assert antitrust claims and claims for violations of the CEA and seek compensatory and treble damages, FDIC asserts this claim based on BANA’s alleged underreporting Appeals. On October 17, 2016, the Second Circuit issued a of counterparty exposures that resulted in underpayment of summary order affirming the dismissal and, on October 31, 2016, assessments for those quarters. The FDIC also has raised the it denied plaintiffs' petition for rehearing en banc. prospect that it will seek to assert that BANA underpaid its assessments for the quarters ending June 30, 2012 through March 31, 2013. BANA disagrees with the FDIC’s interpretation of the regulations as they existed during the relevant time period, and intends to defend itself against the FDIC’s claims. 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 bank holding companies, 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. On June 30, 2016, the Second Circuit Court of Appeals vacated the judgment approving the settlement and remanded the case for further proceedings. On November 23, 2016, counsel for the class filed a certiorari petition with the United States Supreme Court seeking review of the Second Circuit decision. As a result of the Second Circuit’s decision, the Interchange class case was remanded to the district court, and the parties are in the process of coordinating the case with the already-pending actions brought by merchants who had opted out of the class settlement, as described below. Following district court approval of the class settlement agreement, a number of class members opted out of the settlement, and many filed individual actions against the defendants. The Corporation was named as a defendant in one such individual action, as well as one action brought by cardholders (the “Cardholder Action”). In addition, a number of these individual actions were filed that do not name the Corporation as a defendant. As a result of various loss-sharing agreements, however, the Corporation remains liable for any settlement or judgment in these individual suits where it is not named as a defendant. Now that Interchange has been remanded to the district court, these individual actions will be coordinated as individual merchant lawsuits alongside the Interchange class case. On November 26, 2014, the court granted defendants’ motion to dismiss the Sherman Act claim in the Cardholder Action. Plaintiffs appealed that dismissal to the Second Circuit Court of 176 Bank of America 2016 LIBOR, Other Reference Rates, Foreign Exchange (FX) and Bond Trading Matters 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 also continue to conduct investigations concerning conduct and systems and controls of panel banks in connection with the setting of LIBOR and other reference rates as well as the trading of government, sovereign, supranational, and agency bonds. The Corporation is responding to and cooperating with these investigations. In addition, the Corporation, BANA and certain Merrill Lynch entities have been named as defendants along with most of the other LIBOR panel banks in a number 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. 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), Securities Exchange Act of 1934 (Exchange Act), common law fraud, and breach of contract claims, and seek compensatory, treble and punitive damages, and injunctive relief. Beginning in March 2013, in a series of rulings, the court dismissed antitrust, RICO, Exchange Act 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. On May 23, 2016, the U.S. Court of Appeals for the Second Circuit reversed the district court’s dismissal of the antitrust claims and remanded for further proceedings in the district court, and on December 20, 2016, the district court dismissed certain plaintiffs’ antitrust claims in their entirety and substantially limited the scope of the remaining antitrust claims. On October 20, 2016, defendants filed a petition for a writ of certiorari to the U.S. Supreme Court to review the Second Circuit’s decision and, on January 17, 2017, the U.S. Supreme Court denied the defendants’ petition. Certain antitrust, CEA, and state law claims remain pending in the district court against the Corporation, BANA and certain Merrill Lynch entities, 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 Exchange Act and state law claims. In addition, the Corporation, BANA and MLPF&S 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, in which plaintiffs allege that they sustained losses as a result of the defendants’ alleged conspiracy to manipulate the prices of over-the-counter FX transactions and FX transactions on an exchange. Plaintiffs assert antitrust claims and claims for violations of the CEA and seek compensatory and treble damages, as well as declaratory and injunctive relief. On October 1, 2015, the Corporation, BANA and MLPF&S executed a final settlement agreement, in which they agreed to pay $187.5 million to settle the litigation. The settlement is subject to final court approval. 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 cases relating to their various roles in MBS offerings. These cases generally allege that the registration statements, prospectuses and prospectus supplements for securities 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 laws and/or common law. In addition, certain of these entities have received claims for contractual 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. 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; and (v) the ratings given to the different tranches of MBS by rating agencies. Plaintiffs in these cases generally seek unspecified compensatory and/or rescissory damages, unspecified costs and legal fees. Mortgage Repurchase Litigation U.S. Bank - Harborview Repurchase 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. On December 5, 2016, certain certificate-holders in the Trust agreed to settle the claims in an amount not material to the Corporation, subject to acceptance by U.S. Bank. U.S. Bank - SURF/OWNIT Repurchase Litigation On August 29, 2014 and September 2, 2014, 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. On February 25, 2015 and March 11, 2015, U.S. Bank served complaints regarding 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 representations and warranties breaches, but upheld the complaints in all other respects. On December 28, 2016, U.S. Bank filed a complaint with respect to a fifth Trust. 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. Through a series of complaints first filed on February 2, 2011, plaintiff sued 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, alleging, among other things that the Corporation’s public statements: (i) concealed problems in the Corporation’s mortgage servicing business resulting from the widespread use of the Mortgage Electronic Recording System; and (ii) failed to disclose the Corporation’s exposure to mortgage repurchase claims. On August 12, 2015, the parties agreed to settle the claims for $335 million. On December 27, 2016, the court granted final approval to the settlement. Bank of America 2016 177 NOTE 13 Shareholders’ Equity Common Stock Declared Quarterly Cash Dividends on Common Stock (1) Declaration Date Record Date Payment Date January 26, 2017 October 27, 2016 July 27, 2016 April 27, 2016 January 21, 2016 (1) March 3, 2017 December 2, 2016 September 2, 2016 June 3, 2016 March 4, 2016 In 2016 and through February 23, 2017. March 31, 2017 December 30, 2016 September 23, 2016 June 24, 2016 March 25, 2016 Dividend Per Share $ 0.075 0.075 0.075 0.05 0.05 The following table summarizes common stock repurchases during 2016, 2015 and 2014. Common Stock Repurchase Summary (in millions) 2016 2015 2014 Total number of shares repurchased and retired CCAR capital plan repurchases Other authorized repurchases Total purchase price of shares repurchased and retired (1) 278 55 140 — 101 — CCAR capital plan repurchases $ 4,312 $ 2,374 $ 1,675 Other authorized repurchases 800 — — (1) Represents reductions to shareholders’ equity due to common stock repurchases. On June 29, 2016, the Corporation announced that the Federal Reserve completed its review of the Corporation's 2016 Comprehensive Capital Analysis and Review (CCAR) capital plan to which the Federal Reserve did not object. The 2016 CCAR capital plan included requests to repurchase $5.0 billion of common stock over four quarters beginning in the third quarter of 2016, to repurchase common stock to offset the dilution resulting from certain equity-based compensation awards and to increase the quarterly common stock dividend from $0.05 per share to $0.075. On January 13, 2017, the Corporation announced a plan to repurchase an additional $1.8 billion of common stock during the first half of 2017, to which the Federal Reserve did not object, in addition to the previously announced repurchases associated with the 2016 CCAR capital plan. In 2016, the Corporation repurchased and retired 113 million shares of common stock in connection with the 2015 CCAR capital plan, which reduced shareholders' equity by $1.6 billion, completing the share repurchases under the 2015 CCAR capital plan. On March 18, 2016, the Corporation announced that the Board of Directors authorized additional repurchases of common stock up to $800 million outside of the scope of the 2015 CCAR capital plan to offset the share count dilution resulting from equity incentive compensation awarded to retirement-eligible employees, to which the Federal Reserve did not object. In 2016, the Corporation repurchased and retired 55 million shares of common stock in connection with this additional authorization, which reduced shareholders' equity by $800 million, completing this additional authorization. At December 31, 2016, the Corporation had warrants outstanding and exercisable to purchase 122 million shares of its common stock expiring on October 28, 2018, and warrants outstanding and exercisable to purchase 150 million shares of common stock 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 $0.075 per share for the third and fourth quarters of 2016, and cash dividends of $0.05 per share for the first and second quarters of 2016, or $0.25 per share for the year, resulting in an adjustment to the exercise price of these warrants in each quarter. As a result of the Corporation’s 2016 dividends of $0.25 per common share, the exercise price of the warrants expiring on January 16, 2019, was adjusted to $12.938 per share. The warrants expiring on October 28, 2018, which have an exercise price of $30.79 per share, 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 2016, the Corporation issued approximately 9 million shares and repurchased approximately 4 million shares of its common stock to satisfy tax withholding obligations. At December 31, 2016, 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. 178 Bank of America 2016 NOTE 13 Shareholders’ Equity Common Stock Declared Quarterly Cash Dividends on Common Stock (1) Declaration Date Record Date Payment Date January 26, 2017 March 3, 2017 March 31, 2017 $ October 27, 2016 December 2, 2016 December 30, 2016 July 27, 2016 April 27, 2016 September 2, 2016 September 23, 2016 June 3, 2016 June 24, 2016 January 21, 2016 March 4, 2016 March 25, 2016 (1) In 2016 and through February 23, 2017. Dividend Per Share 0.075 0.075 0.075 0.05 0.05 The following table summarizes common stock repurchases during 2016, 2015 and 2014. Common Stock Repurchase Summary (in millions) and retired Total number of shares repurchased 2016 2015 2014 CCAR capital plan repurchases Other authorized repurchases 278 55 140 — 101 — Total purchase price of shares repurchased and retired (1) (1) Represents reductions to shareholders’ equity due to common stock repurchases. On June 29, 2016, the Corporation announced that the Federal Reserve completed its review of the Corporation's 2016 Comprehensive Capital Analysis and Review (CCAR) capital plan to which the Federal Reserve did not object. The 2016 CCAR capital plan included requests to repurchase $5.0 billion of common stock over four quarters beginning in the third quarter of 2016, to repurchase common stock to offset the dilution resulting from certain equity-based compensation awards and to increase the quarterly common stock dividend from $0.05 per share to $0.075. On January 13, 2017, the Corporation announced a plan to repurchase an additional $1.8 billion of common stock during the first half of 2017, to which the Federal Reserve did not object, in addition to the previously announced repurchases associated with the 2016 CCAR capital plan. In 2016, the Corporation repurchased and retired 113 million shares of common stock in connection with the 2015 CCAR capital plan, which reduced shareholders' equity by $1.6 billion, completing the share repurchases under the 2015 CCAR capital plan. On March 18, 2016, the Corporation announced that the Board of Directors authorized additional repurchases of common stock up to $800 million outside of the scope of the 2015 CCAR capital plan to offset the share count dilution resulting from equity incentive compensation awarded to retirement-eligible employees, to which the Federal Reserve did not object. In 2016, the Corporation repurchased and retired 55 million shares of common stock in connection with this additional authorization, which reduced shareholders' equity by $800 million, completing this additional authorization. At December 31, 2016, the Corporation had warrants outstanding and exercisable to purchase 122 million shares of its common stock expiring on October 28, 2018, and warrants outstanding and exercisable to purchase 150 million shares of common stock 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 $0.075 per share for the third and fourth quarters of 2016, and cash dividends of $0.05 per share for the first and second quarters of 2016, or $0.25 per share for the year, resulting in an adjustment to the exercise price of these warrants in each quarter. As a result of the Corporation’s 2016 dividends of $0.25 per common share, the exercise price of the warrants expiring on January 16, 2019, was adjusted to $12.938 per share. The warrants expiring on October 28, 2018, 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 2016, the Corporation issued approximately 9 million shares and repurchased approximately 4 million shares of its common stock to satisfy tax withholding obligations. At December 31, 2016, 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. CCAR capital plan repurchases $ 4,312 $ 2,374 $ 1,675 Other authorized repurchases 800 — — which have an exercise price of $30.79 per share, also contain Preferred Stock The table below presents a summary of perpetual preferred stock outstanding at December 31, 2016. 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) Fixed-to-Floating Rate Non- Cumulative Fixed-to-Floating Rate Non- Cumulative Series CC (3) 6.200% Non-Cumulative Series DD (5) Fixed-to-Floating Rate Non- Cumulative Series EE (3) 6.000% Non-Cumulative Series 1 (7) Series 2 (7) Floating Rate Non- Cumulative Floating Rate Non- Cumulative Series 3 (7) 6.375% Non-Cumulative Series 4 (7) Series 5 (7) 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 January 2016 March 2016 April 2016 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) 7,110 $ 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 50,000 100,000 2,918 6.00% 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 44,000 25,000 1,100 6.200% 40,000 25,000 1,000 6.300% to, but excluding, 3/10/26; 3-mo. LIBOR + 455.3 bps thereafter 36,000 25,000 3,275 9,967 30,000 30,000 21,773 30,000 7,010 30,000 14,056 3,887,329 30,000 900 98 299 653 210 422 $ 25,505 6.000% 3-mo. LIBOR + 75 bps (8) 3-mo. LIBOR + 65 bps (8) 6.375% 3-mo. LIBOR + 75 bps (4) 3-mo. LIBOR + 50 bps (4) 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 See below (6) 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 January 29, 2021 On or after March 10, 2026 On or after April 25, 2021 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 $285 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) The terms of the Series T preferred stock were amended in 2014, which included changes such that (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 amendment's effective date. (7) 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. (8) Subject to 3.00% minimum rate per annum. n/a = not applicable 178 Bank of America 2016 Bank of America 2016 179 The cash dividends declared on preferred stock were $1.7 billion, $1.5 billion and $1.0 billion for 2016, 2015 and 2014, respectively. 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. 