Bank of America Corporation
2017 Annual Report
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OUR PURPOSE:
TO HELP MAKE
FINANCIAL LIVES
BETTER,
THROUGH THE
POWER OF EVERY
CONNECTION
CONTENTS
A letter from Chairman and CEO
Brian Moynihan
2–9
A message from Lead Independent Director
Jack Bovender
8
Living our purpose
10–11
High-touch, high-tech
12–13
Delivering the bank in Dallas
14–19
A conversation with Vice Chairman
Anne Finucane
20–21
Impact investing
22–23
Global strength for global good
24–25
Helping communities thrive
26–27
Our employees
28–29
ESG highlights
30–31
Financial highlights
32
BANK OF AMERICA CORPORATION 2017 ANNUAL REPORT | 1
2 | THE POWER OF EVERY CONNECTION
A LETTER FROM
CHAIRMAN AND CEO
BRIAN MOYNIHAN
Dear shareholders,
We have committed to you that Bank of America will stay true to our
course of responsible growth, and our 2017 financial results reflect that
in every dimension. We grew revenue by 4 percent to $87 billion, and we
increased earnings per share (EPS) by 5 percent to $1.56. Adjusting for
the one-time charge from the U.S. Tax Cuts and Jobs Act (the “Tax Act”),
revenue was up 5 percent to $88 billion, EPS increased 23 percent to $1.83.
I will discuss in further detail below the overall impact of the Tax Act and
how we view the anticipated long-term benefits.
Responsible growth also delivered for you, our shareholders. In 2017, we
returned $15.9 billion in capital through common dividends and net share
repurchases — nearly 90 percent of net income — up from $6.6 billion in
2016. Total shareholder return was 35.7 percent for 2017 and, as you can
see in the chart on page 32, we outperformed major benchmarks. Our
market valuation continues to grow, increasing by $82 billion in 2017 and
standing near $330 billion as I write this.
Our financial metrics also improved. Adjusted for the impact of the tax
legislation mentioned earlier, return on tangible common equity grew
150 basis points to 11 percent, well above our estimated cost of capital of
9 percent, and our return on assets rose 12 basis points to 0.93 percent.
Our efficiency ratio further improved to 63 percent. Tangible book value
per share, which measures the value we are creating for you, hit $16.96
at the end of 2017. In 2018, we expect continued improvement on all of
these metrics.
I am proud of the countless ways our 209,000 teammates delivered in
2017, but what I want to emphasize for you is that we grew the right
way — we drove responsible growth. We stuck with our approach and
didn’t reach beyond our customer and risk frameworks for short-term
RESPONSIBLE GROWTH:
HOW WE RUN OUR COMPANY
Put simply, not every dollar is a good
dollar, unless it comes from activities that
satisfy a customer need and fit our risk
parameters, and that has to be sustainable
over time. We are here to live our purpose:
To help make financial lives better through
the power of every connection.
Responsible Growth 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:
• Be a great place to work for
our teammates
• Shared success (all of our
ESG commitments)
• Operational excellence
Look for a more detailed discussion of
these tenets throughout this report.
gains. And we continued to invest in our teammates,
our communities, and improving our company
through operational excellence, so our growth would
be sustainable.
WE REMAIN COMMITTED TO RETURNING CAPITAL
Before I highlight the results from our customer
and client businesses, I want to touch on a point
I discussed in some detail in last year’s letter. As I
outlined last year, the number of shares outstand-
ing, on a fully diluted basis, peaked at 11.6 billion,
driven by the more than 7 billion common shares
we issued for acquisitions and shares we issued to
stabilize the company during the Great Recession.
We will continue to bring the share count down
as we focus on returning excess capital to you.
At the end of 2017, we reduced our fully diluted
BANK OF AMERICA CORPORATION 2017 ANNUAL REPORT | 3
shares to 10.5 billion shares — a decline
of more than 1 billion shares from the
peak. Continuing on that path is a priority
for us, and we plan to proceed with share
buybacks and dividend increases based
on our continued progress as measured
through the annual Federal Reserve
Comprehensive Capital Analysis and
Review (CCAR) process.
Returning capital to shareholders does
not prevent us from making loans as some
suggest. We simply have more capital than
we need to meet today’s requirements,
and we can grow without using more for
the foreseeable future. We have plenty
of capital to serve our customers and
clients’ needs.
2017 RETURN ON AVERAGE
TANGIBLE COMMON EQUITY
Return on common
equity 6.7%
Reported ROTCE 9.4%1
Adj. ROTCE
11.0%1,2
2017 RETURN ON
AVERAGE ASSETS
Reported ROA
0.80%
Adj. ROA
0.93%2
1 Represents a non-GAAP financial measure
2 Adjusted to exclude the initial impacts of the Tax Act
4 | THE POWER OF EVERY CONNECTION
DRIVING ECONOMIC GROWTH BY SERVING CUSTOMERS AND CLIENTS
Now, I’d like to highlight how we delivered for our three groups of customers: people,
companies, and institutional investors.
In 2017, our Consumer Banking business, which serves one in two U.S. households and
millions of small business clients, earned $8.2 billion in after-tax net income on revenue of
$35 billion, up 14 percent and 9 percent, respectively, from the prior year. Our growth was
broad-based; deposits grew by $54 billion, or 9 percent, to $653 billion, and we grew loans
by $20 billion, or 8 percent, to $266 billion. And, even though rising interest rates tempered
demand for mortgage refinancing, we originated $68 billion in mortgages in 2017.
After years of investment, Bank of America is the digital banking leader, with 35 million
digital customers, including 25 million active mobile banking users. In 2017, our mobile
banking app became the first to be certified by J.D. Power. Importantly, these customers
logged in to our mobile app more than 1.3 billion times in 2017.
We process millions of transactions daily for our customers and clients. One area of
significant growth is person-to-person (P2P) payments. We are a leader in payments via
Zelle. While some 60 financial institutions are in the Zelle network, a third of all trans-
actions in 2017 were conducted by Bank of America customers. Our P2P transactions
more than doubled in 2017. The Zelle capability is integrated into Bank of America’s
mobile app and allows our customers to make payments easily and securely, and even
split payments to different recipients. The rapid adoption of Zelle enhances the
customer experience and also helps us reduce the costs and risks associated with paper
checks and cash transactions.
Let me take a moment to explain why digital technology is so important to our future.
For years, we have focused on redefining retail banking and improving the customer
experience, both in our financial centers and through our digital platforms. We call this
approach “high-touch, high-tech,” because it describes how we are following customer
behavior to combine improvements in our 4,500 financial centers and new digital
capabilities to enhance the overall customer experience however customers choose to
engage with us. In addition to advances in our digital and mobile capabilities, which have
resulted in digital sales comprising 30 percent of total sales, we are investing to refresh
those centers and ATMs, and we are opening new financial centers in areas where we are
serving customers and clients but have no retail presence, or too few centers.
In the map on page 5, you can see the markets where we have begun adding financial
centers, and where we will be doing so in the near future. Last year, we also added
more than 800 small business bankers, mortgage specialists, financial advisors, and
other experts in our financial centers. Even with these investments, and with customer
satisfaction levels at or near all-time highs, the efficiency ratio in our Consumer busi-
ness — which measures what it costs to generate a dollar in revenue — improved by more
than 4 percentage points in 2017 to 52 percent.
Turning to our Global Wealth and Investment Management business, we serve afflu-
ent and wealthy investor clients through the two leading brands in wealth management:
Merrill Lynch and U.S. Trust. This business delivered $3 billion in after-tax net income
on $19 billion in revenue in 2017, generating a 27 percent pretax margin. These results
reflect years of investment and attention to serving the needs of our clients.
In 2017, we saw assets under management (AUM) flows of nearly $100 billion as clients
continued to trust us to manage their investments. It’s also worth noting that, in the
fourth quarter of 2017, loans to clients in this business grew by $11 billion, or 7 percent,
over the fourth quarter of 2016, marking the 31st consecutive quarter of loan growth.
The value of the integrated capabilities we offer our clients continues to deliver returns
for our shareholders. By enhancing the client experience, and bringing to bear all that
our enterprise has to offer to help clients achieve their goals, we’re deepening relation-
ships and gaining new ones.
Albany/Hudson Valley Amarillo Asheville Atlanta Augusta Austin Bakersfield Buffalo Charleston/Hilton Head Charlotte Charlottesville Chicago Cleveland
Coastal North Carolina Columbia Dallas Daytona/Cocoa Beach Delaware Denver Detroit El Paso Fresno/Visalia Ft. Lauderdale Ft. Myers/Naples Ft. Worth
Grand Rapids Greater Boston Greater Maryland Greater Sacramento Greater Washington D.C. Hampton Roads Hartford Houston Indianapolis Inland Empire
Iowa Jacksonville Kansas City Knoxville Las Vegas Little Rock Long Island Los Angeles Maine Memphis Miami Minneapolis/St. Paul Monterey Bay Myrtle
Beach Napa, Marin & Sonoma Nashville New Hampshire New Jersey New Mexico New York City Fayetteville Ohio Oklahoma City Orange County Orlando
Philadelphia Phoenix Pittsburgh Portland/Vancouver Reno Rhode Island Richmond Rochester San Antonio San Diego San Francisco/East Bay San Luis Obispo
Sarasota/Manatee Savannah Seattle Silicon Valley Southern Connecticut Spokane/Boise St. Louis Syracuse/Utica Tallahassee Tampa Bay Treasure Coast
Greensboro/High Point/Winston-Salem Raleigh/Durham/Chapel Hill Tucson Tulsa Upstate South Carolina Ventura/Santa Barbara West Palm Beach Wichita Worcester
Albany/Hudson Valley Amarillo Asheville Atlanta Augusta Austin Bakersfield Buffalo Charleston/Hilton Head Charlotte Charlottesville Chicago Cleveland
Coastal North Carolina Columbia Dallas Daytona/Cocoa Beach Delaware Denver Detroit El Paso Fresno/Visalia Ft. Lauderdale Ft. Myers/Naples Ft. Worth
Grand Rapids Greater Boston Greater Maryland Greater Sacramento Greater Washington DC Hampton Roads Hartford Houston Indianapolis Inland Empire Iowa
Jacksonville Kansas City Knoxville Las Vegas Little Rock Long Island Los Angeles Maine Memphis Miami Minneapolis/St. Paul Monterey Bay Myrtle
Beach Napa, Marin & Sonoma Nashville New Hampshire New Jersey New Mexico New York City Fayetteville Ohio Oklahoma City Orange County Orlando
Philadelphia Phoenix Pittsburgh Portland/Vancouver Reno Rhode Island Richmond Rochester San Antonio San Diego San Francisco/East Bay San Luis Obispo
Sarasota/Manatee Savannah Seattle Silicon Valley Southern Connecticut Spokane/Boise St. Louis Syracuse/Utica Tallahassee Tampa Bay Treasure Coast
Greensboro/High Point/Winston-Salem Raleigh/Durham/Chapel Hill Tucson Tulsa Upstate South Carolina Ventura/Santa Barbara West Palm Beach Wichita Worcester
Albany/Hudson Valley Amarillo Asheville Atlanta Augusta Austin Bakersfield Buffalo Charleston/Hilton Head Charlotte Charlottesville Chicago Cleveland
Coastal North Carolina Columbia Dallas Daytona/Cocoa Beach Delaware Denver Detroit El Paso Fresno/Visalia Ft. Lauderdale Ft. Myers/Naples Ft. Worth
Grand Rapids Greater Boston Greater Maryland Greater Sacramento Greater Washington DC Hampton Roads Hartford Houston Indianapolis Inland Empire Iowa
Jacksonville Kansas City Knoxville Las Vegas Little Rock Long Island Los Angeles Maine Memphis Miami Minneapolis/St. Paul Monterey Bay Myrtle Beach
Napa, Marin & Sonoma Nashville New Hampshire New Jersey New Mexico New York City Fayetteville Ohio Oklahoma City Orange County Orlando Philadelphia
Phoenix Pittsburgh Portland/Vancouver Reno Rhode Island Richmond Rochester San Antonio San Diego San Francisco/East Bay San Luis Obispo Sarasota/
Manatee Savannah Seattle Silicon Valley Southern Connecticut Spokane/Boise St. Louis Syracuse/Utica Tallahassee Tampa Bay Treasure Coast Greensboro/
High Point/Winston-Salem Raleigh/Durham/Chapel Hill Tucson Tulsa Upstate South Carolina Ventura/Santa Barbara West Palm Beach Wichita Worcester
Albany/Hudson Valley Amarillo Asheville Atlanta Augusta Austin Bakersfield Buffalo Charleston/Hilton Head Charlotte Charlottesville Chicago Cleveland
Coastal North Carolina Columbia Dallas Daytona/Cocoa Beach Delaware Denver Detroit El Paso Fresno/Visalia Ft. Lauderdale Ft. Myers/Naples Ft. Worth
Grand Rapids Greater Boston Greater Maryland Greater Sacramento Greater Washington D.C. Hampton Roads Hartford Houston Indianapolis Inland Empire
Iowa Jacksonville Kansas City Knoxville Las Vegas Little Rock Long Island Los Angeles Maine Memphis Miami Minneapolis/St. Paul Monterey Bay Myrtle
Beach Napa, Marin & Sonoma Nashville New Hampshire New Jersey New Mexico New York City Fayetteville Ohio Oklahoma City Orange County Orlando
Philadelphia Phoenix Pittsburgh Portland/Vancouver Reno Rhode Island Richmond Rochester San Antonio San Diego San Francisco/East Bay San Luis Obispo
Sarasota/Manatee Savannah Seattle Silicon Valley Southern Connecticut Spokane/Boise St. Louis Syracuse/Utica Tallahassee Tampa Bay Treasure Coast
Greensboro/High Point/Winston-Salem Raleigh/Durham/Chapel Hill Tucson Tulsa Upstate South Carolina Ventura/Santa Barbara West Palm Beach Wichita Worcester
Albany/Hudson Valley Amarillo Asheville Atlanta Augusta Austin Bakersfield Buffalo Charleston/Hilton Head Charlotte Charlottesville Chicago Cleveland
Coastal North Carolina Columbia Dallas Daytona/Cocoa Beach Delaware Denver Detroit El Paso Fresno/Visalia Ft. Lauderdale Ft. Myers/Naples Ft. Worth
Cleveland, Ohio
Grand Rapids Greater Boston Greater Maryland Greater Sacramento Greater Washington D.C. Hampton Roads Hartford Houston Indianapolis Inland Empire
Iowa Jacksonville Kansas City Knoxville Las Vegas Little Rock Long Island Los Angeles Maine Memphis Miami Minneapolis/St. Paul Monterey Bay Myrtle
Columbus, Ohio
Beach Napa, Marin & Sonoma Nashville New Hampshire New Jersey New Mexico New York City Fayetteville Ohio Oklahoma City Orange County Orlando
Denver, Colorado
Philadelphia Phoenix Pittsburgh Portland/Vancouver Reno Rhode Island Richmond Rochester San Antonio San Diego San Francisco/East Bay San Luis Obispo
Sarasota/Manatee Savannah Seattle Silicon Valley Southern Connecticut Spokane/Boise St. Louis Syracuse/Utica Tallahassee Tampa Bay Treasure Coast
Indianapolis, Indiana
Greensboro/High Point/Winston-Salem Raleigh/Durham/Chapel Hill Tucson Tulsa Upstate South Carolina Ventura/Santa Barbara West Palm Beach Wichita Worcester
Albany/Hudson Valley Amarillo Asheville Atlanta Augusta Austin Bakersfield Buffalo Charleston/Hilton Head Charlotte Charlottesville Chicago Cleveland
Lexington, Kentucky
Coastal North Carolina Columbia Dallas Daytona/Cocoa Beach Delaware Denver Detroit El Paso Fresno/Visalia Ft. Lauderdale Ft. Myers/Naples Ft. Worth
Minneapolis, Minnesota
Grand Rapids Greater Boston Greater Maryland Greater Sacramento Greater Washington D.C. Hampton Roads Hartford Houston Indianapolis Inland Empire
Iowa Jacksonville Kansas City Knoxville Las Vegas Little Rock Long Island Los Angeles Maine Memphis Miami Minneapolis/St. Paul Monterey Bay Myrtle
Pittsburgh, Pennsylvania
Bank of America has over
4,500 financial centers
throughout the United States.
Beach Napa, Marin & Sonoma Nashville New Hampshire New Jersey New Mexico New York City Fayetteville Ohio Oklahoma City Orange County Orlando
Salt Lake City, Utah
Philadelphia Phoenix Pittsburgh Portland/Vancouver Reno Rhode Island Richmond Rochester San Antonio San Diego San Francisco/East Bay San Luis Obispo
Sarasota/Manatee Savannah Seattle Silicon Valley Southern Connecticut Spokane/Boise St. Louis Syracuse/Utica Tallahassee Tampa Bay Treasure Coast
Greensboro/High Point/Winston-Salem Raleigh/Durham/Chapel Hill Tucson Tulsa Upstate South Carolina Ventura/Santa Barbara West Palm Beach Wichita Worcester
Albany/Hudson Valley Amarillo Asheville Atlanta Augusta Austin Bakersfield Buffalo Charleston/Hilton Head Charlotte Charlottesville Chicago Cleveland
BANK OF AMERICA CORPORATION 2017 ANNUAL REPORT | 5
NEW FINANCIAL
CENTER MARKETS
Cincinnati, Ohio
Our Global Banking business serves clients from medium-sized businesses to the
largest companies in the world. Global Banking set several records in 2017, including
revenue of $20 billion and after-tax net income of $7 billion. Full-year earnings were up
21 percent on strong operating leverage, as revenue rose 8 percent, while expenses
rose only 1 percent. That is the kind of operating leverage our operational excellence
can deliver.
We are investing in this business as well, including technology to improve the client
experience and hiring additional bankers. Over the past few years, we have added more
than 400 bankers to our Global Banking team in markets across the United States as
we continued to deepen local relationships with our commercial clients. This investment
paid off for us in many ways in 2017. For example, overall investment banking fees rose
15 percent in 2017 to $6 billion. We were gratified to see a 30 percent growth in fees
from middle-market investment banking.
Global Markets serves our corporate clients and the largest institutional investors in
the world. We saw solid, stable performance despite a challenging low volatility trading
environment. This business generated $16 billion in revenue and $3.3 billion in after-tax
net income.
Let me share a few observations about how we operate this business. We serve clients
around the world who want to raise capital and hedge risks. When markets are volatile
and clients are trying to manage their business, they turn to us for help. When markets
are stable and there is less client activity or volatility, our revenues may be lower, as we
saw in 2017.
We have positioned this business to deliver steady and sustainable returns in either sce-
nario, while taking less risk. Over the years, our performance bears that out. In 2017, total
sales and trading revenue, excluding debit valuation adjustments, was $13.2 billion, down
3 percent from the prior year. However, across the past five years and with all of the vol-
atility in markets and trading activities during that period, Global Markets has delivered
sales and trading revenue within a range of $12.9 billion and $13.6 billion. This relative sta-
bility reflects our leadership positions across multiple products and our ability to maintain
the appropriate business mix during market shifts. Reflecting that stability and solid risk
management, Global Markets made money every single trading day in 2017. Over the last
five years, we made money in Global Markets on 98 percent of trading days.
RESPONSIBLE GROWTH THAT
IS SUSTAINABLE
Looking at our 2017 business results,
you can see that we remained true
to our responsible growth strategy:
We grew by focusing on serving our
customers and clients and managing
risk well.
We also are focused on achieving
growth that is sustainable.
Sustainability has three key compo-
nents: Being the best place to work
for our team, sharing our success,
and operational excellence. To share
success, we focus on our environ-
mental, social, and governance (ESG)
activities; responsible corporate gov-
ernance practices; our $125 billion
environmental initiative; our philan-
thropy; and many other activities.
Our ESG work includes the many
ways we share our success by driving
growth in the communities we serve.
In 2017, we provided $4.5 billion in
loans, tax credit equity investments
and other real estate development
solutions through Community
Development Banking. We financed
affordable housing, charter schools,
health care and economic devel-
opment across the United States,
including 12,000 affordable housing
units, nearly 5,000 of which went
6 | THE POWER OF EVERY CONNECTION
to seniors, military veterans and the
formerly homeless. We deployed capital
in many other ways to strengthen our
communities, including $200 million in
philanthropic giving. Also, our teammates
spent 2 million hours supporting and
volunteering with local organizations
and chapters. It gives me great pride to
see what the teams are doing in all our
markets.
You can read more about how we are
supporting communities throughout this
report, including the four-page feature,
beginning on page 16.
Sustainability has an element of opera-
tional excellence, continuing to improve
our company and reinvesting those savings
into future capabilities. Through prior
initiatives, including our “New BAC” work
in 2011 and our ongoing Simplify and
Improve (SIM) program, we have simplified
our company and made it easier for our
teammates to serve customers and clients.
We have unlocked savings that we have
invested back into the company to innovate
and improve our capabilities; an example
of this is the addition of specialists in
our financial centers, and more commercial
and corporate bankers to serve local
markets, which I discussed earlier.
As we have continued to invest in oper-
ational excellence, we have reduced the
amount we spend each year by $26 billion
since 2011. In 2016, we set a target of
approximately $53 billion in annualized
expenses for 2018, which we have reached.
At the same time, our customer satisfac-
tion scores are at pre-crisis levels, and
improving.
INVESTING IN OUR TEAM TO BE A GREAT
PLACE TO WORK
Another component of being sustainable
is our commitment to be a great place
to work. In 2017, we demonstrated that
commitment in several ways.
At the beginning of 2017, we reached
the $15 per hour starting compensation
level after years of regular increases for
U.S. teammates. I’m pleased to see that
other companies have followed suit more
recently, influenced by the passage of the
Tax Act in the United States. We will continue to review and adjust our start-
ing wage as part of our commitment to fair and equitable compensation for
all of our teammates.
Please look for additional discussion in this report from Sheri Bronstein,
Global Human Resources executive, about our compensation and benefits,
including career development and learning, and other initiatives to help
our teammates see Bank of America as a great place to work. Sheri’s note
also describes our industry-leading work on health care and wellness for
our team.
SHARING THE BENEFITS OF U.S. TAX REFORM
Earlier, I mentioned that there was a one-time charge to our 2017 earnings
from the Tax Act. However, there are many benefits from tax reform that I
want to discuss. These benefits impact how we will invest in the future and
deliver returns to you.
The backdrop for this discussion is the solid economic growth our experts
expect in 2018. As I write this letter, our economists expect about
2.7 percent growth in the U.S. economy, with the unemployment rate
hovering at 4 percent or perhaps even lower. The driver continues to be the
consumer, and so far in 2018, we see healthy consumer activity, with Bank
of America credit and debit card spending up strongly so far this year. Our
business clients are showing confidence in a more stable and predictable
regulatory environment than in recent years.
When I think about the impact of the Tax Act, it starts with the broader
benefits to the U.S. economy. By lowering the corporate rate to 21 percent
from 35 percent, and by creating a territorial tax system where corporate
earnings are taxed at the rate of the jurisdiction in which they are earned,
the Tax Act allows companies to make business decisions less dependent
on the tax considerations necessitated by the prior imbalance in rates
between the United States and the rest of the world. This levels the playing
field for U.S. companies and impacts their decisions.
In discussions with clients who are CEOs of companies headquartered
abroad, I’ve been struck by a common theme. The United States is an
attractive market for them, with solid consumer demand, highly skilled
workers, stable rule of law, plentiful and predictable energy availability,
and other factors. Even so, prior to the Tax Act reforms, these clients
had no choice but to base investment decisions on the tax effects of
different rates around the world. With the U.S. corporate rate better
aligned with that of other countries, these CEOs now are considering how
to invest in manufacturing and production in the U.S., where the final
demand for their products remains so strong because the U.S. consumer
economy is so healthy.
We’re seeing other economic benefits from tax reform as well. Hundreds
of U.S. companies have provided bonuses, wage increases, and increased
matches to retirement savings plans to millions of American workers. At
Bank of America, more than 90 percent of employees have received a one-
time payment as a direct result of U.S. tax reform, impacting about 180,000
teammates in the U.S. and overseas. In addition, we will continue to invest
in our company in a balanced way that focuses on improving our connection
with customers, while increasing our competitiveness and sustainability.
We are expanding our financial center presence, as I discussed earlier. We
are investing in new technology and innovation across all our businesses.
BANK OF AMERICA CORPORATION 2017 ANNUAL REPORT | 7
A MESSAGE
FROM LEAD
INDEPENDENT
DIRECTOR
JACK
BOVENDER
Dear shareholders,
Thank you for your investment in Bank of America. Our CEO, the
management team, and I, on behalf of the independent directors
of your company, are pleased to report that our approach to
responsible growth produced solid returns for investors in 2017.
Bank of America earned $18 billion, and given our solid capital
position, we were able to return almost all of those profits
to you through common stock dividends and share repurchases.
We thank you for the faith and confidence you have entrusted
in us. The Board of Directors remains focused on enhancing the
company’s position to deliver long-term value to our shareholders.
To do this, the independent directors engage regularly with Brian
and the company’s management team, business leaders and
functional support executives (risk, human resources, audit and
finance) about the issues the company faces and the environment
in which we operate. These discussions assist our ability to assess
the company’s performance and to highlight areas of focus as
part of our Board meetings and annual strategic planning process.
Each fall, the Board and the senior management team meet
for an intensive planning session to review progress, discuss our
business opportunities and challenges, and approve the long-term
strategic plan. The directors also meet regularly throughout the
year with shareholders to solicit their views and input on a variety
of topics, including the company’s financial performance; corporate
governance and Board practices; environmental, social and gover-
nance (ESG) priorities; executive compensation; and other areas
of investor focus. In the past year, we engaged with shareholders
representing more than 30 percent of our outstanding shares,
which gave us a broad understanding of shareholder priorities and
concerns. I look forward to continuing these discussions in 2018.
On behalf of the Board and the management team, I thank you for
choosing to invest in Bank of America.
Sincerely,
Jack Bovender
8 | THE POWER OF EVERY CONNECTION
All these investments create jobs, too. We will
look to these and other areas as we continue
to grow and the benefits of tax reform play
out. As these benefits are realized, it is also
important that we retain our long-term focus
on addressing the federal debt and ensuring
the U.S. remains a fiscally strong, competitive
global leader.
COMMITTED TO STRONG
CORPORATE GOVERNANCE
Let me conclude by discussing how the man-
agement team and the Board of Directors
work together to advance your investment
in Bank of America. Effective corporate gov-
ernance is a tenet for sustaining responsible
growth. You are represented by a strong
independent Board. Our Lead Independent
Director, Jack Bovender, and the other
directors meet regularly with management,
regulators, and shareholders to review how
we are implemen ting responsible growth
and executing our strategy of serving three
groups of clients with our integrated financial
services capabilities.
Throughout the year, the Board meets with
management to oversee risk management and
governance, and carry out other important
duties directly and through Board commit-
tees that have strong, experienced chairs and
members. In addition, the management team
and the Board meet to review in detail ongoing
results and issues needing deeper discussion.
The Board and committees also give regular
input to us about topics of interest which
require additional conversation. In late fall, we
hold an extended session over several days to
review the three-year strategic plan and make
adjustments based on the operating environ-
ment, markets, and other opportunities. See
Jack’s note for his discussion about the Board’s
role in strategic planning.
We are proud of the work our directors have
done to increase diversity on our Board; we are
one of only five companies in the S&P 100 to
have five or more female board members. Our
director recruiting process focuses on diversity
of talent and perspective to ensure invigorating
discourse among Board members and
management. In 2017, we were pleased that
Dr. Maria Zuber, the vice president for research
at Massachusetts Institute of Technology,
joined our Board. Dr. Zuber brings diverse
REVENUE ($B)
$87.5
$87.5
$87.4
$85.9
$85.9
$83.7
$83.7
$83.0
$83.0
2013
2013
2014
2014
2015
2015
2016
2016
2017
2017
NET INCOME ($B)
$17.8
$17.8
$18.2
$15.9
$15.9
$88
$88
$86
$86
$84
$84
$82
$82
$80
$80
$20
$20
$15
$15
$10
$10
$10.5
$10.5
$5
$5
$0
$0
$5.5
$5.5
2013
2013
2014
2014
2015
2015
2016
2016
2017
2017
“In 2017, we saw
responsible
growth at work
for shareholders,
customers and
clients, the
communities we
serve, and our
teammates.”
perspectives in several areas, including technology
and risk management. In the short time she has
been with us, we have already benefited from her
unique talents and experience.
I encourage you to read more about our corporate
governance activities in our 2018 Proxy Statement.
LIVING OUR PURPOSE
In 2017, we saw responsible growth at work for
shareholders, customers and clients, the commu-
nities we serve, and our teammates. We discuss
this in greater detail in the following pages, where
you’ll see many examples of how we are living our
purpose: to help make financial lives better through
the power of every connection.
Thank you for your support and your investment in
Bank of America. I look forward to another strong
year for our company.
Brian Moynihan
March 12, 2018
BANK OF AMERICA CORPORATION 2017 ANNUAL REPORT | 9
SIMPLY SOUTHERN:
INVESTING IN
A DREAM AND
HELPING OTHERS
DREAM, TOO
When Ginger Aydogdu decided to pursue her lifelong
dream of selling specialty clothing, she was excited —
and a little anxious.
“My first production facility was very,
very small,” Ginger said. “We had
one manual machine. I didn’t have
enough employees. It was very scary,
and I wasn’t sure we would survive.”
Like many small businesses, Simply
Southern started slowly. Ginger made
$30 on the first day and $40 the next
day. At that rate, there was no way
she was going to make enough to pay
the rent. But she stuck with it, and
soon, she was fielding dozens of calls
a day from retailers interested in
selling her Southern-styled shirts
and apparel. “It was a lot of hard
work and determination, and all of a
sudden, it finally paid off,” she said.
“Retailers started to say, ‘oh yeah, this
is a product we can sell and we can
sell a lot of it.’” And so, a relationship
that started with a small business loan
from Bank of America turned into
a multimillion dollar enterprise. A
fledgling business in Greensboro,
North Carolina, selling vibrant-colored
T-shirts at trade shows became a
global enterprise selling an array of
products through 4,000 stores around
the world. Before long, Simply Southern
had outgrown its small business
roots and turned to Bank of America
Merrill Lynch for help.