180 Bank of America 2016 The cash dividends declared on preferred stock were $1.7 operation of a sinking fund, have no participation rights, and with billion, $1.5 billion and $1.0 billion for 2016, 2015 and 2014, the exception of the Series L Preferred Stock, are not convertible. respectively. The holders of the Series B Preferred Stock and Series 1 through The 7.25% Non-Cumulative Perpetual Convertible Preferred 5 Preferred Stock have general voting rights, and the holders of Stock, Series L (Series L Preferred Stock) listed in the Preferred the other series included in the table have no general voting rights. Stock Summary table does not have early redemption/call rights. All outstanding series of preferred stock of the Corporation have Each share of the Series L Preferred Stock may be converted at preference over the Corporation’s common stock with respect to any time, at the option of the holder, into 20 shares of the the payment of dividends and distribution of the Corporation’s Corporation’s common stock plus cash in lieu of fractional shares. assets in the event of a liquidation or dissolution. With the The Corporation may cause some or all of the Series L Preferred exception of the Series B, F, G and T Preferred Stock, if any dividend Stock, at its option, at any time or from time to time, to be converted payable on these series is in arrears for three or more semi-annual into shares of common stock at the then-applicable conversion or six or more quarterly dividend periods, as applicable (whether rate if, for 20 trading days during any period of 30 consecutive consecutive or not), the holders of these series and any other trading days, the closing price of common stock exceeds 130 class or series of preferred stock ranking equally as to payment percent of the then-applicable conversion price of the Series L of dividends and upon which equivalent voting rights have been Preferred Stock. If a conversion of Series L Preferred Stock occurs conferred and are exercisable (voting as a single class) will be at the option of the holder, subsequent to a dividend record date entitled to vote for the election of two additional directors. These but prior to the dividend payment date, the Corporation will still voting rights terminate when the Corporation has paid in full pay any accrued dividends payable. dividends on these series for at least two semi-annual or four All series of preferred stock in the Preferred Stock Summary quarterly dividend periods, as applicable, following the dividend table have a par value of $0.01 per share, are not subject to the arrearage. NOTE 14 Accumulated Other Comprehensive Income (Loss) The table below presents the changes in accumulated OCI after-tax for 2014, 2015 and 2016. (Dollars in millions) Balance, December 31, 2013 Net change Balance, December 31, 2014 Cumulative adjustment for accounting change Net change Balance, December 31, 2015 Net change Balance, December 31, 2016 n/a = not applicable $ $ $ $ Debt Securities Available-for- Sale Marketable Equity Securities Debit Valuation Adjustments Derivatives Employee Benefit Plans Foreign Currency Total $ (2,487) $ 4,128 1,641 — (1,625) 16 (1,315) (1,299) $ $ (4) 21 17 — $ 45 62 (30) 32 $ $ $ $ n/a n/a n/a (1,226) 615 (611) $ (156) (767) $ (2,277) $ 616 (1,661) $ — 584 (1,077) $ 182 (895) $ (2,407) $ (943) (3,350) $ — 394 (2,956) $ (524) (3,480) $ (512) $ (157) (669) $ — (123) (792) $ (87) (879) $ (7,687) 3,665 (4,022) (1,226) (110) (5,358) (1,930) (7,288) 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 2016, 2015 and 2014. Changes in OCI Components Before- and After-tax (Dollars in millions) Debt securities: Net increase (decrease) in fair value Reclassifications into earnings: Gains on sales of debt securities Other income Net realized (gains) losses reclassified into earnings Net change Available-for-sale marketable equity securities: Net increase (decrease) in fair value (1) Net change Debit valuation adjustments: Net increase (decrease) in fair value Net realized (gains) losses reclassified into earnings (2) Net change Derivatives: Net increase (decrease) in fair value Reclassifications into earnings: Net interest income Personnel Net realized (gains) losses reclassified into earnings Net change Employee benefit plans: Net increase (decrease) in fair value Reclassifications into earnings: Prior service cost Net actuarial losses Net realized (gains) losses reclassified into earnings (3) Settlements, curtailments and other Net change Foreign currency: Before- tax 2016 Tax effect After- tax Before- tax 2015 Tax effect After-tax Before- tax 2014 Tax effect After-tax $ (1,645) $ 622 $ (1,023) $ (1,564) $ 595 $ (969) $ 8,064 $ (3,027) $ 5,037 (490) 19 (471) (2,116) (49) (49) (271) 17 (254) 186 (7) 179 801 19 19 104 (6) 98 (304) 12 (292) (1,315) (1,138) 81 (1,057) (2,621) (30) (30) (167) 11 (156) 72 72 436 556 992 432 (31) 401 996 (27) (27) (166) (211) (377) (706) 50 (656) (1,625) (1,481) 16 (1,465) 6,599 563 (7) 556 (2,471) (918) 9 (909) 4,128 45 45 270 345 615 34 34 n/a n/a n/a (13) (13) n/a n/a n/a 21 21 n/a n/a n/a (299) 113 (186) 55 (22) 33 195 (54) 141 553 32 585 286 (205) (12) (217) (104) 348 20 368 182 974 (91) 883 938 (367) 35 (332) (354) 607 (56) 551 584 1,119 (359) 760 955 (421) 136 (285) (339) 698 (223) 475 616 (921) 329 (592) 408 (121) 287 (1,629) 614 (1,015) 5 92 97 15 (809) (2) (34) (36) (8) 285 3 58 61 7 (524) 5 164 169 1 578 600 (38) 562 521 (2) (60) (62) (1) (184) 3 104 107 — 394 5 50 55 (1) (1,575) (2) (21) (23) 41 632 3 29 32 40 (943) 714 (123) (723) 20 — 38 (685) 734 (123) (631) $ (110) $ 6,747 (879) (12) (891) (165) 8 (157) $ (3,082) $ 3,665 $ Net increase (decrease) in fair value Net realized (gains) losses reclassified into earnings (2) Net change Total other comprehensive income (loss) 514 — 514 $ (2,428) $ (601) — (601) 498 (87) — (87) $ (1,930) $ 180 Bank of America 2016 Bank of America 2016 181 (1) There were no amounts reclassified out of AFS marketable equity securities for 2016, 2015 and 2014. (2) Reclassifications of pretax DVA and foreign currency transactions are recorded in other income in the Consolidated Statement of Income. (3) Reclassifications of pretax employee benefit plan costs are recorded in personnel expense in the Consolidated Statement of Income. n/a = not applicable NOTE 15 Earnings Per Common Share The calculation of EPS and diluted EPS for 2016, 2015 and 2014 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) 2016 2015 2014 Earnings per common share Net income Preferred stock dividends Net income applicable 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 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 RSUs, restricted stock and warrants. $ $ $ $ $ $ 17,906 (1,682) 16,224 10,284,147 1.58 $ $ $ 15,836 (1,483) 14,353 10,462,282 1.37 $ $ $ 5,520 (1,044) 4,476 10,527,818 0.43 16,224 300 16,524 10,284,147 751,510 11,035,657 1.50 $ $ $ 14,353 300 14,653 10,462,282 751,710 11,213,992 1.31 $ $ $ 4,476 — 4,476 10,527,818 56,717 10,584,535 0.42 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 2016 and 2015, 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 2016, 2015 and 2014, 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 2016, 2015 and 2014, average options to purchase 45 million, 66 million and 91 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 2016, 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, and average warrants to purchase 150 million shares of common stock were included in the diluted EPS calculation under the treasury stock method. 182 Bank of America 2016 NOTE 15 Earnings Per Common Share see Note 1 – Summary of Significant Accounting Principles. The calculation of EPS and diluted EPS for 2016, 2015 and 2014 is presented below. For more information on the calculation of EPS, (Dollars in millions, except per share information; shares in thousands) 2016 2015 2014 Earnings per common share Net income Preferred stock dividends Net income applicable 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 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 RSUs, restricted stock and warrants. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 17,906 (1,682) 16,224 15,836 (1,483) 14,353 5,520 (1,044) 4,476 10,284,147 10,462,282 10,527,818 1.58 1.37 0.43 16,224 300 16,524 14,353 300 14,653 4,476 — 4,476 10,284,147 10,462,282 10,527,818 751,510 751,710 56,717 11,035,657 11,213,992 10,584,535 1.50 $ 1.31 $ 0.42 The Corporation previously issued a warrant to purchase 700 not included in the diluted share count because the result would million shares of the Corporation’s common stock to the holder of have been antidilutive under the “if-converted” method. For 2016, the Series T Preferred Stock. The warrant may be exercised, at the 2015 and 2014, average options to purchase 45 million, 66 million option of the holder, through tendering the Series T Preferred Stock and 91 million shares of common stock, respectively, were or paying cash. For 2016 and 2015, the 700 million average dilutive outstanding but not included in the computation of EPS because potential common shares were included in the diluted share count the result would have been antidilutive under the treasury stock under the “if-converted” method. For 2014, the 700 million method. For 2016, 2015 and 2014, average warrants to purchase average dilutive potential common shares were not included in the 122 million shares of common stock were outstanding but not diluted share count because the result would have been included in the computation of EPS because the result would have antidilutive under the “if-converted” method. For additional been antidilutive under the treasury stock method, and average information, see Note 13 – Shareholders’ Equity. warrants to purchase 150 million shares of common stock were For 2016, 2015 and 2014, 62 million average dilutive potential included in the diluted EPS calculation under the treasury stock common shares associated with the Series L Preferred Stock were method. 182 Bank of America 2016 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. The Corporation’s banking entity affiliates are subject to capital adequacy rules issued by the OCC. 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 Prompt Corrective Action (PCA) framework. Finally, Basel 3 established two methods of calculating risk-weighted assets, the Standardized approach and the Advanced approaches. The Corporation and its primary banking entity affiliate, BANA, are Advanced approaches institutions under Basel 3. As Advanced approaches institutions, the Corporation and its banking entity affiliates 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. The table below presents capital ratios and related information in accordance with Basel 3 Standardized and Advanced approaches – Transition as measured at December 31, 2016 and 2015 for the Corporation and BANA. Regulatory Capital under Basel 3 – Transition (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 Leverage-based metrics: Adjusted quarterly average assets (in billions) (6) Tier 1 leverage ratio 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: Adjusted quarterly average assets (in billions) (6) Tier 1 leverage ratio December 31, 2016 Bank of America Corporation Bank of America, N.A. Standardized Approach Advanced Approaches Regulatory Minimum (2, 3) Standardized Approach Advanced Approaches Regulatory Minimum (4) $ 168,866 190,315 228,187 1,399 $ 168,866 190,315 218,981 1,530 $ 149,755 149,755 163,471 1,176 $ 149,755 149,755 154,697 1,045 12.1% 13.6 16.3 11.0% 12.4 14.3 5.875% 7.375 9.375 12.7% 12.7 13.9 14.3% 14.3 14.8 6.5% 8.0 10.0 $ 2,131 $ 2,131 $ 1,611 $ 1,611 8.9% 8.9% 4.0 9.3% 9.3% 5.0 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 12.2% 12.2 13.5 13.1% 13.1 13.6 6.5% 8.0 10.0 $ 2,103 $ 2,103 $ 1,575 $ 1,575 8.6% 8.6% 4.0 9.2% 9.2% 5.0 (1) As Advanced approaches institutions, the Corporation and its banking entity affiliates 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 method at December 31, 2016 and 2015. (2) The December 31, 2016 amount includes a transition capital conservation buffer of 0.625 percent and a transition global systemically important bank (G-SIB) surcharge of 0.75 percent. The 2016 countercyclical capital buffer is zero. (3) To be “well capitalized” under the current U.S. banking regulatory agency definitions, a BHC must maintain a Total capital ratio of 10 percent or greater. (4) Percent required to meet guidelines to be considered "well capitalized" under the PCA framework. (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, 2016 and 2015. 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, 2016 and 2015, the Corporation and its banking entity affiliates were “well capitalized.” requires Other Regulatory Matters The Federal Reserve the Corporation’s banking subsidiaries to maintain reserve requirements based on a percentage of certain deposit liabilities. The average daily reserve balance requirements, in excess of vault cash, maintained by the Corporation with the Federal Reserve were $7.7 billion and $9.8 billion for 2016 and 2015. At December 31, 2016 and 2015, the Corporation had cash and cash equivalents in the amount of $4.8 billion and $5.1 billion, and securities with a fair value of $14.6 billion and $16.4 billion that were segregated in compliance with Bank of America 2016 183 securities regulations. In addition, at December 31, 2016 and 2015, the Corporation had cash deposited with clearing organizations of $10.2 billion and $9.7 billion primarily in other assets. 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 2016, the Corporation received dividends of $13.4 billion from BANA and $150 million 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 2017, BANA can declare and pay dividends of approximately $6.2 billion to the Corporation plus an additional amount equal to its retained net profits for 2017 up to the date of any such dividend declaration. Bank of America California, N.A. can pay dividends of $546 million in 2017 plus an additional amount equal to its retained net profits for 2017 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 (Qualified 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. The Qualified Pension Plan has a balance guarantee feature for account balances with participant-selected investments, 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 (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 2016 or 2015. 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 employees may become eligible to continue participation as retirees in health care and/or life insurance plans sponsored 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, 2016 and 2015. The estimate of the Corporation’s PBO associated with these plans considers various actuarial assumptions, including assumptions for mortality rates and discount rates. 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 decrease in the weighted-average discount rates in 2016 resulted in an increase to the PBO of approximately $1.3 billion at December 31, 2016. 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. 184 Bank of America 2016 securities regulations. In addition, at December 31, 2016 and The Corporation has an annuity contract that guarantees the 2015, the Corporation had cash deposited with clearing payment of benefits vested under a terminated U.S. pension plan organizations of $10.2 billion and $9.7 billion primarily in other (Other Pension Plan). The Corporation, under a supplemental assets. agreement, may be responsible for, or benefit from actual The primary sources of funds for cash distributions by the experience and investment performance of the annuity assets. Corporation to its shareholders are capital distributions received The Corporation made no contribution under this agreement in from its banking subsidiaries, BANA and Bank of America 2016 or 2015. Contributions may be required in the future under California, N.A. In 2016, the Corporation received dividends of this agreement. $13.4 billion from BANA and $150 million from Bank of America The Corporation’s noncontributory, nonqualified pension plans California, N.A. The amount of dividends that a subsidiary bank are unfunded and provide supplemental defined pension benefits may declare in a calendar year is the subsidiary bank’s net profits to certain eligible employees. for that year combined with its retained net profits for the preceding In addition to retirement pension benefits, certain benefits- two years. Retained net profits, as defined by the OCC, consist of eligible employees may become eligible to continue participation net income less dividends declared during the period. In 2017, as retirees in health care and/or life insurance plans sponsored BANA can declare and pay dividends of approximately $6.2 billion by the Corporation. These plans are referred to as the to the Corporation plus an additional amount equal to its retained Postretirement Health and Life Plans. net profits for 2017 up to the date of any such dividend declaration. The Pension and Postretirement Plans table summarizes the Bank of America California, N.A. can pay dividends of $546 million changes in the fair value of plan assets, changes in the projected in 2017 plus an additional amount equal to its retained net profits benefit obligation (PBO), the funded status of both the for 2017 up to the date of any such dividend declaration. accumulated benefit obligation (ABO) and the PBO, and the NOTE 17 Employee Benefit Plans Pension and Postretirement Plans The Corporation sponsors a qualified noncontributory trusteed pension plan (Qualified 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. The Qualified Pension Plan has a balance guarantee feature for account balances with participant-selected investments, 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. weighted-average assumptions used to determine benefit obligations for the pension plans and postretirement plans at December 31, 2016 and 2015. The estimate of the Corporation’s PBO associated with these plans considers various actuarial assumptions, including assumptions for mortality rates and discount rates. 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 decrease in the weighted-average discount rates in 2016 resulted in an increase to the PBO of approximately $1.3 billion at December 31, 2016. 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 Corporation’s 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 2017 is $20 million, $96 million and $99 million, respectively. The Corporation does not expect to make a contribution to the Qualified Pension Plan in 2017. 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). 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) 2016 2015 2016 2015 2016 2015 2016 2015 $ 17,962 1,075 — — — (798) n/a n/a $ 18,239 $ 14,461 — 634 — — — 685 (798) n/a n/a $ 14,982 3,257 $ $ 18,614 199 — — — (851) n/a n/a $ 17,962 $ 15,508 — 621 — — — (817) (851) n/a n/a $ 14,461 3,501 $ $ 14,982 3,257 — 14,982 $ 14,461 3,501 — 14,461 $ $ $ $ $ $ 2,738 541 48 1 (20) (118) n/a (401) 2,789 2,580 25 86 1 — (31) 535 (118) n/a (315) 2,763 26 2,645 144 118 2,763 $ $ $ $ $ $ 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 $ $ $ $ $ $ 2,805 74 104 — (6) (233) n/a n/a 2,744 3,053 — 127 — — (6) 106 (233) n/a n/a 3,047 (303) 3,046 (302) 1 3,047 $ $ $ $ $ $ 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 $ $ — $ — 104 125 — (242) 13 n/a — $ 28 — 79 127 — (247) 13 n/a — $ 1,152 7 47 125 — — 25 (242) 13 (2) $ 1,125 $ (1,125) $ 1,346 8 48 127 — — (141) (247) 13 (2) 1,152 $ $ (1,152) n/a n/a n/a 1,125 n/a n/a n/a 1,152 $ $ 4.16% n/a 4.51% n/a 2.56% 4.51 3.59% 4.64 4.01% 4.00 4.34% 4.00 3.99% n/a 4.32% 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 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 2016 2015 2016 2015 2016 2015 2016 2015 $ $ 3,257 — 3,257 $ $ 3,501 — 3,501 $ $ 475 (449) 26 $ $ 548 (390) 158 $ $ 760 (1,063) $ $ 825 (1,073) (303) $ (248) $ — $ (1,125) (1,125) $ — (1,152) (1,152) 184 Bank of America 2016 Bank of America 2016 185 Pension Plans with ABO and PBO in excess of plan assets as of December 31, 2016 and 2015 are presented in the table below. For these plans, funding strategies vary due to legal requirements and local practices. Plans with PBO and ABO in Excess of Plan Assets (Dollars in millions) PBO ABO Fair value of plan assets 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 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 (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 (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 Non-U.S. Pension Plans Nonqualified and Other Pension Plans 2016 2015 2016 2015 $ $ 626 594 179 $ 574 551 183 $ 1,065 1,064 1 1,075 1,074 1 Qualified Pension Plan 2015 2014 2016 Non-U.S. Pension Plans 2015 2014 2016 $ — $ — $ — $ 634 (1,038) — 139 — (265) $ 621 (1,045) — 170 — (254) $ 665 (1,018) — 111 — (242) $ $ 4.51% 6.00 n/a 4.12% 6.00 n/a 4.85% 6.00 n/a $ $ 25 86 (123) 1 6 1 (4) 3.59% 4.84 4.67 $ $ 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 Nonqualified and Other Pension Plans Postretirement Health and Life Plans 2016 2015 2014 2016 2015 2014 $ — $ — $ 127 (101) — 25 3 54 4.34% 3.66 4.00 $ 122 (92) — 34 — 64 3.80% 3.26 4.00 $ $ $ $ 1 133 (124) — 25 — 35 4.55% 4.60 4.00 7 47 — 4 (81) — (23) $ $ 8 48 (1) 4 (46) — 13 $ $ 8 58 (4) 4 (89) — (23) 4.32% n/a n/a 3.75% 6.00 n/a 4.50% 6.00 n/a The asset valuation method used to calculate the expected return on plan assets component of net periodic 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 and Life 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. 186 Bank of America 2016 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 2017, reducing in steps to 5.00 percent in 2023 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 $1 million and $29 million in 2016. 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 $1 million and $25 million in 2016. Pension Plans with ABO and PBO in excess of plan assets as of December 31, 2016 and 2015 are presented in the table below. For these plans, funding strategies vary due to legal requirements and local practices. Plans with PBO and ABO in Excess of Plan Assets Weighted-average assumptions used to determine net cost for years ended December 31 (Dollars in millions) PBO ABO Fair value of plan assets Components of Net Periodic Benefit Cost 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 Recognized loss due to settlements and curtailments Net periodic benefit cost (income) Discount rate Expected return on plan assets Rate of compensation increase 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) Discount rate Expected return on plan assets Rate of compensation increase n/a = not applicable Non-U.S. Pension Plans Nonqualified and Other Pension Plans 2016 2015 2016 2015 $ $ $ $ 574 551 183 1,065 1,064 1 1,075 1,074 1 626 594 179 Qualified Pension Plan Non-U.S. Pension Plans 2016 2015 2014 2016 2015 2014 $ — $ — $ — $ $ (1,045) (1,018) (123) (133) 634 (1,038) — 139 — 621 — 170 — 665 — 111 — $ (265) $ (254) $ (242) $ (4) $ 4.51% 6.00 n/a 4.12% 6.00 n/a 4.85% 6.00 n/a 3.59% 4.84 4.67 3.56% 5.27 4.70 Nonqualified and Other Pension Plans Postretirement Health and Life Plans 2016 2015 2014 2016 2015 2014 $ — $ — $ 1 $ $ 27 93 1 6 — (6) 8 48 (1) 4 (46) — 13 $ $ $ $ 29 109 (137) 1 3 2 7 4.30% 5.52 4.91 8 58 (4) 4 (89) — (23) 25 86 1 6 1 7 47 — 4 (81) — 127 (101) — 25 3 54 4.34% 3.66 4.00 122 (92) — 34 — 64 3.80% 3.26 4.00 133 (124) — 25 — 35 4.55% 4.60 4.00 4.32% n/a n/a 3.75% 6.00 n/a 4.50% 6.00 n/a The asset valuation method used to calculate the expected Assumed health care cost trend rates affect the postretirement return on plan assets component of net periodic benefit cost for benefit obligation and benefit cost reported for the Postretirement the Qualified Pension Plan recognizes 60 percent of the prior year’s Health and Life Plans. The assumed health care cost trend rate market gains or losses at the next measurement date with the used to measure the expected cost of benefits covered by the remaining 40 percent spread equally over the subsequent four Postretirement Health and Life Plans is 7.00 percent for 2017, years. reducing in steps to 5.00 percent in 2023 and later years. A one- Net periodic postretirement health and life expense was percentage-point increase in assumed health care cost trend rates determined using the “projected unit credit” actuarial method. would have increased the service and interest costs, and the Gains and losses for all benefit plans except postretirement health benefit obligation by $1 million and $29 million in 2016. A one- care are recognized in accordance with the standard amortization percentage-point decrease in assumed health care cost trend provisions of the applicable accounting guidance. For the rates would have lowered the service and interest costs, and the Postretirement Health and Life Plans, 50 percent of the benefit obligation by $1 million and $25 million in 2016. unrecognized gain or loss at the beginning of the fiscal year (or at subsequent remeasurement) is recognized on a level basis during the year. 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 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 2016 of approximately $9 million and $43 million, and to be recognized in 2017 of approximately $6 million and $45 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 2016 of approximately $8 million, and to be recognized in 2017 of approximately $7 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 2016 and 2017. Pretax Amounts Included in Accumulated OCI (Dollars in millions) Net actuarial loss (gain) Prior service cost (credits) Amounts recognized in accumulated OCI 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 2016 $ 4,429 — $ 4,429 2015 $ 3,920 — $ 3,920 2016 $ $ 216 4 220 2015 $ 137 (10) $ 127 2016 $ $ 953 — 953 2015 $ 848 — $ 848 2016 2015 2016 $ $ (44) $ (150) $ 5,554 16 12 16 (32) $ (134) $ 5,570 2015 $ 4,755 6 $ 4,761 Qualified Pension Plan Non-U.S. Pension Plans Nonqualified and Other Pension Plans Postretirement Health and Life Plans Total 2016 2015 2016 $ $ 648 (139) — — 509 $ $ 29 (170) — — $ (141) $ 100 (6) — (1) 93 2015 $ (211) $ (6) (1) (1) $ (219) $ 2016 2015 2016 2016 133 (28) — — 105 $ (86) $ (34) — — $ (120) $ 25 81 — (4) 102 2015 $ (140) $ 46 — (4) (98) $ $ 2015 $ (408) (164) (1) (5) $ (578) 906 (92) — (5) 809 Weighted-average assumptions used to determine net cost for years ended December 31 $ $ $ $ (23) $ Total amounts amortized from accumulated OCI (Dollars in millions) Net actuarial loss (gain) Prior service cost Qualified Pension Plan Non-U.S. Pension Plans Nonqualified and Other Pension Plans Postretirement Health and Life Plans $ $ 152 — 152 $ $ 10 1 11 $ $ 34 — 34 $ $ (20) $ 4 (16) $ Total 176 5 181 Estimated Pretax Amounts Amortized from Accumulated OCI into Period Cost in 2017 186 Bank of America 2016 Bank of America 2016 187 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 exposure of participant-selected investment measures. No plan assets are expected to be returned to the Corporation during 2017. 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 selected asset allocation strategy is designed to achieve a higher return than the lowest risk strategy. The expected rate of 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 Other 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 2017 by asset category for the Qualified Pension Plan, Non-U.S. Pension Plans, and Nonqualified and Other Pension Plans are presented in the table below. 2017 Target Allocation Asset Category Equity securities Debt securities Real estate Other Percentage Qualified Pension Plan Non-U.S. Pension Plans 30 - 60 40 - 70 0 - 10 0 - 5 10 - 35 40 - 80 0 - 15 0 - 25 Nonqualified and Other Pension Plans 0 - 5 95 - 100 0 - 5 0 - 5 Equity securities for the Qualified Pension Plan include common stock of the Corporation in the amounts of $203 million (1.11 percent of total plan assets) and $189 million (1.05 percent of total plan assets) at December 31, 2016 and 2015. 188 Bank of America 2016 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 exposure of participant-selected investment measures. No plan assets are expected to be returned to the Corporation during 2017. 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 selected asset allocation strategy is designed to achieve a higher return than the lowest risk strategy. The expected rate of 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 Other 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 2017 by asset category for the Qualified Pension Plan, Non-U.S. Pension Plans, and Nonqualified and Other Pension Plans are presented in the table below. 2017 Target Allocation Asset Category Equity securities Debt securities Real estate Other Percentage Qualified Non-U.S. Pension Plan Pension Plans Pension Plans Nonqualified and Other 30 - 60 40 - 70 0 - 10 0 - 5 10 - 35 40 - 80 0 - 15 0 - 25 0 - 5 95 - 100 0 - 5 0 - 5 Equity securities for the Qualified Pension Plan include common stock of the Corporation in the amounts of $203 million (1.11 percent of total plan assets) and $189 million (1.05 percent of total plan assets) at December 31, 2016 and 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, 2016 and 2015 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, 2016 $ $ 776 — — $ 997 — $ — 3,125 — — 789 778 6,120 735 145 — — — 15 12,483 3,061 — 2,723 — — 632 551 6,735 3 138 — — — — 13,843 $ 816 1,892 2,246 705 1,503 — 1,225 — 10 — — — — — — — — 12 132 732 10,260 $ 150 748 38 83 1,029 $ December 31, 2015 — $ 4 — $ — $ $ 881 1,795 1,939 662 1,421 — 1,503 — — 12 121 287 8,625 11 — — — — — — — 144 731 49 102 1,037 $ $ $ $ $ 776 997 3,951 1,892 2,246 1,494 2,281 6,120 1,960 145 150 760 170 830 23,772 3,061 4 3,615 1,795 1,939 1,294 1,972 6,735 1,506 138 144 743 170 389 23,505 (1) Other investments include interest rate swaps of $257 million and $114 million, participant loans of $36 million and $58 million, commodity and balanced funds of $369 million and $165 million and other various investments of $168 million and $52 million at December 31, 2016 and 2015. 188 Bank of America 2016 Bank of America 2016 189 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 2016, 2015 and 2014. 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 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 2016 Purchases, Sales and Settlements Transfers out of Level 3 Balance December 31 $ $ $ $ $ $ 11 $ — $ (1) $ — $ 10 144 731 49 102 1,037 $ 1 21 (2) 4 24 $ 5 (4) (9) (23) (32) $ 2015 — — — — — $ 150 748 38 83 1,029 11 $ — $ — $ — $ 11 127 632 65 127 962 12 6 119 462 145 135 879 $ $ $ 14 37 (1) (5) 45 $ — $ — 5 20 5 1 31 $ 2014 3 62 (15) (20) 30 $ (1) $ (2) 3 150 (85) (9) 56 $ — — — — — $ — $ (4) — — — — (4) $ 144 731 49 102 1,037 11 — 127 632 65 127 962 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 (Dollars in millions) Qualified Pension Plan (1) Non-U.S. Pension Plans (2) Nonqualified and Other Pension Plans (2) Net Payments (3) $ 2017 2018 2019 2020 2021 2022 - 2026 (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 the Corporation’s assets. 906 906 898 909 905 4,446 $ $ 55 55 58 61 66 427 $ 240 239 241 241 236 1,091 111 108 102 99 96 425 Medicare Subsidy $ 13 12 12 12 11 49 Defined Contribution Plans The Corporation maintains qualified and non-qualified defined contribution retirement plans. The Corporation recorded expense of $1.0 billion in each of 2016, 2015 and 2014, related to the qualified defined contribution plans. At December 31, 2016 and 2015, 224 million and 236 million shares of the Corporation’s common stock were held by these plans. Payments to the plans for dividends on common stock were $60 million, $48 million and $29 million in 2016, 2015 and 2014, respectively. Certain non-U.S. employees are covered under defined contribution pension plans that are separately administered in accordance with local laws. 190 Bank of America 2016 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 2016, 2015 and 2014. U.S. government and agency securities 11 $ — $ (1) $ — $ U.S. government and agency securities 11 $ — $ — $ — $ Actual Return on Plan Assets Still Held at the Reporting Date Balance January 1 2016 Purchases, Sales and Settlements Transfers Balance out of Level 3 December 31 1,037 $ $ (32) $ — $ 1,029 $ $ $ $ $ $ 144 731 49 102 127 632 65 127 962 12 6 119 462 145 135 879 $ $ $ 1 21 (2) 4 24 14 37 (1) (5) — 5 20 5 1 2015 2014 5 (4) (9) (23) 3 62 (15) (20) 3 150 (85) (9) 56 45 $ 30 $ — $ 1,037 — $ (1) $ (2) — $ (4) 31 $ $ (4) $ — — — — — — — — — — — — Level 3 Fair Value Measurements Real estate commingled/mutual funds (Dollars in millions) Fixed income Real estate Private real estate Limited partnerships Other investments Total Fixed income Real estate Private real estate Limited partnerships Other investments Total Real estate commingled/mutual funds Fixed income U.S. government and agency securities Non-U.S. debt securities Real estate Private real estate Limited partnerships Other investments Total Real estate commingled/mutual funds Projected Benefit Payments 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. (Dollars in millions) Pension Plan (1) Pension Plans (2) Pension Plans (2) Net Payments (3) Qualified Non-U.S. Nonqualified and Other Postretirement Health and Life Plans Medicare Subsidy 2017 2018 2019 2020 2021 2022 - 2026 $ $ $ $ $ 906 906 898 909 905 4,446 55 55 58 61 66 427 240 239 241 241 236 1,091 111 108 102 99 96 425 (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 the Corporation’s assets. Defined Contribution Plans The Corporation maintains qualified and non-qualified defined contribution retirement plans. The Corporation recorded expense of $1.0 billion in each of 2016, 2015 and 2014, related to the qualified defined contribution plans. At December 31, 2016 and 2015, 224 million and 236 million shares of the Corporation’s common stock were held by these plans. Payments to the plans for dividends on common stock were $60 million, $48 million and $29 million in 2016, 2015 and 2014, respectively. Certain non-U.S. employees are covered under defined contribution pension plans that are separately administered in accordance with local laws. 190 Bank of America 2016 10 150 748 38 83 11 144 731 49 102 11 — 127 632 65 127 962 13 12 12 12 11 49 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 Key Employee Equity Plan (KEEP). Under this plan, 450 million shares of the Corporation’s common stock, and any shares that were subject to an award under this plan as of December 31, 2014, 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 under the KEEP. During 2016, the Corporation granted 163 million RSU awards to certain employees under the KEEP. Generally, one-third of the RSUs vest on each of the first three anniversaries of the grant date provided that the employee remains continuously employed with the Corporation during that time. The RSUs are authorized to settle predominantly in shares of common stock of the Corporation, and are expensed ratably over the vesting period, net of estimated forfeitures, for non-retirement eligible employees based on the grant-date fair value of the shares. Certain RSUs will be settled in cash or contain settlement provisions that subject these awards to variable accounting whereby compensation expense is adjusted to fair value based on changes in the share price of the Corporation's common stock up to the settlement date. Awards granted in prior years were predominantly cash settled. RSUs granted to employees who are retirement eligible or will become retirement eligible during the vesting period are expensed as of the grant date or ratably over the period from the grant date to the date the employee becomes retirement eligible, net of estimated forfeitures. The compensation cost for the stock-based plans was $2.08 billion, $2.17 billion and $2.30 billion in 2016, 2015 and 2014 and the related income tax benefit was $792 million, $824 million and $854 million for 2016, 2015 and 2014, respectively. From time to time, the Corporation has entered into equity total return swaps to hedge a portion of cash-settled RSUs granted to certain employees as part of their compensation 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. Restricted Stock/Units The table below presents the status at December 31, 2016 of the share-settled restricted stock/units and changes during 2016. Stock-settled Restricted Stock/Units Outstanding at January 1, 2016 Granted Vested Canceled Outstanding at December 31, 2016 Shares/Units 22,556,018 157,125,817 (18,729,422) (4,459,467) 156,492,946 Weighted- average Grant Date Fair Value $ $ 9.14 11.95 8.31 11.60 11.99 The table below presents the status at December 31, 2016 of the cash-settled RSUs granted under the KEEP and changes during 2016. Cash-settled Restricted Units Outstanding at January 1, 2016 Granted Vested Canceled Outstanding at December 31, 2016 Units 255,355,014 5,787,494 (132,833,423) (7,073,596) 121,235,489 At December 31, 2016, 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 1.6 years. The total fair value of restricted stock vested in 2016, 2015 and 2014 was $358 million, $145 million and $704 million, respectively. In 2016, 2015 and 2014, the amount of cash paid to settle equity-based awards for all equity compensation plans was $1.7 billion, $3.0 billion and $2.7 billion, respectively. Stock Options The table below presents the status of all option plans at December 31, 2016 and changes during 2016. Stock Options Weighted- average Exercise Price Options Outstanding at January 1, 2016 Forfeited Outstanding at December 31, 2016 $ 63,875,475 (21,518,193) 42,357,282 49.18 46.45 50.57 All options outstanding as of December 31, 2016 were vested and exercisable with a weighted-average remaining contractual term of less than one year and have no aggregate intrinsic value. No options have been granted since 2008. NOTE 19 Income Taxes The components of income tax expense for 2016, 2015 and 2014 are presented in the table below. Income Tax Expense (Dollars in millions) Current income tax expense U.S. federal U.S. state and local Non-U.S. Total current expense Deferred income tax expense U.S. federal U.S. state and local Non-U.S. Total deferred expense Total income tax expense 2016 2015 2014 $ $ 302 120 984 1,406 5,464 (279) 656 5,841 7,247 $ $ 2,539 210 561 3,310 1,812 515 597 2,924 6,234 $ $ 443 340 513 1,296 953 136 58 1,147 2,443 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 Bank of America 2016 191 Income (Loss). These tax effects resulted in a benefit of $498 million in 2016 and an expense of $631 million and $3.1 billion in 2015 and 2014, respectively, 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 $41 million, $44 million and $35 million in 2016, 2015 and 2014, respectively. Income tax expense for 2016, 2015 and 2014 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 2016, 2015 and 2014 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/energy/other credits Tax-exempt income, including dividends Changes in prior-period UTBs, including interest Non-U.S. tax rate differential Non-U.S. tax law changes Nondeductible expenses Other Total income tax expense 2016 2015 2014 Amount Percent Amount Percent Amount Percent $ 8,804 35.0% $ 7,725 35.0% $ 2,787 35.0% 420 (1,203) (562) (328) (307) 348 180 (105) 7,247 $ 1.7 (4.8) (2.3) (1.3) (1.2) 1.4 0.7 (0.4) 28.8% $ 438 (1,087) (539) (52) (559) 289 40 (21) 6,234 1.9 (4.9) (2.4) (0.2) (2.5) 1.3 0.1 (0.1) 28.2% $ 322 (950) (533) (754) (507) — 1,982 96 2,443 4.0 (11.9) (6.6) (9.5) (6.4) — 24.9 1.2 30.7% The reconciliation of the beginning unrecognized tax benefits (UTB) balance to the ending balance is presented in the table below. 2016 2015 2014 $ $ 1,095 104 1,318 (1,091) (503) (48) 875 $ $ 1,068 36 187 (177) (1) (18) 1,095 $ $ 3,068 75 519 (973) (1,594) (27) 1,068 Years under Examination (1) Status at December 31 2016 Tax Examination Status U.S. New York U.K. (1) All tax years subsequent to the years shown remain subject to examination. 2012 – 2013 2015 2012-2014 Field examination To begin in 2017 Field examination During 2016, the Corporation settled federal examinations for the 2010 and 2011 tax years and settled various state and local examinations for multiple years, including New York through 2014. Also, field work for the federal 2012 through 2013 and for the U.K. 2012 through 2014 examinations were substantially completed during 2016. 