“We came into Ginger’s life at a time
when her company was experiencing
tremendous growth,” said Katherine
Lockhart, Bank of America Merrill
Lynch Business Banking executive.
“We discussed how we could help her
with her payables and receivables,
financing buildings, and expanding into
new markets. The company was doing
very well and needed additional
capabilities, not just for Ginger’s busi-
ness needs but also for the personal
side.” “Ginger is a very philanthropic
person,” said James Walsh, private
client advisor at U.S. Trust, Private
Wealth Management. “With many busi-
ness owners, so much of their
concentration is in one area — their
business. We’re able to come in and
provide a strategy to diversify their
holdings and establish a legacy to help
not only this generation, but successive
generations as well.” James sat down
with Ginger and mapped out a strat-
egy to manage her personal investing
goals and ensure that she could fulfill
another lifelong dream: working with
children. Today, with Bank of America’s
help, Ginger can focus on her business,
her employees, and giving back to
the community. And Simply Southern’s
future is simply amazing.
10 | BUSINESS BANKING / WEALTH MANAGEMENT / COMMERCIAL BANKING
TRADEPOINT ATLANTIC
The world’s largest steel mill once operated on a 3,000-plus acre
riverside point in southeast Baltimore, north of the United States
Naval Academy and Chesapeake Bay. At its peak, the Bethlehem
Steel mill employed tens of thousands of workers to meet global
demand and serve an evolving American landscape. Its prod-
ucts can be found within the Golden Gate Bridge’s girders, the
George Washington Bridge’s cabling, and armaments for U.S.
forces from both world wars. The rise of imported steel and
increased use of alternative materials led the mill to be shuttered
in 2012. But today a partnership entitled Tradepoint Atlantic is
redeveloping the project into the country’s largest multichan-
neled transportation and logistics hub, where brands such as
FedEx, Under Armour, and Amazon will ship products by port,
rail, and highway. Bank of America provided financing for the
site. Independent analysis forecasts the creation of 17,000 jobs
and a $3 billion economic impact for Baltimore and the state of
Maryland. “We have been partners with Bank of America Merrill
Lynch since the inception of our company,” said Kerry Doyle,
Tradepoint Atlantic’s chief commercial officer. “They provided
us construction financing for our two marquee buildings and
have been integral in establishing the legitimacy of the project.
Our relationship with Bank of America not only helped us reach
the point where we proved the concept and developed more
than 2 million square feet, it has us poised to continue that
process, secure new business, and achieve the site’s potential.”
“We believe in Tradepoint Atlantic’s vision,” said Bank of America’s
Paul Deschamps, senior relationship manager in the Global
Banking and Markets real estate division. “From their innova-
tive business plan to their commitments to the community
and environmental sustainability, we are fully aligned with
their interests and look forward to continued collaboration.”
For three decades, a star of Bethlehem, hand-crafted by steel-
workers and affixed to the mill’s blast furnace, was lit during the
holidays. Today, the star is purposely reflected in the intersect-
ing lines of Tradepoint Atlantic’s corporate logo, and the actual
reclaimed star has assumed a place of prominence within the
development. “The Bethlehem Steel mill impacted this entire
region,” said Bank of America Greater Maryland Market
President Sabina Kelly, a Baltimore native. “Now, Tradepoint
Atlantic is creating the next chapter, and we are proud to assist
them as they do so.”
BANK OF AMERICA CORPORATION 2017 ANNUAL REPORT | 11
MEET EDITH CUNNINGHAM,
FREQUENT ATM USER
AT 101
Edith Cunningham became a cus-
tomer of Bank of America when
she worked on a military base
in San Francisco during World
War II. Fast forward to today, and
a lot has changed. Customers
can access their cash 24 hours a
day through the ATM and even
pay bills on their smart phones.
Edith is learning about the new
technology available and is a
frequent ATM customer. The one
thing that hasn’t changed is her
financial philosophy, never spend
more than you make!
INNOVATIONS
SHAPE THE
FUTURE OF
BANKING
A conversation with
Michelle Moore
Q: Digital banking used to be about convenience, now it’s about
mobility. How did we get here?
A: Our clients and their actions brought us to this inflection point. There are more
customers who bank with us through mobile only than through desktop, and they
are logging in at a rate of over 100 million sign-ins per week.
Q: Are clients able to do everything on a smartphone that they can do
in a financial center?
A: With the exception of dealing with cash, clients can do everything including
make payments, deposit checks, and open accounts right from their mobile phone.
In addition, there are many value-added features available to clients in mobile,
including the ability to check FICO scores, lock and unlock debit cards, and set
up an appointment to meet with one of our specialists, to name a few.
Q: Where is Mobile Banking headed?
A: We are living in a world dominated by voice interactions and the need for a paper-
less, cashless environment. Zelle® is a great example of helping our customers
move to a cashless society; it’s a new person-to-person (P2P) payment service in
our Mobile Banking app that we introduced in mid-2017. Zelle makes it easy, safe
and fast for clients to send, receive and request money from almost anyone, with a
bank account in the U.S. We saw total Zelle transactions hit nearly 68 million, and in
the fourth quarter alone we processed more than 23 million transactions, totaling
nearly $7 billion. We currently have 3 million active monthly users of Zelle, and we
continue to add thousands of new users every day.
Q: Who is Erica?
A: Erica is our virtual financial assistant, leveraging artificial intelligence and data to
better help clients live their best financial lives. Clients can interact with Erica
through voice and text, and she will help with their banking needs, like transferring
money, finding key account information such as routing numbers, and locking and
unlocking debit cards. More importantly, Erica will provide proactive insights
to clients about trends in balances and notifications of upcoming bills. She has the
ability to track transaction information such as how much customers spent on
groceries last month, a subscription monitor to help them stay ahead of recurring
subscriptions, card controls to proactively let them know where their card is being
used for payments, and valuable insights on how to meet savings goals.
12 | RETAIL AND PREFERRED BANKING
MINNESOTA —
HIGH-TOUCH, HIGH-TECH
IS THE FOUNDATION FOR
GROWTH IN THE NORTH
It’s all about relationships
here in the Twin Cities.
Business can still get done on a handshake,
and people like to work with people they
know. That’s why our high-touch, high-tech
approach works so well here — no matter
how clients choose to bank, we’re
delivering great client care through every
channel and in person, in a way that builds
trust. And our high-tech platforms are
simply best-in-class — whether through our
mobile access, ATM and Advanced Centers,
or online, our clients are able to get their
business done quickly, securely, and easily.
When they need more than transac tions,
though, like a question answered, a
problem solved, a new idea on how to
optimize their assets — that’s where my
team and I come in for the high-touch
experience. Our new financial center feels
more like a living room than a typical bank
branch. It’s a comfortable and inviting
place where we bring our clients together
with the people who have the right exper-
tise, and offer products and services that
can be combined into a unique solution
just for them. Clients can get advice from
an expert on all aspects of their financial
life: homebuying, their small business,
or investments to fund a robust retire-
ment or plan for college for their kids.
High-touch, high-tech is how we provide
personalized and sustainable coverage
for our local community. It means that
our clients can trust that we are here
for them for the long term, that we care
about the individual relationship we have
with them, and that they can always
reach someone they know to get the
financial advice that they need.
Catherine Simpson
Bank of America Market President
Minneapolis/St. Paul
PARTNERING TO MAKE
HOMEOWNERSHIP
A REALITY
Santos Vanegas Villatoro, a single
father of three, had always dreamed
of owning his own home, but he
wasn’t sure he could afford it.
“I had saved enough for the down payment, but I wasn’t sure it
would be enough to keep my mortgage payments the same as
my monthly rent,” Santos said. “Plus, I wasn’t very familiar with
the whole process of buying a home.” Through an innovative
partnership between Bank of America and the Neighborhood
Assistance Corporation of America (NACA), Santos was able
to buy a home in Charlotte and keep his payments affordable.
Bank of America’s Consumer Lending team is proud to help
clients like Santos realize their dream of owning a home. It’s part
of how we are investing in our communities and helping families
and neighborhoods create prosperity.
BANK OF AMERICA CORPORATION 2017 ANNUAL REPORT | 13
14
15
LEGACY WEST: BRINGING THE NEW
URBANISM TO NORTH TEXAS
In 1978, Fehmi Karahan arrived in New York City from
Istanbul, Turkey as a graduate student with less than
$100 in his pocket. After moving to Texas and completing
his MBA, he joined a small commercial real estate devel-
opment company. Today, Fehmi is president and CEO of
The Karahan Companies, an integrated real estate devel-
opment, property management and investment group.
“Growing up in Istanbul, a city that is some 3,000 years old,
and being able to travel around Europe and see pedestrian-
friendly streets, outdoor cafes, and gathering places gave
me the insight into how these communities work and what
people like,” Fehmi says. As 2017 came to a close, Fehmi
had just completed one of the largest, most successful
commercial developments in Texas: Legacy West, a
240-acre mixed-use project, in the Dallas suburb of Plano.
The $3 billion project, which became home to several
Fortune 100 companies, features retail, restaurants, apart-
ments, and corporate office space. Fehmi widely credits
his team, including Bank of America, for his success. “When
Fehmi approached us, it was an opportunity to deepen our
relationship further and provide financing for yet another
unique project,” said Yelda Tuz, Bank of America Senior Credit
Products manager with Global Banking and Markets. “Fehmi
is a visionary who has an extraordinary gift for developing
landmark projects like Legacy West, which has turned into
one of the most successful projects in the state.”
MARK HOGAN: SUPPORT SERVICES
TEAMMATE AND D&I AWARD WINNER
Mark Hogan is a Support Services employee based in Dallas, Texas who
embraces our culture of giving back to his community. Our Support Services
team is an in-house marketing and fulfillment operation comprising 300
employees with intellectual disabilities who support every major line of
business. For over 25 years, this department has given individuals facing
barriers to employment the opportunity to achieve financial stability
and become successful members of their communities. In 2017, Mark
was named a Diversity & Inclusion Award winner for his commitment to
community service. He led his department to donate 104 boxes of food
to the North Texas Food Bank, filled 131 backpacks with school supplies
for local children, raised more than $2,100 to support the American Heart
Association’s Heart Walk, and generously donated his time to the “Night
to Shine Prom,” which hosts an unforgettable prom experience for people
16 years and older with special needs.
THE STAR: DALLAS COWBOYS NEW HEADQUARTERS
Earlier in 2017, more than 200 employees from Merrill Lynch, U.S. Trust and Bank of America
moved into new office space at The Star, a 91-acre campus in Frisco, Texas which is also the
Dallas Cowboys world headquarters. Bank of America not only relocated to the headquarters,
but also served as a finance partner in the overall project. The Bank of America team and its
local customers are now benefiting from having three separate locations consolidated into
one destination.
16 | WELCOME TO DALLAS / FORT WORTH
DALLAS
360° VIEW OF HOW BANK
OF AMERICA SUPPORTS
LOCAL ECONOMIES
PEOPLEFUND: SUPPORTING
LOCAL SMALL BUSINESSES
PeopleFund, one of over 260 community
develop ment financial institutions (CDFIs) that
Bank of America supports, is a community
lender in Texas. PeopleFund lends to small
businesses, including women entrepreneurs,
through the Tory Burch Foundation Capital
Program — funded by Bank of America — that
connects women business owners to afford-
able loans to help grow their businesses.
Andrea Thomas, owner of ScratchMeNot Flip
Mittens, used her loan to increase manufactur-
ing, grow her business, and help her product
impact the lives of thousands of children.
THE GATEHOUSE: DALLAS
NEIGHBORHOOD BUILDER
The Gatehouse is a supportive living community where
women and children in crisis receive a hand-up to end
cycles of abuse and poverty, and build new lives. Through
Neighborhood Builders®, Bank of America equips non-
profits and their leaders with the funds and training to
improve their community services and build stronger,
more vibrant organizations. “We recognize the critical
role that nonprofit organizations and their leaders play
to build pathways to economic progress in the North
Texas community,” said Mike Pavell, Bank of America
Fort Worth market president. “Through this program, we
connect outstanding nonprofits, like The Gatehouse, to
the resources they need to scale their impact and help
our community thrive.” Now in its third year, the 61-acre
Gatehouse community has 95 apartments where women
and their children work through a program at their own
pace to become self-supportive. Families can stay for up
to 2½ years while receiving assistance, including food,
clothes, transportation, child care, medical/dental care,
legal aid, financial literacy training, career development
guidance, professional counseling, and higher education.
“We believe in giving a hand-up, not a handout, for per-
manent change,” says Lisa Rose, founder and president of
The Gatehouse. “The funding and leadership development
training provided by Bank of America gave our volunteers
opportunities we couldn’t have otherwise offered.”
SONIA MOSS: 50 YEARS WITH U.S. TRUST
In 1965, Sonia Moss started a temporary job at the front desk of a U.S. Trust location in Dallas.
She intended to stay six months, and then find something more permanent. More than five
decades later, she’s still here and finds something exciting about her job every day. In the begin-
ning, she helped the team by manually using a 10-digit calculator and processing transactions
coming off the teller line. Today, she enjoys each day as it comes and has stopped looking for
that more permanent position.
BANK OF AMERICA CORPORATION 2017 ANNUAL REPORT | 19
In the Dallas/Fort Worth market, as in all of our local markets, we are focused on delivering the
full breadth of our capabilities to customers and clients, building our reputation as a trusted
financial partner, while leading environmental, social and governance efforts, and contributing
to the community. Led by seasoned local leadership, Bank of America is recognized as an
employer of choice in the Dallas/Fort Worth market. We employ approximately 15,000 people in
the community, making it one of the largest local concentrations of Bank of America employees
in the world. Throughout their daily interactions with business leaders and community
stakeholders, our team is advancing the Bank of America brand values through local projects
and initiatives, such as financing Legacy West in Plano and moving teams together in new
offices at The Star and in downtown Fort Worth. We are also assisting entrepreneurs in the
community through our support of the Gatehouse in North Texas and PeopleFund. And, our
employees continue to give back to the community in many ways, as highlighted by the actions
of Mark Hogan, above, and Sonia Moss, at right. Our efforts in Dallas/Fort Worth are an
outstanding example of how Bank of America is helping make the financial lives of our customers
better every day through the power of every connection.
HARNESSING
CAPITAL
MARKETS
TO DO GOOD
A conversation with
Vice Chairman Anne Finucane
Q: How does Bank of America approach ESG?
A: For our company, we see this as good business — running
a company that people feel is a good investment, creating
sustainable growth in our business, and finding innovative
ways we can deploy our capital to address global challenges.
Our focus on good environmental, social, and governance
policies creates jobs, transforms communities, fosters economic
mobility, and seeks solutions and opportunities to help
families, businesses, and communities prosper and thrive.
Over the last three years, we’ve strengthened our ESG focus
across the company. We put in place a management-level
ESG Committee that looks at all of our businesses and our
practices and identifies the ESG risks and opportunities.
We’ve embedded this approach through all of our eight lines
of business, ensuring we are identifying opportunities that
will have positive environmental and social impact, while being
diligent in managing our risk in these areas. And we hold our
teams accountable. Every member of the executive manage-
ment team has ESG metrics on their performance scorecard.
Q: What does it mean to be sustainable today?
A: “Sustainable” has become such a ubiquitous term, people often
make assumptions about what it means. “Sustainability” is
often associated narrowly with environmentalism, or the “E”
in ESG — but today, there is a much broader definition. At
the center are fundamental questions about basic principles
of capitalism and what responsibilities businesses have as
corporate citizens. We know that much of a company’s market
value comes from or is affected by factors never reported
on a balance sheet, including its social and environmental
impact. These nonfinancial factors are equally important,
and perhaps a better, more telling measure of the degree to
which companies approach business in support of returns
that are more reliably sustainable. Yet companies create
value across multiple dimensions, and our prosperity is linked
inextricably to the communities we serve and the challenges
they face. The value we create must also be shared to be
sustainable longterm.
Q: What’s the connection between social and
environmental benefit and the bottom line?
A: As seen in two reports released by Bank of America Merrill
Lynch’s Global Research team — “ESG: Good Companies Can
Make Good Stocks” in 2016 and “ESG Part II: A Deeper Dive”
in 2017 — not only is a company’s ESG performance a reliable
indicator of its future stock performance, but progressive
ESG practices make companies less likely to suffer large
price declines. They signal significantly better returns on
equity than their counterparts, and suggest a greater chance
of long-term success.
20 | THE POWER OF EVERY CONNECTION
We have provided over
$4 BILLION
in loans, tax credit equity
investments and other real
estate development solutions
to create housing for families,
veterans, seniors, and previously
homeless individuals across
the United States.
Since 2013, we have delivered nearly
$66 BILLION
towards our 2025 goal of providing
$125 BILLION
for low-carbon and sustainable business through
lending, investing, capital raising, advisory
services, and developing financing solutions
for clients around the world.
Q: Where do you see the biggest
potential impact?
A: The biggest impact we make is through
deploying capital to address major global
societal issues such as climate change,
clean water, affordable housing and others.
Because increased financing is exactly
what is needed to move the needle on
these major challenges, we are excited
that we are exploring innovative ways to
get the whole financial community —
government agencies, nonprofits, private
equity and major investors such as pension
funds and insurance companies — to think
about addressing these issues with capital
that has a competitive rate of return. If
we can continue to build partnerships that
embrace these new financial structures,
we can have a meaningful impact on
our global challenges while ensuring good
value for our clients and shareholders.
We connected people and local communities to
affordable loans by investing more than
$1.5 BILLION IN 260+ CDFIs
to help finance small businesses, affordable housing,
and other economic revitalization projects, primarily
within low- and moderate-income communities. As an
example, through the Tory Burch Foundation Capital
Program, we have deployed more than $35 million in
affordable loans to more than 1,700 women
entrepreneurs to grow their businesses across the U.S.
ESG RATINGS & INDICES
CDP Climate A-List
Dow Jones Sustainability World Index for three consecutive years
Dow Jones Sustainability North America Index for
five consecutive years
Sustainalytics – 81 Percentile
U.S. Environmental Protection Agency EPA Green Power Rank – No.5
MSCI – BB
BANK OF AMERICA CORPORATION 2017 ANNUAL REPORT | 21
A TIME TO CARE
A conversation with Lorna
Sabbia, head of Retirement and
Personal Wealth Solutions at
Bank of America Merrill Lynch
Q: Why is Merrill Lynch interested in the topic of caregiving?
A: Caregiving is a life stage that nearly all of our clients and colleagues will experience,
as a caregiver, care recipient or both. It has impacted my family, and I’m not alone.
Today, 40 million Americans are providing unpaid care to a family member.1 Beyond the
emotional and physical demands of caregiving, the financial toll can be significant, as
well. Our research found that 92 percent2 of caregivers are also financial caregivers. They
not only provide funds, which can strain families’ finances, but also handle bills, taxes,
insurance and more. It can be a daunting responsibility that is often unexpected.
Q: What research has Merrill Lynch conducted to understand this issue,
and what were the findings?
A: Merrill Lynch recently surveyed more than 2,000 nonprofessional caregivers nationwide,
conducted numerous focus groups, and interviewed internal and external experts in
partnership with Age Wave. The result was a report called “The Journey of Caregiving:
Honor, Responsibility and Financial Complexity.” The research found that caregiving is both
rewarding and challenging. Nearly three-quarters of caregivers report making sacrifices.
On average, a caregiver spends $7,000 annually on a loved one, impacting their own
expenses and savings. Additionally, two in five caregivers have made sacrifices at work,
including reducing hours and even leaving the workforce. While caregiving responsibility
among millennials is more equitable, the bulk of caregiving today still falls to women.
Women are twice as likely as men to provide care to a loved one. Given the income and
savings inequalities that already exist, the need to address the impacts of caregiving is
most acutely felt among women.
Q: What is Merrill Lynch doing to address this need among clients?
A: The best time to have a conversation about caregiving is before a situation arises. Using
the insights from our extensive research and understanding of the issue, Merrill Lynch
financial advisors are prepared with tools and resources to guide clients through planning
and saving for the eventuality of caregiving. With more than 5 million plan participants
in our institutional retirement business, Bank of America Merrill Lynch is also helping
employers understand this critical issue and demonstrating its importance through the
company’s own industry-leading employee caregiving benefits.3
1 U.S. Census Bureau, 2016.
2 Merrill Lynch and Age Wave, “The Journey of Caregiving: Honor, Responsibility and Financial Complexity,” 2017.
3 AARP and ReACT, “Supporting Working Caregiving: Case Studies of Promising Practices,” 2017.
22 | MERRILL LYNCH WEALTH MANAGEMENT / US TRUST
IMPACT INVESTING
When Dr. Ruth Shaber started her career as an obstetrician
and gynecologist in San Francisco, impact investing was
virtually unknown. Today, it’s hard to imagine an investment
conversation that doesn’t begin and end with how to use
capital to drive both social and financial returns. For Ruth,
the journey toward impact investing began in 2014 when
she founded the Tara Health Foundation, which focuses
on identifying and supporting solutions that improve the
health and well-being of women and girls through an
investment model called “integrated capital”. In this model,
different forms of financial and nonfinancial resources
are coordinated to support enterprises that are working
to solve complex social and environmental problems.
Ruth explained, “Before we make an investment, we ask:
‘What is the problem we are trying to solve?’ We then
deploy the appropriate form of capital to address that
problem. We may deploy multiple forms of capital, such
as grants and debt refinancing, at various times to any
given partner in order to support their diverse needs.”
Ruth turned to her Merrill Lynch Wealth Management
advisors, Mary Foust and Alena Meeker, for help in design-
ing a diverse investment portfolio that is 100 percent
aligned with her values and goals. Included in her impact
strategy is a U.S. Trust portfolio called the Women and
Girls Equality Strategy (WGES). This portfolio goes beyond
a numerical analysis of female executives to examine how
companies are taking specific steps to empower women
and support gender equality. “U.S. Trust is a pioneer in
gender lens investing,” Ruth said. “WGES has developed
a comprehensive list of criteria that support a broad set
of outcomes for women and girls, spanning wage parity,
career advancement, family leave policies, and human
rights policies related to global supply chains. In addition
to its mission alignment, WGES has outperformed major
market indexes.”
BANK OF AMERICA CORPORATION 2017 ANNUAL REPORT | 23
COMMITTED TO
ENVIRONMENTAL
BUSINESS
Since 2013, we have invested $66 billion in clean energy,
energy efficiency, water conservation, sustainable trans-
portation, and other environmentally supportive activities.
Recognizing the power of our financial capital to make a positive environmental
impact, we have committed to deploy $125 billion in financing by 2025 to
accelerate the transition to a low-carbon, sustainable economy through lending,
investing, raising capital, and developing financing solutions for clients around
the world. Since 2013, we have invested $66 billion in clean energy, energy
efficiency, water conservation, sustainable transportation, and other environ-
mentally supportive activities. One example of that financing is a $200 million
tax-exempt master equipment lease/purchase agreement that Bank of America
Merrill Lynch’s Global Leasing Energy Services team provided for the New York
City Housing Authority (NYCHA) to finance energy conservation measures under
guaranteed energy savings performance contracts. NYCHA is the largest public
housing authority in North America, and owns and manages approximately
176,636 public housing apartments in 2,417 buildings in 325 developments
throughout the five boroughs of New York City. The first two schedules under
the master agreement total $103.1 million and fund two Energy Performance
Contracting (EPC) projects, providing much-needed energy and water conserva-
tion upgrades in 41 housing developments. The first project, Brooklyn-Queens
Demand Management (“BQDM EPC”), targets 23 large developments in an
electric supply-constrained Con Edison service area in Brooklyn. The second
(“Sandy-A EPC”) targets 18 of the 33 NYCHA developments damaged by the
2012 Superstorm Sandy. The primary goal of both projects is to modernize
NYCHA’s mid-century heating systems to deliver more consistent and com-
fortable heat. Projected energy savings for these projects over the term of the
financing total $105.8 million for BQDM and $78.7 million for Sandy.
24 | GLOBAL STRENGTH FOR GLOBAL GOOD
ATTRACTING MAJOR INVESTORS TO CLEAN ENERGY
Financing the world’s movement into cleaner forms of energy is a job too big for one company alone. When Bank of America
launched the Catalytic Finance Initiative (CFI) in 2014, a primary goal of the partnership was to increase flows of capital into
renewable energy opportunities, such as wind and solar, by using innovative structures that reduce investment risks and attract
broader pools of capital from institutional investors. To date, CFI partners have completed more than 20 deals in both developed
and emerging markets and have helped to mobilize more than $9 billion in investments. Highlights of Bank of America Merrill
Lynch’s CFI activity include structuring a BBB-rated, 18-year, $203 million institutional loan to Vivint Solar Inc., backed by 30,000
residential solar installations in the U.S. In emerging markets, we arranged green project bonds in India and Peru, attracting
foreign investment to these rapidly growing markets for clean energy. Our philanthropic dollars are also supporting high-impact
technologies like micro-grids in 14 villages in India.
TRANSITIONING TO A
LOW-CARBON ECONOMY
Since 2013, when we co-authored “A Framework for Green Bonds,” the
blueprint for the Green Bond Principles, Bank of America has been a
thought-leader in shaping this entirely new asset class. Our efforts have
helped create a market that had not existed before. Last year, we coor-
dinated the first international issuance of green bonds by a Brazilian
development bank, BNDES ($1 billion) and led offerings for clients
including the German development bank KfW ($1 billion), the Australian
Bank Westpac (€500 million), and the Canadian Province of Ontario
(C$800 million). In addition to green bond underwriting, we are driving
growth in the renewable energy market by making significant tax equity
investments through Bank of America Merrill Lynch’s Global Leasing
Renewable Energy Finance team. Last year, the team facilitated the
repowering of seven Texas wind farms with a $413.1 million tax equity
investment with NextEra Energy Resources, the largest owner and
operator of wind farms in the U.S. Repowering consists of replacing the
majority of the wind turbine with new components, such as blades, hubs
and gearboxes, but primarily leaves the foundation and tower unchanged.
Benefits include a more efficient wind farm capable of producing incre-
mental electricity from wind, a renewable, carbon-free source of energy.
INVESTING IN CLEAN WATER AND SANITATION
To ensure access to safe water and sanitation for all, it is vital to close the gap between the level of finance needed and the amount
currently being invested. Water.org is working toward this ambitious goal, and we have been one of its earliest financing partners,
with more than $1 million in grants since 2011 from the Bank of America Charitable Foundation to build the base of organizations
offering affordable water and sanitation loans for the poor in India. In 2017, Water.org founded WaterEquity, the first impact invest-
ment manager dedicated to ending the global water crisis in our lifetime. WaterEquity builds the market between impact investors
and water and sanitation businesses reaching underserved communities, unlocking the level of capital needed to match the
scale of this crisis. Bank of America has committed to provide WaterEquity’s $50 million fund with a $5 million zero-interest loan.
By investing in water and sanitation businesses in India, Indonesia, Cambodia, and the Philippines, this WaterEquity fund targets
a 3.5 percent return for investors and aims to reach 4.6 million people with safe water and/or sanitation over a seven-year period.
Deploying our capital to help people served by Water.org — this is the essence of partnering for impact.
Image provided by Water.org
BANK OF AMERICA CORPORATION 2017 ANNUAL REPORT | 25
HELPING
COMMUNITIES
THRIVE
Our efforts in local communities are helping to drive economic development
and job creation. In addition to providing capital to help small businesses and
affordable housing through CDFIs and Community Development Banking, last
year, Bank of America delivered nearly $200 million in philanthropic invest ments,
and our employees volunteered nearly 2 million hours in their communities.
Our support helps nonprofit organizations advance economic mobility for
individuals and families, solve tough challenges, and connect more deeply
with people in their community. We are supporting women’s economic empow-
erment through partnerships with Vital Voices in the Global Ambassadors
Program, Cherie Blair Foundation, and Kiva to help bring mentoring, training,
and funding to women around the world. Our partnerships with these organi-
zations have allowed us to help 7,000 women from 80+ countries grow their
businesses in their communities. Through all of these efforts, we’re helping
to create more sustainable economies and a better future for us all.
ADVANCING ECONOMIC MOBILITY
In every community we serve, there are people living on the
margins, hoping to find good jobs and affordable housing to
create a better life for themselves and their families. That’s
why our economic mobility efforts address issues of workforce
development and education, basic needs, and community devel-
opment. We partner with nonprofit organizations that remove
barriers to economic success for vulnerable populations, includ-
ing youth, working families, and the formerly incarcerated. By
partnering with nonprofit Year Up® — a national organization
focused on providing urban young adults the skills, experience,
and support they need to reach their full potential through pro-
fessional careers and higher education — we have been able to
welcome hundreds of Year Up interns to six-month, full-time
internships and have hired more than 150 to full-time positions.
Through this partnership, we are able to create a pipeline of
motivated, hard-working young adults who are able to build their
professional and business skills, while also delivering value to
their teams and our customers.
SUPPORTING COMMUNITIES IMPACTED BY DISASTER
We have a long-standing commitment to community aid and response during times of disaster, humanitarian crises, and civil
strife. In 2017, our company and employees contributed nearly $5 million in relief funding to support communities impacted by
disasters, including Hurricanes Harvey, Irma and Maria; California wildfires; and the earthquakes and Hurricane Katia in Mexico.
Additionally, we deployed mobile financial centers and mobile ATMs to the greater Houston area to help our local financial
centers impacted by Hurricane Harvey. Our Global Transaction Services team worked with the American Red Cross to offer
Bank of America Merrill Lynch’s payments solution, Digital Disbursements, to send emergency funds to people impacted
by Hurricane Harvey. We also support resilience planning in communities to lessen the impact of future natural events.
Our $1 million grant to The Nature Conservancy (TNC) has supported its work to expand nature-based solutions to protect
coastlines from rising sea levels and extreme weather. Additionally, with our support, the GivePower Foundation brought
solar power to several Puerto Rico fire stations following Hurricane Maria.
26 | HELPING COMMUNITIES THRIVE
EMPOWERING PEOPLE
FOR BETTER FINANCIAL
OUTCOMES
One way we deliver on our commitment to making financial
lives better is through our free financial education platform,
Better Money Habits.®
By simplifying complex personal finance
topics through easy-to-understand infor-
mation, tools and videos, Better Money
Habits empowers users to understand
their financial choices and make confident
decisions about their personal finances.
In 2017, we extended the reach of Better
Money Habits by rolling out content in
Spanish. The site will continue to be fully
translated over the course of 2018. This
complements our online and mobile
banking app, which have been available in
Spanish since 2015. Better Money Habits is
available for customers and noncustomers
alike. For customers, the platform is
embedded in our online and mobile offer-
ings, like our Spending and Budgeting tool,
which puts timely information at clients’
fingertips to help them improve their
financial outcomes. And we see evidence
that it is helping. Our engaged Better
Money Habits users are growing their
savings, growing their checking balances
and reducing debt. This is particularly
important for anyone looking to improve
their financial footing, such as young adults
just starting out and those who live in low-
and moderate-income (LMI) communities
where approximately 30 percent of our
financial centers are located. That is why
Better Money Habits is part of our broader
community-centered approach to provide
clients and small businesses financial
expertise, tools, and products tailored to
help them achieve their specific financial
goals. We help foster economic mobility
in these neighborhoods by bolstering
partnerships, providing relevant products
and language resources, creating access
through WiFi in our financial centers and
supporting career paths for our associates.
WITH PERSPECTIVE COMES UNDERSTANDING
Through our Courageous Conversations program, we encourage our employees,
clients, and community partners to have an open dialogue on important, societal
topics as a way to foster deeper learning and understanding. For example, in
support of the landmark documentary film, “The Vietnam War,” we brought together
diverse perspectives to discuss the Vietnam War era, a divisive time in U.S. history.
Additionally, we hosted the National Community Advisory Council (NCAC) Opening
Night at the U.S. Holocaust Memorial Museum, where we facilitated a discussion on
the vital role public institutions play in protecting democracy. From Los Angeles to
Charlottesville, London to Kansas City, our employees continue to plan and participate
in courageous conversations about issues that are important to them.
BANK OF AMERICA CORPORATION 2017 ANNUAL REPORT | 27
A GREAT PLACE
TO WORK:
TRACY DANIELS
Recognized as Bank of America’s 2017 Working
Mother of the Year, Tracy Daniels has enjoyed
more than 10 years at the company, and knows
the value of its benefits.
Tracy is a business executive for Global Banking and
Markets Operations, and is a passionate leader in our
diversity efforts and programs, including our Employee
Networks. At home, she is mom-in-chief, with three chil-
dren. Tracy used the company’s benefits to help grow
her family with fertility treatments and extended parental
leave with the birth of her daughter, Leah. Born premature
and with spina bifida, Leah spent a total of eight weeks
in the hospital and had two major surgeries in her first year
of life. Tracy leveraged significant medical benefits to
work with as many as six specialists per year. Tracy’s ability
to balance her personal life and career means she’s able
to continue to deliver in her role, which has earned her
promotions since she returned from leave, with wider
responsibilities and accountability for larger teams. She is
also passionately involved in our diversity efforts, serving
as co-chair of the Leadership, Education, Advocacy and
Development for Women Employee Network, and on the
Black Professional Group Executive Leadership Council.
“From the benefits that support creating a family, to the
policies that help manage a family, all while supporting
women as we strive for professional development and
personal growth, working at Bank of America is truly
extraordinary as a working mom,” said Tracy.
LIFE EVENT SERVICES SPOTLIGHT
“I’m in a happy place now because Bank of America saved
my life.” For Katia, the past two years brought hardship
and change. She ended a physically abusive relationship
and relocated to a new state, lost power and food during
Hurricane Irma, and suffered a severe lung condition.
Through it all, the U.S. Life Event Services team was there
to support her and her family, connecting her with bank
resources to help. For that, she says, “I don’t know where
I’d be without this company. It feels like a family in how it
cares for its people.”
28 | OUR EMPLOYEES
BEING A GREAT PLACE
TO WORK: CORE TO
RESPONSIBLE GROWTH
It is the daily commitment to our purpose by all 209,000 of our
teammates that allowed us to deliver our 2017 results. A pillar of
responsible growth is that it must be sustainable. One way we
achieve responsible growth is by being a great place to work. Our
commitment to our employees is as strong as the bond they share
with our customers and our communities. We demonstrate that
in several ways, starting with fair and equitable compensation.
We offer affordable health care and related programs that make it
easier for employees to look after themselves and their families.
And, we have many programs and opportunities that reinforce our
belief in a diverse, inclusive team, and other benefits and services
that help employees balance their work and personal lives. First,
let me highlight our pay-for-performance culture. Since 2010, the
average annual compensation increases for our U.S. employees
have outpaced the average U.S. wage growth. From the starting
compensation level to our highest earners, whether a teammate
joined last year or has been with us since 2010, compensation for
all but the highest 10 percent has grown at least twice the rate
of the U.S. national average. We also provide 401(k) contributions
of up to 5 percent of eligible pay, starting after one year of service,
including an additional 2 to 3 percent automatic annual company
contribution, and free, personalized retirement and benefits
guidance. Turning to health and wellness benefits; we have kept
related cost increases for our employees below the national
average and below other companies’ rates for many years. We
have taken a long-term approach to managing health benefits.
More than 70 percent of employees have seen either no cost
increase, or an increase that is well below the increase of the
cost to the company since 2010. The average cost of health care
coverage for an employee’s family of four is just over $23,000.
On average, we subsidize 75 percent of the costs across our pop-
ulation, giving each employee an average benefit value of about
$17,000. While the benefits are the same, regardless of compen-
sation level, we take a progressive approach to employee paid
premiums. Employees earning less than the median U.S. household
pay an average annual premium of about $2,600, meaning we
subsidize about 90 percent of their total coverage costs. This
gradually decreases as compensation increases, with the highest
compensated employees paying more than 60 percent of the
cost through premiums. Also, in 2011, we reduced annual family
coverage medical premiums by 50 percent for U.S. employees
below the median household income level — and we have kept
those premiums flat for six consecutive years. For employees
earning between the median income and $100,000 per year,
we reduced premiums by 15 percent, and have limited premium
growth to about one-third of the national trend. Our wellness
program contributes to our success in slowing health care cost
increases. The program includes an annual premium credit to
encourage employees to get annual health screenings (about
85 percent of employees respond) and our voluntary “Get Active”
physical fitness campaign, in which nearly 70,000 teammates
(about 30 percent) participated last year. We want to provide great
health care benefits to teammates. For those who need addi-
tional support, we provide access to the tools and resources they
need for a healthy lifestyle. Being the best place to work extends
beyond compensation and health benefits to include tuition assis-
tance, career development and learning, and childcare programs.
We offer up to 16 weeks of paid parental leave — maternity,
paternity, and adoption. Our bereavement policy provides up
to 20 days of paid time away for the loss of a spouse/partner or
child. Through several man-made and natural disasters in 2017,
our Life Events Services team did a great job providing counseling
and resources to teammates. The diversity of our employees —
in thought, style, sexual orientation, gender identity, race, ethnic-
ity, culture, and experience — makes us stronger, and is essential
to our ability to serve our clients, fulfill our purpose, and drive
responsible growth. We encourage employees to engage in what
we call “Courageous Conversations” about sensitive topics. More
than 60,000 teammates have discussed race, gender dynamics,
social justice, LGBT equality, and the Vietnam War. Taken together,
our pay-for-performance programs, health and wellness programs,
and other benefits and support helped contribute to record-low
employee turnover in 2017. Our shareholders benefit from this
due to lower costs to train and find experienced employees. Our
work in these areas also is recognized by others; Bank of America
was ranked in Fortune magazine among the 100 Best Workplaces
for Diversity and the 50 Best Workplaces for Parents. We also
were pleased to be ranked by Forbes and JUST Capital as the
best in our industry in the second annual list of America’s Most
JUST Companies.
Sheri Bronstein
Global Human Resources Executive
BANK OF AMERICA CORPORATION 2017 ANNUAL REPORT | 29
Euromoney magazine’s
WORLD’S BEST BANK
for Corporate Social Responsibility
and for Advisory Services
Every year since its inception, included as one of
the leading companies in the Bloomberg
GENDER-EQUALITY INDEX
Recognized as the
INDUSTRY LEADER
in the “Banks” industry category among
JUST Capital’s America’s Most JUST Companies
Bank of America Merrill Lynch named
BEST ESG BANK
in Asia by The Asset magazine
for the second year in a row
30 | ESG HIGHLIGHTS
Based on work conducted
by consulting firm EY,
we examined the
ECONOMIC
IMPACTS OF A
$12.6 BILLION
subset of our company’s
$125 billion environmental
business commitment.
Focusing on U.S. projects
financed between 2013–2016,
this subset:
Supported an annual
average of 39,728 jobs
Realized a cumulative
$29.9 billion in
economic output
Contributed a cumulative
$14.8 billion to GDP
Bank of America
supports more than
2,000 ART
ORGANIZATIONS
WORLDWIDE
Bank of America
Art Conservation Project:
Provided grants to projects
in 30 countries to conserve
historically significant works of art
Museums on Us®: 2017
marked the 20th anniversary
of providing access to a variety of
museums across the U.S.
Art in Our Communities®:
More than 120 exhibitions have
been loaned to help generate
revenue for art institutions
In 2014, Bank of America became the first and
remains the only financial services institution to
gain membership into the Billion Dollar Roundtable,
a nationally recognized organization that
celebrates corporations that spend at least
$1 BILLION
directly with minority- and
women-owned businesses
One of the nation’s top small
business lenders, with
$34 BILLION
in small business loan balances
(commercial loans under $1 million),
according to the FDIC, and approximately
40% of the small businesses we serve at
Bank of America are women-owned
Delivered nearly
$200 MILLION
in philanthropic investments, including $44 million
to connect individuals to jobs and skills
that will build long-term financial security
Connected employees to meaningful volunteer
opportunities through initiatives like our fourth annual
Habitat for Humanity Global Build,
which engaged more than
2,500 EMPLOYEE
VOLUNTEERS
in 90 communities across six countries to build
affordable housing and revitalize communities
There’s a general correlation
between clients who
engaged with
BETTER MONEY
HABITS AND THE
SPENDING AND
BUDGETING TOOL
and a variety of improved
financial outcomes:
About one in four
grew savings by
20 percent or more
About one in three grew
their checking balance by
20 percent or more
About one in seven reduced
their credit balance by
20 percent or more
About one in five decreased
their overdraft fees
BY THE NUMBERS
Better Money Habits
was viewed more than
12.3 million times
across the website and our
Mobile Banking app in 2017
4.5 million people are
actively using the Spending
and Budgeting tool
(as of December 2017)
24 million people are using
Bank of America’s
Mobile Banking app, including
more than 1 million
Spanish-language users
(as of December 2017)
BANK OF AMERICA CORPORATION 2017 ANNUAL REPORT | 31
Bank of America Corporation — Financial Highlights
Bank of America Corporation (NYSE: BAC) is headquartered in Charlotte, North Carolina. As of December 31, 2017, 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
2017
$ 87,352
18,232
1.63
1.56
0.39
0.80%
9.41
62.67
10,778
$
2017
$ 936,749
2,281,234
1,309,545
267,146
23.80
16.96
29.52
10,287
$
2016
$
83,701
17,822
1.57
1.49
0.25
0.81%
$
9.51
65.81
11,047
2016
$ 906,683
2,188,067
1,260,934
266,195
23.97
16.89
22.10
10,053
$
7.9%
8.0%
2015
$ 82,965
15,910
$
1.38
1.31
0.20
0.74 %
9.16
69.45
11,236
2015
$ 896,983
2,144,606
1,197,259
255,615
$
22.48
15.56
16.83
10,380
7.8 %
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 43 and Non-GAAP Reconciliations on page 104 of the 2017 Financial Review section.
Total Cumulative Shareholder Return2
$300
$250
$200
$150
$100
$50
$0
2012
2013
2014
2015
2016
2017
December 31
2012 2013 2014 2015 2016 2017
Bank of America Corporation $100 $135 $156 $148 $198 $268
231
KBW Bank Sector Index
208
S&P 500
100
100
150
138
195
153
132
151
151
171
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, 2012 through 2017. The graph assumes an initial
investment of $100 at the end of 2012 and the reinvestment of all dividends during the
years indicated.
32 | THE POWER OF EVERY CONNECTION
BAC Five-Year Stock Performance
$30
B of A
$25
$20
S&P
$15
KBW
$10
$5
$0
2013
2014
2015
2016
2017
HIGH $15.88
$18.13
$18.45
LOW
CLOSE
11.03
15.57
14.51
17.89
15.15
16.83
$23.16 $29.88
22.05
11.16
29.52
22.10
Book Value Per Share/Tangible Book Value
Per Share
9
9
6
6
.
.
0
0
2
2
$
$
.
.
7
7
7
7
3
3
1
1
$
$
.
.
2
2
3
3
1
1
2
2
$
$
3
3
4
4
.
.
4
4
1
1
$
$
8
8
4
4
.
.
2
2
2
2
$
$
6
6
5
5
.
.
5
5
1
1
$
$
.
.
7
7
9
9
3
3
2
2
$
$
.
.
9
9
8
8
6
6
1
1
$
$
0
0
8
8
.
.
3
3
2
2
$
$
.
.
6
6
9
9
6
6
1
1
$
$
2013
2013
2014
2014
2015
2015
2016
2016
2017
2017
Book Value Per Share
Book Value Per Share
Tangible Book Value Per Share3
Tangible Book Value Per Share3
3Tangible book value per share is a non-GAAP financial measure.
Financial Review
2017
Financial Review
Table of Contents
Executive Summary
Recent Events
Financial Highlights
Balance Sheet Overview
Supplemental Financial Data
Business Segment Operations
Consumer Banking
Global Wealth & Investment Management
Global Banking
Global Markets
All Other
Off-Balance Sheet Arrangements and Contractual Obligations
Managing Risk
Strategic Risk Management
Capital Management
Liquidity Risk
Credit Risk Management
Consumer Portfolio Credit Risk Management
Commercial Portfolio Credit Risk Management
Non-U.S. Portfolio
Provision for Credit Losses
Allowance for Credit Losses
Market Risk Management
Trading Risk Management
Interest Rate Risk Management for the Banking Book
Mortgage Banking Risk Management
Compliance Risk Management
Operational Risk Management
Reputational Risk Management
Complex Accounting Estimates
2016 Compared to 2015
Non-GAAP Reconciliations
Statistical Tables
Page
35
36
37
39
43
46
47
49
51
53
54
55
57
60
61
65
70
70
79
86
88
88
92
93
97
99
99
99
100
100
102
104
106
34 Bank of America 2017
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(the “Corporation”) and
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” 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,
strategy 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 2017 Annual Report on Form 10-K: the
Corporation’s potential claims, damages, penalties, fines and
reputational damage resulting from pending or future litigation,
regulatory proceedings and enforcement actions, including inquiries
into our retail sales practices, and the possibility that amounts may
be in excess of the Corporation’s recorded liability and estimated
range of possible loss for litigation exposures; the possibility that
the Corporation could face increased servicing, securities, fraud,
indemnity, contribution or other claims from one or more
loans,
counterparties,
underwriters, issuers, other parties involved in securitizations,
monolines or private-label and other investors; the possibility that
future representations and warranties losses may occur in excess
of the Corporation’s recorded liability and estimated range of
possible loss for its representations and warranties exposures; the
Corporation’s ability to resolve representations and warranties
repurchase and related claims, including claims brought by investors
or trustees seeking to avoid the statute of limitations for repurchase
claims; uncertainties about the financial stability and growth rates
of non-U.S. jurisdictions, the risk that those jurisdictions may face
difficulties servicing their sovereign debt, and related stresses on
financial markets, currencies and trade, and the Corporation’s
exposures to such risks, including direct, indirect and operational;
the impact of U.S. and global interest rates, currency exchange rates,
economic conditions, and potential geopolitical instability; the
impact on the Corporation’s business, financial condition and results
of operations of a potential higher interest rate environment; the
possibility that future credit losses may be higher than currently
expected due to changes in economic assumptions, customer
behavior, adverse developments with respect to U.S. or global
economic conditions and other uncertainties; the Corporation’s
ability to achieve its expense targets, net interest income
expectations, 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; the potential impact
of total loss-absorbing capacity requirements; potential adverse
changes to our global systemically important bank surcharge; the
potential impact of Federal Reserve actions on the Corporation’s
capital plans; the possible impact of the Corporation’s failure to
trustees, purchasers of
including
remediate a shortcoming identified by banking regulators in the
Corporation’s Resolution Plan; the effect of regulations, other
guidance or additional information on our estimated impact of the
Tax Act; 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 cyber attacks; the impact on the Corporation’s
business, financial condition and results of operations from the
planned exit of the United Kingdom from the European Union; 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)
charter. At December 31, 2017, the Corporation had approximately
$2.3 trillion in assets and a headcount of approximately 209,000
employees. Headcount remained relatively unchanged since
December 31, 2016.
retail banking
As of December 31, 2017, 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 85 percent of the U.S. population, and we serve
approximately 47 million consumer and small business
relationships with approximately 4,500 retail financial centers,
approximately 16,000 ATMs, and leading digital banking platforms
(www.bankofamerica.com) with approximately 35 million active
users, including approximately 24 million mobile active users. We
offer industry-leading support to approximately three million small
business owners. Our wealth management businesses, with client
balances of nearly $2.8 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
Bank of America 2017 35
broad range of asset classes serving corporations, governments,
institutions and individuals around the world.
2017 Economic and Business Environment
The U.S. economy gained momentum in 2017, as it grew for the
eighth consecutive year. Following a soft start, partly driven by
sharp inventory liquidation and adverse weather effects, GDP
growth accelerated over the remainder of the year. Economic
growth was supported by a noticeable pickup in business
investment in high-tech equipment, a recovery in oil exploration
and solid consumer demand growth. A revitalization in U.S. export
growth, on the back of a weakening dollar and stronger global
growth, also had beneficial impacts. GDP growth was limited by a
mid-year softening in residential investment and a flat period for
government consumption and investment. The housing market
finished the year strongly. A lean supply of unsold inventory and
solid demand was supportive of steady home price appreciation
through much of the year.
The labor market continued to tighten as job creation exceeded
the growth in the labor force. The unemployment rate fell to a 17-
year low. Wage growth, however, remained relatively muted.
Inflation also remained low. The headline rate edged somewhat
higher on recovering energy prices. But core inflation, excluding
volatile food and energy components, slowed unexpectedly over
much of the year, as goods’ prices and health care inflation
softened, and the acceleration in rents leveled off. Core inflation
once again finished the year below the Federal Reserve’s two
percent target level.
Equity markets advanced strongly in 2017, with the S&P 500
increasing by approximately 20 percent. The anticipation of
corporate tax reform and strong global earnings growth appeared
to fuel the stock market’s strong performance. Following a mid-
year decline, long-term Treasury yields recovered towards the end
of 2017, but finished little changed from the start of the year. With
short-end rates rising over the course of the year, the yield curve
flattened considerably. After a brief surge following the 2016
election, the trade-weighted dollar declined over most of 2017.
The Federal Open Market Committee (FOMC) raised its target
range for the Federal funds rate three times in 2017, bringing the
total rise in the funds rate during the current cycle to 125 basis
points (bps). The Federal Reserve also began allowing a small
portion of its Treasury and mortgage-backed securities (MBS) to
roll off as monetary policy normalization continued. Current Federal
Reserve baseline forecasts suggest gradual rate increases will
continue into 2018 against a backdrop of solid economic
expansion and a tightening labor market.
The improved economic momentum in 2017 was not confined
to the U.S. The eurozone posted its strongest GDP growth in 10
years, despite heightened political uncertainty and fragmentation.
In this context, the European Central Bank decided to taper its
quantitative easing program even if domestic inflationary
pressures remained historically weak. The impact of the 2016 U.K.
referendum vote in favor of leaving the European Union (EU) started
to materialize within the U.K. economy which, despite the robust
global momentum, showed its weakest GDP growth in five years.
Supported by a very accommodative monetary policy stance
and sustained growth in external demand, the Japanese economy
expanded at the strongest pace since 2010 with headline inflation
remaining positive throughout the year. Across emerging nations,
economic activity was supported by China’s continued transition
towards a more consumption-based growth model, as well as by
the recovery in Brazil and Russia following the 2016 recession.
Recent Events
Capital Management
During 2017, we repurchased approximately $12.8 billion of
common stock pursuant to the Board’s repurchase authorizations
under our 2017 and 2016 Comprehensive Capital Analysis and
Review (CCAR) capital plans, including repurchases to offset
equity-based compensation awards, and pursuant to an additional
$5 billion share repurchase authorization approved by the Board
and the Federal Reserve in December 2017. For more information,
see Capital Management on page 61.
Change in Tax Law
On December 22, 2017, the President signed into law the Tax Cuts
and Jobs Act (the Tax Act) which made significant changes to
federal income tax law including, among other things, reducing the
statutory corporate income tax rate to 21 percent from 35 percent
and changing the taxation of our non-U.S. business activities.
Results for 2017 included an estimated reduction in net income
of $2.9 billion due to the Tax Act, driven largely by a lower valuation
of certain U.S. deferred tax assets and liabilities. We have
accounted for the effects of the Tax Act using reasonable estimates
based on currently available information and our interpretations
thereof. This accounting may change due to, among other things,
changes in interpretations we have made and the issuance of new
tax or accounting guidance.
Long-term Debt Exchange
In December 2017, pursuant to a private offering, we exchanged
$11.0 billion of outstanding long-term debt for new fixed/floating-
rate senior notes, subject to certain terms and conditions. The
impact on our results of operations related to this exchange was
not significant. For more information on this exchange, see
Liquidity Risk on page 65.
36 Bank of America 2017
Selected Financial Data
Table 1 provides selected consolidated financial data for 2017 and 2016.
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
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
2017
2016
$
$
87,352
18,232
1.56
0.39
83,701
17,822
1.49
0.25
0.80%
6.72
9.41
62.67
0.81%
6.69
9.51
65.81
$ 936,749
2,281,234
1,309,545
244,823
267,146
$
906,683
2,188,067
1,260,934
240,975
266,195
(1) Return on average tangible common shareholders’ equity is a non-GAAP financial measure. For more information and a corresponding reconciliation to accounting principles generally accepted in
the United States of America (GAAP) financial measures, see Non-GAAP Reconciliations on page 104.
Financial Highlights
Net income was $18.2 billion, or $1.56 per diluted share in 2017
compared to $17.8 billion, or $1.49 per diluted share in 2016.
The results for 2017 include an estimated charge of $2.9 billion
related to the Tax Act. The pre-tax results for 2017 compared to
2016 were driven by higher revenue, largely the result of an
increase in net interest income, lower provision for credit losses
and a decline in noninterest expense.
Effective October 1, 2017, we changed our accounting method
for determining when certain stock-based compensation awards
granted to retirement-eligible employees are deemed authorized,
changing from the grant date to the beginning of the year preceding
the grant date when the incentive award plans are generally
approved. As a result, the estimated value of the awards is now
expensed ratably over the year preceding the grant date. All prior
periods presented herein have been restated for this change in
accounting method. The change affected consolidated financial
information and All Other; it did not affect the business segments.
Under the applicable bank regulatory rules, we are not required to
and, accordingly, did not restate previously-filed capital metrics
and ratios. The cumulative impact of the change in accounting
method resulted in an insignificant pro forma change to our capital
metrics and ratios. For more information, see Note 1 - Summary
of Significant Accounting Principles to the Consolidated Financial
Statements.
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
2017
$ 44,667
42,685
87,352
3,396
54,743
29,213
10,981
18,232
1,614
$ 16,618
2016
$ 41,096
42,605
83,701
3,597
55,083
25,021
7,199
17,822
1,682
$ 16,140
$
$
1.63
1.56
1.57
1.49
Bank of America 2017 37
Net Interest Income
Net interest income increased $3.6 billion to $44.7 billion in 2017
compared to 2016. The net interest yield increased 11 bps to
2.32 percent for 2017. These increases were primarily driven by
the benefits from higher interest rates and loan and deposit growth,
partially offset by the sale of the non-U.S. consumer credit card
business in the second quarter of 2017. For more information
regarding interest rate risk management, see Interest Rate Risk
Management for the Banking Book on page 97.
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
2017
2016
$
5,902
7,818
13,281
6,011
7,277
224
255
1,917
$ 42,685
$
5,851
7,638
12,745
5,241
6,902
1,853
490
1,885
$ 42,605
Noninterest income increased $80 million to $42.7 billion for
2017 compared to 2016. The following highlights the significant
changes.
Service charges increased $180 million primarily driven by the
impact of pricing strategies and higher treasury services-
related revenue.
Investment and brokerage services income increased $536
million primarily driven by the impact of assets under
management (AUM) flows and higher market valuations,
partially offset by the impact of changing market dynamics on
transactional revenue and AUM pricing.
Investment banking income increased $770 million primarily
due to higher advisory fees and higher debt and equity issuance
fees.
Trading account profits increased $375 million primarily due
to increased client financing activity in equities, partially offset
by weaker performance across most fixed-income products.
Mortgage banking income decreased $1.6 billion primarily
driven by lower net servicing income due to lower net mortgage
servicing rights (MSR) results, and lower production income
primarily due to lower volume.
Gains on sales of debt securities decreased $235 million
primarily driven by lower activity.
Other income remained relatively unchanged. Included was a
$793 million pre-tax gain recognized in connection with the
sale of the non-U.S. consumer credit card business and a
downward valuation adjustment of $946 million on tax-
advantaged energy investments in connection with the Tax Act.
Provision for Credit Losses
The provision for credit losses decreased $201 million to $3.4
billion for 2017 compared to 2016 primarily due to reductions in
energy exposures in the commercial portfolio and credit quality
improvements in the consumer real estate portfolio. This was
partially offset by portfolio seasoning and loan growth in the U.S.
credit card portfolio and a single-name non-U.S. commercial
charge-off. For more information on the provision for credit losses,
see Provision for Credit Losses on page 88.
Noninterest Expense
Table 4 Noninterest Expense
(Dollars in millions)
Personnel
Occupancy
Equipment
Marketing
Professional fees
Data processing
Telecommunications
Other general operating
Total noninterest expense
2017
$ 31,642
4,009
1,692
1,746
1,888
3,139
699
9,928
$ 54,743
2016
$ 31,748
4,038
1,804
1,703
1,971
3,007
746
10,066
$ 55,083
Noninterest expense decreased $340 million to $54.7 billion for
2017 compared to 2016. The decrease was primarily due to lower
operating costs, a reduction from the sale of the non-U.S.
consumer credit card business and lower litigation expense,
partially offset by a $316 million impairment charge related to
certain data centers in the process of being sold and $145 million
for the shared success discretionary year-end bonus awarded to
certain employees.
Income Tax Expense
Table 5 Income Tax Expense
(Dollars in millions)
Income before income taxes
Income tax expense
Effective tax rate
2017
$ 29,213
10,981
2016
$ 25,021
7,199
37.6%
28.8%
Tax expense for 2017 included a charge of $1.9 billion reflecting
the impact of the Tax Act discussed below. Included in the tax
charge was $2.3 billion related primarily to a lower valuation of
certain deferred tax assets and liabilities and a $347 million tax
benefit on the pre-tax loss from the lower valuation of our tax-
advantaged energy investments. Other than the impact of the Tax
Act, the effective tax rate for 2017 was driven by our recurring tax
preference benefits as well as an expense recognized in
connection with the sale of the non-U.S. consumer credit card
business, largely offset by benefits related to the adoption of the
new accounting standard for the tax impact associated with share-
based compensation and the restructuring of certain subsidiaries.
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 U.K. tax law
changes enacted in 2016.
38 Bank of America 2017
On December 22, 2017, the President signed into law the Tax
Act which made significant changes to federal income tax law
including, among other things, reducing the statutory corporate
income tax rate to 21 percent from 35 percent and changing the
taxation of our non-U.S. business activities. Results for 2017
included an estimated reduction in net income of $2.9 billion due
to the Tax Act, driven largely by a lower valuation of certain U.S.
deferred tax assets and liabilities. Additionally, the change in the
corporate income tax rate impacted our tax-advantaged energy
investments, resulting in a downward valuation adjustment of
$946 million recorded in other income that was fully offset by tax
benefits arising from lower deferred tax liabilities on these
investments. We have accounted for the effects of the Tax Act
using reasonable estimates based on currently available
information and our interpretations thereof. This accounting may
change due to, among other things, changes in interpretations we
have made and the issuance of new tax or accounting guidance.
We expect the effective tax rate for 2018 to be approximately
20 percent, absent unusual items.
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.
Balance Sheet Overview
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
2017
2016
% Change
$
$
$
$
157,434
212,747
209,358
440,130
936,749
(10,393)
335,209
2,281,234
$
147,738
198,224
180,209
430,731
906,683
(11,237)
335,719
$ 2,188,067
1,309,545
176,865
81,187
32,666
227,402
186,423
2,014,088
267,146
2,281,234
$ 1,260,934
170,291
63,031
23,944
216,823
186,849
1,921,872
266,195
$ 2,188,067
7%
7
16
2
3
(8)
—
4
4
4
29
36
5
—
5
—
4
Assets
At December 31, 2017, total assets were approximately $2.3
trillion, up $93.2 billion from December 31, 2016. The increase
in assets was primarily due to higher loans and leases driven by
client demand for commercial loans, higher trading assets and
securities borrowed or purchased under agreements to resell due
to increased customer activity, and higher cash and cash
equivalents and debt securities driven by the deployment of
deposit inflows.
Cash and Cash Equivalents
Cash and cash equivalents increased $9.7 billion primarily driven
by deposit growth and net debt issuances, partially offset by loan
growth and net securities purchases.
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 $14.5 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 $29.1 billion primarily driven by
additional inventory in fixed-income, currencies and commodities
(FICC) to meet expected client demand and increased client
financing activities in equities within Global Markets.
Debt Securities
Debt securities primarily include U.S. Treasury and agency
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
$9.4 billion primarily driven by the deployment of deposit inflows.
For more information on debt securities, see Note 3 – Securities
to the Consolidated Financial Statements.
Loans and Leases
Loans and leases increased $30.1 billion compared to December
31, 2016. The increase was primarily due to net loan growth driven
by strong client demand for commercial loans and increases in
Bank of America 2017 39
residential mortgage. For more information on the loan portfolio,
see Credit Risk Management on page 70.
government bonds driven by expected client demand within Global
Markets.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses decreased $844 million
primarily due to the impact of improvements in credit quality from
a stronger economy. For more information, see Allowance for Credit
Losses on page 88.