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 Decreases related to positions taken during prior years Settlements Expiration of statute of limitations Balance, December 31 At December 31, 2016, 2015 and 2014, the balance of the Corporation’s UTBs which would, if recognized, affect the Corporation’s effective tax rate was $0.6 billion, $0.7 billion and $0.7 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 examinations by major jurisdiction for the Corporation and various subsidiaries as of December 31, 2016. 192 Bank of America 2016 Income (Loss). These tax effects resulted in a benefit of $498 Income tax expense for 2016, 2015 and 2014 varied from the million in 2016 and an expense of $631 million and $3.1 billion amount computed by applying the statutory income tax rate to in 2015 and 2014, respectively, recorded in accumulated OCI. In income before income taxes. A reconciliation of the expected U.S. addition, total income tax expense does not reflect tax effects federal income tax expense, calculated by applying the federal associated with the Corporation’s employee stock plans which statutory tax rate of 35 percent, to the Corporation’s actual income decreased common stock and additional paid-in capital $41 tax expense, and the effective tax rates for 2016, 2015 and 2014 million, $44 million and $35 million in 2016, 2015 and 2014, are presented in the table below. respectively. 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/energy/other credits Tax-exempt income, including dividends Changes in prior-period UTBs, including interest Non-U.S. tax rate differential Non-U.S. tax law changes Nondeductible expenses Other Total income tax expense 2016 2015 2014 Amount Percent Amount Percent Amount Percent $ 8,804 35.0% $ 7,725 35.0% $ 2,787 35.0% 420 (1,203) (562) (328) (307) 348 180 (105) 1.7 (4.8) (2.3) (1.3) (1.2) 1.4 0.7 (0.4) 438 (1,087) (539) (52) (559) 289 40 (21) 1.9 (4.9) (2.4) (0.2) (2.5) 1.3 0.1 (0.1) 322 (950) (533) (754) (507) — 1,982 96 $ 7,247 28.8% $ 6,234 28.2% $ 2,443 4.0 (11.9) (6.6) (9.5) (6.4) — 24.9 1.2 30.7% 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 Decreases related to positions taken during prior years Settlements Expiration of statute of limitations Balance, December 31 At December 31, 2016, 2015 and 2014, the balance of the Corporation’s UTBs which would, if recognized, affect the Corporation’s effective tax rate was $0.6 billion, $0.7 billion and $0.7 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 U.S. of the associated federal deduction and the portion of gross non- U.S. UTBs that would be offset by tax reductions in other New York U.K. 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 examinations by major jurisdiction for the Corporation and various subsidiaries as of December 31, 2016. 2016 2015 2014 $ 1,095 $ 1,068 $ 3,068 104 1,318 (1,091) (503) (48) 36 187 (177) (1) (18) 75 519 (973) (1,594) (27) $ 875 $ 1,095 $ 1,068 Years under Examination (1) Status at December 31 2016 2012 – 2013 Field examination 2015 To begin in 2017 2012-2014 Field examination Tax Examination Status (1) All tax years subsequent to the years shown remain subject to examination. During 2016, the Corporation settled federal examinations for the 2010 and 2011 tax years and settled various state and local examinations for multiple years, including New York through 2014. Also, field work for the federal 2012 through 2013 and for the U.K. 2012 through 2014 examinations were substantially completed during 2016. It is reasonably possible that the UTB balance may decrease by as much as $0.2 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 expense of $56 million during 2016 and benefits of $82 million and $196 million in 2015 and 2014, respectively, for interest and penalties, net-of-tax, in income tax expense. At December 31, 2016 and 2015, the Corporation’s accrual for interest and penalties that related to income taxes, net of taxes and remittances, was $167 million and $288 million. Significant components of the Corporation’s net deferred tax assets and liabilities at December 31, 2016 and 2015 are presented in the table below. Deferred Tax Assets and Liabilities (Dollars in millions) Deferred tax assets Net operating loss carryforwards Security, loan and debt valuations Allowance for credit losses Tax credit carryforwards Accrued expenses Employee compensation and retirement benefits 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 Other Gross deferred tax liabilities Net deferred tax assets, net of valuation allowance December 31 2016 2015 $ $ 9,199 4,726 4,362 3,125 3,016 2,677 784 1,599 29,488 (1,117) 9,439 4,919 4,649 2,266 6,340 3,593 152 2,483 33,841 (1,149) 28,371 32,692 3,489 1,171 847 829 355 2,454 9,145 3,014 1,306 864 689 327 1,859 8,059 $ 19,226 $ 24,633 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, 2016. 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. $ 1,908 Net operating losses – U.K. 5,410 Net operating losses – $ — $ — 1,908 5,410 After 2027 None (1) other non-U.S. 411 (311) 100 Various Net operating losses – U.S. states (2) 1,470 (398) 1,072 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 3,053 72 3,053 — — (72) the benefit of federal deductions were $2.3 billion and $612 million. n/a = not applicable Management concluded that no valuation allowance was necessary to reduce the deferred tax assets related to the U.K. NOL carryforwards, 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, profit forecasts for the relevant entities and the indefinite period to carry forward NOLs. However, a material change in those estimates could lead its U.K. valuation allowance management conclusions. reassess to At December 31, 2016, U.S. federal income taxes had not been provided on $17.8 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 $4.9 billion at December 31, 2016. 192 Bank of America 2016 Bank of America 2016 193 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 under applicable accounting guidance which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. The Corporation categorizes its financial instruments into three levels based on the established fair value hierarchy. 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 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 so 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 so 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 so 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 2016, there were no changes to valuation approaches or techniques that had, or are expected to have, a material impact on the Corporation’s consolidated financial position or results of operations. For information regarding Level 1, 2 and 3 valuation techniques, see Note 1 – Summary of Significant Accounting Principles. 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. 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. In addition, 194 Bank of America 2016 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 primarily determined using 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. 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. 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 under applicable accounting guidance which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. The Corporation categorizes its financial instruments into three levels based on the established fair value hierarchy. 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 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 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 The Corporation has various processes and controls in place so instances, fair value is determined based on limited available that fair value is reasonably estimated. A model validation policy market information and other factors, principally from reviewing governs the use and control of valuation models used to estimate the issuer’s financial statements and changes in credit ratings fair value. This policy requires review and approval of models by personnel who are independent of the front office and periodic reassessments of models so 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 so 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 2016, there were no changes to valuation approaches or techniques that had, or are expected to have, a material impact on the Corporation’s consolidated financial position or results of operations. For information regarding Level 1, 2 and 3 valuation techniques, see Note 1 – Summary of Significant Accounting Principles. 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. 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 discounting estimated cash rates approximating the Corporation’s current origination rates for similar loans adjusted to reflect the inherent credit risk. flows using interest 194 Bank of America 2016 Bank of America 2016 195 Recurring Fair Value Assets and liabilities carried at fair value on a recurring basis at December 31, 2016 and 2015, 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. Treasury and agency securities (2) Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans, MBS and ABS: U.S. government-sponsored agency guaranteed (2) Mortgage trading loans, ABS and other MBS Total trading account assets (3) Derivative assets (4) 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 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 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. Treasury and agency securities Equity securities Non-U.S. sovereign debt Corporate securities and other Total trading account liabilities Derivative liabilities (4) Short-term borrowings Accrued expenses and other liabilities Long-term debt Fair Value Measurements December 31, 2016 Level 1 Level 2 Level 3 Netting Adjustments (1) Assets/Liabilities at Fair Value $ — $ 49,750 $ — $ — $ 49,750 34,587 171 50,169 9,578 — — 94,505 7,337 46,787 — — — — 2,553 — — 49,340 1,927 22,861 21,601 9,940 15,799 8,797 80,925 619,848 1,465 189,486 8,330 2,013 12,322 3,600 10,020 16,618 243,854 — — 15,109 — 15,109 — — — 11,824 178,115 $ 5 3,114 1,227 240 4,586 6,365 — 3,370 1,739 1,010,437 — $ 731 $ $ — 2,777 281 510 — 1,211 4,779 3,931 — — — — — 229 594 542 1,365 — 25 — — 25 720 2,747 656 239 14,462 — — — — — — — (588,604) — — — — — — — — — — — — — — — — — — $ (588,604) $ 36,514 25,809 72,051 20,028 15,799 10,008 180,209 42,512 48,252 189,486 8,330 2,013 12,322 6,382 10,614 17,160 294,559 5 3,139 16,336 240 19,720 7,085 2,747 4,026 13,802 614,410 — $ — $ 731 — 35,407 359 — 35,766 15,854 25,884 9,409 163 51,310 7,173 — 12,978 — 71,461 197 3,014 2,103 6,380 11,694 615,896 2,024 1,643 28,523 695,918 — — — 27 27 5,244 — 9 1,514 7,153 — — — — — (588,833) — — — (588,833) $ 16,051 28,898 11,512 6,570 63,031 39,480 2,024 14,630 30,037 185,699 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) $ $ $ (3) Includes $17.5 billion of GSE obligations. Includes securities with a fair value of $14.6 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet. (4) During 2016, $2.3 billion of derivative assets and $2.4 billion of derivative liabilities were transferred from Level 1 to Level 2 and $2.0 billion of derivative assets and $1.8 billion of derivative liabilities were transferred from Level 2 to Level 1 based on the inputs used to measure fair value. For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives. 196 Bank of America 2016 Recurring Fair Value Assets and liabilities carried at fair value on a recurring basis at December 31, 2016 and 2015, including financial instruments which the Corporation accounts for under the fair value option, are summarized in the following tables. Fair Value Measurements December 31, 2016 Level 1 Level 2 Level 3 Adjustments (1) at Fair Value Netting Assets/Liabilities $ — $ 49,750 $ — $ — $ 49,750 49,340 243,854 34,587 171 50,169 9,578 — — 94,505 7,337 46,787 2,553 — — — — — — — — — — — — 15,109 15,109 11,824 15,854 25,884 9,409 163 51,310 7,173 12,978 — — 1,927 22,861 21,601 9,940 15,799 8,797 80,925 619,848 1,465 189,486 8,330 2,013 12,322 3,600 10,020 16,618 5 3,114 1,227 240 4,586 6,365 — 3,370 1,739 197 3,014 2,103 6,380 11,694 615,896 2,024 1,643 28,523 — 2,777 281 510 — 1,211 4,779 3,931 — — — — — 229 594 542 1,365 — 25 — — 25 720 2,747 656 239 — — — 27 27 — 9 1,514 7,153 (588,604) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 36,514 25,809 72,051 20,028 15,799 10,008 180,209 42,512 48,252 189,486 8,330 2,013 12,322 6,382 10,614 17,160 294,559 5 3,139 16,336 240 19,720 7,085 2,747 4,026 13,802 614,410 35,766 16,051 28,898 11,512 6,570 63,031 39,480 2,024 14,630 30,037 5,244 (588,833) (Dollars in millions) Assets agreements to resell Trading account assets: Federal funds sold and securities borrowed or purchased under U.S. Treasury and agency securities (2) Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans, MBS and ABS: U.S. government-sponsored agency guaranteed (2) Mortgage trading loans, ABS and other MBS Total trading account assets (3) Derivative assets (4) 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 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 Total assets Liabilities agreements to repurchase Trading account liabilities: U.S. Treasury and agency securities Equity securities Non-U.S. sovereign debt Corporate securities and other Total trading account liabilities Derivative liabilities (4) Short-term borrowings Long-term debt Total liabilities Accrued expenses and other liabilities Includes $17.5 billion of GSE obligations. (2) (3) disclosure on the Consolidated Balance Sheet. 196 Bank of America 2016 (1) Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties. $ 71,461 $ 695,918 $ $ (588,833) $ 185,699 Includes securities with a fair value of $14.6 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical (4) During 2016, $2.3 billion of derivative assets and $2.4 billion of derivative liabilities were transferred from Level 1 to Level 2 and $2.0 billion of derivative assets and $1.8 billion of derivative liabilities were transferred from Level 2 to Level 1 based on the inputs used to measure fair value. For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives. Interest-bearing deposits in U.S. offices — $ 731 — $ — $ 731 178,115 $ 1,010,437 14,462 $ (588,604) $ $ $ $ $ Federal funds purchased and securities loaned or sold under — 35,407 359 (Dollars in millions) Assets Federal funds sold and securities borrowed or purchased under agreements to resell Trading account assets: U.S. Treasury and agency securities (2) Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans, MBS and ABS: U.S. government-sponsored agency guaranteed (2) Mortgage trading loans, ABS and other MBS Total trading account assets (3) Derivative assets (4) 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 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 (5) 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. Treasury and agency securities Equity securities Non-U.S. sovereign debt Corporate securities and other Total trading account liabilities Derivative liabilities (4) 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 2,413 22,738 20,887 12,915 13,088 8,107 80,148 678,355 1,903 228,947 10,985 3,073 7,165 2,999 9,688 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 1,108,103 — $ 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 — — — — — — — (638,648) — — — — — — — — — — — — — — — — — — $ (638,648) $ 35,447 25,901 63,029 29,087 13,088 9,975 176,527 49,990 25,277 228,947 10,985 3,179 7,165 5,767 10,445 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 10,459 670,600 1,295 2,234 28,584 738,527 — — — 21 21 5,575 30 9 1,513 7,483 — — — — — (642,666) — — — (642,666) $ 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) $ $ $ (3) Includes $14.8 billion of GSE obligations. Includes securities with a fair value of $16.4 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet. (4) 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. (5) 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. Bank of America 2016 197 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 2016, 2015 and 2014, including net realized and unrealized gains (losses) included in earnings and accumulated OCI. Level 3 – Fair Value Measurements (1) 2016 Gross Total Realized/ Unrealized Gains/ (Losses) (2) Gains (Losses) in OCI (3) Balance January 1 2016 Purchases Sales Issuances Settlements Gross Transfers into Level 3 Gross Transfers out of Level 3 Balance December 31 2016 Change in Unrealized Gains/ (Losses) Related to Financial Instruments Still Held (2) (Dollars in millions) Trading account assets: Corporate securities, trading loans and other $ 2,838 $ 78 $ 2 $ 1,508 $ (847) $ — $ (725) $ 728 $ (805) $ 2,777 $ (82) (59) 120 64 43 (376) — — — — — 17 (107) 70 (36) 4 4 — — (184) Equity securities Non-U.S. sovereign debt Mortgage trading loans, ABS and other MBS Total trading account assets Net derivative assets (4) 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 (5, 6) Mortgage servicing rights (6) Loans held-for-sale (5) Other assets Federal funds purchased and securities loaned or sold under agreements to repurchase (5) Trading account liabilities – Corporate securities and other 407 521 1,868 5,634 (441) 106 — 757 569 1,432 30 1,620 3,087 787 374 74 122 188 462 285 — — 4 — 4 (5) (44) 149 79 (13) (335) (11) (21) 5 — 91 (2) 91 — — (6) (2) (1) (9) — — — 50 — — — 73 12 (169) (146) 988 (1,491) 2,581 470 (2,653) (1,155) — 584 — 1 585 — 69 — 22 38 — — (106) (92) — — (198) — (553) (80) (256) (111) (11) — Short-term borrowings (5) — Accrued expenses and other liabilities (5) — Long-term debt (5) (1) Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. (2) (30) (9) (1,513) 1 — (74) — — (20) — — 140 — — — — — — — — — — — 50 411 — — (82) (90) 70 — (92) — (344) (1,241) 76 158 956 (186) (154) (1,051) (362) — (263) (83) (2) (348) — (194) (820) (93) (52) — 6 — 10 16 — 6 — 173 3 — — (82) (35) (117) — (234) — (106) — 281 510 1,211 4,779 (1,313) — 229 594 542 1,365 25 720 2,747 656 239 — (22) 27 (19) 1 (359) — — — (521) — 29 — 948 — — — (939) — — — 465 (27) — (9) (1,514) Includes gains/losses reported in earnings in the following income statement line items: Trading account assets/liabilities - trading account profits (losses); Net derivative assets - primarily trading account profits (losses) and mortgage banking income (loss); Mortgage servicing rights - primarily mortgage banking income (loss); Long-term debt - primarily trading account profits (losses). Includes gains/losses in OCI related to unrealized gains/losses on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. (3) (4) Net derivatives include derivative assets of $3.9 billion and derivative liabilities of $5.2 billion. (5) Amounts represent instruments that are accounted for under the fair value option. (6) Issuances represent loan originations and MSRs retained following securitizations or whole-loan sales. Significant transfers into Level 3, primarily due to decreased