Liabilities
At December 31, 2017, total liabilities were approximately $2.0
trillion, up $92.2 billion from December 31, 2016, primarily due
to an increase in deposits, higher trading account liabilities due
to an increase in short positions, and higher long-term debt due
to net issuances.
Deposits
Deposits increased $48.6 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
increased $6.6 billion primarily due to an increase 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 increased $18.2 billion primarily
due to higher equity short positions and higher levels of short
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 increased $8.7 billion primarily due to an increase in
short-term bank notes and 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 to the Consolidated Financial Statements.
Long-term Debt
Long-term debt increased $10.6 billion primarily driven by
issuances outpacing maturities and redemptions. For more
information on long-term debt, see Note 11 – Long-term Debt to
the Consolidated Financial Statements.
Shareholders’ Equity
Shareholders’ equity increased $1.0 billion driven by earnings,
largely offset by returns of capital to shareholders of $18.4 billion
through common and preferred stock dividends and share
repurchases.
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
more information on liquidity, see Liquidity Risk on page 65.
40 Bank of America 2017
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
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 shareholders’ 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
Market capitalization
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)
Net charge-offs (6, 7)
Net charge-offs as a percentage of average loans and leases outstanding (4, 6)
Net charge-offs as a percentage of average loans and leases outstanding, excluding the
PCI loan portfolio (4)
Capital ratios at year end (8)
Common equity tier 1 capital
Tier 1 common capital
Tier 1 capital
Total capital
Tier 1 leverage
Tangible equity (1)
Tangible common equity (1)
2017
2016
2015
2014
2013
$
$
$
$
44,667
42,685
87,352
3,396
54,743
29,213
10,981
18,232
16,618
10,196
10,778
0.80%
6.72
9.41
6.72
9.08
11.71
11.96
24.24
1.63
1.56
0.39
23.80
16.96
$
$
41,096
42,605
83,701
3,597
55,083
25,021
7,199
17,822
16,140
10,284
11,047
0.81%
6.69
9.51
6.70
9.17
12.17
12.14
15.94
1.57
1.49
0.25
23.97
16.89
$
$
38,958
44,007
82,965
3,161
57,617
22,187
6,277
15,910
14,427
10,462
11,236
0.74%
6.28
9.16
6.33
8.88
11.92
11.64
14.49
1.38
1.31
0.20
22.48
15.56
$
$
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
$
29.52
29.88
22.05
$ 303,681
$
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
$ 918,731
2,268,633
1,269,796
225,133
247,101
271,289
$ 900,433
2,190,218
1,222,561
228,617
241,187
265,843
$ 876,787
2,160,536
1,155,860
240,059
229,576
251,384
$ 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
$
11,170
6,758
$
11,999
8,084
$
12,880
9,836
$
14,947
12,629
$
17,912
17,772
1.12%
1.26%
1.37%
1.66%
1.90%
161
156
149
144
130
122
121
107
102
87
$
3,979
$
3,821
$
4,338
$
4,383
$
7,897
0.44%
0.44
11.8%
n/a
13.2
15.1
8.6
8.9
7.9
0.43%
0.50%
0.49%
0.87%
0.44
0.51
0.50
0.90
11.0%
n/a
12.4
14.3
8.9
9.2
8.0
10.2%
n/a
11.3
13.2
8.6
8.9
7.8
12.3%
n/a
13.4
16.5
8.2
8.4
7.5
n/a
10.9%
12.2
15.1
7.7
7.8
7.2
(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 43, and
for corresponding reconciliations to GAAP financial measures, see Non-GAAP Reconciliations on page 104.
(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 70.
(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 78 and corresponding Table 31, and Commercial Portfolio Credit Risk Management –
Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 83 and corresponding Table 38.
(5) Asset quality metrics for 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 were included in assets of business
held for sale on the Consolidated Balance Sheet at December 31, 2016. In 2017, the Corporation sold its non-U.S. consumer credit card business.
(6) Net charge-offs exclude $207 million, $340 million, $808 million, $810 million and $2.3 billion of write-offs in the PCI loan portfolio for 2017, 2016, 2015, 2014 and 2013, respectively. For more
(7)
information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 76.
Includes net charge-offs of $75 million and $175 million on non-U.S. credit card loans in 2017 and 2016, which were included in assets of business held for sale on the Consolidated Balance Sheet
at December 31, 2016.
(8) Risk-based capital ratios are reported under Basel 3 Advanced - Transition at December 31, 2017, 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. For more information, see Capital Management on page 61.
n/a = not applicable
Bank of America 2017 41
Table 8 Selected Quarterly Financial Data
(In millions, except per share information)
Income statement
Net interest income
Noninterest income (1)
Total revenue, net of interest expense
Provision for credit losses
Noninterest expense
Income before income taxes
Income tax expense (1)
Net income (1)
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 (2)
Return on average common shareholders’ equity
Return on average tangible common shareholders’ equity (3)
Return on average shareholders’ equity
Return on average tangible shareholders’ equity (3)
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 (3)
Market price per share of common stock
Closing
High closing
Low closing
Market capitalization
Average balance sheet
Total loans and leases
Total assets
Total deposits
Long-term debt
Common shareholders’ equity
Total shareholders’ equity
Asset quality (4)
Fourth
Third
Second
First
Fourth
Third
Second
First
2017 Quarters
2016 Quarters
$ 11,462
8,974
20,436
1,001
13,274
6,161
3,796
2,365
2,079
10,471
10,622
$ 11,161
10,678
21,839
834
13,394
7,611
2,187
5,424
4,959
10,198
10,747
$ 10,986
11,843
22,829
726
13,982
8,121
3,015
5,106
4,745
10,014
10,835
$ 11,058
11,190
22,248
835
14,093
7,320
1,983
5,337
4,835
10,100
10,920
$ 10,292
9,698
19,990
774
13,413
5,803
1,268
4,535
4,174
10,170
10,992
$ 10,201
11,434
21,635
850
13,734
7,051
2,257
4,794
4,291
10,250
11,034
$ 10,118
11,168
21,286
976
13,746
6,564
1,943
4,621
4,260
10,328
11,086
$ 10,485
10,305
20,790
997
14,190
5,603
1,731
3,872
3,415
10,370
11,108
0.41%
0.80
3.29
4.56
3.43
4.62
11.71
11.87
60.35
0.20
0.20
0.12
23.80
16.96
$
0.95%
0.91
7.89
10.98
7.88
10.59
11.91
12.03
25.59
0.49
0.46
0.12
23.87
17.18
$
0.90%
0.89
7.75
10.87
7.56
10.23
12.00
11.94
15.78
0.47
0.44
0.075
24.85
17.75
$
0.97%
0.88
8.09
11.44
8.09
11.01
11.92
12.00
15.64
0.48
0.45
0.075
24.34
17.22
$
0.82%
0.81
6.79
9.58
6.69
9.09
12.17
12.21
18.37
0.41
0.39
0.075
23.97
16.89
$
0.87%
0.76
7.02
9.94
7.10
9.68
12.28
12.26
17.97
0.42
0.40
0.075
24.14
17.09
$
0.85%
0.75
7.14
10.17
7.01
9.61
12.21
12.11
12.17
0.41
0.39
0.05
23.68
16.68
$
0.72%
0.76
5.80
8.32
5.99
8.27
12.02
11.96
15.12
0.33
0.31
0.05
23.13
16.18
$
$
29.52
29.88
25.45
$ 303,681
$ 927,790
2,301,687
1,293,572
227,644
250,838
273,162
$
25.34
25.45
22.89
$ 264,992
$ 918,129
2,271,104
1,271,711
227,309
249,214
273,238
$
24.26
24.32
22.23
$ 239,643
$ 914,717
2,269,293
1,256,838
224,019
245,756
270,977
$
23.59
25.50
22.05
$ 235,291
$ 914,144
2,231,649
1,256,632
221,468
242,480
267,700
$
22.10
23.16
15.63
$ 222,163
$ 908,396
2,208,391
1,250,948
220,587
244,519
269,739
$
15.65
16.19
12.74
$ 158,438
$ 900,594
2,189,750
1,227,186
227,269
243,220
268,440
$
13.27
15.11
12.18
$ 135,577
$ 899,670
2,188,410
1,213,291
233,061
240,078
265,056
$
13.52
16.43
11.16
$ 139,427
$ 892,984
2,174,126
1,198,455
233,654
236,871
260,065
Allowance for credit losses (5)
Nonperforming loans, leases and foreclosed properties (6)
Allowance for loan and lease losses as a percentage of total loans
and leases outstanding (6, 7)
Allowance for loan and lease losses as a percentage of total
nonperforming loans and leases (6, 7)
Allowance for loan and lease losses as a percentage of total
nonperforming loans and leases, excluding the PCI loan portfolio (6, 7)
Net charge-offs (8, 9)
Annualized net charge-offs as a percentage of average loans and
leases outstanding (6, 8)
Annualized net charge-offs as a percentage of average loans and
leases outstanding, excluding the PCI loan portfolio (6)
$ 11,170
6,758
$ 11,455
6,869
$ 11,632
7,127
$ 11,869
7,637
$ 11,999
8,084
$ 12,459
8,737
$ 12,587
8,799
$ 12,696
9,281
1.12%
1.16%
1.20%
1.25%
1.26%
1.30%
1.32%
1.35%
161
156
$
1,237
$
163
158
900
$
160
154
908
$
156
150
934
$
149
144
880
$
140
135
888
$
142
135
985
136
129
$
1,068
0.53%
0.39%
0.40%
0.42%
0.39%
0.40%
0.44%
0.48%
0.54
0.40
0.41
0.42
0.39
0.40
0.45
0.49
Capital ratios at period end (10)
Common equity tier 1 capital
Tier 1 capital
Total capital
Tier 1 leverage
Tangible equity (3)
Tangible common equity (3)
11.8%
13.2
15.1
8.6
8.9
7.9
11.9%
13.3
15.1
9.0
9.1
8.1
11.6%
13.2
15.1
8.9
9.2
8.0
11.0%
12.5
14.4
8.8
9.0
7.9
11.0%
12.4
14.3
8.9
9.2
8.0
11.0%
12.4
14.2
9.1
9.3
8.1
10.6%
12.0
13.9
8.9
9.2
8.1
10.3%
11.5
13.4
8.7
9.0
7.9
(1) Net income for the fourth quarter of 2017 included an estimated charge of $2.9 billion from enactment of the Tax Act which consisted of $946 million in noninterest income and $1.9 billion in
income tax expense. For more information on Tax Act impacts, see Income Tax Expense on page 38.
(2) Calculated as total net income for four consecutive quarters divided by annualized average assets for four consecutive quarters.
(3) 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 43,
and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Reconciliations on page 104.
Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments.
(4) For more information on the impact of the PCI loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 70.
(5)
(6) 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 78 and corresponding Table 31, and Commercial Portfolio Credit Risk Management –
Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 83 and corresponding Table 38.
(7) Asset quality metrics for the first quarter of 2017 and the fourth quarter of 2016 include $242 million and $243 million of non-U.S. credit card allowance for loan and lease losses and $9.5 billion
and $9.2 billion of non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017 and December 31, 2016. In 2017, the
Corporation sold its non-U.S. consumer credit card business.
(8) Net charge-offs exclude $46 million, $73 million, $55 million and $33 million of write-offs in the PCI loan portfolio in the fourth, third, second and first quarters of 2017, respectively, and $70 million,
$83 million, $82 million and $105 million in the fourth, third, second and first quarters of 2016, respectively. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management
– Purchased Credit-impaired Loan Portfolio on page 76.
Includes net charge-offs of $31 million, $44 million and $41 million on non-U.S. credit card loans in the second and first quarters of 2017, and in the fourth quarter of 2016, which were included
in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017 and December 31, 2016.
(9)
(10) Risk-based capital ratios are reported under Basel 3 Advanced - Transition. For more information, see Capital Management on page 61.
42 Bank of America 2017
42
Bank of America 2017
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 a 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., debit valuation adjustment (DVA))
which result in non-GAAP 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.
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 Tables 7 and 8.
For more information on the reconciliation of these non-GAAP
financial measures to GAAP financial measures, see Non-GAAP
Reconciliations on page 104.
Bank of America 2017 43
Average
Balance
Interest
Income/
Expense
2017
Yield/
Rate
Average
Balance
Interest
Income/
Expense
2016
Yield/
Rate
Average
Balance
Interest
Income/
Expense
2015
Yield/
Rate
$
127,431
$
1,122
0.88% $
133,374
$
Table 9
Average Balances and Interest Rates - FTE Basis
(Dollars in millions)
Earning assets
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 (1):
Residential mortgage
Home equity
U.S. credit card
Non-U.S. credit card (2)
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 (2)
Other earning assets
Total earning assets (6)
Cash and due from banks
Other assets, less allowance for loan and lease losses
Total assets
Interest-bearing liabilities
U.S. interest-bearing deposits:
Savings
NOW and money market deposit accounts
Consumer CDs and IRAs
Negotiable CDs, public funds and other deposits
Total U.S. interest-bearing deposits
Non-U.S. interest-bearing deposits:
Banks located in non-U.S. countries
Governments and official institutions
Time, savings and other
Total non-U.S. interest-bearing deposits
Total interest-bearing deposits
Federal funds purchased, securities loaned or sold under
agreements to repurchase, short-term borrowings and other
interest-bearing liabilities
Trading account liabilities
Long-term debt
12,112
241
222,818
129,007
435,005
197,766
62,260
91,068
3,929
93,374
2,628
451,025
292,452
58,502
21,747
95,005
467,706
918,731
76,957
1,922,061
27,995
318,577
$ 2,268,633
$
53,783
$
628,647
44,794
36,782
764,006
2,442
1,006
62,386
65,834
2,390
4,618
10,626
6,831
2,608
8,791
358
2,622
112
21,322
9,765
2,116
706
2,566
15,153
36,475
3,032
58,504
5
873
121
354
1,353
21
10
547
578
829,840
1,931
273,097
45,518
225,133
3,538
1,204
6,239
Total interest-bearing liabilities (6)
1,373,588
12,912
Noninterest-bearing sources:
Noninterest-bearing deposits
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Net interest spread
Impact of noninterest-bearing sources
439,956
183,800
271,289
$ 2,268,633
Net interest income/yield on earning assets
$ 45,592
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
1.99
1.07
3.58
2.44
3.45
4.19
9.65
9.12
2.81
4.23
4.73
3.34
3.62
3.25
2.70
3.24
3.97
3.94
3.04
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
295,501
$ 2,190,218
0.01% $
0.14
0.27
0.96
0.18
0.85
0.95
0.88
0.88
0.23
1.30
2.64
2.77
0.94
49,495
$
589,737
48,594
32,889
720,715
3,891
1,437
59,183
64,511
5
294
133
160
592
32
9
382
423
785,226
1,015
2,350
1,018
5,578
9,961
251,236
37,897
228,617
1,302,976
437,335
184,064
265,843
$ 2,190,218
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
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
306,684
$ 2,160,536
0.01% $
46,498
$
543,133
54,679
29,976
674,286
4,473
1,492
54,767
60,732
735,018
0.05
0.27
0.49
0.08
0.82
0.64
0.65
0.66
0.13
0.94
2.69
2.44
0.76
275,785
46,206
240,059
1,297,068
2,387
1,343
5,958
10,549
420,842
191,242
251,384
$ 2,160,536
2.10%
0.27
2.37%
2.02%
0.23
2.25%
$ 41,996
$ 39,847
0.27%
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
0.01%
0.05
0.30
0.32
0.08
0.70
0.33
0.53
0.53
0.12
0.87
2.91
2.48
0.81
1.95%
0.24
2.19%
(1) 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 are recorded at fair value
(2)
(3)
(4)
(5)
(6)
upon acquisition and accrete interest income over the estimated life of the loan.
Includes assets of the Corporation’s non-U.S. consumer credit card business, which was sold during the second quarter of 2017.
Includes non-U.S. consumer loans of $2.9 billion, $3.4 billion and $4.0 billion in 2017, 2016 and 2015, respectively.
Includes consumer finance loans of $321 million, $514 million and $619 million; consumer leases of $2.1 billion, $1.6 billion and $1.2 billion, and consumer overdrafts of $179 million, $173
million and $156 million in 2017, 2016 and 2015, respectively.
Includes U.S. commercial real estate loans of $55.0 billion, $54.2 billion and $49.0 billion, and non-U.S. commercial real estate loans of $3.5 billion, $3.4 billion and $3.1 billion in 2017, 2016
and 2015, respectively.
Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets by $44 million, $176 million and $59 million in 2017,
2016 and 2015, respectively. Interest expense includes the impact of interest rate risk management contracts, which decreased interest expense on the underlying liabilities by $1.4 billion, $2.1
billion and $2.4 billion in 2017, 2016 and 2015, respectively. For more information, see Interest Rate Risk Management for the Banking Book on page 97.
44 Bank of America 2017
Table 10 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
Due to Change in (1)
Rate
Volume
From 2016 to 2017
Net Change
Due to Change in (1)
Rate
Volume
From 2015 to 2016
Net Change
banks
$
(32) $
549
$
517
$
(9) $
245
$
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,
short-term borrowings and other interest-bearing liabilities
Trading account liabilities
Long-term debt
Total interest expense
Net increase in net interest income
48
41
(22)
438
335
(360)
290
(544)
38
11
468
29
19
48
53
1,231
77
925
8
255
331
(24)
288
26
1,196
314
60
181
793
(523)
$
101
1,272
55
1,363
343
(105)
621
(568)
326
37
654
1,664
343
79
229
2,315
2,969
270
6,547
(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)
$
— $
20
(12)
20
(12)
(3)
24
217
206
(85)
— $
— $
559
—
174
1
4
141
971
(20)
746
$
579
(12)
194
761
(11)
1
165
155
916
1,188
186
661
2,951
3,596
(2) $
22
(16)
10
(4)
—
26
(201)
(240)
(288)
$
— $
(1)
(13)
55
5
4
68
164
(85)
(92)
$
236
(6)
130
16
30
(479)
(271)
85
(125)
256
19
(515)
1,218
252
(1)
329
1,798
1,283
(128)
1,561
(2)
21
(29)
65
55
1
4
94
99
154
(37)
(325)
(380)
(588)
2,149
(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.
Bank of America 2017 45
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-Core Mortgage
• Global Corporate
• Equity Markets
Loans
Banking
• Global
Commercial
Banking
• Business Banking
• MSR Valuations
• Liquidating
Businesses
• Equity Investments
• Corporate Activities
and Residual
Expense Allocations
• Accounting
Reclassifications
and Eliminations
•
Initial Impact of
Tax Act
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 57. The capital allocated to the business segments
is referred to as allocated capital. 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 more 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 23 – Business Segment
Information to the Consolidated Financial Statements.
46 Bank of America 2017
Consumer Banking
(Dollars in millions)
Net interest income (FTE basis)
Noninterest income:
Card income
Service charges
Mortgage banking income (1)
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 (2)
Total assets (2)
Total deposits
Allocated capital
Deposits
Consumer Lending
Total Consumer Banking
2017
2016
2017
2016
2017
2016
$
13,353
$
10,701
$
10,954
$
10,589
$
24,307
$
21,290
% Change
14%
8
4,265
—
391
4,664
18,017
201
10,380
7,436
2,816
4,620
2.05%
39
57.61
5,084
651,963
679,306
646,930
12,000
$
$
9
4,141
—
403
4,553
15,254
174
9,677
5,403
1,993
3,410
1.79%
28
63.44
4,809
598,043
624,592
592,417
12,000
$
$
5,062
1
481
6
5,550
16,504
3,324
7,407
5,773
2,186
3,587
4.18%
14
44.88
260,974
261,802
273,253
6,390
25,000
$
$
4,926
1
960
1
5,888
16,477
2,541
7,977
5,959
2,197
3,762
4.37%
17
48.41
240,999
242,445
254,287
7,234
22,000
$
$
5,070
4,266
481
397
10,214
34,521
3,525
17,787
13,209
5,002
8,207
3.54%
22
51.53
266,058
686,612
725,406
653,320
37,000
$
$
$
$
4,935
4,142
960
404
10,441
31,731
2,715
17,654
11,362
4,190
7,172
3.38%
21
55.64
245,808
629,984
668,375
599,651
34,000
258,991
662,698
702,333
632,786
3
3
(50)
(2)
(2)
9
30
1
16
19
14
8%
9
9
9
9
8%
7
7
7
Year end
Total loans and leases
Total earning assets (2)
Total assets (2)
Total deposits
(1) Total consolidated mortgage banking income of $224 million for 2017 was recorded primarily in Consumer Lending and All Other compared to $1.9 billion for 2016.
(2)
4,938
631,172
658,316
625,727
254,053
255,511
268,002
7,059
5,143
675,485
703,330
670,802
280,473
709,832
749,325
676,530
275,330
275,742
287,390
5,728
$
$
$
$
$
$
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 34 states and the
District of Columbia. Our network includes approximately 4,500
financial centers, 16,000 ATMs, nationwide call centers, and
leading digital banking platforms with approximately 35 million
active users, including approximately 24 million mobile active
users.
Consumer Banking Results
Net income for Consumer Banking increased $1.0 billion to $8.2
billion in 2017 compared to 2016 primarily driven by higher net
interest income, partially offset by higher provision for credit losses
and lower mortgage banking income. Net interest income
increased $3.0 billion to $24.3 billion primarily due to the
beneficial impact of an increase in investable assets as a result
of higher deposits, as well as pricing discipline and loan growth.
Noninterest income decreased $227 million to $10.2 billion driven
by lower mortgage banking income, partially offset by higher card
income and service charges.
The provision for credit losses increased $810 million to $3.5
billion due to portfolio seasoning and loan growth in the U.S. credit
card portfolio. Noninterest expense increased $133 million to
$17.8 billion driven by higher personnel expense, including the
shared success discretionary year-end bonus, and increased FDIC
expense, as well as investments in digital capabilities and
business growth, including increased primary sales professionals,
combined with investments in new financial centers and
renovations. These increases were partially offset by improved
operating efficiencies.
The return on average allocated capital was 22 percent, up
from 21 percent, as higher net income was partially offset by an
increased capital allocation. For more information on capital
allocations, see Business Segment Operations on page 46.
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. Net interest income 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
Bank of America 2017 47
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
date, product type, loan-to-value (LTV), Fair Isaac Corporation (FICO)
score and delinquency status. For more information on the core
and non-core portfolios, see Consumer Portfolio Credit Risk
Management on page 70. Total owned loans in the core portfolio
held in Consumer Lending increased $14.7 billion to $115.9 billion
in 2017, primarily driven by higher residential mortgage balances,
partially offset by a decline in home equity balances.
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 – Net Migration
Summary on page 51.
Net income for Consumer Lending decreased $175 million to
$3.6 billion in 2017 driven by higher provision for credit losses
and lower noninterest income, partially offset by lower noninterest
expense and higher net interest income. Net interest income
increased $365 million to $11.0 billion primarily driven by the
impact of an increase in loan balances. Noninterest income
decreased $338 million to $5.6 billion driven by lower mortgage
banking income, partially offset by higher card income.
The provision for credit losses increased $783 million to $3.3
billion in 2017 due to portfolio seasoning and loan growth in the
U.S. credit card portfolio. Noninterest expense decreased $570
million to $7.4 billion primarily driven by improved operating
efficiencies.
Average loans increased $20.0 billion to $261.0 billion in 2017
driven by increases in residential mortgages as well as consumer
vehicle and U.S credit card loans, partially offset by lower home
equity loan balances.
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
2017
2016
9.65%
8.67
4,939
$ 244,753
$ 298,641
9.29%
9.04
4,979
$226,432
$285,612
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 2017, the total U.S. credit card risk-adjusted margin
decreased 37 bps compared to 2016, primarily driven by
compressed margins, increased net charge-offs and higher credit
card rewards costs. Total U.S. credit card purchase volumes
increased $18.3 billion to $244.8 billion, and debit card purchase
volumes increased $13.0 billion to $298.6 billion, reflecting higher
levels of consumer spending.
capabilities including access to the Corporation’s network of
financial centers and ATMs.
Deposits includes the net impact of migrating customers and
their related deposit and brokerage asset balances between
Deposits and GWIM as well as other client-managed businesses.
For more information on the migration of customer balances to or
from GWIM, see GWIM – Net Migration Summary on page 51.
Net income for Deposits increased $1.2 billion to $4.6 billion
in 2017 driven by higher revenue, partially offset by higher
noninterest expense. Net interest income increased $2.7 billion
to $13.4 billion primarily due to the beneficial impact of an increase
in investable assets as a result of higher deposits, and pricing
discipline. Noninterest income increased $111 million to $4.7
billion driven by higher service charges.
The provision for credit losses increased $27 million to $201
million in 2017. Noninterest expense increased $703 million to
$10.4 billion primarily driven by investments in digital capabilities
and business growth,
increased primary sales
professionals, combined with investments in new financial centers
and renovations, higher personnel expense, including the shared
success discretionary year-end bonus, and increased FDIC
expense.
including
Average deposits increased $54.5 billion to $646.9 billion in
2017 driven by strong organic growth. Growth in checking, money
market savings and traditional savings of $57.9 billion was
partially offset by a decline in time deposits of $3.5 billion.
Key Statistics – Deposits
Total deposit spreads (excludes noninterest costs) (1)
1.84%
1.65%
2017
2016
Year end
Client brokerage assets (in millions)
Digital banking active users (units in thousands) (2)
Mobile banking active users (units in thousands)
Financial centers
ATMs
(1)
Includes deposits held in Consumer Lending.
$ 177,045
34,855
24,238
4,470
16,039
$144,696
32,942
21,648
4,579
15,928
(2) Digital users represents mobile and/or online users across consumer businesses; historical
information has been reclassified primarily due to the sale of the Corporation’s non-U.S.
consumer credit card business in 2017.
Client brokerage assets increased $32.3 billion driven by
strong client flows and market performance. Mobile banking active
users increased 2.6 million reflecting continuing changes in our
customers’ banking preferences. The number of financial centers
declined 109 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,
48 Bank of America 2017
Mortgage Banking Income
Mortgage banking income in Consumer Banking includes
production income and net servicing income. Production 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. Production income
decreased $461 million to $202 million in 2017 due to a decision
to retain a higher percentage of residential mortgage production
in Consumer Banking, as well as the impact of a higher interest
rate environment driving lower refinances.
Net servicing income within Consumer Banking includes
income earned in connection with servicing activities and MSR
valuation adjustments for the core portfolio, net of results from
risk management activities used to hedge certain market risks of
the MSRs. Net servicing income decreased $18 million to $279
million in 2017 reflecting the decline in the size of the servicing
portfolio.
Mortgage Servicing Rights
At December 31, 2017, the core MSR portfolio, held within
Consumer Lending, was $1.7 billion compared to $2.1 billion at
December 31, 2016. The decrease was primarily driven by the
amortization of expected cash flows, which exceeded additions to
Global Wealth & Investment Management
the MSR portfolio, partially offset by the impact of changes in fair
value from rising interest rates. For more information on MSRs,
see Note 20 – Fair Value Measurements to the Consolidated
Financial Statements.
Key Statistics - Mortgage Banking
(Dollars in millions)
Loan production (1):
Total (2):
First mortgage
Home equity
Consumer Banking:
First mortgage
Home equity
2017
2016
$
$
50,581
16,924
34,065
15,199
$
$
64,153
15,214
44,510
13,675
(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 decreased $10.4 billion and $13.6 billion in
2017, primarily driven by a higher interest rate environment driving
lower first-lien mortgage refinances.
Home equity production in Consumer Banking and for the total
Corporation increased $1.5 billion and $1.7 billion in 2017 due
to a higher demand based on improving housing trends, and
improved engagement with customers.
(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
2017
2016
$
6,173
$
5,759
% Change
7%
10,883
1,534
12,417
18,590
56
13,564
4,970
1,882
3,088
10,316
1,575
11,891
17,650
68
13,175
4,407
1,632
2,775
$
$
2.32%
22
72.96
2.09%
21
74.65
$ 152,682
265,670
281,517
245,559
14,000
$ 142,429
275,799
291,478
256,425
13,000
$ 159,378
267,026
284,321
246,994
$ 148,179
283,151
298,931
262,530
5
(3)
4
5
(18)
3
13
15
11
7%
(4)
(3)
(4)
8
8%
(6)
(5)
(6)
Bank of America 2017 49
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.
Net income for GWIM increased $313 million to $3.1 billion in
2017 compared to 2016 due to higher revenue, partially offset by
an increase in noninterest expense. The operating margin was 27
percent compared to 25 percent a year ago.
Net interest income increased $414 million to $6.2 billion
driven by higher short-term interest rates. Noninterest income,
which primarily includes investment and brokerage services
income, increased $526 million to $12.4 billion. The increase in
noninterest income was driven by the impact of AUM flows and
higher market valuations, partially offset by the impact of changing
market dynamics on transactional revenue and AUM pricing.
Noninterest expense increased $389 million to $13.6 billion
primarily driven by higher revenue-related incentive costs.
Return on average allocated capital was 22 percent in 2017,
up from 21 percent a year ago, as higher net income was partially
offset by an increased capital allocation.
Revenue from MLGWM of $15.3 billion increased six percent
in 2017 compared to 2016 due to higher net interest income and
asset management fees driven by AUM flows and higher market
valuations, partially offset by lower transactional revenue and AUM
pricing. U.S. Trust revenue of $3.3 billion increased seven percent
in 2017 compared to 2016 reflecting higher net interest income
and asset management fees driven by higher market valuations
and AUM flows.
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
Total client balances
Client Balances by Type, at year end
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 client flows (3)
Market valuation/other (1)
Total assets under management, end of year
Associates, at year end (4, 5)
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 (5)
Financial advisor productivity (6) (in thousands)
2017
2016
$
$
15,288
3,295
7
18,590
$
$
14,486
3,075
89
17,650
$ 2,305,664
446,199
$ 2,751,863
$ 2,102,175
406,392
$ 2,508,567
$ 1,080,747
1,125,282
136,708
246,994
162,132
$ 2,751,863
$
886,148
1,085,826
123,066
262,530
150,997
$ 2,508,567
$
886,148
95,707
98,892
$ 1,080,747
$
$
900,863
30,582
(45,297)
886,148
17,355
19,238
20,341
16,820
18,678
19,629
$
1,005
$
974
U.S. Trust Metric, at year end (5)
Primary sales professionals
(1) Amounts for 2016 include the results of BofA Global Capital Management, the cash management division of Bank of America, and certain administrative items. Amounts also reflect the sale to a
1,677
1,714
third party of approximately $80 billion of BofA Global Capital Management’s AUM in 2016.