price observability, during 2016 included $956 million of trading account assets, $186 million of net derivative assets, $173 million of LHFS and $939 million 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, during 2016 included $1.1 billion of trading account assets, $362 million of net derivative assets, $117 million of AFS debt securities, $234 million of loans and leases, $106 million of LHFS and $465 million of long-term debt. 198 Bank of America 2016 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 2016, 2015 and 2014, including net realized and unrealized gains (losses) included in earnings Level 3 – Fair Value Measurements (1) and accumulated OCI. Level 3 – Fair Value Measurements (1) 2016 Gross Total Realized/ Unrealized Gains/ Balance January 1 Gains (Losses) in OCI (3) 2016 (Losses) (2) Purchases Sales Issuances Settlements Level 3 Change in Unrealized Gains/ (Losses) Related to Financial Gross Gross Transfers Transfers Balance into out of Level 3 December 31 Instruments 2016 Still Held (2) $ 2,838 $ 78 $ 2 $ 1,508 $ (847) $ — $ (725) $ 728 $ (805) $ 2,777 $ 74 122 188 462 285 — — 4 — 4 (5) (44) 149 79 (13) 5 1 — — 91 (2) 91 — — (6) (2) (1) (9) — — — 50 — — — — — 73 12 (169) (146) 988 (1,491) 2,581 470 (2,653) (1,155) 585 (198) — 584 — 1 — 69 — 22 38 — — — — (106) (92) — — — (553) (80) (256) (111) (11) — — — — — — — — — — — — — — 50 411 — — — — — (82) (90) 70 — (92) — (344) (1,241) 158 956 (186) (154) (1,051) (362) 76 — (263) (83) (2) (348) — (194) (820) (93) (52) 27 — 29 — — 6 — 10 16 — 6 — 173 3 (19) — — — — — (82) (35) (117) (234) (106) — — — 1 — — — 281 510 1,211 4,779 (1,313) — 229 594 542 1,365 25 720 2,747 656 239 (359) (27) — (9) (82) (59) 120 64 43 (376) (107) 70 (36) — — — — — 17 4 4 — — (Dollars in millions) Trading account assets: Corporate securities, trading loans and other MBS Equity securities Non-U.S. sovereign debt Mortgage trading loans, ABS and other Total trading account assets Net derivative assets (4) 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 (5, 6) Mortgage servicing rights (6) Loans held-for-sale (5) Other assets Federal funds purchased and securities loaned or sold under agreements to Trading account liabilities – Corporate securities and other Short-term borrowings (5) Accrued expenses and other liabilities (5) 407 521 1,868 5,634 (441) 106 — 757 569 1,432 30 1,620 3,087 787 374 (21) (30) (9) repurchase (5) (335) (11) — (22) Long-term debt (5) (1,513) (74) (20) 140 (521) 948 (939) 465 (1,514) (184) (1) Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. (2) Includes gains/losses reported in earnings in the following income statement line items: Trading account assets/liabilities - trading account profits (losses); Net derivative assets - primarily trading account profits (losses) and mortgage banking income (loss); Mortgage servicing rights - primarily mortgage banking income (loss); Long-term debt - primarily trading account profits (losses). (3) Includes gains/losses in OCI related to unrealized gains/losses on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. (4) Net derivatives include derivative assets of $3.9 billion and derivative liabilities of $5.2 billion. (5) Amounts represent instruments that are accounted for under the fair value option. (6) Issuances represent loan originations and MSRs retained following securitizations or whole-loan sales. Significant transfers into Level 3, primarily due to decreased Significant transfers out of Level 3, primarily due to increased price observability, during 2016 included $956 million of trading price observability, during 2016 included $1.1 billion of trading account assets, $186 million of net derivative assets, $173 million account assets, $362 million of net derivative assets, $117 million of LHFS and $939 million of long-term debt. Transfers occur on a of AFS debt securities, $234 million of loans and leases, $106 regular basis for these long-term debt instruments due to changes million of LHFS and $465 million of long-term debt. in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole. (Dollars in millions) Trading account assets: Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans, ABS and other MBS Total trading account assets Net derivative assets (4) 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 (5, 6) Mortgage servicing rights (6) Loans held-for-sale (5) Other assets Federal funds purchased and securities loaned or sold under agreements to repurchase (5) Trading account liabilities – Corporate securities and other 2015 Gross Total Realized/ Unrealized Gains/ (Losses) (2) Gains (Losses) in OCI (3) Balance January 1 2015 Purchases Sales Issuances Settlements Gross Transfers into Level 3 Gross Transfers out of Level 3 Balance December 31 2015 Change in Unrealized Gains/ (Losses) Related to Financial Instruments Still Held (2) $ 3,270 $ (31) $ (11) $ 1,540 $(1,616) $ — $ (1,122) $ 1,570 $ (762) $ 2,838 $ (123) 9 114 — (179) 49 185 (11) (1) 154 246 1,335 1 1,250 (1,117) (189) (7) 3,024 273 (2,745) (863) 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) — — — — — — — — (8) — — — 134 — 189 — 323 33 — — 771 11 — 30 — (11) (36) 19 — — — — — — — — — — — — — — — — — (4) (393) (203) (130) 57 637 61 — (11) (145) (493) (1,771) (261) 41 — 50 1,661 (40) (425) (10) (160) (30) (625) — (237) (874) (61) (51) 167 — — — 167 — 144 — 203 10 — (131) 217 (411) (34) — (52) — (188) — 10 — 273 — (24) — (1,592) (22) (27) (40) (851) 42 (37) — (939) — (976) — (300) — (98) (322) 1 — 19 — 1,434 407 521 1,868 5,634 (441) 106 — 757 569 1,432 30 1,620 3,087 787 374 (335) (21) (30) (9) (1,513) 3 74 (93) (139) 605 — — — — — 13 (85) (39) (61) — (3) 1 1 255 Short-term borrowings (5) — — Accrued expenses and other liabilities (5) — Long-term debt (5) (1) Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. (2) — (10) (2,362) — — 616 17 1 287 — — 19 Includes gains/losses reported in earnings in the following income statement line items: Trading account assets/liabilities - trading account profits (losses); Net derivative assets - primarily trading account profits (losses) and mortgage banking income (loss); Mortgage servicing rights - primarily mortgage banking income (loss); Long-term debt - primarily trading account profits (losses). Includes gains/losses in OCI related to unrealized gains/losses on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. (3) (4) Net derivatives include derivative assets of $5.1 billion and derivative liabilities of $5.6 billion. (5) Amounts represent instruments that are accounted for under the fair value option. (6) Issuances represent loan originations and MSRs retained following securitizations or whole-loan sales. 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 and $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, as a result of increased market liquidity, $976 million of AFS debt securities, $300 million of loans and leases, $322 million of other assets and $1.4 billion of long-term debt. 198 Bank of America 2016 Bank of America 2016 199 Level 3 – Fair Value Measurements (1) 2014 Gross Total Realized/ Unrealized Gains/ (Losses) (2) Gains (Losses) in OCI (3) Balance January 1 2014 Purchases Sales Issuances Settlements Gross Transfers into Level 3 Gross Transfers out of Level 3 Balance December 31 2014 Change in Unrealized Gains/ (Losses) Related to Financial Instruments Still Held (2) (Dollars in millions) Trading account assets: U.S. government and agency securities $ — $ — $ — $ 87 $ (87) $ — $ — $ — $ — $ — $ — 69 (8) 31 79 171 (87) — — — — — 76 (1,753) (4) 52 1 1 (8) 352 574 2,063 6,259 (920) 279 10 1,667 599 2,555 1,983 3,530 173 911 (36) (10) (2,362) Corporate securities, trading loans and other Equity securities Non-U.S. sovereign debt Mortgage trading loans, ABS and other MBS Total trading account assets Net derivative assets (4) AFS debt securities: Non-agency residential MBS Non-U.S. securities Other taxable securities Tax-exempt securities Total AFS debt securities Loans and leases (5, 6) Mortgage servicing rights (6) Loans held-for-sale (5) Other assets Trading account liabilities – Corporate securities and other (938) 1,275 (1,624) 3,270 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) — — — — — — — (11) (8) — (19) — — — — 1,675 (857) 104 120 (86) (34) 1,643 (1,259) 3,629 823 (2,323) (1,738) 11 241 154 — 406 — — 59 — — — — (16) (16) (3) (61) (725) (430) — — — — — — — — — — — 699 707 23 — (16) (19) 146 11 (182) (2) (585) (1,558) (432) — (147) (1,381) (235) (1,763) (1,591) (927) (216) (245) 39 (2,605) 1,471 28 (4,413) 160 270 — 93 36 399 25 — 83 39 — (173) (1,047) — (1,220) (273) — (25) (24) — Accrued expenses and other liabilities (5) — Long-term debt (5) (1) Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. (2) (10) (1,990) — 169 2 49 — — (35) 1 — 10 (13) — (3) (615) — — 540 (9) 10 — (1,581) 1 1,066 Includes gains/losses reported in earnings in the following income statement line items: Trading account assets/liabilities - trading account profits (losses); Net derivative assets - trading account profits (losses), mortgage banking income (loss) and other income (loss); Mortgage servicing rights - primarily mortgage banking income (loss); Long-term debt - trading account profits (losses) and other income (loss). Includes gains/losses in OCI related to unrealized gains/losses on AFS debt securities. (3) (4) Net derivatives include derivative assets of $6.9 billion and derivative liabilities of $7.8 billion. (5) Amounts represent instruments that are accounted for under the fair value option. (6) Issuances represent loan originations and MSRs retained following securitizations or whole-loan sales. 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 and $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, as a result of increased market liquidity, $160 million of net derivative assets, $1.2 billion of AFS debt securities, $273 million of loans and leases and $1.1 billion of long-term debt. 200 Bank of America 2016 Level 3 – Fair Value Measurements (1) U.S. government and agency securities $ — $ — $ — $ 87 $ (87) $ — $ — $ — $ — $ — $ 2014 Gross Total Realized/ Unrealized Gains/ Balance January 1 Gains (Losses) in OCI (3) 2014 (Losses) (2) Purchases Sales Issuances Settlements Level 3 Change in Unrealized Gains/ (Losses) Related to Financial Gross Gross Transfers Transfers Balance into out of Level 3 December 31 Instruments 2014 Still Held (2) 3,559 386 468 4,631 9,044 (224) — 107 3,847 806 4,760 3,057 5,042 929 1,669 (35) (10) (1,990) 180 — 30 199 409 463 (2) (7) 9 8 8 69 1 2 49 (1,231) 45 (98) — — — — — — — — — — — — — — (11) (8) — (19) 1,675 (857) 104 120 (86) (34) 1,643 (1,259) 3,629 (2,323) 823 (1,738) 11 241 154 — 406 — — 59 — 10 — 169 — — — (16) (16) (3) (61) (725) (430) (13) — — — — — — — — — — — — — 699 707 23 — — (3) (938) 1,275 (1,624) 3,270 (16) (19) 146 11 (182) (2) (585) 39 (2,605) (1,558) 1,471 (4,413) (432) 28 160 — 270 (147) (1,381) (235) (1,763) (1,591) (927) (216) (245) — — 399 (1,220) (173) (1,047) — — (273) — (25) (24) 10 1 — 93 36 25 — 83 39 (9) — 352 574 2,063 6,259 (920) 279 10 1,667 599 2,555 1,983 3,530 173 911 (36) (10) — 69 (8) 31 79 171 (87) — — — — — 76 (4) 52 1 1 (8) (Dollars in millions) Trading account assets: Corporate securities, trading loans and other MBS Equity securities Non-U.S. sovereign debt Mortgage trading loans, ABS and other Total trading account assets Net derivative assets (4) AFS debt securities: Non-agency residential MBS Non-U.S. securities Other taxable securities Tax-exempt securities Total AFS debt securities Loans and leases (5, 6) Mortgage servicing rights (6) Loans held-for-sale (5) Other assets Trading account liabilities – Corporate securities and other Accrued expenses and other liabilities (5) Long-term debt (5) (1) Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3. (2) Includes gains/losses reported in earnings in the following income statement line items: Trading account assets/liabilities - trading account profits (losses); Net derivative assets - trading account profits (losses), mortgage banking income (loss) and other income (loss); Mortgage servicing rights - primarily mortgage banking income (loss); Long-term debt - trading account profits (losses) and (615) 540 (1,581) 1,066 (2,362) other income (loss). (3) Includes gains/losses in OCI related to unrealized gains/losses on AFS debt securities. (4) Net derivatives include derivative assets of $6.9 billion and derivative liabilities of $7.8 billion. (5) Amounts represent instruments that are accounted for under the fair value option. (6) Issuances represent loan originations and MSRs retained following securitizations or whole-loan sales. Significant transfers into Level 3, primarily due to decreased Significant transfers out of Level 3, primarily due to increased price observability, during 2014 included $1.5 billion of trading price observability unless otherwise noted, during 2014 included account assets, $399 million of AFS debt securities and $1.6 $4.4 billion of trading account assets, as a result of increased billion of long-term debt. Transfers occur on a regular basis for market liquidity, $160 million of net derivative assets, $1.2 billion these long-term debt instruments due to changes in the impact of of AFS debt securities, $273 million of loans and leases and $1.1 unobservable inputs on the value of the embedded derivative in billion of long-term debt. relation to the instrument as a whole. 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, 2016 and 2015. Quantitative Information about Level 3 Fair Value Measurements at December 31, 2016 (Dollars in millions) Loans and Securities (1) Financial Instrument Fair Value Valuation Technique Significant Unobservable Inputs Ranges of Inputs Weighted Average Inputs Instruments backed by residential real estate assets $ 1,066 Trading account assets – Mortgage trading loans, ABS and other MBS Loans and leases Loans held-for-sale Instruments backed by commercial real estate assets $ Trading account assets – Corporate securities, trading loans and other Trading account assets – Mortgage trading loans, ABS and other MBS Loans held-for-sale Discounted cash flow, Market comparables Discounted cash flow, Market comparables 337 718 11 317 178 53 86 Commercial loans, debt securities and other $ 4,486 Yield Prepayment speed Default rate Loss severity Yield Price Yield Trading account assets – Corporate securities, trading loans and other 2,565 Prepayment speed Trading account assets – Non-U.S. sovereign debt Trading account assets – Mortgage trading loans, ABS and other MBS AFS debt securities – Other taxable securities Loans and leases Loans held-for-sale Auction rate securities Trading account assets – Corporate securities, trading loans and other AFS debt securities – Other taxable securities AFS debt securities – Tax-exempt securities (1,753) MSRs 510 821 29 2 559 Discounted cash flow, Market comparables Default rate Loss severity Price Duration Enterprise value/EBITDA multiple $ 1,141 Price Discounted cash flow, Market comparables 34 565 542 $ 2,747 Weighted-average life, fixed rate (4) Discounted cash flow, Market comparables Weighted-average life, variable rate (4) Option Adjusted Spread, fixed rate Option Adjusted Spread, variable rate Structured liabilities Long-term debt Net derivative assets Credit derivatives Equity derivatives Commodity derivatives Interest rate derivatives $ (1,514) Discounted cash flow, Market comparables, Industry standard derivative pricing (2) $ (129) Discounted cash flow, Stochastic recovery correlation model $ (1,690) $ 6 $ 500 Industry standard derivative pricing (2) Discounted cash flow, Industry standard derivative pricing (2) Industry standard derivative pricing (3) Total net derivative assets $ (1,313) Equity correlation Long-dated equity volatilities Yield Price Duration Yield Upfront points Credit spreads Credit correlation Prepayment speed Default rate Loss severity Equity correlation Long-dated equity volatilities Natural gas forward price $2/MMBtu to $6/MMBtu $4/MMBtu Correlation Volatilities Correlation (IR/IR) Correlation (FX/IR) Illiquid IR and long-dated inflation rates Long-dated inflation volatilities 66% to 95% 23% to 96% 15% to 99% 0% to 40% -12% to 35% 0% to 2% 85% 36% 56% 2% 5% 1% 0% to 50% 0% to 27% CPR 0% to 3% CDR 0% to 54% 0% to 39% 7% 14% 2% 18% 11% $0 to $100 $65 1% to 37% 5% to 20% 3% to 4% 0% to 50% 14% 19% 4% 19% $0 to $292 $68 0 to 5 years 3 years 34x $10 to $100 n/a $94 0 to 15 years 0 to 14 years 9% to 14% 9% to 15% 13% to 100% 4% to 76% 6% to 37% $12 to $87 6 years 4 years 10% 12% 68% 26% 20% $73 0 to 5 years 3 years 0% to 24% 13% 0 points to 100 points 72 points 17 bps to 814 bps 248 bps 21% to 80% 10% to 20% CPR 1% to 4% CDR 35% 13% to 100% 4% to 76% 44% 18% 3% n/a 68% 26% 200 Bank of America 2016 Bank of America 2016 201 (4) The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions. 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 (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 199: Trading account assets – Corporate securities, trading loans and other of $2.8 billion, Trading account assets – Non-U.S. sovereign debt of $510 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.2 billion, AFS debt securities – Other taxable securities of $594 million, AFS debt securities – Tax-exempt securities of $542 million, Loans and leases of $720 million and LHFS of $656 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) 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, ABS and other MBS Loans and leases Loans held-for-sale Instruments backed by commercial real estate assets $ Trading account assets – Mortgage trading loans, ABS and other MBS 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, ABS and other MBS 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 MSRs $ 3,087 Weighted-average life, fixed rate (4) Structured liabilities Long-term debt Net derivative assets Credit derivatives Equity derivatives Discounted cash flow, Market comparables Weighted-average life, variable rate (4) Option Adjusted Spread, fixed rate Option Adjusted Spread, variable rate $ (1,513) Industry standard derivative pricing (3) Equity correlation Long-dated equity volatilities $ (75) Discounted cash flow, Stochastic recovery correlation model $ (1,037) 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% 6% 11% 4% 40% 8% $0 to $100 $73 0% to 37% 5% to 20% 2% to 5% 25% to 50% 13% 16% 4% 37% 0 to 5 years 3 years $0 to $258 $10 to $100 $64 $94 0 to 15 years 0 to 16 years 3% to 11% 3% to 11% 25% to 100% 4% to 101% 6% to 25% 4 years 3 years 5% 8% 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% Commodity derivatives $ 169 Interest rate derivatives $ 502 Discounted cash flow, Industry standard derivative pricing (2) Industry standard derivative pricing (3) 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% 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 200: 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, ABS and other MBS 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. (3) (2) (4) The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions. CPR = Constant Prepayment Rate CDR = Constant Default Rate MMBtu = Million British thermal units IR = Interest Rate FX = Foreign Exchange 202 Bank of America 2016 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, ABS and other MBS Loans and leases Loans held-for-sale Loans held-for-sale Instruments backed by commercial real estate assets $ Trading account assets – Mortgage trading loans, ABS and other MBS Trading account assets – Non-U.S. sovereign debt Trading account assets – Mortgage trading loans, ABS and other MBS 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 MSRs $ 3,087 Weighted-average life, fixed rate (4) Yield Prepayment speed Default rate Loss severity Yield Price Yield Default rate Loss severity Duration Price Price 400 1,520 97 852 162 690 2,503 521 1,306 128 100 335 629 569 $ 1,533 Discounted cash flow, Market comparables Discounted cash flow, Market comparables Discounted cash flow, Market comparables Discounted cash flow, Market comparables Discounted cash flow, Market comparables Weighted-average life, variable rate (4) Option Adjusted Spread, fixed rate Option Adjusted Spread, variable rate $ (1,513) Industry standard derivative pricing (3) Equity correlation Long-dated equity volatilities $ (75) Discounted cash flow, Stochastic recovery correlation model Prepayment speed Yield Upfront points Credit spreads Credit correlation Default rate Loss severity Equity correlation $ (1,037) Industry standard derivative pricing (2) Long-dated equity volatilities Discounted cash flow, Industry standard derivative pricing (2) Industry standard derivative pricing (3) Correlation Volatilities Correlation (IR/IR) Correlation (FX/IR) Long-dated inflation rates Long-dated inflation volatilities $0 to $100 $73 0 to 5 years 3 years $0 to $258 $10 to $100 $64 $94 4 years 3 years 0% to 25% 0% to 27% CPR 0% to 10% CDR 0% to 90% 0% to 25% 0% to 37% 5% to 20% 2% to 5% 25% to 50% 0 to 15 years 0 to 16 years 3% to 11% 3% to 11% 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% 13% 16% 4% 37% 5% 8% 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 Commodity derivatives $ 169 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 200: 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, ABS and other MBS 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. (2) (3) 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. (4) The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions. 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 In the tables above, instruments backed by residential and commercial real estate assets include RMBS, commercial MBS, 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. Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs Loans and Securities 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. A significant increase in price would result in a significantly higher fair value for long positions and short positions would be impacted in a directionally opposite way. Mortgage Servicing Rights The weighted-average lives and fair value of MSRs are sensitive to changes in modeled assumptions. The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and 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. For example, a 10 percent or 20 percent decrease in prepayment rates, which impact the weighted-average life, could result in an increase in fair value of $101 million or $210 million, while a 10 percent or 20 percent increase in prepayment rates could result in a decrease in fair value of $93 million or $180 million. A 100 bp or 200 bp decrease in OAS levels could result in an increase in fair value of $95 million or $197 million, while a 100 bp or 200 bp increase in OAS levels could result in a decrease in fair value of $88 million or $171 million. These sensitivities are hypothetical and actual amounts may vary materially. 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. In addition, these sensitivities do not reflect any hedge strategies that may be undertaken to mitigate such risk. Structured Liabilities and Derivatives For credit derivatives, a significant increase in market yield, 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 are impacted by credit 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. 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. For structured liabilities, a significant increase in yield or decrease in price would result in a significantly lower fair value. A significant decrease in duration may result in a significantly higher fair value. 202 Bank of America 2016 Bank of America 2016 203 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 2016, 2015 and 2014. 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 2016 2015 Level 2 Level 3 Level 2 Level 3 $ $ 193 — — 358 $ 44 1,416 77 — 9 34 — 88 $ 33 2,739 172 — Gains (Losses) 2015 2016 2014 Loans held-for-sale (993) Loans and leases (1) (57) Foreclosed properties (28) Other assets Includes $150 million of losses on loans that were written down to a collateral value of zero during 2016 compared to losses of $174 million and $370 million in 2015 and 2014. (458) (41) (74) (54) $ $ (8) $ (1) (19) (1,152) (66) (26) (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 $1.2 billion and $1.4 billion of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) as of December 31, 2016 and 2015. The table below presents information about significant unobservable inputs related to the Corporation’s nonrecurring Level 3 financial assets and liabilities at December 31, 2016 and 2015. 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, 2016 Inputs Financial Instrument Fair Value Valuation Technique Significant Unobservable Inputs Ranges of Inputs Weighted Average Loans and leases backed by residential real estate assets $ 1,416 Market comparables OREO discount Cost to sell December 31, 2015 Loans and leases backed by residential real estate assets $ 2,739 Market comparables OREO discount Cost to sell 8% to 56% 7% to 45% 7% to 55% 8% to 45% 21% 9% 20% 10% 204 Bank of America 2016 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 2016, 2015 and 2014. 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 Loans held-for-sale Loans and leases (1) Foreclosed properties Other assets December 31 2016 2015 Level 2 Level 3 Level 2 Level 3 $ 193 $ 44 $ $ 33 — — 358 1,416 77 — 9 34 — 88 2,739 172 — Gains (Losses) 2016 2015 2014 $ (54) $ (8) $ (19) (458) (41) (74) (993) (1,152) (57) (28) (66) (26) (1) Includes $150 million of losses on loans that were written down to a collateral value of zero during 2016 compared to losses of $174 million and $370 million in 2015 and 2014. (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 $1.2 billion and $1.4 billion of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) as of December 31, 2016 and 2015. The table below presents information about significant unobservable inputs related to the Corporation’s nonrecurring Level 3 financial assets and liabilities at December 31, 2016 and 2015. 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) Financial Instrument Fair Value Valuation Technique Significant Unobservable Inputs Ranges of Inputs Weighted Average Loans and leases backed by residential real estate assets $ 1,416 Market comparables OREO discount December 31, 2016 Inputs Cost to sell Cost to sell December 31, 2015 8% to 56% 7% to 45% 7% to 55% 8% to 45% 21% 9% 20% 10% Loans and leases backed by residential real estate assets $ 2,739 Market comparables OREO discount NOTE 21 Fair Value Option Loans and Loan Commitments The Corporation elects to account for certain consumer and 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 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 are 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. 204 Bank of America 2016 Bank of America 2016 205 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, 2016 and 2015. 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 2016 2015 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 $ 49,750 $ 49,615 $ 135 $ 55,143 $ 54,999 $ 6,215 8,206 7,085 4,026 253 731 11,557 n/a 7,190 5,595 250 672 (5,342) n/a (105) (1,569) 3 59 4,995 8,149 6,938 4,818 275 1,116 9,214 n/a 7,293 6,157 270 1,021 144 (4,219) n/a (355) (1,339) 5 95 35,766 35,929 (163) 24,574 24,718 (144) — Short-term borrowings n/a Unfunded loan commitments (496) 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 1,325 n/a 30,593 1,325 658 30,097 2,024 n/a 29,862 2,024 173 30,037 — n/a 175 near contractual principal outstanding. Includes structured liabilities with a fair value of $29.7 billion and $29.0 billion, and contractual principal outstanding of $29.5 billion and $29.4 billion at December 31, 2016 and 2015. (2) n/a = not applicable 206 Bank of America 2016 The table below provides information about the fair value carrying amount and the contractual principal outstanding of assets and The following tables provide information about where changes in the fair value of assets and liabilities accounted for under the fair liabilities accounted for under the fair value option at December 31, 2016 and 2015. value option are included in the Consolidated Statement of Income for 2016, 2015 and 2014. Fair Value Option Elections Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option 2016 2015 December 31 Fair Value Carrying Amount Contractual Principal Outstanding Fair Value Carrying Amount Contractual Principal Outstanding Fair Value Carrying Amount Less Unpaid Principal Fair Value Carrying Amount Less Unpaid Principal $ 49,750 $ 49,615 $ 135 $ 55,143 $ 54,999 $ 6,215 8,206 7,085 4,026 253 731 35,766 2,024 173 30,037 11,557 n/a 7,190 5,595 250 672 35,929 2,024 n/a 29,862 (5,342) n/a (105) (1,569) 3 59 (163) — n/a 175 4,995 8,149 6,938 4,818 275 1,116 24,574 1,325 658 30,097 9,214 n/a 7,293 6,157 270 1,021 24,718 1,325 n/a 30,593 144 (4,219) n/a (355) (1,339) 5 95 (144) — n/a (496) (Dollars in millions) agreements to resell Federal funds sold and securities borrowed or purchased under Loans reported as trading account assets (1) Trading inventory – other Consumer and commercial loans Federal funds purchased and securities loaned or sold under Loans held-for-sale Other assets Long-term deposits agreements to repurchase Short-term borrowings Unfunded loan commitments Long-term debt (2) near contractual principal outstanding. n/a = not applicable (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 (2) Includes structured liabilities with a fair value of $29.7 billion and $29.0 billion, and contractual principal outstanding of $29.5 billion and $29.4 billion at December 31, 2016 and 2015. (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 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) 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 2016 Trading Account Profits (Losses) Mortgage Banking Income (Loss) Other Income (Loss) Total $ $ $ $ $ $ (64) $ 301 57 49 11 — 1 (22) — (489) (156) $ (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 $ — $ — — — 518 — — — — — 518 $ 2015 — $ — — — 673 — — — — — — 673 $ 2014 — $ — — — 798 — — — — — 798 $ 1 — — (37) 6 20 32 — 487 (97) 412 $ $ — $ — — (295) 63 10 13 — — (210) (633) (1,052) $ — $ — — 69 83 (26) — — (64) 407 469 $ (63) 301 57 12 535 20 33 (22) 487 (586) 774 (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 (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 in 2015 relating to DVA on structured liabilities accounted for under the fair value option, unrealized DVA gains (losses) in 2016 and 2015 are recorded in accumulated OCI while realized gains (losses) are recorded in other income (loss); for 2014, 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 own 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 2016 $ December 31 2015 2014 $ 7 (53) (34) $ 37 (200) 37 28 32 84 206 Bank of America 2016 Bank of America 2016 207 NOTE 22 Fair Value of Financial Instruments NOTE 22 Fair Value of Financial Instruments Financial instruments are classified within the fair value hierarchy Financial instruments are classified within the fair value hierarchy using the methodologies described in Note 20 – Fair Value using the methodologies described in Note 20 – Fair Value Measurements. The following disclosures include financial Measurements. The following disclosures include financial instruments that are not carried at fair value or only a portion of instruments that are not carried at fair value or only a portion of the ending balance is carried at fair value on the Consolidated the ending balance is carried at fair value on the Consolidated Balance Sheet. Balance Sheet. Short-term Financial Instruments Short-term Financial Instruments The carrying value of short-term financial instruments, including The carrying value of short-term financial instruments, including cash and cash equivalents, time deposits placed and other short- cash and cash equivalents, time deposits placed and other short- term investments, federal funds sold and purchased, certain term investments, federal funds sold and purchased, certain resale and repurchase agreements, customer and other resale and repurchase agreements, customer and other receivables, customer payables (within accrued expenses and receivables, customer payables (within accrued expenses and other liabilities on the Consolidated Balance Sheet), and short- other liabilities on the Consolidated Balance Sheet), and short- term borrowings approximates the fair value of these instruments. term borrowings approximates the fair value of these instruments. These financial instruments generally expose the Corporation to These financial instruments generally expose the Corporation to limited credit risk and have no stated maturities or have short- limited credit risk and have no stated maturities or have short- term maturities and carry interest rates that approximate market. term maturities and carry interest rates that approximate market. The Corporation elected to account for certain resale and The Corporation elected to account for certain resale and repurchase agreements under the fair value option. repurchase agreements under the fair value option. Under the fair value hierarchy, cash and cash equivalents are Under the fair value hierarchy, cash and cash equivalents are classified as Level 1. Time deposits placed and other short-term classified as Level 1. Time deposits placed and other short-term investments, such as U.S. government securities and short-term investments, such as U.S. government securities and short-term commercial paper, are classified as Level 1 and Level 2. Federal commercial paper, are classified as Level 1 and Level 2. Federal funds sold and purchased are classified as Level 2. Resale and funds sold and purchased are classified as Level 2. Resale and repurchase agreements are classified as Level 2 because they repurchase agreements are classified as Level 2 because they are generally short-dated and/or variable-rate instruments are generally short-dated and/or variable-rate instruments collateralized by U.S. government or agency securities. Customer collateralized by U.S. government or agency securities. Customer and other receivables primarily consist of margin loans, servicing and other receivables primarily consist of margin loans, servicing advances and other accounts receivable and are classified as advances and other accounts receivable and are classified as Level 2 and Level 3. Customer payables and short-term borrowings Level 2 and Level 3. Customer payables and short-term borrowings are classified as Level 2. are classified as Level 2. Held-to-maturity Debt Securities Held-to-maturity Debt Securities HTM debt securities, which consist primarily of U.S. agency debt HTM debt securities, which consist primarily of U.S. agency debt securities, are classified as Level 2 using the same methodologies securities, are classified as Level 2 using the same methodologies as AFS U.S. agency debt securities. For more information on HTM as AFS U.S. agency debt securities. For more information on HTM debt securities, see Note 3 – Securities. debt securities, see Note 3 – Securities. Loans Loans The fair values for commercial and consumer loans are generally The fair values for commercial and consumer loans are generally determined by discounting both principal and interest cash flows determined by discounting both principal and interest cash flows expected to be collected using a discount rate for similar expected to be collected using a discount rate for similar instruments with adjustments that the Corporation believes a instruments with adjustments that the Corporation believes a market participant would consider in determining fair value. The market participant would consider in determining fair value. The Corporation estimates the cash flows expected to be collected Corporation estimates the cash flows expected to be collected using internal credit risk, interest rate and prepayment risk models using internal credit risk, interest rate and prepayment risk models that incorporate the Corporation’s best estimate of current key that incorporate the Corporation’s best estimate of current key assumptions, such as default rates, loss severity and prepayment assumptions, such as default rates, loss severity and prepayment speeds for the life of the loan. The carrying value of loans is speeds for the life of the loan. The carrying value of loans is presented net of the applicable allowance for loan losses and presented net of the applicable allowance for loan losses and excludes leases. The Corporation accounts for certain commercial excludes leases. The Corporation accounts for certain commercial loans and residential mortgage loans under the fair value option. loans and residential mortgage loans under the fair value option. Deposits Deposits The fair value for certain deposits with stated maturities was The fair value for certain deposits with stated maturities was determined by discounting contractual cash flows using current determined by discounting contractual cash flows using current market rates for instruments with similar maturities. The carrying market rates for instruments with similar maturities. The carrying value of non-U.S. time deposits approximates fair value. For value of non-U.S. time deposits approximates fair value. For 208 Bank of America 2016 208 Bank of America 2016 deposits with no stated maturities, the carrying value was deposits with no stated maturities, the carrying value was considered to approximate fair value and does not take into considered to approximate fair value and does not take into account the significant value of the cost advantage and stability account the significant value of the cost advantage and stability of the Corporation’s long-term relationships with depositors. The of the Corporation’s long-term relationships with depositors. The Corporation accounts for certain long-term fixed-rate deposits Corporation accounts for certain long-term fixed-rate deposits under the fair