(2) Includes margin receivables which are classified in customer and other receivables on the Consolidated Balance Sheet.
(3) For 2016, net client flows included $8.0 billion of net outflows related to BofA Global Capital Management’s AUM that were sold in 2016.
(4) Includes financial advisors in the Consumer Banking segment of 2,402 and 2,200 at December 31, 2017 and 2016.
(5) Associate computation is based on headcount.
(6) Financial advisor productivity is defined as MLGWM total revenue, excluding the allocation of certain asset and liability management (ALM) activities, divided by the total average number of financial
advisors (excluding financial advisors in the Consumer Banking segment).
50 Bank of America 2017
Client Balances
Client balances managed under advisory and/or discretion of
GWIM are AUM and are typically held in diversified portfolios. Fees
earned on AUM are calculated as a percentage of clients’ AUM
balances. The asset management fees charged to clients per year
depend on various factors, but are commonly driven by the breadth
of the client’s relationship and generally range from 50 to 150 bps
on their total AUM. The net client AUM flows represent the net
change in clients’ AUM balances over a specified period of time,
excluding market
other
adjustments.
appreciation/depreciation
and
Client balances increased $243.3 billion, or 10 percent, in
2017 to nearly $2.8 trillion at December 31, 2017, primarily due
to AUM which increased $194.6 billion, or 22 percent, due to
positive net flows and higher market valuations.
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
Net Migration Summary
GWIM results are impacted by the net migration of clients and their
corresponding deposit, loan and brokerage balances primarily 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.
$
2017
2016
$
356
154
266
1,319
7
1,972
2017
10,504
$
2016
% Change
$
9,471
11%
3,125
3,471
2,899
9,495
19,999
212
8,596
11,191
4,238
6,953
3,094
2,884
2,996
8,974
18,445
883
8,486
9,076
3,347
5,729
$
$
2.93%
17
42.98
2.76%
15
46.01
$ 346,089
358,302
416,038
312,859
40,000
$ 333,820
342,859
396,737
304,741
37,000
$ 350,668
365,560
424,533
329,273
$ 339,271
350,110
408,330
307,630
1
20
(3)
6
8
(76)
1
23
27
21
4%
5
5
3
8
3%
4
4
7
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, commercial 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 $1.2 billion to $7.0
billion in 2017 compared to 2016 driven by higher revenue and
lower provision for credit losses.
Revenue increased $1.6 billion to $20.0 billion in 2017
compared to 2016 driven by higher net interest income and
noninterest income. Net interest income increased $1.0 billion to
$10.5 billion due to loan and deposit-related growth, higher short-
Bank of America 2017 51
term rates on an increased deposit base and the impact of the
allocation of ALM activities, partially offset by credit spread
compression. Noninterest income increased $521 million to $9.5
billion largely due to higher investment banking fees.
The provision for credit losses decreased $671 million to $212
million in 2017 primarily driven by reductions in energy exposures
and continued portfolio improvement, partially offset by Global
Banking’s portion of a single-name non-U.S. commercial charge-
off. Noninterest expense increased $110 million to $8.6 billion in
2017 primarily driven by higher investments in technology and
higher deposit insurance, partially offset by lower litigation costs.
The return on average allocated capital was 17 percent, up from
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 46.
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 present 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
2017
2016
2017
2016
2017
2016
2017
2016
$
$
4,387
3,322
7,709
$
$
4,285
2,996
7,281
$
$
4,280
3,017
7,297
$
$
4,139
2,718
6,857
$
$
404
849
1,253
$
$
376
740
1,116
$
9,071
7,188
$ 16,259
$
8,800
6,454
$ 15,254
$ 158,292
148,704
$152,944
143,233
$ 170,101
127,720
$163,309
126,253
$ 17,682
36,435
$ 17,537
35,256
$ 346,075
312,859
$333,790
304,742
$ 163,184
155,614
$152,589
144,016
$ 169,997
137,538
$168,828
128,210
$ 17,500
36,120
$ 17,882
35,409
$ 350,681
329,272
$339,299
307,635
Business Lending revenue increased $271 million in 2017
compared to 2016 driven by the impact of loan and lease-related
growth and the allocation of ALM activities, partially offset by credit
spread compression.
Global Transaction Services revenue increased $734 million
in 2017 compared to 2016 driven by the impact of higher short-
term rates on an increased deposit base, as well as the allocation
of ALM activities.
Average loans and leases increased four percent in 2017
compared to 2016 driven by growth in the commercial and
industrial, and leasing portfolios. Average deposits increased
three percent due to 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
52 Bank of America 2017
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
2017
2016
Total Corporation
2017
2016
$
$
$
1,557
1,506
408
3,471
(113)
1,156
1,407
321
2,884
(49)
1,691
3,635
940
6,266
(255)
1,269
3,276
864
5,409
(168)
$
3,358
$
2,835
$
6,011
$
5,241
Total Corporation investment banking fees, excluding self-led
deals, of $6.0 billion, which are primarily included within Global
Banking and Global Markets, increased 15 percent in 2017
compared to 2016 driven by higher advisory fees and higher debt
and equity issuance fees due to an increase in overall client activity
and market fee pools.
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
2017
2016
% Change
$
3,744
$
4,558
(18)%
2,049
2,476
6,710
972
12,207
15,951
164
10,731
5,056
1,763
3,293
9%
67.28
216,996
101,795
82,210
40,811
441,812
71,413
449,441
638,674
32,864
35,000
419,375
76,778
449,314
629,007
34,029
$
$
$
2,102
2,296
6,550
584
11,532
16,090
31
10,169
5,890
2,072
3,818
10%
63.21
185,135
89,715
87,286
50,769
412,905
69,641
423,579
585,341
34,250
37,000
380,562
72,743
397,022
566,060
34,927
$
$
$
(3)
8
2
66
6
(1)
n/m
6
(14)
(15)
(14)
17 %
13
(6)
(20)
7
3
6
9
(4)
(5)
10 %
6
13
11
(3)
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. The economics of certain investment banking and
underwriting activities are shared primarily between Global Markets
and Global Banking under an
revenue-sharing
arrangement. Global Banking originates certain deal-related
internal
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 52.
Net income for Global Markets decreased $525 million to $3.3
billion in 2017 compared to 2016. Net DVA losses were $428
million compared to losses of $238 million in 2016. Excluding net
DVA, net income decreased $408 million to $3.6 billion primarily
driven by higher noninterest expense, lower sales and trading
revenue and an increase in the provision for credit losses, partially
offset by higher investment banking fees.
Sales and trading revenue, excluding net DVA, decreased $423
million primarily due to weaker performance in rates products and
emerging markets. The provision for credit losses increased $133
million to $164 million, reflecting Global Markets’ portion of a
single-name non-U.S. commercial charge-off. Noninterest expense
increased $562 million to $10.7 billion primarily due to higher
litigation expense and continued investments in technology.
Average trading-related assets increased $28.9 billion to
$441.8 billion in 2017 primarily driven by targeted growth in client
financing activities in the global equities business. Year-end
Bank of America 2017 53
trading-related assets increased $38.8 billion to $419.4 billion at
December 31, 2017 driven by additional inventory in FICC to meet
expected client demand as well as targeted growth in client
financing activities in the global equities business.
The return on average allocated capital decreased to nine
percent, reflecting lower net income, partially offset by a decrease
in average 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
obligations, commercial MBS,
residential mortgage-backed
securities, collateralized loan obligations, 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 year-over-year operating performance.
Sales and Trading Revenue (1, 2)
(Dollars in millions)
Sales and trading revenue
Fixed-income, currencies and commodities
Equities
Total sales and trading revenue
Sales and trading revenue, excluding net DVA (3)
Fixed-income, currencies and commodities
Equities
Total sales and trading revenue, excluding net
2017
2016
$
$
$
$
8,665
4,112
12,777
9,059
4,146
13,205
$
$
$
$
9,373
4,017
13,390
9,611
4,017
13,628
(1)
(2)
Includes FTE adjustments of $236 million and $186 million for 2017 and 2016. 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 $236 million and $406 million for 2017
and 2016.
(3) FICC and Equities sales and trading revenue, excluding net DVA, is a non-GAAP financial measure.
FICC net DVA losses were $394 million and $238 million for 2017 and 2016. Equities net DVA
losses were $34 million and $0 for 2017 and 2016.
The following explanations for year-over-year changes in sales
and trading, FICC and Equities revenue, would be the same if net
DVA was included. FICC revenue, excluding net DVA, decreased
$552 million from 2016 primarily due to lower revenue in rates
products and emerging markets as lower volatility led to reduced
client flow. The decline in FICC revenue was also impacted by higher
funding costs which were driven by increases in market interest
rates. Equities revenue, excluding net DVA, increased $129 million
from 2016 due to higher revenue from the growth in client financing
activities which was partially offset by lower revenue in cash and
derivative trading due to lower levels of volatility and client activity.
2017
2016
% Change
$
864
$
918
(6)%
69
(263)
255
(1,709)
(1,648)
(784)
(561)
4,065
(4,288)
(979)
(3,309) $
189
889
490
(1,801)
(233)
685
(100)
5,599
(4,814)
(3,142)
(1,672)
$
$
82,489
206,998
25,194
69,452
194,048
22,719
108,735
248,287
27,494
96,713
212,413
23,061
$
$
$
(63)
(130)
(48)
(5)
n/m
n/m
n/m
(27)
(11)
(69)
98
(24)%
(17)
(8)
(28)%
(9)
(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. Allocated assets were $515.6 billion and $500.0 billion for 2017 and 2016, and $520.4 billion and $518.7 billion at December 31, 2017 and 2016.
Included $9.2 billion of non-U.S. credit card loans at December 31, 2016, which were included in assets of business held for sale on the Consolidated Balance Sheet. In 2017, the Corporation
sold its non-U.S. consumer credit card business.
(2)
All Other
(Dollars in millions)
Net interest income (FTE basis)
Noninterest income:
Card income
Mortgage banking income (loss)
Gains on sales of debt securities
All other loss
Total noninterest income (loss)
Total revenue, net of interest expense (FTE basis)
Provision for credit losses
Noninterest expense
Loss before income taxes (FTE basis)
Income tax expense (benefit) (FTE basis)
Net loss
Balance Sheet (1)
Average
Total loans and leases
Total assets (1)
Total deposits
Year end
Total loans and leases (2)
Total assets (1)
Total deposits
(1)
n/m = not meaningful
54 Bank of America 2017
the
the
the
the
related economic hedge
related economic hedge
All Other consists of ALM activities, equity investments, non-core
mortgage loans and servicing activities, the net impact of periodic
All Other consists of ALM activities, equity investments, non-core
revisions to the MSR valuation model for both core and non-core
mortgage loans and servicing activities, the net impact of periodic
results and
MSRs and
revisions to the MSR valuation model for both core and non-core
ineffectiveness, liquidating businesses, and residual expense
MSRs and
results and
allocations. ALM activities encompass certain residential
ineffectiveness, liquidating businesses, and residual expense
mortgages, debt securities, interest rate and foreign currency risk
allocations. ALM activities encompass certain residential
impact of certain allocation
management activities,
mortgages, debt securities, interest rate and foreign currency risk
methodologies and accounting hedge ineffectiveness. The results
management activities,
impact of certain allocation
of certain ALM activities are allocated to our business segments.
methodologies and accounting hedge ineffectiveness. The results
For more information on our ALM activities, see Note 23 – Business
of certain ALM activities are allocated to our business segments.
Segment Information to the Consolidated Financial Statements.
For more information on our ALM activities, see Note 23 – Business
Equity investments include our merchant services joint venture
Segment Information to the Consolidated Financial Statements.
as well as Global Principal Investments which is comprised of a
Equity investments include our merchant services joint venture
portfolio of equity, real estate and other alternative investments.
as well as Global Principal Investments which is comprised of a
For more information on our merchant services joint venture, see
portfolio of equity, real estate and other alternative investments.
Note 12 – Commitments and Contingencies to the Consolidated
For more information on our merchant services joint venture, see
Financial Statements. Income tax is generally recorded in the
Note 12 – Commitments and Contingencies to the Consolidated
business segments at the statutory rate; the initial impact of the
Financial Statements. Income tax is generally recorded in the
Tax Act was recorded in All Other.
business segments at the statutory rate; the initial impact of the
In 2017, the Corporation sold its non-U.S. consumer credit
Tax Act was recorded in All Other.
card business. For more information on the sale, see Note 1 –
In 2017, the Corporation sold its non-U.S. consumer credit
Summary of Significant Accounting Principles to the Consolidated
card business. For more information on the sale, see Note 1 –
Financial Statements.
Summary of Significant Accounting Principles to the Consolidated
The Corporation classifies consumer real estate loans as core
Financial Statements.
or non-core based on loan and customer characteristics such as
The Corporation classifies consumer real estate loans as core
origination date, product type, LTV, FICO score and delinquency
or non-core based on loan and customer characteristics such as
status. For more information on the core and non-core portfolios,
origination date, product type, LTV, FICO score and delinquency
see Consumer Portfolio Credit Risk Management on page 70.
status. For more information on the core and non-core portfolios,
Residential mortgage loans that are held for ALM purposes,
see Consumer Portfolio Credit Risk Management on page 70.
including interest rate or liquidity risk management, are classified
Residential mortgage loans that are held for ALM purposes,
as core and are presented on the balance sheet of All Other. For
including interest rate or liquidity risk management, are classified
more information on our interest rate and liquidity risk
as core and are presented on the balance sheet of All Other. For
management activities, see Liquidity Risk on page 65 and Interest
more information on our interest rate and liquidity risk
Rate Risk Management for the Banking Book on page 97. During
management activities, see Liquidity Risk on page 65 and Interest
2017, residential mortgage loans held for ALM activities
Rate Risk Management for the Banking Book on page 97. During
decreased $6.1 billion to $28.5 billion at December 31, 2017
2017, residential mortgage loans held for ALM activities
primarily as a result of payoffs and paydowns outpacing new
decreased $6.1 billion to $28.5 billion at December 31, 2017
originations. Non-core residential mortgage and home equity
primarily as a result of payoffs and paydowns outpacing new
loans, which are principally run-off portfolios, including certain
originations. Non-core residential mortgage and home equity
loans accounted for under the fair value option and MSRs
loans, which are principally run-off portfolios, including certain
pertaining to non-core loans serviced for others, are also held in
loans accounted for under the fair value option and MSRs
All Other. During 2017, total non-core loans decreased $11.8
pertaining to non-core loans serviced for others, are also held in
billion to $41.3 billion at December 31, 2017 due primarily to
All Other. During 2017, total non-core loans decreased $11.8
payoffs and paydowns, as well as loan sales.
billion to $41.3 billion at December 31, 2017 due primarily to
The net loss for All Other increased $1.6 billion to a net loss
payoffs and paydowns, as well as loan sales.
of $3.3 billion, driven by an estimated charge of $2.9 billion due
The net loss for All Other increased $1.6 billion to a net loss
to enactment of the Tax Act. For more information, see Financial
of $3.3 billion, driven by an estimated charge of $2.9 billion due
Highlights on page 37. The pre-tax loss for 2017 compared to
to enactment of the Tax Act. For more information, see Financial
2016 decreased $526 million reflecting lower noninterest
Highlights on page 37. The pre-tax loss for 2017 compared to
expense and a larger benefit in the provision for credit losses,
2016 decreased $526 million reflecting lower noninterest
partially offset by a decline in revenue.
expense and a larger benefit in the provision for credit losses,
Revenue declined $1.5 billion primarily due to lower mortgage
partially offset by a decline in revenue.
banking income. Mortgage banking income declined $1.2 billion
Revenue declined $1.5 billion primarily due to lower mortgage
primarily due to less favorable valuations on MSRs, net of related
banking income. Mortgage banking income declined $1.2 billion
hedges, and an increase in the provision for representations and
primarily due to less favorable valuations on MSRs, net of related
warranties. All other noninterest loss decreased marginally and
hedges, and an increase in the provision for representations and
included a pre-tax gain of $793 million on the sale of the non-
warranties. All other noninterest loss decreased marginally and
included a pre-tax gain of $793 million on the sale of the non-
U.S. credit card business and a downward valuation adjustment
of $946 million on tax-advantaged energy investments in
U.S. credit card business and a downward valuation adjustment
connection with the Tax Act. Gains on sales of loans included in
of $946 million on tax-advantaged energy investments in
all other loss, including nonperforming and other delinquent loans,
connection with the Tax Act. Gains on sales of loans included in
were $134 million compared to gains of $232 million in the same
all other loss, including nonperforming and other delinquent loans,
period in 2016.
were $134 million compared to gains of $232 million in the same
The benefit in the provision for credit losses increased $461
period in 2016.
million to a benefit of $561 million primarily driven by continued
The benefit in the provision for credit losses increased $461
runoff of the non-core portfolio, loan sale recoveries and the sale
million to a benefit of $561 million primarily driven by continued
of the non-U.S. consumer credit card business.
runoff of the non-core portfolio, loan sale recoveries and the sale
Noninterest expense decreased $1.5 billion to $4.1 billion
of the non-U.S. consumer credit card business.
driven by lower litigation expense, lower personnel expense and
Noninterest expense decreased $1.5 billion to $4.1 billion
a decline in non-core mortgage servicing costs, partially offset by
driven by lower litigation expense, lower personnel expense and
a $316 million impairment charge related to certain data centers
a decline in non-core mortgage servicing costs, partially offset by
in the process of being sold.
a $316 million impairment charge related to certain data centers
The income tax benefit was $1.0 billion in 2017 compared to
in the process of being sold.
a benefit of $3.1 billion in 2016. The decrease in the tax benefit
The income tax benefit was $1.0 billion in 2017 compared to
was driven by the impacts of the Tax Act, including an estimated
a benefit of $3.1 billion in 2016. The decrease in the tax benefit
income tax expense of $1.9 billion related primarily to a lower
was driven by the impacts of the Tax Act, including an estimated
valuation of certain deferred tax assets and liabilities. Both
income tax expense of $1.9 billion related primarily to a lower
periods include income tax benefit adjustments to eliminate the
valuation of certain deferred tax assets and liabilities. Both
FTE treatment of certain tax credits recorded in Global Banking.
periods include income tax benefit adjustments to eliminate the
FTE treatment of certain tax credits recorded in Global Banking.
Off-Balance Sheet Arrangements and
Off-Balance Sheet Arrangements and
Contractual Obligations
We have contractual obligations to make future payments on debt
Contractual Obligations
and lease agreements. Additionally, in the normal course of
We have contractual obligations to make future payments on debt
business, we enter into contractual arrangements whereby we
and lease agreements. Additionally, in the normal course of
commit to future purchases of products or services from
business, we enter into contractual arrangements whereby we
unaffiliated parties. Purchase obligations are defined as
commit to future purchases of products or services from
obligations that are legally binding agreements whereby we agree
unaffiliated parties. Purchase obligations are defined as
to purchase products or services with a specific minimum quantity
obligations that are legally binding agreements whereby we agree
at a fixed, minimum or variable price over a specified period of
to purchase products or services with a specific minimum quantity
time. Included in purchase obligations are vendor contracts, the
at a fixed, minimum or variable price over a specified period of
most significant of which include communication services,
time. Included in purchase obligations are vendor contracts, the
processing services and software contracts. Debt, lease and other
most significant of which include communication services,
obligations are more fully discussed in Note 11 – Long-term Debt
processing services and software contracts. Debt, lease and other
and Note 12 – Commitments and Contingencies to the Consolidated
obligations are more fully discussed in Note 11 – Long-term Debt
Financial Statements.
and Note 12 – Commitments and Contingencies to the Consolidated
Other long-term liabilities include our contractual funding
Financial Statements.
obligations related to the Qualified Pension Plan, Non-U.S. Pension
Other long-term liabilities include our contractual funding
Plans, Nonqualified and Other Pension Plans, and Postretirement
obligations related to the Qualified Pension Plan, Non-U.S. Pension
Health and Life Plans (collectively, the Plans). Obligations to the
Plans, Nonqualified and Other Pension Plans, and Postretirement
Plans are based on the current and projected obligations of the
Health and Life Plans (collectively, the Plans). Obligations to the
Plans, performance of the Plans’ assets, and any participant
Plans are based on the current and projected obligations of the
contributions, if applicable. During 2017 and 2016, we contributed
Plans, performance of the Plans’ assets, and any participant
$514 million and $256 million to the Plans, and we expect to make
contributions, if applicable. During 2017 and 2016, we contributed
$128 million of contributions during 2018. The Plans are more
$514 million and $256 million to the Plans, and we expect to make
fully discussed in Note 17 – Employee Benefit Plans to the
$128 million of contributions during 2018. The Plans are more
Consolidated Financial Statements.
fully discussed in Note 17 – Employee Benefit Plans to the
We enter into commitments to extend credit such as loan
Consolidated Financial Statements.
commitments, standby letters of credit (SBLCs) and commercial
We enter into commitments to extend credit such as loan
letters of credit to meet the financing needs of our customers. For
commitments, standby letters of credit (SBLCs) and commercial
a summary of the total unfunded, or off-balance sheet, credit
letters of credit to meet the financing needs of our customers. For
extension commitment amounts by expiration date, see Credit
a summary of the total unfunded, or off-balance sheet, credit
Extension Commitments in Note 12 – Commitments and
extension commitment amounts by expiration date, see Credit
Contingencies to the Consolidated Financial Statements.
Extension Commitments in Note 12 – Commitments and
Contingencies to the Consolidated Financial Statements.
Bank of America 2017 55
Bank of America 2017 55
Table 11 includes certain contractual obligations at December 31, 2017 and 2016.
Table 11 Contractual Obligations
(Dollars in millions)
December 31, 2017
Due in One
Year or Less
Due After
One Year
Through
Three Years
Due After
Three Years
Through
Five Years
December 31
2016
Due After
Five Years
Total
Total
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)
Total contractual obligations
$
$
42,057
2,256
1,317
61,038
1,681
5,590
113,939
$
$
42,145
4,072
1,426
4,990
1,234
8,796
62,663
$
$
30,879
3,023
458
1,543
862
6,909
43,674
$
$
112,321
5,169
1,018
273
1,195
27,828
147,804
$
$
227,402
14,520
4,219
67,844
4,972
49,123
368,080
$
$
216,823
13,620
5,742
74,944
4,567
39,447
355,143
(1) Represents forecasted net interest expense on long-term debt and time deposits based on interest rates at December 31, 2017. Forecasts are based on the contractual maturity dates of each
liability, and are net of derivative hedges, where applicable.
Representations and Warranties
For background information on representations and warranties,
see Note 7 – Representations and Warranties Obligations and
Corporate Guarantees to the Consolidated Financial Statements.
Breaches of representations and warranties made in connection
with the sale of mortgage loans 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).
At December 31, 2017 and 2016, we had $17.6 billion and
$18.3 billion of unresolved repurchase claims, predominately
related to subprime and pay option first-lien loans and home equity
loans originated primarily between 2004 and 2008.
In addition to unresolved repurchase claims, we have received
notifications indicating that we may have indemnity obligations
with respect to specific loans for which we have not received a
repurchase request. These notifications were received prior to
2015, and totaled $1.3 billion at both December 31, 2017 and
2016. During 2017, we reached agreements with certain parties
requesting indemnity. One such agreement is subject to
acceptance by a securitization trustee. The impact of these
agreements is included in the provision and reserve for
representations and warranties.
The reserve 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. At December 31, 2017 and
2016, the reserve for representations and warranties was $1.9
billion and $2.3 billion. The representations and warranties
provision was $393 million for 2017 compared to $106 million
for 2016 with the increase resulting from settlements or advanced
negotiations with certain counterparties where we believe we will
reach settlements on several outstanding legacy matters.
In addition, we currently estimate that the range of possible
loss for representations and warranties exposures could be up to
$1 billion over existing accruals at December 31, 2017. This
estimate is lower than the estimate at December 31, 2016 due
to recent reductions in risk as we reach settlements with
counterparties. 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 reserve for representations and
warranties and the corresponding estimated range of possible
loss, such as counterparties 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 to the Consolidated
Financial Statements and, for more information related to the
sensitivity of the assumptions used to estimate our liability for
representations and warranties, see Complex Accounting
Estimates – Representations and Warranties Liability on page 102.
Other Mortgage-related Matters
We continue to be subject to 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
regulatory scrutiny, heightened regulatory compliance obligations,
and enhanced regulatory enforcement, combined with ongoing
uncertainty related to the continuing evolution of the regulatory
environment, has
increased operational and
in
compliance costs and may limit our ability to continue providing
certain products and services. For more information on
management’s estimate of the aggregate range of possible loss
for certain litigation matters and on regulatory investigations, see
Note 12 – Commitments and Contingencies to the Consolidated
Financial Statements.
resulted
56 Bank of America 2017
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.
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 in the geographic
locations in which we operate.
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 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.
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 serves as the foundation for the consistent
and effective management of 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 46.
The Corporation’s risk appetite indicates the amount of capital,
earnings or liquidity we are willing to put at risk to achieve our
strategic objectives and business plans, consistent with applicable
regulatory requirements. Our risk appetite provides a common and
comparable set of measures for senior management and the Board
to clearly indicate our aggregate level of risk and to monitor whether
the Corporation’s risk profile remains in alignment with our
strategic and capital plans. Our risk appetite is formally articulated
in the Risk Appetite Statement, which includes both qualitative
components and quantitative limits.
For a more detailed discussion of our risk management
activities, see the discussion below and pages 60 through 100.
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.
Bank of America 2017 57
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
Committees
Audit
Committee
Enterprise
Risk
Committee
Corporate
Governance
Committee
Compensation
and Benefits
Committee
Management
Committees
Disclosure
Committee (2)
Management
Risk
Committee
Reg O
Committee
Corporate
Benefits
Committee
Management
Compensation
Committee
(1) This presentation does not include committees for other legal entities.
(2) Reports to the CEO and CFO with oversight by the Audit Committee.
Board of Directors and Board Committees
The Board is comprised of 15 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
58 Bank of America 2017
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 Environmental, Social and Government
(ESG) and 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, as well as compensation for non-management
directors.
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 facing the Corporation. 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
We have clear ownership and accountability across 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 functional roles 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.
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 CAO Group, CFO Group
and GM&CA. 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 stature, 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 horizontal 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 in 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, 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
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.
Bank of America 2017 59
risk well
The formal processes used to manage risk represent a part of
our overall risk management process. We instill a strong and
comprehensive culture of managing
through
communications, training, policies, procedures and organizational
roles and responsibilities. Establishing a culture reflective of our
purpose to help make our customers’ financial lives better and
delivering our responsible growth strategy are also critical to
effective risk management. We understand that improper actions,
behaviors or practices that are illegal, unethical or contrary to our
core values could result in harm to the Corporation, our
shareholders or our customers, damage the integrity of the
financial markets, or negatively impact our reputation, and have
established protocols and structures so that such conduct risk is
governed and reported across the Corporation. Specifically, our
Code of Conduct provides a framework for all of our employees to
conduct themselves with the highest integrity. Additionally, we
continue to strengthen the link between the employee performance
management process and individual compensation to encourage
employees to work toward enterprise-wide risk goals.
Corporation-wide Stress Testing
Integral to our Capital Planning, Financial Planning and Strategic
Planning processes, we conduct capital scenario management and
stress 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 stress 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,
which provides confidence to management, regulators and our
investors.
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
contingency plans
include our Capital Contingency Plan,
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.
60 Bank of America 2017
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 more information, see Business Segment
Operations on page 46.
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.
On June 28, 2017, following the Federal Reserve’s non-
objection to our 2017 CCAR capital plan, the Board authorized the
repurchase of $12.0 billion in common stock from July 1, 2017
through June 30, 2018, plus repurchases expected to be
approximately $900 million to offset the effect of equity-based
compensation plans during the same period. On December 5,
2017, following approval by the Federal Reserve, the Board
authorized the repurchase of an additional $5.0 billion of common
stock through June 30, 2018. The common stock repurchase
authorizations include both common stock and warrants. During
2017, pursuant to the Board’s authorizations, including those
related to our 2016 CCAR capital plan that expired June 30, 2017,
we repurchased $12.8 billion of common stock, which includes
common stock repurchases to offset equity-based compensation
awards. At December 31, 2017, our remaining stock repurchase
authorization was $10.1 billion.
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 0.25 percent of Tier 1 capital, 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
includes common stock, retained earnings and
primarily
accumulated other comprehensive income (OCI), net of deductions
and adjustments primarily related to goodwill, deferred tax assets,
intangibles and defined benefit pension assets. Under the Basel
3 regulatory capital transition provisions, certain deductions and
adjustments to Common equity tier 1 capital were phased in
through January 1, 2018. In 2017, under the transition provisions,
80 percent of these deductions and adjustments was 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 determine
risk weights based on internal models. During the fourth quarter
of 2017, we obtained approval from U.S. banking regulators to
use our Internal Models Methodology (IMM) to calculate
counterparty credit risk-weighted assets for derivatives under the
Advanced approaches.
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. The
PCA framework establishes categories of capitalization including
“well capitalized,” based on the Basel 3 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, 2017.
We are subject
to a capital conservation buffer, a
countercyclical capital buffer and a global systemically important
bank (G-SIB) surcharge that are being 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 comprised
solely of Common equity tier 1 capital. Under the phase-in
provisions, we were required to maintain a capital conservation
buffer greater than 1.25 percent plus a G-SIB surcharge of 1.5
percent in 2017. The countercyclical capital buffer is currently set
at zero. We estimate that our fully phased-in G-SIB surcharge will
Bank of America 2017 61
be 2.5 percent. The G-SIB surcharge may differ from this estimate
over time. For more information on the Corporation’s transition
and fully phased-in capital ratios and regulatory requirements, see
Table 12.
Supplementary Leverage Ratio
Basel 3 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 12 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, 2017 and 2016. 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 15. As of December 31,
2017 and 2016, the Corporation met the definition of “well
capitalized” under current regulatory requirements.