value option. under the fair value option. Long-term Debt Long-term Debt The Corporation uses quoted market prices, when available, to The Corporation uses quoted market prices, when available, to estimate fair value for its long-term debt. When quoted market estimate fair value for its long-term debt. When quoted market prices are not available, fair value is estimated based on current prices are not available, fair value is estimated based on current market interest rates and credit spreads for debt with similar terms market interest rates and credit spreads for debt with similar terms and maturities. The Corporation accounts for certain structured and maturities. The Corporation accounts for certain structured liabilities under the fair value option. liabilities under the fair value option. Fair Value of Financial Instruments Fair Value of Financial Instruments The carrying values and fair values by fair value hierarchy of certain The carrying values and fair values by fair value hierarchy of certain financial instruments where only a portion of the ending balance financial instruments where only a portion of the ending balance was carried at fair value at December 31, 2016 and 2015 are was carried at fair value at December 31, 2016 and 2015 are presented in the table below. presented in the table below. Fair Value of Financial Instruments Fair Value of Financial Instruments December 31, 2016 December 31, 2016 Fair Value Fair Value Carrying Carrying Value Value Level 2 Level 2 Level 3 Level 3 Total Total (Dollars in millions) (Dollars in millions) Financial assets Financial assets Loans Loans Loans held-for-sale Loans held-for-sale $ 873,209 $ 873,209 9,066 9,066 $ $ 71,793 71,793 8,082 8,082 $ 815,329 $ 815,329 984 984 $ 887,122 $ 887,122 9,066 9,066 Financial liabilities Financial liabilities Deposits Deposits Long-term debt Long-term debt Financial assets Financial assets 1,260,934 1,260,934 216,823 216,823 1,261,086 1,261,086 220,071 220,071 — 1,261,086 — 1,261,086 221,585 221,585 1,514 1,514 December 31, 2015 December 31, 2015 Loans Loans Loans held-for-sale Loans held-for-sale $ 863,561 $ 863,561 7,453 7,453 $ $ 70,223 70,223 5,347 5,347 $ 805,371 $ 805,371 2,106 2,106 $ 875,594 $ 875,594 7,453 7,453 Financial liabilities Financial liabilities Deposits Deposits Long-term debt Long-term debt 1,197,259 1,197,259 236,764 236,764 1,197,577 1,197,577 239,596 239,596 — 1,197,577 — 1,197,577 241,109 241,109 1,513 1,513 Commercial Unfunded Lending Commitments Commercial Unfunded Lending Commitments Fair values were generally determined using a discounted cash Fair values were generally determined using a discounted cash flow valuation approach which is applied using market-based CDS flow valuation approach which is applied using market-based CDS or internally developed benchmark credit curves. The Corporation or internally developed benchmark credit curves. The Corporation accounts for certain loan commitments under the fair value option. accounts for certain loan commitments under the fair value option. The carrying values and fair values of the Corporation’s The carrying values and fair values of the Corporation’s commercial unfunded lending commitments were $937 million and commercial unfunded lending commitments were $937 million and $4.9 billion at December 31, 2016, and $1.3 billion and $6.3 $4.9 billion at December 31, 2016, and $1.3 billion and $6.3 billion at December 31, 2015. Commercial unfunded lending billion at December 31, 2015. Commercial unfunded lending commitments are primarily classified as Level 3. The carrying value commitments are primarily classified as Level 3. The carrying value of these commitments is classified in accrued expenses and other of these commitments is classified in accrued expenses and other liabilities. liabilities. The Corporation does not estimate the fair values of consumer The Corporation does not estimate the fair values of consumer unfunded lending commitments because, in many instances, the unfunded lending commitments because, in many instances, the Corporation can reduce or cancel these commitments by providing Corporation can reduce or cancel these commitments by providing notice to the borrower. For more information on commitments, see notice to the borrower. For more information on commitments, see Note 12 – Commitments and Contingencies. Note 12 – Commitments and Contingencies. NOTE 22 Fair Value of Financial Instruments NOTE 22 Fair Value of Financial Instruments Financial instruments are classified within the fair value hierarchy Financial instruments are classified within the fair value hierarchy using the methodologies described in Note 20 – Fair Value using the methodologies described in Note 20 – Fair Value Measurements. The following disclosures include financial Measurements. The following disclosures include financial instruments that are not carried at fair value or only a portion of instruments that are not carried at fair value or only a portion of the ending balance is carried at fair value on the Consolidated the ending balance is carried at fair value on the Consolidated Balance Sheet. Balance Sheet. Short-term Financial Instruments Short-term Financial Instruments The carrying value of short-term financial instruments, including The carrying value of short-term financial instruments, including cash and cash equivalents, time deposits placed and other short- cash and cash equivalents, time deposits placed and other short- term investments, federal funds sold and purchased, certain term investments, federal funds sold and purchased, certain resale and repurchase agreements, customer and other resale and repurchase agreements, customer and other receivables, customer payables (within accrued expenses and receivables, customer payables (within accrued expenses and other liabilities on the Consolidated Balance Sheet), and short- other liabilities on the Consolidated Balance Sheet), and short- term borrowings approximates the fair value of these instruments. term borrowings approximates the fair value of these instruments. These financial instruments generally expose the Corporation to These financial instruments generally expose the Corporation to limited credit risk and have no stated maturities or have short- limited credit risk and have no stated maturities or have short- term maturities and carry interest rates that approximate market. term maturities and carry interest rates that approximate market. The Corporation elected to account for certain resale and The Corporation elected to account for certain resale and repurchase agreements under the fair value option. repurchase agreements under the fair value option. Under the fair value hierarchy, cash and cash equivalents are Under the fair value hierarchy, cash and cash equivalents are classified as Level 1. Time deposits placed and other short-term classified as Level 1. Time deposits placed and other short-term investments, such as U.S. government securities and short-term investments, such as U.S. government securities and short-term commercial paper, are classified as Level 1 and Level 2. Federal commercial paper, are classified as Level 1 and Level 2. Federal funds sold and purchased are classified as Level 2. Resale and funds sold and purchased are classified as Level 2. Resale and repurchase agreements are classified as Level 2 because they repurchase agreements are classified as Level 2 because they are generally short-dated and/or variable-rate instruments are generally short-dated and/or variable-rate instruments collateralized by U.S. government or agency securities. Customer collateralized by U.S. government or agency securities. Customer and other receivables primarily consist of margin loans, servicing and other receivables primarily consist of margin loans, servicing advances and other accounts receivable and are classified as advances and other accounts receivable and are classified as Level 2 and Level 3. Customer payables and short-term borrowings Level 2 and Level 3. Customer payables and short-term borrowings are classified as Level 2. are classified as Level 2. Held-to-maturity Debt Securities Held-to-maturity Debt Securities HTM debt securities, which consist primarily of U.S. agency debt HTM debt securities, which consist primarily of U.S. agency debt securities, are classified as Level 2 using the same methodologies securities, are classified as Level 2 using the same methodologies as AFS U.S. agency debt securities. For more information on HTM as AFS U.S. agency debt securities. For more information on HTM debt securities, see Note 3 – Securities. debt securities, see Note 3 – Securities. Loans Loans The fair values for commercial and consumer loans are generally The fair values for commercial and consumer loans are generally determined by discounting both principal and interest cash flows determined by discounting both principal and interest cash flows expected to be collected using a discount rate for similar expected to be collected using a discount rate for similar instruments with adjustments that the Corporation believes a instruments with adjustments that the Corporation believes a market participant would consider in determining fair value. The market participant would consider in determining fair value. The Corporation estimates the cash flows expected to be collected Corporation estimates the cash flows expected to be collected using internal credit risk, interest rate and prepayment risk models using internal credit risk, interest rate and prepayment risk models that incorporate the Corporation’s best estimate of current key that incorporate the Corporation’s best estimate of current key assumptions, such as default rates, loss severity and prepayment assumptions, such as default rates, loss severity and prepayment speeds for the life of the loan. The carrying value of loans is speeds for the life of the loan. The carrying value of loans is presented net of the applicable allowance for loan losses and presented net of the applicable allowance for loan losses and excludes leases. The Corporation accounts for certain commercial excludes leases. The Corporation accounts for certain commercial loans and residential mortgage loans under the fair value option. loans and residential mortgage loans under the fair value option. Deposits Deposits The fair value for certain deposits with stated maturities was The fair value for certain deposits with stated maturities was determined by discounting contractual cash flows using current determined by discounting contractual cash flows using current market rates for instruments with similar maturities. The carrying market rates for instruments with similar maturities. The carrying value of non-U.S. time deposits approximates fair value. For value of non-U.S. time deposits approximates fair value. For 208 Bank of America 2016 208 Bank of America 2016 deposits with no stated maturities, the carrying value was deposits with no stated maturities, the carrying value was considered to approximate fair value and does not take into considered to approximate fair value and does not take into account the significant value of the cost advantage and stability account the significant value of the cost advantage and stability of the Corporation’s long-term relationships with depositors. The of the Corporation’s long-term relationships with depositors. The Corporation accounts for certain long-term fixed-rate deposits Corporation accounts for certain long-term fixed-rate deposits under the fair value option. under the fair value option. Long-term Debt Long-term Debt The Corporation uses quoted market prices, when available, to The Corporation uses quoted market prices, when available, to estimate fair value for its long-term debt. When quoted market estimate fair value for its long-term debt. When quoted market prices are not available, fair value is estimated based on current prices are not available, fair value is estimated based on current market interest rates and credit spreads for debt with similar terms market interest rates and credit spreads for debt with similar terms and maturities. The Corporation accounts for certain structured and maturities. The Corporation accounts for certain structured liabilities under the fair value option. liabilities under the fair value option. Fair Value of Financial Instruments Fair Value of Financial Instruments The carrying values and fair values by fair value hierarchy of certain The carrying values and fair values by fair value hierarchy of certain financial instruments where only a portion of the ending balance financial instruments where only a portion of the ending balance was carried at fair value at December 31, 2016 and 2015 are was carried at fair value at December 31, 2016 and 2015 are presented in the table below. presented in the table below. Fair Value of Financial Instruments Fair Value of Financial Instruments December 31, 2016 December 31, 2016 Fair Value Fair Value Carrying Carrying Value Value Level 2 Level 2 Level 3 Level 3 Total Total $ 873,209 $ 873,209 $ $ 71,793 71,793 $ 815,329 $ 815,329 $ 887,122 $ 887,122 9,066 9,066 8,082 8,082 984 984 9,066 9,066 1,260,934 1,260,934 1,261,086 1,261,086 216,823 216,823 220,071 220,071 — 1,261,086 — 1,261,086 1,514 1,514 221,585 221,585 December 31, 2015 December 31, 2015 Loans held-for-sale Loans held-for-sale 7,453 7,453 5,347 5,347 2,106 2,106 7,453 7,453 $ 863,561 $ 863,561 $ $ 70,223 70,223 $ 805,371 $ 805,371 $ 875,594 $ 875,594 1,197,259 1,197,259 1,197,577 1,197,577 236,764 236,764 239,596 239,596 — 1,197,577 — 1,197,577 1,513 1,513 241,109 241,109 Commercial Unfunded Lending Commitments Commercial Unfunded Lending Commitments Fair values were generally determined using a discounted cash Fair values were generally determined using a discounted cash flow valuation approach which is applied using market-based CDS flow valuation approach which is applied using market-based CDS or internally developed benchmark credit curves. The Corporation or internally developed benchmark credit curves. The Corporation accounts for certain loan commitments under the fair value option. accounts for certain loan commitments under the fair value option. The carrying values and fair values of the Corporation’s The carrying values and fair values of the Corporation’s commercial unfunded lending commitments were $937 million and commercial unfunded lending commitments were $937 million and $4.9 billion at December 31, 2016, and $1.3 billion and $6.3 $4.9 billion at December 31, 2016, and $1.3 billion and $6.3 billion at December 31, 2015. Commercial unfunded lending billion at December 31, 2015. Commercial unfunded lending commitments are primarily classified as Level 3. The carrying value commitments are primarily classified as Level 3. The carrying value of these commitments is classified in accrued expenses and other of these commitments is classified in accrued expenses and other liabilities. liabilities. The Corporation does not estimate the fair values of consumer The Corporation does not estimate the fair values of consumer unfunded lending commitments because, in many instances, the unfunded lending commitments because, in many instances, the Corporation can reduce or cancel these commitments by providing Corporation can reduce or cancel these commitments by providing notice to the borrower. For more information on commitments, see notice to the borrower. For more information on commitments, see Note 12 – Commitments and Contingencies. Note 12 – Commitments and Contingencies. (Dollars in millions) (Dollars in millions) Financial assets Financial assets Loans Loans Loans held-for-sale Loans held-for-sale Financial liabilities Financial liabilities Deposits Deposits Long-term debt Long-term debt Financial assets Financial assets Loans Loans Financial liabilities Financial liabilities Deposits Deposits Long-term debt Long-term debt 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 NOTE 23 Mortgage Servicing Rights manages the risk in these MSRs with derivatives such as options The Corporation accounts for consumer MSRs at fair value, with and interest rate swaps, which are not designated as accounting changes in fair value primarily recorded in mortgage banking hedges, as well as securities including MBS and U.S. Treasury 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 Rollforward of Mortgage Servicing Rights hedges, as well as securities including MBS and U.S. Treasury (Dollars in millions) 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. securities. The securities used to manage the risk in the MSRs The table below presents activity for residential mortgage and are classified in other assets, with changes in the fair value of the home equity MSRs for 2016 and 2015. securities and the related interest income recorded in mortgage banking income. The table below presents activity for residential mortgage and home equity MSRs for 2016 and 2015. Balance, January 1 Rollforward of Mortgage Servicing Rights (Dollars in millions) Balance, January 1 Additions Sales Amortization of expected cash flows (1) Changes in fair value due to changes in inputs and assumptions (2) Additions Sales Amortization of expected cash flows (1) Changes in fair value due to changes in inputs and assumptions (2) based on third-party price discovery; and periodic adjustments to the valuation model and other cash flow assumptions. Balance, December 31 (3) Balance, December 31 (3) 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 and the passage of time. (2) These amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads, and the shape of the forward swap curve; periodic adjustments to valuation held in Global Markets compared to $2.3 billion, $355 million and $407 million at December 31, 2015, respectively. held in Global Markets compared to $2.3 billion, $355 million and $407 million at December 31, 2015, respectively. (3) At December 31, 2016, includes the $2.1 billion core MSR portfolio held in Consumer Banking, the $212 million non-core MSR portfolio held in All Other and the $469 million non-U.S. MSR portfolio 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 and the passage of time. (2) These amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads, and the shape of the forward swap curve; periodic adjustments to valuation The Corporation revised certain MSR valuation assumptions recent observed differences between modeled and actual based on third-party price discovery; and periodic adjustments to the valuation model and other cash flow assumptions. during 2016, resulting in a net $306 million increase in fair value, prepayment behavior, which had the impact of slowing the (3) At December 31, 2016, includes the $2.1 billion core MSR portfolio held in Consumer Banking, the $212 million non-core MSR portfolio held in All Other and the $469 million non-U.S. MSR portfolio which is included within “Changes in fair value due to changes in weighted-average rate of projected prepayments, thus increasing inputs and assumptions” in the table above. The increase was both the weighted-average life of the MSRs and the yield that a The Corporation revised certain MSR valuation assumptions recent observed differences between modeled and actual primarily driven by changes in prepayment assumptions based on market participant would require to buy the MSR. during 2016, resulting in a net $306 million increase in fair value, prepayment behavior, which had the impact of slowing the which is included within “Changes in fair value due to changes in weighted-average rate of projected prepayments, thus increasing inputs and assumptions” in the table above. The increase was both the weighted-average life of the MSRs and the yield that a primarily driven by changes in prepayment assumptions based on market participant would require to buy the MSR. 2016 2016 3,087 411 (80) (820) 3,087 149 411 2,747 (80) 326 (820) 149 2,747 326 $ $ $ $ $ $ 2015 $ 3,530 637 (393) 2015 (874) $ 3,530 187 637 $ 3,087 (393) 394 $ (874) 187 $ 3,087 394 $ Bank of America 2016 209 Bank of America 2016 209 NOTE 24 Business Segment Information The Corporation reports its results of operations through the following four business segments: Consumer Banking, GWIM, Global Banking and Global Markets, 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 include businesses. Consumer Banking product offerings traditional savings accounts, money market savings accounts, CDs and IRAs, 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. Consumer Banking includes the impact of servicing residential mortgages and home equity loans in the core portfolio. 