Table 12 Bank of America Corporation Regulatory Capital under Basel 3 (1, 2)
(Dollars in millions, except as noted)
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
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
Transition
Fully Phased-in
Standardized
Approach
Advanced
Approaches (3)
Regulatory
Minimum (4)
Standardized
Approach
Advanced
Approaches (3)
Regulatory
Minimum (5)
December 31, 2017
$ 171,063
191,496
227,427
1,434
$ 171,063
191,496
218,529
1,449
$ 168,461
190,189
224,209
1,443
$ 168,461
190,189
215,311
1,459
11.9%
13.4
15.9
11.8%
13.2
15.1
7.25%
8.75
10.75
11.7%
13.2
15.5
$
2,224
$
2,224
$
2,223
8.6%
8.6%
4.0
8.6%
11.5%
13.0
14.8
2,223
8.6%
2,756
6.9%
$
$
9.5%
11.0
13.0
4.0
5.0
December 31, 2016
$ 168,866
190,315
228,187
1,399
$ 168,866
190,315
218,981
1,530
$ 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
$
2,131
$
2,131
$
2,131
$
2,131
8.9%
8.9%
4.0
8.8%
8.8%
$
2,702
6.9%
4.0
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, 2017 and 2016.
(2) Under the applicable bank regulatory rules, we are not required to and, accordingly, will not restate previously-filed regulatory capital metrics and ratios in connection with the change in accounting
method under GAAP for stock-based compensation awards granted to retirement-eligible employees. Therefore, the December 31, 2016 amounts in the table are as originally reported. The cumulative
impact of the change in accounting method resulted in an insignificant pro forma change to our capital metrics and ratios. For more information, see Note 1 – Summary of Significant Accounting
Principles to the Consolidated Financial Statements.
(3) During the fourth quarter of 2017, we obtained approval from U.S. banking regulators to use our IMM to calculate counterparty credit risk-weighted assets for derivatives under the Advanced
approaches. Fully phased-in estimates for prior periods assumed approval.
(4) The December 31, 2017 and 2016 amounts include a transition capital conservation buffer of 1.25 percent and 0.625 percent and a transition G-SIB surcharge of 1.5 percent and 0.75 percent.
The countercyclical capital buffer for both periods is zero.
(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, 2017 and 2016.
62 Bank of America 2017
Common equity tier 1 capital under Basel 3 Advanced –
Transition was $171.1 billion at December 31, 2017, an increase
of $2.2 billion compared to December 31, 2016 driven by earnings
and the exercise of warrants associated with the Series T preferred
stock, partially offset by common stock repurchases, dividends
and the phase-in under Basel 3 transition provisions of deductions,
primarily related to deferred tax assets. During 2017, total capital
decreased $452 million primarily driven by common stock
repurchases, dividends, lower eligible credit reserves and tier 2
capital instruments, in addition to the phase-in of Basel 3 transition
provisions, partially offset by earnings.
Risk-weighted assets decreased $81 billion during 2017 to
$1,449 billion primarily due to the implementation of Internal
Models Methodology (IMM) for derivatives, improvements in credit
risk capital models, the sale of the non-U.S. consumer credit card
business and continued run-off of non-core assets.
Table 13 shows the capital composition as measured under
Basel 3 – Transition at December 31, 2017 and 2016.
Table 13 Capital Composition under Basel 3 – Transition (1, 2)
(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 AFS Securities and defined benefit postretirement plans
Adjustments for amounts recorded in accumulated OCI attributed to certain cash flow hedges
Intangibles, other than mortgage servicing rights and goodwill
Defined benefit pension fund assets
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
Defined benefit pension fund assets
DVA related to liabilities and derivatives under transition
Other
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
Total Basel 3 Capital
December 31
2017
2016
244,823
(68,576)
(5,244)
879
831
(1,395)
(910)
957
(302)
171,063
22,323
(1,311)
(228)
239
(590)
191,496
22,938
2,272
1,893
(70)
218,529
$
$
241,620
(69,191)
(4,976)
1,899
895
(1,198)
(512)
413
(84)
168,866
25,220
(3,318)
(341)
276
(388)
190,315
23,365
3,035
2,271
(5)
218,981
$
$
(1) See Table 12, footnotes 1 and 2.
(2) Deductions from and adjustments to regulatory capital subject to transition provisions under Basel 3 are generally recognized in 20 percent annual increments, and are fully recognized as of 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 14 shows the components of risk-weighted assets as measured under Basel 3 – Transition at December 31, 2017 and 2016.
Table 14 Risk-weighted Assets under Basel 3 – Transition
Standardized
Approach
Advanced
Approaches
Standardized
Approach
Advanced
Approaches
(Dollars in billions)
Credit risk
Market risk
Operational risk
Risks related to CVA
Total risk-weighted assets
n/a = not applicable
$
$
2017
$
1,375
59
n/a
n/a
1,434
$
December 31
857
58
500
34
1,449
$
$
2016
$
1,334
65
n/a
n/a
1,399
$
903
63
500
64
1,530
Bank of America 2017 63
Table 15 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, 2017
and 2016.
Table 15 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
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)
(1) See Table 12, footnotes 1, 2 and 4.
December 31
2017
2016
171,063
(1,311)
(879)
(348)
(228)
239
(75)
168,461
20,433
1,311
228
(239)
(5)
21,728
190,189
27,033
(1,893)
8,880
34,020
224,209
(8,898)
215,311
$
$
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
1,433,517
9,204
1,442,721
$ 1,399,477
17,638
$ 1,417,115
1,449,222
9,757
1,458,979
$ 1,529,903
(18,113)
$ 1,511,790
$
$
$
$
$
$
Bank of America, N.A. Regulatory Capital
Table 16 presents transition regulatory capital information for BANA in accordance with Basel 3 Standardized and Advanced approaches
as measured at December 31, 2017 and 2016. As of December 31, 2017, BANA met the definition of “well capitalized” under the
PCA framework.
Table 16 Bank of America, N.A. Regulatory Capital under Basel 3
Standardized Approach
Advanced Approaches
Ratio
Amount
Minimum
Required (1)
Ratio
Amount
Minimum
Required (1)
(Dollars in millions)
Common equity tier 1 capital
Tier 1 capital
Total capital
Tier 1 leverage
12.5% $ 150,552
12.5
150,552
13.6
163,243
150,552
9.0
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.
12.7% $ 149,755
149,755
12.7
163,471
13.9
149,755
9.3
December 31, 2017
6.5%
8.0
10.0
5.0
14.9% $ 150,552
14.9
150,552
15.4
154,675
150,552
9.0
December 31, 2016
6.5%
8.0
10.0
5.0
14.3% $ 149,755
149,755
14.3
154,697
14.8
149,755
9.3
6.5%
8.0
10.0
5.0
6.5%
8.0
10.0
5.0
64 Bank of America 2017
Regulatory Developments
Minimum Total Loss-Absorbing Capacity
The Federal Reserve has established a final rule effective January
1, 2019, which includes minimum external total loss-absorbing
capacity (TLAC) requirements to improve the resolvability and
resiliency of large, interconnected BHCs. 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. As of December 31,
2017, the Corporation’s TLAC and long-term debt exceeded our
estimated 2019 minimum requirements.
several
finalized
(Basel Committee)
Revisions to Approaches for Measuring Risk-weighted
Assets
On December 7, 2017, the Basel Committee on Banking
Supervision
key
methodologies for measuring risk-weighted assets. The revisions
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 had also previously 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. The revisions also
include a capital floor set at 72.5 percent of total risk-weighted
assets based on the revised standardized approaches to limit the
extent to which banks can reduce risk-weighted asset levels
through the use of internal models. U.S. banking regulators may
update the U.S. Basel 3 rules to incorporate the Basel Committee
revisions.
Revisions to the G-SIB Assessment Framework
On March 30, 2017, the Basel Committee issued a consultative
document with proposed revisions to the G-SIB surcharge
assessment framework. The proposed revisions would include
removing the cap on the substitutability category, expanding the
scope of consolidation to include insurance subsidiaries in three
interconnectedness and complexity) and
categories
modifying
the
introduction of a new trading volume indicator. The Basel
Committee has also requested feedback on a new short-term
wholesale funding indicator, which would be included in the
interconnectedness category. The U.S. banking regulators may
update the U.S. G-SIB surcharge rule to incorporate the Basel
Committee revisions.
(size,
the substitutability category weights with
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
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,
2017, MLPF&S’s regulatory net capital as defined by Rule 15c3-1
was $12.4 billion and exceeded the minimum requirement of $1.7
billion by $10.7 billion. MLPCC’s net capital of $3.4 billion
exceeded the minimum requirement of $543 million by $2.9
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, 2017, 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, 2017, MLI’s capital resources
were $35.1 billion which exceeded the minimum Pillar 1
requirement of $16.5 billion.
Liquidity Risk
Funding and Liquidity Risk Management
Our primary liquidity risk management objective is to meet
expected or unexpected cash flow and collateral needs while
continuing to support our businesses and customers under a range
of economic conditions. 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 enhances our ability
liquidity
requirements, maximizes access to funding sources, minimizes
borrowing costs and facilitates timely responses to liquidity
events.
to monitor
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, stress testing scenarios and results, and reviews and
approves certain liquidity risk limits. For more information, see
Managing Risk on page 57. Under this governance framework, we
have developed certain funding and liquidity risk management
practices which include: maintaining liquidity at the parent
including our bank
company and selected subsidiaries,
subsidiaries and other regulated entities; determining what
amounts of liquidity are appropriate for these entities based on
analysis of debt maturities and other potential cash outflows,
Bank of America 2017 65
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.
NB Holdings Corporation
In 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 not needed to satisfy anticipated near-term
expenditures, to NB Holdings Corporation, 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.
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), 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 securities. 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.
For the three months ended December 31, 2017 and 2016,
our average GLS were $522 billion and $515 billion, as shown in
Table 17.
Table 17 Average Global Liquidity Sources
(Dollars in billions)
Parent company and NB Holdings
Bank subsidiaries
Other regulated entities
Total Average Global Liquidity Sources
Three Months Ended
December 31
2017
2016
$
$
79
394
49
522
$
$
77
389
49
515
Parent company and NB Holdings average liquidity was $79
billion and $77 billion for the three months ended December 31,
2017 and 2016. The increase in parent company and NB Holdings
average liquidity was primarily due to debt issuances outpacing
maturities. Typically, parent company and NB Holdings liquidity is
in the form of cash deposited with BANA.
Average liquidity held at our bank subsidiaries was $394 billion
and $389 billion for the three months ended December 31, 2017
and 2016. Our bank subsidiaries’ liquidity is primarily driven by
deposit and lending activity, as well as securities valuation and
net debt activity. 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 $308 billion and $310 billion at December 31,
2017 and 2016, with the decrease due to FHLB borrowings, which
reduced available borrowing capacity, and adjustments to our
valuation model. 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 transfers to the parent company or nonbank
subsidiaries may be subject to prior regulatory approval.
Average liquidity held at our other regulated entities, comprised
primarily of broker-dealer subsidiaries, was $49 billion for both the
three months ended December 31, 2017 and 2016. 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.
66 Bank of America 2017
Table 18 presents the composition of average GLS for the three
months ended December 31, 2017 and 2016.
Table 18 Average Global Liquidity Sources Composition
(Dollars in billions)
Cash on deposit
U.S. Treasury securities
U.S. agency securities and mortgage-backed
securities
Non-U.S. government securities
Total Average Global Liquidity Sources
$
$
Three Months Ended
December 31
2017
2016
118
62
330
12
522
$
$
118
58
322
17
515
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. However, HQLA for purposes
of calculating LCR is not reported at market value, but at a lower
value that incorporates regulatory deductions and the exclusion
of excess liquidity held at certain subsidiaries. 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. For the three months ended December
31, 2017, our average consolidated HQLA, on a net basis, was
$439 billion and the average consolidated LCR was 125 percent.
Our LCR will fluctuate due to normal business flows from customer
activity.
Liquidity Stress Analysis and Time-to-required Funding
We 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.
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.
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. TTF was
49 months at December 31, 2017 compared to 35 months at
December 31, 2016. The increase in TTF was driven by debt
issuances outpacing maturities.
Net Stable Funding Ratio
U.S. banking regulators issued a proposal for a Net Stable Funding
Ratio (NSFR) requirement applicable to U.S. financial institutions
following the Basel Committee’s final standard. The proposed U.S.
NSFR would apply to the Corporation on a consolidated basis and
to our insured depository institutions. While the final requirement
remains pending and is subject to change, if finalized as proposed,
we expect to be in compliance within the regulatory timeline. The
standard is intended to reduce funding risk over a longer time
horizon. The NSFR is designed to provide 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
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 $1.31 trillion and $1.26 trillion at
December 31, 2017 and 2016. 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 government-sponsored
enterprises, the Federal Housing Administration (FHA) and private-
label investors, as well as FHLB loans.
Bank of America 2017 67
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 2017, we issued $53.3 billion of long-term debt
consisting of $37.7 billion for Bank of America Corporation,
substantially all of which was TLAC compliant, $8.2 billion for Bank
of America, N.A. and $7.4 billion of other debt.
In December 2017, pursuant to a private offering, we
exchanged $11.0 billion of outstanding long-term debt for new
fixed/floating-rate senior notes, subject to certain terms and
conditions, to extend maturities and improve the structure of this
debt for TLAC purposes. Based on the attributes of the exchange
transactions, the newly issued securities are not considered
substantially different, for accounting purposes, from the
exchanged securities. Therefore, there was no impact to our results
of operations as any amounts paid to debt holders were capitalized,
and the premiums or discounts on the outstanding long-term debt
were carried over to the new securities and will be amortized over
their contractual lives using a revised effective interest rate.
Table 19 presents our long-term debt by major currency at
December 31, 2017 and 2016.
Table 19 Long-term Debt by Major Currency
(Dollars in millions)
U.S. dollar
Euro
British pound
Australian dollar
Japanese yen
Canadian dollar
Other
Total long-term debt
December 31
2017
2016
175,623
35,481
7,016
3,046
2,993
1,966
1,277
227,402
$
$
172,082
28,236
6,588
2,900
3,919
1,049
2,049
216,823
$
$
Total long-term debt increased $10.6 billion, or five percent, in
2017, primarily due to issuances outpacing maturities. 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
68 Bank of America 2017
may make markets in our debt instruments to provide liquidity for
investors.
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 more information
on our ALM activities, see Interest Rate Risk Management for the
Banking Book on page 97.
We may also issue unsecured debt in the form of structured
notes for client purposes, certain of which qualify as TLAC eligible
debt. During 2017, we issued $5.4 billion of structured notes,
which 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. For more
information on long-term debt funding, see Note 11 – Long-term
Debt to the Consolidated Financial Statements.
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 December 6, 2017, Moody’s Investors Services, Inc.
(Moody’s) upgraded the long-term ratings of Bank of America
Corporation and certain subsidiaries, including BANA, by one
notch, moving their senior debt ratings to A3 and Aa3, respectively.
The upgrade was based on the agency’s expectations for continued
improvement in the Corporation’s profitability and management’s
continued commitment to a conservative risk profile. At the same
time, Moody’s affirmed all the short-term ratings for Bank of
America Corporation and
its rated subsidiaries. Moody’s
concurrently moved the outlook on the ratings to stable. This action
concluded the review for upgrade that Moody’s initiated on
September 12, 2017.
On November 22, 2017, Standard & Poor’s Global Ratings
(S&P) upgraded Bank of America Corporation’s long-term senior
debt rating to A- from BBB+ following the agency’s periodic review
of our ratings. S&P cited the improvement in the Corporation’s risk
profile, while continuing to improve profitability metrics, as the
driver for the upgrade, including tightening underwriting standards,
reducing exposure to market risk, growing conservatively, and
resolving legacy legal issues. S&P concurrently affirmed the ratings
of the Corporation’s rated core operating subsidiaries, including
BANA, MLPF&S, MLI and Bank of America Merrill Lynch
International Limited. Those entities were affirmed rather than
upgraded since their ratings had reached an inflection point under
S&P’s methodology where the one notch S&P added to its
(called an
assessment of our
Unsupported Group Credit Profile, or UGCP) resulted in the
subsidiaries receiving one less notch of support uplift under the
agency’s Additional Loss Absorbing Capacity framework, thus
leaving those entities’ ratings unchanged. S&P retained a stable
outlook on the ratings of Bank of America Corporation and its core
operating subsidiaries following the upgrade.
intrinsic creditworthiness
On September 28, 2017, Fitch Ratings (Fitch) completed its
latest 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 its rated subsidiaries, including BANA, and
maintained its stable outlook on those ratings.
Table 20 presents the Corporation’s current long-term/short-
term senior debt ratings and outlooks expressed by the rating
agencies.
Table 20 Senior Debt Ratings
Moody’s Investors Service
Standard & Poor’s Global Ratings
Long-term
Short-term
Outlook
Long-term
Short-term
Outlook
Long-term
Fitch Ratings
Short-term
Bank of America Corporation
Bank of America, N.A.
Merrill Lynch, Pierce, Fenner &
Smith Incorporated
Merrill Lynch International
NR = not rated
A3
Aa3
NR
NR
P-2
P-1
NR
NR
Stable
Stable
NR
NR
A-
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 Liquidity Stress
Analysis on page 67.
For more information on the additional collateral and
termination payments that could be required in connection with
certain OTC derivative contracts and other trading agreements as
a result of such a credit rating downgrade, see Note 2 – Derivatives
to the Consolidated Financial Statements.
Common Stock Dividends
For a summary of our declared quarterly cash dividends on
common stock during 2017 and through February 22, 2018, see
Note 13 – Shareholders’ Equity to the Consolidated Financial
Statements.
Bank of America 2017 69
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 79, Non-
U.S. Portfolio on page 86, Provision for Credit Losses on page 88,
Allowance for Credit Losses on page 88, and Note 4 – Outstanding
Loans and Leases and Note 5 – Allowance for Credit Losses to the
Consolidated Financial Statements.
During the third quarter of 2017, hurricanes impacted the
southern United States and the Caribbean, bringing widespread
flooding and wind damage to communities across the region. In
the weeks after these storms, we supported our customers and
clients in these communities by providing mobile financial centers
and ATMs. In addition, we provided support for the recovery efforts
including proactive fee refunds in affected areas, as well as home
loan and other credit assistance, including payment deferrals, for
impacted individuals and businesses. We do not believe that these
storms will have a material financial impact on the Corporation.
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 and are a
component of our consumer credit risk management process.
These models 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 2017 resulting in improved credit quality and
lower credit losses in the consumer real estate portfolio, partially
offset by seasoning and loan growth in the U.S. credit card portfolio
compared to 2016.
Improved credit quality, the sale of the non-U.S. consumer credit
card business in 2017, continued loan balance run-off and sales
in the consumer real estate portfolio drove a $839 million
decrease in the consumer allowance for loan and lease losses in
2017 to $5.4 billion at December 31, 2017. For more information,
see Allowance for Credit Losses on page 88.
For more information on our accounting policies regarding
delinquencies, nonperforming status, charge-offs and troubled
debt restructurings (TDRs) for the consumer portfolio, including
those related to bankruptcy and repossession, see Note 1 –
Summary of Significant Accounting Principles to the Consolidated
Financial Statements.
Table 21 presents our outstanding consumer loans and leases,
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 (bankruptcy
loans 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 Fannie Mae (FNMA) and Freddie Mac
(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).
the Government National Mortgage Association
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.
For more information on PCI loans, see Consumer Portfolio
Credit Risk Management – Purchased Credit-impaired Loan
Portfolio on page 76 and Note 4 – Outstanding Loans and Leases
to the Consolidated Financial Statements.
70 Bank of America 2017
Table 21 Consumer Credit Quality
(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)
Percentage of outstanding consumer loans and leases (6)
Percentage of outstanding consumer loans and leases, excluding PCI and fully-insured
Outstandings
Nonperforming
December 31
2017
$ 2,476
2,644
n/a
n/a
46
—
$ 5,166
2016
$ 3,056
2,918
n/a
n/a
28
2
$ 6,004
Accruing Past Due
90 Days or More
2017
$ 3,230
—
900
—
40
—
$ 4,170
2016
$ 4,793
—
782
66
34
4
$ 5,679
1.14%
1.32%
0.92%
1.24%
2017
$ 203,811
57,744
96,285
—
93,830
2,678
$ 454,348
928
$ 455,276
n/a
2016
$ 191,797
66,443
92,278
9,214
94,089
2,499
$ 456,320
1,051
$ 457,371
n/a
loan portfolios (6)
n/a
n/a
1.23
1.45
0.22
0.21
(1) Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At December 31, 2017 and 2016, residential mortgage includes $2.2 billion and $3.0 billion of loans on which
interest had been curtailed by the FHA, and therefore were no longer accruing interest, although principal was still insured, and $1.0 billion and $1.8 billion of loans on which interest was still accruing.
(2) Outstandings include auto and specialty lending loans of $49.9 billion and $48.9 billion, unsecured consumer lending loans of $469 million and $585 million, U.S. securities-based lending loans
of $39.8 billion and $40.1 billion, non-U.S. consumer loans of $3.0 billion for both periods, student loans of $0 and $497 million and other consumer loans of $684 million and $1.1 billion at
December 31, 2017 and 2016.
(3) Outstandings include consumer leases of $2.5 billion and $1.9 billion, consumer overdrafts of $163 million and $157 million and consumer finance loans of $0 and $465 million at December 31,
2017 and 2016.
(4) Consumer loans accounted for under the fair value option include residential mortgage loans of $567 million and $710 million and home equity loans of $361 million and $341 million at December
(5)
31, 2017 and 2016. 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 were included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. In 2017, the Corporation sold
its non-U.S. consumer credit card business.
(6) Balances exclude consumer loans accounted for under the fair value option. At December 31, 2017 and 2016, $26 million and $48 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 22 presents net charge-offs and related ratios for consumer loans and leases.
Table 22 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)
2017
2016
2017
2016
$
$
(100) $
213
2,513
75
211
166
3,078
$
131
405
2,269
175
134
205
3,319
(0.05)%
0.34
2.76
1.91
0.23
6.35
0.68
0.07%
0.57
2.58
1.83
0.15
8.95
0.74
(1) Net charge-offs exclude write-offs in the PCI loan portfolio. For more information, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 76.
(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-offs, as shown in Tables 22 and 23, exclude write-
offs in the PCI loan portfolio of $131 million and $144 million in
residential mortgage and $76 million and $196 million in home
equity for 2017 and 2016. Net charge-off ratios including the PCI
write-offs were 0.02 percent and 0.15 percent for residential
mortgage and 0.47 percent and 0.84 percent for home equity in
2017 and 2016. For more information on PCI write-offs, see
Consumer Portfolio Credit Risk Management – Purchased Credit-
impaired Loan Portfolio on page 76.
Table 23 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 portfolios 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. All other loans are generally characterized as non-core
loans and represent run-off portfolios. Core loans as reported in
Table 23 include loans held in the Consumer Banking and GWIM
segments, as well as loans held for ALM activities in All Other. For
more information, see Note 4 – Outstanding Loans and Leases to
the Consolidated Financial Statements.
Bank of America 2017 71
As shown in Table 23, outstanding core consumer real estate loans increased $15.0 billion during 2017 driven by an increase of
$20.1 billion in residential mortgage, partially offset by a $5.1 billion decrease in home equity.
Table 23 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
Outstandings
Nonperforming
2017
2016
2017
2016
2017
2016
December 31
Net Charge-offs (2)
$
$
$
176,618
44,245
220,863
$
156,497
49,373
205,870
27,193
13,499
40,692
35,300
17,070
52,370
203,811
57,744
261,555
$
191,797
66,443
258,240
$
$
$
$
$
1,087
1,079
2,166
1,389
1,565
2,954
2,476
2,644
5,120
$
$
1,274
969
2,243
1,782
1,949
3,731
3,056
2,918
5,974
Allowance for Loan
and Lease Losses
December 31
2017
2016
$
218
367
585
483
652
1,135
252
560
812
760
1,178
1,938
(45) $
100
55
(55)
113
58
(100)
213
113
$
(29)
113
84
160
292
452
131
405
536
Provision for Loan
and Lease Losses
2017
2016
(79) $
(91)
(170)
(201)
(339)
(540)
(98)
10
(88)
(86)
(84)
(170)
Residential mortgage
Home equity
(184)
(74)
(258)
(1) Outstandings and nonperforming loans exclude loans accounted for under the fair value option. Consumer loans accounted for under the fair value option included residential mortgage loans of
$567 million and $710 million and home equity loans of $361 million and $341 million at December 31, 2017 and 2016. For more information, see Note 21 – Fair Value Option to the Consolidated
Financial Statements.
Total consumer real estate portfolio
(280)
(430)
(710) $
1,012
1,738
2,750
701
1,019
1,720
$
$
$
(2) Net charge-offs exclude write-offs in the PCI loan portfolio. For more information, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 76.
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 76.
Residential Mortgage
The residential mortgage portfolio makes up the largest
percentage of our consumer loan portfolio at 45 percent of
consumer loans and leases at December 31, 2017. Approximately
37 percent of the residential mortgage portfolio is in Consumer
Banking and approximately 35 percent is in GWIM. The remaining
portion 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.
Outstanding balances in the residential mortgage portfolio,
excluding loans accounted for under the fair value option,
increased $12.0 billion in 2017 as retention of new originations
was partially offset by loan sales of $3.9 billion, and run-off.
At December 31, 2017 and 2016, the residential mortgage
portfolio included $23.7 billion and $28.7 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, 2017 and 2016, $17.4 billion and $22.3 billion had FHA
insurance with the remainder protected by long-term standby
agreements. At December 31, 2017 and 2016, $5.2 billion and
$7.4 billion of the FHA-insured loan population were repurchases
of delinquent FHA loans pursuant to our servicing agreements with
GNMA.
Table 24 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,
the fully-insured loan portfolio and loans accounted for under the
fair value option. Additionally, in the “Reported Basis” columns in
the following table, 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 76.
72 Bank of America 2017
Table 24 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)
Reported Basis (1)
Excluding Purchased
Credit-impaired and
Fully-insured Loans
$
2017
203,811
5,987
3,230
2,476
$
December 31
2016
191,797
8,232
4,793
3,056
$
2017
172,069
1,521
—
2,476
$
2016
152,941
1,835
—
3,056
3 %
2
6
10
5%
4
9
13
2 %
1
3
8
3%
3
4
12
2017
2016
2017
2016
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 accounted for $825 million, or 33 percent, and $931 million, or 31 percent, of nonperforming residential mortgage loans at December 31, 2017 and 2016.
(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.
0.07%
(0.05)%
(0.06)%
0.09%
Nonperforming residential mortgage loans decreased $580
million in 2017 as outflows, including sales of $460 million and
net transfers to held-for-sale of $132 million, outpaced new inflows
which included the addition of $140 million of nonperforming loans
as a result of clarifying regulatory guidance related to bankruptcy
loans. Of the nonperforming residential mortgage loans at
December 31, 2017, $860 million, or 35 percent, were current on
contractual payments. Loans accruing past due 30 days or more
decreased $314 million due in part to the timing impact of a
consumer real estate servicer conversion that occurred during the
fourth quarter of 2016.
Net charge-offs decreased $231 million to $100 million of net
recoveries in 2017 compared to $131 million of net charge-offs
in 2016. This decrease in net charge-offs was primarily driven by
net recoveries of $105 million related to loan sales in 2017,
compared to loan sale-related net charge-offs of $26 million in
2016. Additionally, net charge-offs declined due to favorable
portfolio trends and decreased write-downs on loans greater than
180 days past due driven by improvement in home prices and the
U.S. economy.
Loans with a refreshed LTV greater than 100 percent
represented one percent and three percent of the residential
mortgage loan portfolio at December 31, 2017 and 2016. Of the
loans with a refreshed LTV greater than 100 percent, 98 percent
were performing at both December 31, 2017 and 2016. 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 $172.1 billion in total residential mortgage loans
outstanding at December 31, 2017, as shown in Table 25, 33
percent were originated as interest-only loans. The outstanding
balance of interest-only residential mortgage loans that have
entered the amortization period was $10.4 billion, or 18 percent,
at December 31, 2017. 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, 2017, $283 million, or three percent of outstanding
interest-only residential mortgages that had entered the
amortization period were accruing past due 30 days or more
compared to $1.5 billion, or one percent for the entire residential
mortgage portfolio. In addition, at December 31, 2017, $509
million, or five percent of outstanding interest-only residential
mortgage loans that had entered the amortization period were
nonperforming, of which $253 million were contractually current,
compared to $2.5 billion, or one percent for the entire residential
mortgage portfolio, of which $860 million 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 2020 or
later.
Table 25 presents outstandings, nonperforming loans and net
charge-offs by certain state concentrations for the residential
mortgage portfolio. The Los Angeles-Long Beach-Santa Ana
Metropolitan Statistical Area (MSA) within California represented
16 percent and 15 percent of outstandings at December 31, 2017
and 2016. In the New York area, the New York-Northern New Jersey-
Long Island MSA made up 13 percent and 12 percent of
outstandings at December 31, 2017 and 2016.
Bank of America 2017 73
Table 25 Residential Mortgage State Concentrations
(Dollars in millions)
California
New York (3)
Florida (3)
Texas
New Jersey (3)
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
Outstandings (1)
Nonperforming (1)
2017
2016
2017
2016
2017
2016
December 31
Net Charge-offs (2)
$
$
$
68,455
17,239
10,880
7,237
6,099
62,159
172,069
23,741
8,001
203,811
$
$
$
$
$
58,295
14,476
10,213
6,607
5,307
58,043
152,941
28,729
10,127
191,797
433
227
280
126
130
1,280
2,476
$
$
554
290
322
132
174
1,584
3,056
$
$
(103) $
(2)
(13)
1
—
17
(100) $
(70)
18
20
9
25
129
131
(1) Outstandings and nonperforming loans exclude loans accounted for under the fair value option.
(2) Net charge-offs excluded $131 million and $144 million of write-offs in the residential mortgage PCI loan portfolio in 2017 and 2016. For more information on PCI write-offs, see Consumer Portfolio
Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 76.
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, 2017 and 2016, 47 percent and 48 percent of PCI residential mortgage loans were in California. There were no other significant single state concentrations.