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, and underwriting and advisory services through the Corporation’s network of offices and client relationship teams. Global Banking also provides investment banking products to clients. The economics of certain investment banking and underwriting activities are shared primarily between Global Banking and Global Markets under an revenue-sharing arrangement. Global Banking clients generally include middle- market companies, commercial real estate firms, not-for-profit companies, large global corporations, financial institutions, leasing clients, and mid-sized U.S.-based businesses requiring customized and integrated financial advice and solutions. internal 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 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. As a result of market-making activities, Global Markets may be required to manage risk in a broad range of financial products. In addition, the economics of certain investment banking and underwriting activities are shared primarily between Global Markets and Global Banking under an internal revenue-sharing arrangement. 210 Bank of America 2016 All Other All Other consists of ALM activities, equity investments, the non- U.S. consumer credit card business, non-core mortgage loans and servicing activities, the net impact of periodic revisions to the MSR valuation model for both core and non-core MSRs, other liquidating businesses, residual expense allocations and other. ALM activities encompass certain residential mortgages, debt securities, interest rate and foreign currency risk management activities, the impact of certain allocation methodologies and accounting hedge ineffectiveness. The results of certain ALM activities are allocated to the business segments. Equity investments include the merchant services joint venture as well as GPI. On December, 20, 2016, the Corporation entered into an agreement to sell its non- U.S. consumer credit card business to a third party. Subject to regulatory approval, this transaction is expected to close by mid-2017. 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. 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 costs of certain centralized or shared functions are allocated based on methodologies that reflect utilization. NOTE 24 Business Segment Information All Other The Corporation reports its results of operations through the All Other consists of ALM activities, equity investments, the non- following four business segments: Consumer Banking, GWIM, U.S. consumer credit card business, non-core mortgage loans and Global Banking and Global Markets, with the remaining operations servicing activities, the net impact of periodic revisions to the MSR The tables below present net income (loss) and the components thereto (with net interest income on an FTE basis) for 2016, 2015 and 2014, and total assets at December 31, 2016 and 2015 for each business segment, as well as All Other, including a reconciliation of the four 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. 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, 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. Consumer Banking includes the impact of valuation model for both core and non-core MSRs, other liquidating businesses, residual expense allocations and other. ALM activities encompass certain residential mortgages, debt securities, interest rate and foreign currency risk management activities, the impact of certain allocation methodologies and accounting hedge ineffectiveness. The results of certain ALM activities are allocated to the business segments. Equity investments include the merchant services joint venture as well as GPI. On December, 20, 2016, the Corporation entered into an agreement to sell its non- U.S. consumer credit card business to a third party. Subject to regulatory approval, this transaction is expected to close by servicing residential mortgages and home equity loans in the core mid-2017. portfolio. Basis of Presentation 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 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 comprehensive wealth management solutions targeted to high net appropriate to reflect the results of the business. 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, and underwriting and advisory services through the Corporation’s network of offices and client relationship teams. Global Banking also provides investment banking products to clients. The economics of certain investment banking and underwriting activities are shared primarily between Global Banking and Global Markets under an internal revenue-sharing arrangement. Global Banking clients generally include middle- market companies, commercial real estate firms, not-for-profit companies, large global 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 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. As a result of market-making activities, Global Markets may be required to manage risk in a broad range of financial products. In addition, the economics of certain investment banking and underwriting activities are shared primarily between Global Markets and Global Banking under an internal revenue-sharing arrangement. 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. 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 costs of certain centralized or shared functions are allocated based on methodologies that reflect utilization. Results of Business Segments and All Other At and for the Year Ended December 31 (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 Income (loss) before income taxes (FTE basis) Income tax expense (benefit) (FTE basis) Net income (loss) Year-end total assets Business Segment Reconciliations Segments’ total revenue, net of interest expense (FTE basis) Adjustments (2): ALM activities Liquidating businesses and other FTE basis adjustment Consolidated revenue, net of interest expense Segments’ total net income Adjustments, net-of-taxes (2): ALM activities Liquidating businesses and other Consolidated net income Segments’ total assets Adjustments (2): ALM activities, including securities portfolio Liquidating businesses and other (3) Elimination of segment asset allocations to match liabilities Consolidated total assets Total Corporation (1) 2015 2016 2014 2016 Consumer Banking 2015 2014 $ 41,996 $ 42,605 84,601 3,597 54,951 26,053 8,147 17,906 $ 39,847 $ 44,007 83,854 3,161 57,734 22,959 7,123 15,836 $ $ $ 2,187,702 $ 2,144,287 41,630 45,115 86,745 2,275 75,656 8,814 3,294 5,520 Global Wealth & Investment Management 2015 2014 2016 5,759 $ 11,891 17,650 68 13,182 4,400 1,629 2,771 $ 298,932 $ 5,527 $ 12,507 18,034 51 13,943 4,040 1,473 2,567 $ 296,271 5,830 12,573 18,403 14 13,836 4,553 1,698 2,855 2016 Global Markets 2015 2014 4,558 $ 11,532 16,090 31 10,170 5,889 2,072 3,817 $ 566,060 $ 4,191 $ 10,822 15,013 99 11,374 3,540 1,117 2,423 $ 548,790 3,851 12,279 16,130 110 11,989 4,031 1,441 2,590 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 21,290 $ 10,441 31,731 2,715 17,653 11,363 4,190 7,173 $ 702,339 $ 20,428 $ 11,097 31,525 2,346 18,716 10,463 3,814 6,649 $ 645,427 20,790 11,038 31,828 2,470 19,390 9,968 3,717 6,251 Global Banking 2016 2015 2014 9,942 $ 8,488 18,430 883 8,486 9,061 3,341 5,720 $ 408,268 $ 9,244 $ 8,377 17,621 686 8,481 8,454 3,114 5,340 $ 386,132 2016 447 $ 253 700 (100) 5,460 (4,660) (3,085) (1,575) $ 212,103 $ All Other 2015 457 $ 1,204 1,661 (21) 5,220 (3,538) (2,395) (1,143) $ 267,667 9,752 8,514 18,266 325 8,806 9,135 3,353 5,782 2014 1,407 711 2,118 (644) 21,635 (18,873) (6,915) (11,958) 2016 2015 2014 $ 83,901 $ 82,193 $ 84,627 (286) 986 (900) 83,701 $ 19,481 (642) (933) 17,906 $ (208) 1,869 (889) 82,965 $ 16,979 13 2,105 (851) 85,894 17,478 (694) (449) 15,836 $ (262) (11,696) 5,520 $ $ December 31 2016 2015 $ 1,975,599 $ 1,876,620 613,058 117,708 (518,663) 612,364 144,310 (489,007) $ 2,187,702 $ 2,144,287 210 Bank of America 2016 Bank of America 2016 211 (1) There were no material intersegment revenues. (2) Adjustments include consolidated income, expense and asset amounts not specifically allocated to individual business segments. (3) Includes assets of the non-U.S. consumer credit card business which are included in assets of business held for sale on the Consolidated Balance Sheet. 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 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 (2) Liabilities and shareholders’ equity Short-term borrowings Accrued expenses and other liabilities Payables to subsidiaries: Banks and related subsidiaries Bank holding companies and related subsidiaries Nonbank companies and related subsidiaries Long-term debt Total liabilities Shareholders’ equity Total liabilities and shareholders’ equity 2016 2015 2014 $ 4,127 77 2,996 111 7,311 $ 18,970 53 2,004 (623) 20,404 $ 12,400 149 1,836 72 14,457 969 5,096 2,572 8,637 (1,326) (2,263) 937 1,169 5,098 4,747 11,014 9,390 (3,574) 12,964 1,661 5,552 4,471 11,684 2,773 (4,079) 6,852 16,817 152 16,969 17,906 3,068 (196) 2,872 $ 15,836 $ 4,300 (5,632) (1,332) 5,520 $ December 31 2016 2015 $ 20,248 909 $ 98,024 937 117,072 171 26,500 23,594 569 56,426 287,416 6,875 10,672 $ 469,863 272,567 2,402 9,360 $ 463,879 $ — $ 13,273 15 13,900 352 4,013 12,010 173,375 203,023 266,840 $ 469,863 465 — 13,921 179,402 207,703 256,176 $ 463,879 (1) Balance includes third-party cash held of $342 million and $28 million at December 31, 2016 and 2015. (2) During 2016, the Corporation entered into intercompany arrangements with certain key subsidiaries under which the Corporation transferred certain parent company assets to NB Holdings, Inc. 212 Bank of America 2016 The following tables present the Parent Company-only financial information. This financial information is presented in accordance with 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 to subsidiaries Other investing activities, net Net cash used in investing activities Financing activities Net 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 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 2016 2015 2014 $ 17,906 $ 15,836 $ 5,520 (16,969) (2,944) (2,007) — (65,481) (308) (65,789) (136) (44) 27,363 (30,804) 2,947 (5,112) (4,194) (9,980) (77,776) 98,024 20,248 (2,872) (2,509) 10,455 15 (7,944) 70 (7,859) 1,332 2,143 8,995 (142) (5,902) 19 (6,025) (221) (770) 26,492 (27,393) 2,964 (2,374) (3,574) (4,876) (2,280) 100,304 $ 98,024 (55) 1,264 29,324 (33,854) 5,957 (1,675) (2,306) (1,345) 1,625 98,679 $ 100,304 $ Income (loss) before income taxes and equity in undistributed earnings of subsidiaries NOTE 25 Parent Company Information 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 on borrowed funds from related subsidiaries Interest from subsidiaries Other income (loss) Total income Expense Other interest expense Noninterest expense Total expense Income tax benefit Income 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 (2) Liabilities and shareholders’ equity Short-term borrowings Accrued expenses and other liabilities Payables to subsidiaries: Banks and related subsidiaries Bank holding companies and related subsidiaries Nonbank companies and related subsidiaries Long-term debt Total liabilities Shareholders’ equity Total liabilities and shareholders’ equity 2016 2015 2014 $ 4,127 $ 18,970 $ 12,400 77 2,996 111 7,311 969 5,096 2,572 8,637 (1,326) (2,263) 937 16,817 152 16,969 53 2,004 (623) 149 1,836 72 20,404 14,457 1,169 5,098 4,747 11,014 9,390 (3,574) 12,964 3,068 (196) 2,872 1,661 5,552 4,471 11,684 2,773 (4,079) 6,852 4,300 (5,632) (1,332) $ 17,906 $ 15,836 $ 5,520 December 31 2016 2015 $ 20,248 $ 98,024 909 937 117,072 171 26,500 23,594 569 56,426 287,416 272,567 6,875 10,672 2,402 9,360 $ 469,863 $ 463,879 $ — $ 15 13,273 13,900 352 4,013 12,010 173,375 203,023 266,840 465 — 13,921 179,402 207,703 256,176 $ 469,863 $ 463,879 (1) Balance includes third-party cash held of $342 million and $28 million at December 31, 2016 and 2015. (2) During 2016, the Corporation entered into intercompany arrangements with certain key subsidiaries under which the Corporation transferred certain parent company assets to NB Holdings, Inc. 212 Bank of America 2016 Bank of America 2016 213 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 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 Europe, Middle East and Africa Latin America and the Caribbean Total Non-U.S. Total Consolidated December 31 Year Ended December 31 Total Assets (1) Total Revenue, Net of Interest Expense (2) Income Before Income Taxes Net Income $ 1,900,678 1,849,099 $ 85,410 86,994 174,934 178,899 26,680 29,295 287,024 295,188 $ 2,187,702 2,144,287 $ $ $ 72,418 72,117 74,607 3,365 3,524 3,605 6,608 6,081 6,409 1,310 1,243 1,273 11,283 10,848 11,287 83,701 82,965 85,894 $ $ 22,414 20,064 5,751 674 726 759 1,705 938 1,098 360 342 355 2,739 2,006 2,212 25,153 22,070 7,963 16,267 14,637 3,992 488 457 473 925 516 813 226 226 242 1,639 1,199 1,528 17,906 15,836 5,520 Year 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 (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. 214 Bank of America 2016 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 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 Europe, Middle East and Africa Latin America and the Caribbean Total Non-U.S. Total Consolidated (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. December 31 Year Ended December 31 Total Revenue, Net of Interest Total Assets (1) Expense (2) Income Before Income Taxes Net Income $ 1,900,678 $ 72,418 $ 22,414 $ 1,849,099 85,410 86,994 174,934 178,899 26,680 29,295 287,024 295,188 2,144,287 72,117 74,607 3,365 3,524 3,605 6,608 6,081 6,409 1,310 1,243 1,273 11,283 10,848 11,287 82,965 85,894 20,064 5,751 674 726 759 1,705 938 1,098 360 342 355 2,739 2,006 2,212 22,070 7,963 $ 2,187,702 $ 83,701 $ 25,153 $ 16,267 14,637 3,992 488 457 473 925 516 813 226 226 242 1,639 1,199 1,528 17,906 15,836 5,520 Year 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 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. 214 Bank of America 2016 Bank of America 2016 215 Executive Management Team and Board of Directors Bank of America Corporation Board of Directors Brian T. Moynihan Chairman of the Board and Chief Executive Officer, Bank of America Corporation Jack O. Bovender, Jr. Lead Independent Director, Bank of America Corporation; Former Chairman and Chief Executive Officer, HCA, Inc. Sharon L. Allen Former Chairman, Deloitte LLP Susan S. Bies Former Member, Board of Governors of the Federal Reserve System Frank P. Bramble, Sr. Former Executive Vice Chairman, MBNA Corporation Pierre J. P. de Weck Former Chairman and Global Head of Private Wealth Management, Deutsche Bank AG Arnold W. Donald President and Chief Executive Officer, Carnival Corporation and Carnival plc Linda P. Hudson Chairman and Chief Executive Officer, The Cardea Group, LLC; Former President and Chief Executive Officer, BAE Systems, Inc. Monica C. Lozano Former Chairman, US Hispanic Media Inc. Thomas J. May Chairman, and Former Chief Executive Officer, Eversource Energy; Chairman, Viacom, Inc. Lionel L. Nowell, III Lead Director, Reynolds American, Inc.; Former Senior Vice President and Treasurer, PepsiCo, Inc. Michael D. White Former Chairman, President and CEO, DIRECTV Thomas D. Woods Former Vice Chairman and SEVP, Canadian Imperial Bank of Commerce R. David Yost Former Chief Executive Officer, AmerisourceBergen Corporation Executive Management Team Brian T. Moynihan* Chairman of the Board and Chief Executive Officer Dean C. Athanasia* President, Preferred and Small Business Banking and Co-head — Consumer Banking Catherine P. Bessant* Chief Operations and Technology Officer Sheri B. Bronstein Global Human Resources Executive Paul M. Donofrio* Chief Financial Officer Anne M. Finucane Vice Chairman Geoffrey S. Greener* Chief Risk Officer Christine P. Katziff Corporate General Auditor Terrence P. Laughlin* Vice Chairman, Head of Global Wealth and Investment Management David G. Leitch* Global General Counsel Gary G. Lynch Vice Chairman Thomas K. Montag* Chief Operating Officer Thong M. Nguyen* President, Retail Banking and Co-head — Consumer Banking Andrea B. Smith* Chief Administrative Officer Bruce R. Thompson Vice Chairman * Executive Officer 216 Bank of America 2016 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 December 31, 2016, there were 184,637 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 2016 Annual Report on Form 10-K is available at http://investor.bankofamerica.com. The Corporation also will provide a copy of the 2016 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 Proxy materials online at www.proxyvote.com, or contact your broker. Bank of America 2016 217 218 Bank of America 2016 Bank of America 2016 219 220 Bank of America 2016 Investment products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value “Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., both of which are registered as broker-dealers and Members of SIPC, and, in other jurisdictions, by locally registered entities. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. 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. © 2017 Bank of America Corporation. All rights reserved. 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 6 A n n u a l R e p o r t © 2017 Bank of America Corporation 00-04-1374B 3/2017