Home Equity
At December 31, 2017, the home equity portfolio made up 13
percent of the consumer portfolio and is comprised of home equity
lines of credit (HELOCs), home equity loans and reverse
mortgages.
At December 31, 2017, our HELOC portfolio had an outstanding
balance of $51.2 billion, or 89 percent of the total home equity
portfolio compared to $58.6 billion, or 88 percent, at December
31, 2016. HELOCs generally have an initial draw period of 10 years
and after the initial draw period ends, the loans generally convert
to 15-year amortizing loans.
At December 31, 2017, our home equity loan portfolio had an
outstanding balance of $4.4 billion, or seven percent of the total
home equity portfolio compared to $5.9 billion, or nine percent,
at December 31, 2016. Home equity loans are almost all fixed-
rate loans with amortizing payment terms of 10 to 30 years and
of the $4.4 billion at December 31, 2017, 57 percent have 25- to
30-year terms. At December 31, 2017, our reverse mortgage
portfolio had an outstanding balance, excluding loans accounted
for under the fair value option, of $2.1 billion, or four percent of
the total home equity portfolio compared to $1.9 billion, or three
percent, at December 31, 2016. We no longer originate reverse
mortgages.
At December 31, 2017, approximately 69 percent of the home
equity portfolio was in Consumer Banking, 23 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 $8.7 billion
in 2017 primarily due to paydowns and charge-offs outpacing new
originations and draws on existing lines. Of the total home equity
portfolio at December 31, 2017 and 2016, $18.7 billion and $19.6
billion, or 32 percent and 29 percent, were in first-lien positions
(34 percent and 31 percent excluding the PCI home equity
portfolio). At December 31, 2017, 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 $9.4
billion, or 17 percent of our total home equity portfolio excluding
the PCI loan portfolio.
Unused HELOCs totaled $44.2 billion and $47.2 billion at
December 31, 2017 and 2016. The decrease was primarily due
to accounts reaching the end of their draw period, which
automatically eliminates open line exposure, and customers
choosing to close accounts. Both of these more than offset the
impact of new production. The HELOC utilization rate was 54
percent and 55 percent at December 31, 2017 and 2016.
Table 26 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 following table, 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 76.
74 Bank of America 2017
Table 26 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)
Reported Basis (1)
Excluding Purchased
Credit-impaired Loans
December 31
2017
2016
2017
2016
$
57,744
502
2,644
$
66,443
566
2,918
$
55,028
502
2,644
$
62,832
566
2,918
3%
5
6
29
5%
8
7
37
3%
4
6
27
4%
7
6
34
2017
2016
2017
2016
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 included $67 million and $81 million and nonperforming loans included $344 million and $340 million of loans where we serviced the underlying first-lien at
0.60%
0.57%
0.36%
0.34%
December 31, 2017 and 2016.
(3) These vintages of loans have higher refreshed combined loan-to-value (CLTV) ratios and accounted for 52 percent and 50 percent of nonperforming home equity loans at December 31, 2017 and
2016, and 91 percent and 54 percent of net charge-offs in 2017 and 2016.
(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 $274 million in 2017 as outflows, including
$66 million of net transfers to held-for-sale and $51 million of
sales, outpaced new inflows, which included the addition of $135
million of nonperforming loans as a result of clarifying regulatory
guidance related to bankruptcy loans. Of the nonperforming home
equity portfolio at December 31, 2017, $1.4 billion, or 54 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, $693 million, or 26 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 $64 million in 2017.
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, 2017, we estimate that $814
million of current and $141 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 $184 million of these combined amounts,
with the remaining $771 million serviced by third parties. Of the
$955 million of current to 89 days past due junior-lien loans, based
on available credit bureau data and our own internal servicing data,
we estimate that approximately $330 million had first-lien loans
that were 90 days or more past due.
Net charge-offs decreased $192 million to $213 million in 2017
compared to $405 million in 2016 driven by favorable portfolio
trends due in part to improvement in home prices and the U.S.
economy, partially offset by $32 million of charge-offs as a result
of clarifying regulatory guidance related to bankruptcy loans.
Outstanding balances with a refreshed CLTV greater than 100
percent comprised four percent and seven percent of the home
equity portfolio at December 31, 2017 and 2016. Outstanding
balances 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, 2017.
Of the $55.0 billion in total home equity portfolio outstandings
at December 31, 2017, as shown in Table 27, 30 percent require
interest-only payments. The outstanding balance of HELOCs that
have reached the end of their draw period and have entered the
amortization period was $18.4 billion at December 31, 2017. 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, 2017, $343 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,
2017, $2.1 billion, or 11 percent, of outstanding HELOCs that had
entered the amortization period were nonperforming, of which $1.1
billion were contractually current. Loans in our HELOC portfolio
generally have an initial draw period of 10 years and 10 percent
of these loans will enter the amortization period during 2018 and
will be
fully-amortizing payments. We
communicate to contractually current customers more than a year
to make
required
Bank of America 2017 75
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 2017, approximately 19 percent of these
customers with an outstanding balance did not pay any principal
on their HELOCs.
Table 27 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, 2017 and 2016. Loans
within this MSA contributed 27 percent and 17 percent of net
charge-offs in 2017 and 2016 within the home equity portfolio.
The Los Angeles-Long Beach-Santa Ana MSA within California
made up 11 percent of the outstanding home equity portfolio at
both December 31, 2017 and 2016. Loans within this MSA
contributed net recoveries of $20 million and $2 million within the
home equity portfolio in 2017 and 2016.
Table 27 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)
Total home equity loan portfolio
Outstandings (1)
Nonperforming (1)
2017
2016
2017
2016
2017
2016
December 31
Net Charge-offs (2)
$
$
$
15,145
6,308
4,546
4,195
2,751
22,083
55,028
2,716
57,744
$
$
$
$
$
17,563
7,319
5,102
4,720
3,078
25,050
62,832
3,611
66,443
766
411
191
252
92
932
2,644
$
$
829
442
201
271
100
1,075
2,918
$
$
(37) $
38
44
35
9
124
213
$
7
76
50
45
12
215
405
(1) Outstandings and nonperforming loans exclude loans accounted for under the fair value option.
(2) Net charge-offs excluded $76 million and $196 million of write-offs in the home equity PCI loan portfolio in 2017 and 2016. For more information on PCI write-offs, see Consumer Portfolio Credit
Risk Management – Purchased Credit-impaired Loan Portfolio.
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 December 31, 2017 and 2016, 28 percent and 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 standards for PCI loans. For more
information, see Note 1 – Summary of Significant Accounting
Principles and Note 4 – Outstanding Loans and Leases to the
Consolidated Financial Statements.
Table 28 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 28 Purchased Credit-impaired Loan Portfolio
(Dollars in millions)
Residential mortgage (1)
Home equity
Total purchased credit-impaired loan portfolio
Residential mortgage (1)
Home equity
Total purchased credit-impaired loan portfolio
Unpaid
Principal
Balance
Gross Carrying
Value
Related
Valuation
Allowance
Carrying Value
Net of Valuation
Allowance
Percent of
Unpaid Principal
Balance
$
$
$
$
8,117
2,787
10,904
10,330
3,689
14,019
$
$
$
$
December 31, 2017
8,001
2,716
10,717
$
$
117
172
289
December 31, 2016
10,127
3,611
13,738
$
$
169
250
419
$
$
$
$
7,884
2,544
10,428
9,958
3,361
13,319
97.13%
91.28
95.63
96.40%
91.11
95.01
(1) At December 31, 2017 and 2016, pay option loans had an unpaid principal balance of $1.4 billion and $1.9 billion and a carrying value of $1.4 billion and $1.8 billion. This includes $1.2 billion
and $1.6 billion of loans that were credit-impaired upon acquisition and $141 million and $226 million of loans that were 90 days or more past due at December 31, 2017 and 2016. The total
unpaid principal balance of pay option loans with accumulated negative amortization was $160 million and $303 million, including $9 million and $16 million of negative amortization at December
31, 2017 and 2016.
76 Bank of America 2017
The total PCI unpaid principal balance decreased $3.1 billion,
or 22 percent, in 2017 primarily driven by payoffs, paydowns, write-
offs and PCI loan sales with a carrying value of $803 million
compared to $549 million in 2016.
Of the unpaid principal balance of $10.9 billion at December
31, 2017, $9.6 billion, or 88 percent, was current based on the
contractual terms, $752 million, or seven percent, was in early
stage delinquency, and $364 million was 180 days or more past
due, including $302 million of first-lien mortgages and $62 million
of home equity loans.
The PCI residential mortgage loan and home equity portfolios
represented 75 percent and 25 percent of the total PCI loan
portfolio at December 31, 2017. Those loans to borrowers with a
refreshed FICO score below 620 represented 24 percent and 17
percent of the PCI residential mortgage loan and home equity
portfolios at December 31, 2017. Residential mortgage and home
equity loans with a refreshed LTV or CLTV greater than 90 percent,
after consideration of purchase accounting adjustments and the
related valuation allowance, represented 14 percent and 34
percent of their respective PCI loan portfolios and 16 percent and
Table 29 U.S. Credit Card State Concentrations
37 percent based on the unpaid principal balance at December
31, 2017.
U.S. Credit Card
At December 31, 2017, 97 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 $4.0 billion
to $96.3 billion in 2017 as retail volumes outpaced payments.
Net charge-offs increased $244 million to $2.5 billion in 2017 due
to portfolio seasoning and loan growth. U.S. credit card loans 30
days or more past due and still accruing interest increased $252
million and loans 90 days or more past due and still accruing
interest increased $118 million in 2017, driven by portfolio
seasoning and loan growth.
Unused lines of credit for U.S. credit card totaled $326.3 billion
and $321.6 billion at December 31, 2017 and 2016. The increase
was driven by account growth and lines of credit increases.
Table 29 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
Outstandings
Accruing Past Due
90 Days or More
2017
2016
2017
2016
2017
2016
December 31
Net Charge-offs
$
$
15,254
8,359
7,451
5,977
4,350
54,894
96,285
$
$
14,251
7,864
7,037
5,683
4,128
53,315
92,278
$
$
136
94
76
91
20
483
900
$
$
115
85
65
60
18
439
782
$
$
412
259
194
218
56
1,374
2,513
$
$
360
245
164
161
56
1,283
2,269
Direct/Indirect and Other Consumer
At December 31, 2017, approximately 54 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 46
percent was included in GWIM (principally securities-based lending
loans). At December 31, 2017, approximately 94 percent of the
$2.7 billion other consumer portfolio was consumer auto leases
included in Consumer Banking.
Table 30 Direct/Indirect State Concentrations
Outstandings in the direct/indirect portfolio remained relatively
unchanged at $93.8 billion at December 31, 2017. Net charge-
offs increased $77 million to $211 million in 2017 due largely to
portfolio seasoning and clarifying regulatory guidance related to
bankruptcy and repossession.
Table 30 presents certain state concentrations for the direct/
indirect consumer loan portfolio.
(Dollars in millions)
California
Florida
Texas
New York
Georgia
Other U.S./Non-U.S.
Total direct/indirect loan portfolio
Outstandings
Accruing Past Due
90 Days or More
2017
2016
2017
2016
2017
2016
December 31
Net Charge-offs
$
$
11,165
10,946
10,623
6,058
3,502
51,536
93,830
$
$
11,300
9,418
9,406
5,253
3,255
55,457
94,089
$
$
3
5
5
2
4
21
40
$
$
3
3
5
1
4
18
34
$
$
21
42
38
6
15
89
211
$
$
13
29
21
3
9
59
134
Bank of America 2017 77
Nonperforming Consumer Loans, Leases and Foreclosed
Properties Activity
Table 31 presents nonperforming consumer loans, leases and
foreclosed properties activity during 2017 and 2016. 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
2017, nonperforming consumer loans declined $838 million to
$5.2 billion driven in part by loan sales of $511 million and net
transfers of loans to held-for-sale of $198 million. Additionally,
nonperforming loans declined as outflows outpaced new inflows,
which included the addition of $295 million of nonperforming loans
as a result of clarifying regulatory guidance related to bankruptcy
loans.
At December 31, 2017, $1.9 billion, or 34 percent of
nonperforming consumer real estate loans and foreclosed
properties had been written down to their estimated property value
less costs to sell, including $1.6 billion of nonperforming loans
180 days or more past due and $236 million of foreclosed
properties. In addition, at December 31, 2017, $2.3 billion, or 45
percent of nonperforming consumer loans were modified and are
now current after successful trial periods, or are current loans
classified as nonperforming loans in accordance with applicable
policies.
Foreclosed properties decreased $127 million in 2017 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 in foreclosed properties. Not included in foreclosed
properties at December 31, 2017 was $801 million 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 accrued during the holding period.
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, 2017 and 2016,
$330 million and $428 million of such junior-lien home equity
loans were included in nonperforming loans and leases.
Nonperforming loans also include certain loans that have been
modified in TDRs where economic concessions have been granted
to borrowers experiencing financial difficulties. Nonperforming
TDRs, excluding those modified loans in the PCI loan portfolio, are
included in Table 31.
Table 31 Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity (1)
2017
2016
$
6,004
3,254
$
8,165
3,492
(1,044)
(1,604)
(1,628)
(1,028)
(294)
(55)
(2,161)
6,004
363
6,367
1.32%
1.39
(1,052)
(511)
(1,438)
(676)
(217)
(198)
(838)
5,166
236
5,402
1.14%
1.19
$
(Dollars in millions)
Nonperforming loans and leases, January 1
Additions
Reductions:
Paydowns and payoffs
Sales
Returns to performing status (2)
Charge-offs
Transfers to foreclosed properties
Transfers to loans held-for-sale
Total net reductions to nonperforming loans and leases
Total nonperforming loans and leases, December 31 (3)
Total foreclosed properties, December 31 (4)
Nonperforming consumer loans, leases and foreclosed properties, December 31
$
Nonperforming consumer loans and leases as a percentage of outstanding consumer loans and leases (5)
Nonperforming consumer loans, leases and foreclosed properties as a percentage of outstanding consumer loans, leases and
foreclosed properties (5)
(1) Balances do not include nonperforming LHFS of $2 million and $69 million and nonaccruing TDRs removed from the PCI loan portfolio prior to January 1, 2010 of $26 million and $27 million at
December 31, 2017 and 2016 as well as loans accruing past due 90 days or more as presented in Table 21 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) At December 31, 2017, 31 percent of nonperforming loans were 180 days or more past due.
(4) Foreclosed property balances do not include properties insured by certain government-guaranteed loans, principally FHA-insured, of $801 million and $1.2 billion at December 31, 2017 and 2016.
(5) Outstanding consumer loans and leases exclude loans accounted for under the fair value option.
78 Bank of America 2017
Table 32 presents TDRs for the consumer real estate portfolio. Performing TDR balances are excluded from nonperforming loans
and leases in Table 31.
Table 32 Consumer Real Estate Troubled Debt Restructurings
(Dollars in millions)
Residential mortgage (1, 2)
Home equity (3)
Total consumer real estate troubled debt restructurings
Nonperforming
1,535
$
1,457
2,992
$
December 31, 2017
Performing
$
$
8,163
1,399
9,562
$
$
Total
9,698
2,856
12,554
Nonperforming
1,992
$
1,566
3,558
$
December 31, 2016
Performing
$
$
10,639
1,211
11,850
$
$
Total
12,631
2,777
15,408
(1) At December 31, 2017 and 2016, residential mortgage TDRs deemed collateral dependent totaled $2.8 billion and $3.5 billion, and included $1.2 billion and $1.6 billion of loans classified as
nonperforming and $1.6 billion and $1.9 billion of loans classified as performing.
(2) Residential mortgage performing TDRs included $3.7 billion and $5.3 billion of loans that were fully-insured at December 31, 2017 and 2016.
(3) Home equity TDRs deemed collateral dependent totaled $1.6 billion for both periods and included $1.2 billion and $1.3 billion of loans classified as nonperforming, and $388 million and $301
million of loans classified as performing at December 31, 2017 and 2016.
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).
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 31
as substantially all of the loans remain on accrual status until
either charged off or paid in full. At December 31, 2017 and 2016,
our renegotiated TDR portfolio was $490 million and $610 million,
of which $426 million and $493 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. We 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 37, 40, 45 and 46
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 of total commercial utilized exposure at
both December 31, 2017 and 2016, see Commercial Portfolio
Credit Risk Management – Industry Concentrations on page 83
and Table 40.
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
accounting hedges. They are carried at fair value with changes in
fair value recorded in other income.
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 more information, see Note 12 – Commitments and
Contingencies to the Consolidated Financial Statements.
Bank of America 2017 79
Commercial Credit Portfolio
During 2017, credit quality among large corporate borrowers was
strong, other than in the higher risk energy sub-sectors, where we
saw improvement in 2017. 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.
Total commercial utilized credit exposure increased $25.9
billion during 2017 to $600.8 billion at December 31, 2017
primarily driven by increases in loans and leases. The utilization
rate for loans and leases, SBLCs and financial guarantees, and
commercial letters of credit, in the aggregate, was 59 percent and
58 percent at December 31, 2017 and 2016.
Table 33 presents commercial credit exposure by type for
utilized, unfunded and total binding committed credit exposure.
Commercial utilized credit exposure includes SBLCs and financial
guarantees and commercial letters of credit that have been issued
and 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 33 Commercial Credit Exposure by Type
(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
Other
$
Commercial Utilized (1)
Commercial Unfunded (2, 3, 4)
December 31
Total Commercial Committed
2017
2016
2017
2016
2017
2016
$
$
$
$
$
487,748
37,762
34,517
28,161
10,257
1,467
888
600,800
464,260
42,512
33,135
26,244
6,510
1,464
767
574,892
364,743
—
863
4,864
9,742
155
—
380,367
356,911
—
660
5,474
13,019
112
13
376,189
852,491
37,762
35,380
33,025
19,999
1,622
888
981,167
821,171
42,512
33,795
31,718
19,529
1,576
780
951,081
Total
$
(1) Commercial utilized exposure includes loans of $4.8 billion and $6.0 billion and issued letters of credit with a notional amount of $232 million and $284 million accounted for under the fair value
$
$
$
$
$
option at December 31, 2017 and 2016.
(2) Commercial unfunded exposure includes commitments accounted for under the fair value option with a notional amount of $4.6 billion and $6.7 billion at December 31, 2017 and 2016.
(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 $11.0 billion and $12.1 billion at December 31, 2017 and 2016.
Includes credit risk exposure associated with assets under operating lease arrangements of $6.3 billion and $5.7 billion at December 31, 2017 and 2016.
(5)
(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 $34.6 billion and $43.3 billion at December
31, 2017 and 2016. Not reflected in utilized and committed exposure is additional non-cash derivative collateral held of $26.2 billion and $25.3 billion at December 31, 2017 and 2016, which
consists primarily of other marketable securities.
Outstanding commercial loans and leases increased $22.9
billion during 2017 to $481.5 billion at December 31, 2017
primarily due to growth in commercial and industrial loans. During
2017, nonperforming commercial loans and leases decreased
$440 million to $1.3 billion and reservable criticized balances
decreased $2.8 billion to $13.6 billion both driven by
improvements in the energy sector. The allowance for loan and
lease losses for the commercial portfolio decreased $248 million
during 2017 to $5.0 billion at December 31, 2017. For more
information, see Allowance for Credit Losses on page 88. Table
34 presents our commercial loans and leases portfolio and related
credit quality information at December 31, 2017 and 2016.
Table 34 Commercial Credit Quality
(Dollars in millions)
Commercial and industrial:
U.S. commercial
Non-U.S. commercial
Total commercial and industrial
Commercial real estate (1)
Commercial lease financing
U.S. small business commercial (2)
Commercial loans excluding loans accounted for under the
fair value option
Outstandings
Nonperforming
December 31
Accruing Past Due
90 Days or More
2017
2016
2017
2016
2017
2016
$
$
284,836
97,792
382,628
58,298
22,116
463,042
13,649
$
270,372
89,397
359,769
57,355
22,375
439,499
12,993
476,691
452,492
$
814
299
1,113
112
24
1,249
55
1,304
$
1,256
279
1,535
72
36
1,643
60
1,703
144
3
147
4
19
170
75
245
$
$
106
5
111
7
19
137
71
208
—
208
Total commercial loans and leases
Loans accounted for under the fair value option (3)
—
4,782
245
481,473
Includes U.S. commercial real estate of $54.8 billion and $54.3 billion and non-U.S. commercial real estate of $3.5 billion and $3.1 billion at December 31, 2017 and 2016.
Includes card-related products.
6,034
458,526
84
1,787
43
1,347
$
$
$
$
$
(1)
(2)
(3) Commercial loans accounted for under the fair value option include U.S. commercial of $2.6 billion and $2.9 billion and non-U.S. commercial of $2.2 billion and $3.1 billion at December 31, 2017
and 2016. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements.
80 Bank of America 2017
Table 35 presents net charge-offs and related ratios for our commercial loans and leases for 2017 and 2016. The increase in net
charge-offs of $399 million for 2017 was primarily driven by a single-name non-U.S. commercial charge-off of $292 million in the fourth
quarter of 2017.
Table 35 Commercial Net Charge-offs and Related Ratios
(Dollars in millions)
Commercial and industrial:
U.S. commercial
Non-U.S. commercial
Total commercial and industrial
Commercial real estate
Commercial lease financing
U.S. small business commercial
Total commercial
Net Charge-offs
2017
2016
Net Charge-off Ratios (1)
2017
2016
$
$
232
440
672
9
5
686
215
901
$
$
184
120
304
(31)
21
294
208
502
0.08 %
0.48
0.18
0.02
0.02
0.15
1.60
0.20
0.07 %
0.13
0.09
(0.05)
0.10
0.07
1.60
0.11
(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.
Table 36 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 decreased $2.8 billion, or 17 percent, during 2017 primarily driven by paydowns and upgrades in the energy portfolio.
Approximately 84 percent and 76 percent of commercial utilized reservable criticized exposure was secured at December 31, 2017
and 2016.
Table 36 Commercial Utilized Reservable Criticized Exposure
(Dollars in millions)
Commercial and industrial:
U.S. commercial
Non-U.S. commercial
Total commercial and industrial
Commercial real estate
Commercial lease financing
U.S. small business commercial
Total commercial utilized reservable criticized exposure
Amount (1)
Percent (2)
Amount (1)
Percent (2)
December 31
2017
2016
$
$
9,891
1,766
11,657
566
581
12,804
759
13,563
3.15% $
1.70
2.79
0.95
2.63
2.57
5.56
2.65
$
10,311
3,974
14,285
399
810
15,494
826
16,320
3.46%
4.17
3.63
0.68
3.62
3.27
6.36
3.35
(1) Total commercial utilized reservable criticized exposure includes loans and leases of $12.5 billion and $14.9 billion and commercial letters of credit of $1.1 billion and $1.4 billion at December 31,
2017 and 2016.
(2) Percentages are calculated as commercial utilized reservable criticized exposure divided by total commercial utilized reservable exposure for each exposure category.
Commercial and Industrial
Commercial and industrial loans include U.S. commercial and non-
U.S. commercial portfolios.
and leases decreased $442 million, or 35 percent, in 2017 driven
by improvements in the energy sector. Net charge-offs increased
$48 million for 2017 compared to 2016.
U.S. Commercial
At December 31, 2017, 70 percent of the U.S. commercial loan
portfolio, excluding small business, was managed in Global
Banking, 17 percent in Global Markets, 11 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 $14.5 billion, or five percent, during 2017 to $284.8
billion at December 31, 2017 due to growth across most of the
commercial businesses. Reservable
criticized balances
decreased $420 million, or four percent, and nonperforming loans
Non-U.S. Commercial
At December 31, 2017, 79 percent of the non-U.S. commercial
loan portfolio was managed in Global Banking and 21 percent in
Global Markets. Outstanding loans, excluding loans accounted for
under the fair value option, increased $8.4 billion in 2017.
Reservable criticized balances decreased $2.2 billion, or 56
percent, due primarily to paydowns and upgrades in the energy
portfolio. Net charge-offs increased $320 million in 2017 to $440
million due to a single-name non-U.S. commercial charge-off of
$292 million in the fourth quarter of 2017. For more information
on the non-U.S. commercial portfolio, see Non-U.S. Portfolio on
page 86.
Bank of America 2017 81
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 of the commercial real
estate loans and leases portfolio at both December 31, 2017 and
2016. The commercial real estate portfolio is predominantly
managed in Global Banking and consists of loans made primarily
to public and private developers, and commercial real estate firms.
Outstanding loans increased $943 million, or two percent, during
2017 to $58.3 billion at December 31, 2017 due to new
originations outpacing paydowns.
During 2017, we continued to see low default rates and solid
credit quality in both the residential and non-residential portfolios.
Table 37 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 increased $78 million, or 91 percent, during 2017 to
$164 million at December 31, 2017 and reservable criticized
balances increased $167 million, or 42 percent, to $566 million
primarily due to loan downgrades. Net charge-offs were $9 million
for 2017 compared to net recoveries of $31 million in 2016.
Table 37 presents outstanding commercial real estate loans
by geographic region, based on the geographic location of the
collateral, and by property type.
(Dollars in millions)
By Geographic Region
California
Northeast
Southwest
Southeast
Midwest
Illinois
Florida
Midsouth
Northwest
Non-U.S.
Other (1)
Total outstanding commercial real estate loans
By Property Type
Non-residential
Office
Shopping centers / Retail
Multi-family rental
Hotels / Motels
Industrial / Warehouse
Multi-use
Unsecured
Land and land development
Other
Total non-residential
Residential
Total outstanding commercial real estate loans
December 31
2017
2016
13,607
10,072
6,970
5,487
3,769
3,263
3,170
2,962
2,657
3,538
2,803
58,298
16,718
8,825
8,280
6,344
6,070
2,771
2,187
160
5,485
56,840
1,458
58,298
$
$
$
$
13,450
10,329
7,567
5,630
4,380
2,408
3,213
2,346
2,430
3,103
2,499
57,355
16,643
8,794
8,817
5,550
5,357
2,822
1,730
357
5,595
55,665
1,690
57,355
$
$
$
$
(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.
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 50 percent and 48 percent of the U.S. small business commercial portfolio at
December 31, 2017 and 2016. Net charge-offs of $215 million during 2017 were relatively flat compared to $208 million during 2016.
Of the U.S. small business commercial net charge-offs, 90 percent and 86 percent were credit card-related products in 2017 and 2016.
82 Bank of America 2017
Nonperforming Commercial Loans, Leases and Foreclosed
Properties Activity
Table 38 presents the nonperforming commercial loans, leases
and foreclosed properties activity during 2017 and 2016.
Nonperforming loans do not include loans accounted for under the
fair value option. During 2017, nonperforming commercial loans
and leases decreased $399 million to $1.3 billion. Approximately
77 percent of commercial nonperforming loans, leases and
foreclosed properties were secured and approximately 59 percent
were contractually current. Commercial nonperforming loans were
carried at approximately 87 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 38 Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity (1, 2)
(Dollars in millions)
Nonperforming loans and leases, January 1
Additions
Reductions:
Paydowns
Sales
Returns to performing status (3)
Charge-offs
Transfers to foreclosed properties
Transfers to loans held-for-sale
2017
2016
$
1,703
1,616
$
1,212
2,347
(930)
(136)
(280)
(455)
(40)
(174)
(399)
1,304
52
1,356
$
(824)
(318)
(267)
(434)
(4)
(9)
491
1,703
14
1,717
0.27%
0.38%
0.28
0.38
Total net additions/(reductions) to nonperforming loans and leases
Total nonperforming loans and leases, December 31
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 (4)
Nonperforming commercial loans, leases and foreclosed properties as a percentage of outstanding commercial loans, leases and
foreclosed properties (4)
(1) Balances do not include nonperforming LHFS of $339 million and $195 million at December 31, 2017 and 2016.
(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) Outstanding commercial loans exclude loans accounted for under the fair value option.
Table 39 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 39 Commercial Troubled Debt Restructurings
(Dollars in millions)
Commercial and industrial:
U.S. commercial
Non-U.S. commercial
Total commercial and industrial
Commercial real estate
Commercial lease financing
U.S. small business commercial
Total commercial troubled debt restructurings
Nonperforming
December 31, 2017
Performing
Total
Nonperforming
December 31, 2016
Performing
Total
$
$
370
11
381
38
5
424
4
428
$
$
866
219
1,085
9
13
1,107
15
1,122
$
$
1,236
230
1,466
47
18
1,531
19
1,550
$
$
720
25
745
45
2
792
2
794
$
$
1,140
283
1,423
95
2
1,520
13
1,533
$
$
1,860
308
2,168
140
4
2,312
15
2,327
Industry Concentrations
Table 40 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
exposure increased $30.1 billion, or three percent, in 2017 to
$981.2 billion at December 31, 2017. The increase in commercial
committed exposure was concentrated in the Media, Food &
Staples Retailing, Capital Goods, Food, Beverage and Tobacco and
the Asset Managers and Funds sectors. Increases were partially
offset by reduced exposure to the Healthcare Equipment and
Services, Telecommunications Services and the Technology
Hardware and Equipment sectors.
Industry limits are used internally to manage industry
concentrations and are based on committed exposure that is
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 oversees industry limit
governance.
Asset Managers and Funds, our largest industry concentration
with committed exposure of $91.1 billion, increased $5.5 billion,
or six percent, in 2017. The increase primarily reflected an increase
in exposure to several counterparties.
Bank of America 2017 83
Real estate, our second largest industry concentration with
committed exposure of $83.8 billion, increased $115 million, or
less than one percent, in 2017. For more information on the
commercial real estate and related portfolios, see Commercial
Portfolio Credit Risk Management – Commercial Real Estate on
page 82.
Capital Goods, our third largest industry concentration with
committed exposure of $70.4 billion, increased $6.2 billion, or
nearly 10 percent, in 2017. The increase in committed exposure
occurred primarily as a result of increases in large conglomerates
and machinery manufacturers.
Our energy-related committed exposure decreased $2.5 billion,
or six percent, in 2017 to $36.8 billion at December 31, 2017.
Energy sector net charge-offs were $156 million in 2017 compared
to $241 million in 2016. Energy sector reservable criticized
exposure decreased $3.9 billion in 2017 to $1.6 billion at
December 31, 2017, due to paydowns and upgrades in the energy
portfolio. The energy allowance for credit losses decreased $365
million to $560 million at December 31, 2017.
Table 40 Commercial Credit Exposure by Industry (1)
Commercial
Utilized
Total Commercial
Committed (2)
December 31
2017
2016
2017
2016
$
$
$
$
(Dollars in millions)
Asset managers and funds
Real estate (3)
Capital goods
Government and public education
Healthcare equipment and services
Finance companies
Retailing
Materials
Consumer services
Food, beverage and tobacco
Energy
Commercial services and supplies
Media
Global commercial banks
Transportation
Utilities
Individuals and trusts
Technology hardware and equipment
Vehicle dealers
Pharmaceuticals and biotechnology
Software and services
Consumer durables and apparel
Food and staples retailing
Automobiles and components
Telecommunication services
Insurance
Religious and social organizations
Financial markets infrastructure (clearinghouses)
Other
59,190
61,940
36,705
48,684
37,780
34,050
26,117
24,001
27,191
23,252
16,345
22,100
19,155
29,491
21,704
11,342
18,549
10,728
16,896
5,653
8,562
8,859
4,955
5,988
6,389
6,411
4,454
688
3,621
600,800
57,659
61,203
34,278
45,694
37,656
35,452
25,577
22,578
27,413
19,669
19,686
21,241
13,419
27,267
19,805
11,349
16,364
9,625
16,053
5,539
7,991
8,112
4,795
5,459
6,317
7,406
4,423
656
2,206
574,892
91,092
83,773
70,417
58,067
57,256
53,107
48,796
47,386
43,605
42,815
36,765
35,496
33,955
31,764
29,946
27,935
25,097
22,071
20,361
18,623
18,202
17,296
15,589
13,318
13,108
12,990
6,318
2,403
3,616
981,167
85,561
83,658
64,202
54,626
64,663
52,953
49,082
44,357
42,523
37,145
39,231
35,360
27,116
30,712
27,483
27,140
21,764
25,318
19,425
18,910
19,790
15,794
8,869
12,969
16,925
13,936
6,252
3,107
2,210
951,081
(3,477)
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 $11.0 billion and $12.1 billion at December 31, 2017 and 2016.
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.
$
(2,129) $
$
$
$
$
(1)
(2)
(3)
(4) Represents net notional credit protection purchased. For more information, see Commercial Portfolio Credit Risk Management – Risk Mitigation.
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, 2017 and 2016, 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 $2.1
billion and $3.5 billion. We recorded net losses of $66 million in
2017 compared to net losses of $438 million in 2016 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 49. For more information, see
Trading Risk Management on page 93.
84 Bank of America 2017
Tables 41 and 42 present the maturity profiles and the credit
exposure debt ratings of the net credit default protection portfolio
at December 31, 2017 and 2016.
Table 41 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
2017
2016
42%
58
—
100%
56%
41
3
100%
Table 42 Net Credit Default Protection by Credit
Exposure Debt Rating
Net
Notional (1)
Percent of
Total
Net
Notional (1)
Percent of
Total
December 31
(Dollars in millions)
2017
2016
Ratings (2, 3)
A
BBB
BB
B
CCC and below
NR (4)
Total net credit
default
$
(280)
(459)
(893)
(403)
(84)
(10)
13.2% $
21.6
41.9
18.9
3.9
0.5
(135)
(1,884)
(871)
(477)
(81)
(29)
3.9%
54.2
25.1
13.7
2.3
0.8
$
(2,129)
100.0% $
(3,477)
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 43 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 43 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 43 Credit Derivatives
(Dollars in millions)
Purchased credit derivatives:
Credit default swaps
Total return swaps/options
Total purchased credit derivatives
Written credit derivatives:
Credit default swaps
Total return swaps/options
Total written credit derivatives
n/a = not applicable
Contract/
Notional
Credit Risk
Contract/
Notional
Credit Risk
December 31
2017
2016
$ 470,907
54,135
$ 525,042
$
$
2,434
277
2,711
$ 603,979
21,165
$ 625,144
$
$
2,732
433
3,165
$ 448,201
55,223
$ 503,424
n/a
n/a
n/a
$ 614,355
25,354
$ 639,709
n/a
n/a
n/a
Bank of America 2017 85
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 45 presents our 20 largest non-U.S. country exposures
as of December 31, 2017. These exposures accounted for 86
percent and 88 percent of our total non-U.S. exposure at December
31, 2017 and 2016. Net country exposure for these 20 countries
decreased $6.3 billion in 2017 primarily driven by reductions in
the U.K., Japan, Switzerland and Brazil, partially offset by increases
in China and Belgium. On a product basis, funded commitments
decreased in the U.K., Japan and Brazil, partially offset by
increases in China, Belgium and France. The decrease in the U.K.
reflects the sale of the non-U.S. consumer credit card business
in 2017. Unfunded commitments increased in the U.K., Germany
and Belgium, which was partly offset by a decrease in Switzerland.
Securities held decreased, driven by reduced holdings in France,
the U.K. and Germany, while counterparty exposure decreased in
Japan, Germany and the U.K.
Non-U.S. exposure
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.
is presented on an
internal
Funded loans and loan equivalents include loans, leases, and
other extensions of credit and funds, including letters of credit and
due from placements. 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. 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. Net country exposure represents
country exposure less hedges and credit default protection
purchased, net of credit default protection sold.
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 44. 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
more 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 following table 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 44 Credit Valuation Gains and Losses
(Dollars in millions)
Gains (Losses)
Credit valuation
2017
Hedge
Net
Gross
$
330 $ (232) $
98
2016
Gross
Hedge
$ 374 $ (160) $ 214
Net
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.,
86 Bank of America 2017
Table 45 Top 20 Non-U.S. Countries Exposure
(Dollars in millions)
United Kingdom
Germany
Canada
China
Brazil
Australia
France
India
Japan
Hong Kong
Netherlands
South Korea
Singapore
Switzerland
Mexico
Italy
Belgium
United Arab Emirates
Spain
Turkey
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
2017
Hedges and
Credit Default
Protection
Net Country
Exposure at
December 31
2017
Increase
(Decrease) from
December 31
2016
$
$
20,089
12,572
7,037
13,634
7,688
5,596
4,976
7,229
7,399
6,925
5,357
4,934
3,571
3,792
2,883
2,791
2,440
2,843
2,041
2,761
$
14,906
9,856
7,645
728
501
2,840
5,591
316
631
187
3,212
544
312
2,810
2,446
1,490
1,184
351
820
83
$
5,278
1,061
2,016
746
342
575
2,191
375
923
585
650
635
504
274
226
512
82
247
260
66
$
1,962
1,102
2,579
1,058
2,726
2,022
2,811
3,328
1,669
1,056
930
2,208
1,953
184
385
600
511
43
1,232
82
$
42,235
24,591
19,277
16,166
11,257
11,033
15,569
11,248
10,622
8,753
10,149
8,321
6,340
7,060
5,940
5,393
4,217
3,484
4,353
2,992
(4,640) $
(3,088)
(554)
(241)
(541)
(444)
(5,026)
(751)
(1,532)
(75)
(1,682)
(420)
(77)
(1,263)
(453)
(1,147)
(252)
(97)
(1,245)
(3)
$
37,595
21,503
18,723
15,925
10,716
10,589
10,543
10,497
9,090
8,678
8,467
7,901
6,263
5,797
5,487
4,246
3,965
3,387
3,108
2,989
(10,138)
(875)
(51)
5,040
(2,950)
1,666
(151)
1,269
(5,921)
1,199
1,069
1,795
845
(3,849)
1,003
159
2,039
644
562
299
$
126,558
$
56,453
$
17,548
$
28,441
$
229,000
$
(23,531) $
205,469
$
(6,346)
A number of economic conditions and geopolitical events have
given rise to risk aversion in certain emerging markets. Our two
largest emerging market country exposures at December 31, 2017
were China and Brazil. At December 31, 2017, net exposure to
China was $15.9 billion, concentrated in large state-owned
companies, subsidiaries of multinational corporations and
commercial banks. At December 31, 2017, net exposure to Brazil
was $10.7 billion, concentrated in sovereign securities, oil and
gas companies and commercial banks.
The outlook for policy direction and therefore economic
performance in the EU remains uncertain as a consequence of
reduced political cohesion among EU countries. Additionally, we
believe that the uncertainty in the U.K.’s ability to negotiate a
favorable exit from the EU will further weigh on economic
performance. Our largest EU country exposure at December 31,
2017 was the U.K. with net exposure of $37.6 billion, concentrated
in multinational corporations and sovereign clients. For more
information, see Executive Summary – 2017 Economic and
Business Environment on page 36.
Table 46 presents countries where total cross-border exposure
exceeded one percent of our total assets. At December 31, 2017,
the U.K. and France were the only countries where total cross-
border exposure exceeded one percent of our total assets. At
December 31, 2017, Germany had total cross-border exposure of
$21.6 billion representing 0.95 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, 2017.
Cross-border exposure includes the components of Country
Risk Exposure as detailed in Table 45 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 46 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
$
2017
2016
2015
2017
2016
2015
$
923
2,975
3,264
2,964
4,956
3,343
$
2,984
4,557
5,104
1,521
1,205
1,766
$
47,205
42,105
38,576
27,903
23,193
17,099
51,112
49,637
46,944
32,388
29,354
22,208
2.24%
2.27
2.19
1.42
1.34
1.04
Bank of America 2017 87
Provision for Credit Losses
The provision for credit losses decreased $201 million to $3.4
billion in 2017 compared to 2016. The provision for credit losses
was $583 million lower than net charge-offs for 2017, resulting in
a reduction in the allowance for credit losses. This compared to
a reduction of $224 million in the allowance in 2016.
The provision for credit losses for the consumer portfolio
increased $159 million to $2.7 billion in 2017 compared to 2016.
The increase was primarily driven by a provision increase of $672
million in the U.S. credit card portfolio due to portfolio seasoning
and loan growth, largely offset by the consumer real estate portfolio
due to continued portfolio improvement and increased home
prices. Included in the provision is an expense of $76 million
related to the PCI loan portfolio for 2017 compared to a benefit
of $45 million in 2016.
The provision for credit losses for the commercial portfolio,
including unfunded lending commitments, decreased $360 million
to $669 million in 2017 compared to 2016 driven by reductions
in energy exposures, partially offset by a single-name non-U.S.
commercial charge-off.
Allowance for Credit Losses
Allowance for Loan and Lease Losses
The allowance for loan and lease losses is comprised of two
components. The
first component covers nonperforming
commercial loans and TDRs. The second component covers loans
and leases on which there are incurred losses that are not yet
individually identifiable, as well as incurred losses that may not
be represented in the loss forecast models. We evaluate the
adequacy of the allowance for loan and lease losses based on the
total of these two components, each of which is described in more
detail below. The allowance for loan and lease losses excludes
LHFS and loans accounted for under the fair value option as the
fair value reflects a credit risk component.
The first component of the allowance for loan and lease losses
covers both nonperforming commercial loans and all TDRs within
the consumer and commercial portfolios. These loans are subject
to impairment measurement based on the present value of
projected future cash flows discounted at the loan’s original
effective interest rate, or in certain circumstances, impairment
may also be based upon the collateral value or the loan’s
observable market price if available. Impairment measurement for
the renegotiated consumer credit card, small business credit card
and unsecured consumer TDR portfolios is based on the present
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
88 Bank of America 2017
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, 2017, the loss
forecast process resulted in reductions in the allowance related
to the residential mortgage and home equity portfolios compared
to December 31, 2016.
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, 2017, the allowance
decreased for the U.S. commercial and non-U.S. commercial
portfolios compared to December 31, 2016.
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
in
period. Further, we consider the
mathematical models that are built upon historical data.
inherent uncertainty
During 2017, the factors that impacted the allowance for loan
and lease losses included improvements in the credit quality of
the consumer real estate 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 downward unemployment trends
and increases in home prices. In addition to these improvements,
in the consumer portfolio, nonperforming consumer loans
decreased $838 million in 2017 as returns to performing status,
charge-offs, paydowns and loan sales continued to outpace new
nonaccrual loans. During 2017, the allowance for loan and lease
losses in the commercial portfolio reflected decreased energy
reserves primarily driven by reductions in energy exposures
including utilized reservable criticized exposures.
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.
The allowance for loan and lease losses for the consumer
portfolio, as presented in Table 48, was $5.4 billion at December
31, 2017, a decrease of $839 million from December 31, 2016.
The decrease was primarily in the consumer real estate portfolio
and the non-U.S. card portfolio which was sold in 2017, partially
offset by an increase in the U.S. credit card portfolio. The reduction
in the consumer real estate portfolio was due to improved home
prices, lower nonperforming loans and a decrease in loan balances
in our non-core portfolio. The increase in the U.S. credit card
portfolio was driven by portfolio seasoning and loan growth.
The allowance for loan and lease losses for the commercial
portfolio, as presented in Table 48, was $5.0 billion at December
31, 2017, a decrease of $248 million from December 31, 2016
driven by decreased energy reserves due to reductions in the
higher risk energy sub-sectors. Commercial utilized reservable
criticized exposure decreased to $13.6 billion at December 31,
2017 from $16.3 billion (to 2.65 percent from 3.35 percent of
total commercial utilized reservable exposure) at December 31,
2016, largely due to paydowns and net upgrades in the energy
portfolio. Nonperforming commercial loans decreased to $1.3
billion at December 31, 2017 from $1.7 billion (to 0.27 percent
from 0.38 percent of outstanding commercial loans excluding
loans accounted for under the fair value option) at December 31,
2016 with the decrease primarily in the energy and metal and
mining sectors. See Tables 34, 35 and 36 for more details on key
commercial credit statistics.
The allowance for loan and lease losses as a percentage of
total loans and leases outstanding was 1.12 percent at December
31, 2017 compared to 1.26 percent at December 31, 2016. The
decrease in the ratio was primarily due to improved credit quality
in the consumer real estate portfolio driven by improved economic
conditions. The December 31, 2017 and 2016 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 1.10 percent and 1.24 percent at
December 31, 2017 and 2016.
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 $777
million at December 31, 2017 compared to $762 million at
December 31, 2016.
Bank of America 2017 89
Table 47 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 2017 and 2016.
Table 47 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 (1)
Direct/Indirect consumer
Other consumer
Total consumer charge-offs
U.S. commercial (2)
Non-U.S. commercial
Commercial real estate
Commercial lease financing
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 (1)
Direct/Indirect consumer
Other consumer
Total consumer recoveries
U.S. commercial (3)
Non-U.S. commercial
Commercial real estate
Commercial lease financing
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 (4)
Total allowance for loan and lease losses, December 31
Less: Allowance included in assets of business held for sale (5)
Allowance for loan and lease losses, December 31
Reserve for unfunded lending commitments, January 1
Provision for unfunded lending commitments
Other (4)
Reserve for unfunded lending commitments, December 31
Allowance for credit losses, December 31
2017
2016
$
11,237
$
12,234
(188)
(582)
(2,968)
(103)
(487)
(216)
(4,544)
(589)
(446)
(24)
(16)
(1,075)
(5,619)
288
369
455
28
276
50
1,466
142
6
15
11
174
1,640
(3,979)
(207)
3,381
(39)
10,393
—
10,393
762
15
—
777
11,170
$
(403)
(752)
(2,691)
(238)
(392)
(232)
(4,708)
(567)
(133)
(10)
(30)
(740)
(5,448)
272
347
422
63
258
27
1,389
175
13
41
9
238
1,627
(3,821)
(340)
3,581
(174)
11,480
(243)
11,237
646
16
100
762
11,999
$
(1) Represents net charge-offs related to the non-U.S. credit card loan portfolio, which was included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. In
2017, the Corporation sold its non-U.S. consumer credit card business.
Includes U.S. small business commercial charge-offs of $258 million and $253 million in 2017 and 2016.
Includes U.S. small business commercial recoveries of $43 million and $45 million in 2017 and 2016.
(2)
(3)
(4) Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments, transfers to held-for-sale and certain other reclassifications.
(5) Represents allowance related to the non-U.S. credit card loan portfolio, which was sold in 2017.
90 Bank of America 2017
Table 47 Allowance for Credit Losses (continued)
(Dollars in millions)
Loan and allowance ratios (6):
Loans and leases outstanding at December 31 (7)
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (7)
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (8)
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (9)
Average loans and leases outstanding (7)
Net charge-offs as a percentage of average loans and leases outstanding (7, 10)
Net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (7)
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (7, 11)
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (10)
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 (12)
2017
2016
$ 931,039
$ 908,812
1.12%
1.18
1.05
$ 911,988
1.26%
1.36
1.16
$ 892,255
0.44%
0.46
161
2.61
2.48
0.43%
0.47
149
3.00
2.76
$
3,971
$
3,951
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 (7, 12)
99%
98%
Loan and allowance ratios excluding PCI loans and the related valuation allowance (6, 13):
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (7)
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (8)
Net charge-offs as a percentage of average loans and leases outstanding (7)
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (7, 11)
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs
1.10%
1.15
0.44
156
2.54
1.24%
1.31
0.44
144
2.89
(6) Loan and allowance ratios for 2016 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 were included in
assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. See footnote 1 for more information.
(7) Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $5.7 billion and $7.1 billion at December 31, 2017 and 2016. Average loans
accounted for under the fair value option were $6.7 billion and $8.2 billion in 2017 and 2016.
(8) Excludes consumer loans accounted for under the fair value option of $928 million and $1.1 billion at December 31, 2017 and 2016.
(9) Excludes commercial loans accounted for under the fair value option of $4.8 billion and $6.0 billion at December 31, 2017 and 2016.
(10) Net charge-offs exclude $207 million and $340 million of write-offs in the PCI loan portfolio in 2017 and 2016. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management
– Purchased Credit-impaired Loan Portfolio on page 76.
(11) For more information on our definition of nonperforming loans, see page 78 and page 83.
(12) 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.
(13) 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.
Bank of America 2017 91
For reporting purposes, we allocate the allowance for credit losses across products as presented in Table 48.
Table 48 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)
Non-U.S. commercial
Commercial real estate
Commercial lease financing
Total commercial
Total allowance for loan and lease losses (3)
Less: Allowance included in assets of business held for sale (4)
Allowance for loan and lease losses
Reserve for unfunded lending commitments
Allowance for credit losses
Amount
Percent of
Total
Percent of
Loans and
Leases
Outstanding (1)
Amount
Percent of
Total
Percent of
Loans and
Leases
Outstanding (1)
December 31, 2017
December 31, 2016
6.74%
9.80
32.41
—
2.52
0.32
51.79
29.95
7.73
9.00
1.53
48.21
100.00%
$
$
701
1,019
3,368
—
262
33
5,383
3,113
803
935
159
5,010
10,393
—
10,393
777
11,170
0.34% $
1.76
3.50
—
0.28
1.22
1.18
1.04
0.82
1.60
0.72
1.05
1.12
$
1,012
1,738
2,934
243
244
51
6,222
3,326
874
920
138
5,258
11,480
(243)
11,237
762
11,999
8.82%
15.14
25.56
2.12
2.13
0.44
54.21
28.97
7.61
8.01
1.20
45.79
100.00%
0.53%
2.62
3.18
2.64
0.26
2.01
1.36
1.17
0.98
1.60
0.62
1.16
1.26
(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 $567 million and $710 million and home equity loans of $361 million and $341 million at December 31, 2017 and 2016.
Commercial loans accounted for under the fair value option included U.S. commercial loans of $2.6 billion and $2.9 billion and non-U.S. commercial loans of $2.2 billion and $3.1 billion at December
31, 2017 and 2016.
Includes allowance for loan and lease losses for U.S. small business commercial loans of $439 million and $416 million at December 31, 2017 and 2016.
Includes $289 million and $419 million of valuation allowance presented with the allowance for loan and lease losses related to PCI loans at December 31, 2017 and 2016.
(2)
(3)
(4) Represents allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which was included in assets of business held for sale on the Consolidated Balance Sheet at
December 31, 2016. In 2017, the Corporation sold its non-U.S. consumer credit card business.
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 more information, see Interest Rate Risk
Management for the Banking Book on page 97.
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
92 Bank of America 2017
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,
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.
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.
certificates,
commercial mortgages
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 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 20 – Fair Value Measurements 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 more information, see Mortgage Banking
Risk Management on page 99.
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
Trading Risk Management
To evaluate risk in our trading activities, we focus on the actual
and potential volatility of revenues generated by individual
positions as well as portfolios of positions. Various techniques
and procedures are utilized to enable the most complete
understanding of these risks. Quantitative measures of market
risk are evaluated on a daily basis from a single position to the
portfolio of the Corporation. These measures include sensitivities
of positions to various market risk factors, such as the potential
impact on revenue from a one basis point change in interest rates,
and statistical measures utilizing both actual and hypothetical
market moves, such as VaR and stress testing. Periods of extreme
market stress influence the reliability of these techniques to
varying degrees. Qualitative evaluations of market risk utilize the
suite of quantitative risk measures while understanding each of
their
risk managers
limitations. Additionally,
independently evaluate the risk of the portfolios under the current
market environment and potential future environments.
respective
VaR is a common statistic used to measure market risk as it
allows the aggregation of market risk factors, including the effects
of portfolio diversification. A VaR model simulates the value of a
portfolio under a range of scenarios in order to generate a
distribution of potential gains and losses. VaR represents the loss
a portfolio is not expected to exceed more than a certain number
of times per period, based on a specified holding period,
confidence level and window of historical data. We use one VaR
model consistently across the trading portfolios and it uses a
historical simulation approach based on a three-year window of
historical data. Our primary VaR statistic is equivalent to a 99
percent confidence level. This means that for a VaR with a one-
day holding period, there should not be losses in excess of VaR,
on average, 99 out of 100 trading days.
Within any VaR model, there are significant and numerous
assumptions that will differ from company to company. The
accuracy of a VaR model depends on the availability and quality
of historical data for each of the risk factors in the portfolio. A
VaR model may require additional modeling assumptions for new
products that do not have the necessary historical market data
or for less liquid positions for which accurate daily prices are not
consistently available. For positions with insufficient historical
data for the VaR calculation, the process for establishing an
appropriate proxy is based on fundamental and statistical analysis
of the new product or less liquid position. This analysis identifies
reasonable alternatives that replicate both the expected volatility
and correlation to other market risk factors that the missing data
would be expected to experience.
Bank of America 2017 93
VaR may not be indicative of realized revenue volatility as changes
in market conditions or in the composition of the portfolio can
VaR may not be indicative of realized revenue volatility as changes
have a material impact on the results. In particular, the historical
in market conditions or in the composition of the portfolio can
data used for the VaR calculation might indicate higher or lower
have a material impact on the results. In particular, the historical
levels of portfolio diversification than will be experienced. In order
data used for the VaR calculation might indicate higher or lower
for the VaR model to reflect current market conditions, we update
levels of portfolio diversification than will be experienced. In order
the historical data underlying our VaR model on a weekly basis,
for the VaR model to reflect current market conditions, we update
or more frequently during periods of market stress, and regularly
the historical data underlying our VaR model on a weekly basis,
review the assumptions underlying the model. A minor portion of
or more frequently during periods of market stress, and regularly
risks related to our trading positions is not included in VaR. These
review the assumptions underlying the model. A minor portion of
risks are reviewed as part of our ICAAP. For more information
risks related to our trading positions is not included in VaR. These
regarding ICAAP, see Capital Management on page 61.
risks are reviewed as part of our ICAAP. For more information
Global Risk Management continually reviews, evaluates and
regarding ICAAP, see Capital Management on page 61.
enhances our VaR model so that it reflects the material risks in
Global Risk Management continually reviews, evaluates and
our trading portfolio. Changes to the VaR model are reviewed and
enhances our VaR model so that it reflects the material risks in
approved prior to implementation and any material changes are
our trading portfolio. Changes to the VaR model are reviewed and
reported to management through the appropriate management
approved prior to implementation and any material changes are
committees.
reported to management through the appropriate management
Trading limits on quantitative risk measures, including VaR, are
committees.
independently set by Global Markets Risk Management and
Trading limits on quantitative risk measures, including VaR, are
reviewed on a regular basis so that trading limits remain relevant
independently set by Global Markets Risk Management and
and within our overall risk appetite for market risks. Trading limits
reviewed on a regular basis so that trading limits remain relevant
are reviewed in the context of market liquidity, volatility and
and within our overall risk appetite for market risks. Trading limits
strategic business priorities. Trading limits are set at both a
are reviewed in the context of market liquidity, volatility and
granular level to allow for extensive coverage of risks as well as
strategic business priorities. Trading limits are set at both a
at aggregated portfolios to account for correlations among risk
granular level to allow for extensive coverage of risks as well as
factors. All trading limits are approved at least annually. Approved
at aggregated portfolios to account for correlations among risk
trading limits are stored and tracked in a centralized limits
factors. All trading limits are approved at least annually. Approved
management system. Trading limit excesses are communicated
trading limits are stored and tracked in a centralized limits
to management for review. Certain quantitative market risk
management system. Trading limit excesses are communicated
measures and corresponding limits have been identified as critical
to management for review. Certain quantitative market risk
in the Corporation’s Risk Appetite Statement. These risk appetite
measures and corresponding limits have been identified as critical
limits are reported on a daily basis and are approved at least
in the Corporation’s Risk Appetite Statement. These risk appetite
annually by the ERC and the Board.
limits are reported on a daily basis and are approved at least
annually by the ERC and the Board.
Table 49 Market Risk VaR for Trading Activities
Table 49 Market Risk VaR for Trading Activities
In periods of market stress, Global Markets senior leadership
communicates daily to discuss losses, key risk positions and any
In periods of market stress, Global Markets senior leadership
limit excesses. As a result of this process, the businesses may
communicates daily to discuss losses, key risk positions and any
selectively reduce risk.
limit excesses. As a result of this process, the businesses may
Table 49 presents the total market-based trading portfolio VaR
selectively reduce risk.
which is the combination of the covered positions trading portfolio
Table 49 presents the total market-based trading portfolio VaR
and the impact from less liquid trading exposures. Covered
which is the combination of the covered positions trading portfolio
positions are defined by regulatory standards as trading assets
and the impact from less liquid trading exposures. Covered
and liabilities, both on- and off-balance sheet, that meet a defined
positions are defined by regulatory standards as trading assets
set of specifications. These specifications identify the most liquid
and liabilities, both on- and off-balance sheet, that meet a defined
trading positions which are intended to be held for a short-term
set of specifications. These specifications identify the most liquid
horizon and where we are able to hedge the material risk elements
trading positions which are intended to be held for a short-term
in a two-way market. Positions in less liquid markets, or where
horizon and where we are able to hedge the material risk elements
there are restrictions on the ability to trade the positions, typically
in a two-way market. Positions in less liquid markets, or where
do not qualify as covered positions. Foreign exchange and
there are restrictions on the ability to trade the positions, typically
commodity positions are always considered covered positions,
do not qualify as covered positions. Foreign exchange and
except for structural foreign currency positions that are excluded
commodity positions are always considered covered positions,
with prior regulatory approval. In addition, Table 49 presents our
except for structural foreign currency positions that are excluded
fair value option portfolio, which includes substantially all of the
with prior regulatory approval. In addition, Table 49 presents our
funded and unfunded exposures for which we elect the fair value
fair value option portfolio, which includes substantially all of the
option, and their corresponding hedges. The fair value option
funded and unfunded exposures for which we elect the fair value
portfolio combined with the total market-based trading portfolio
option, and their corresponding hedges. The fair value option
VaR represents our total market-based portfolio VaR. Additionally,
portfolio combined with the total market-based trading portfolio
market risk VaR for trading activities as presented in Table 49
VaR represents our total market-based portfolio VaR. Additionally,
differs from VaR used for regulatory capital calculations due to
market risk VaR for trading activities as presented in Table 49
the holding period being used. The holding period for VaR used
differs from VaR used for regulatory capital calculations due to
for regulatory capital calculations is 10 days, while for the market
the holding period being used. The holding period for VaR used
risk VaR presented below it is one day. Both measures utilize the
for regulatory capital calculations is 10 days, while for the market
same process and methodology.
risk VaR presented below it is one day. Both measures utilize the
The total market-based portfolio VaR results in Table 49 include
same process and methodology.
market risk to which we are exposed from all business segments,
The total market-based portfolio VaR results in Table 49 include
excluding CVA and DVA. The majority of this portfolio is within the
market risk to which we are exposed from all business segments,
Global Markets segment.
excluding CVA and DVA. The majority of this portfolio is within the
Table 49 presents year-end, average, high and low daily trading
Global Markets segment.
VaR for 2017 and 2016 using a 99 percent confidence level.
Table 49 presents year-end, average, high and low daily trading
VaR for 2017 and 2016 using a 99 percent confidence level.
2017
2016
$
$
$
Low (1)
High (1)
2017
$
(Dollars in millions)
High (1)
Low (1)
High (1)
Low (1)
Average
$
Average
$
Average
$
Average
$
Total covered positions trading portfolio
Total covered positions trading portfolio
Total market-based trading portfolio
Foreign exchange
(Dollars in millions)
Interest rate
Foreign exchange
Credit
Interest rate
Equity
Credit
Commodity
Equity
Portfolio diversification
Commodity
Portfolio diversification
Impact from less liquid exposures
3
11
3
21
11
12
21
3
12
—
3
23
—
—
23
26
—
7
26
4
7
—
4
6
—
—
6
29
—
29
portfolio diversification, which is the difference between the total portfolio and the sum of the individual components, is not relevant.
5
10
5
25
10
11
25
3
11
—
3
24
—
—
24
28
—
12
28
5
12
—
5
8
—
—
8
32
Portfolio diversification
—
(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
32
(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
Impact from less liquid exposures
Fair value option loans
Fair value option hedges
Fair value option loans
Fair value option portfolio diversification
Fair value option hedges
Fair value option portfolio diversification
Portfolio diversification
11
21
11
26
21
18
26
5
18
(47)
5
34
(47)
6
34
40
6
10
40
7
10
(8)
7
9
(8)
(4)
9
45
(4)
45
16
30
16
37
30
30
37
12
30
—
12
50
—
—
50
58
—
40
58
22
40
—
22
20
—
—
20
70
—
70
25
41
25
33
41
33
33
9
33
—
9
53
—
—
53
63
—
14
63
11
14
—
11
11
—
—
11
69
—
69
Total fair value option portfolio
Total market-based portfolio
Total market-based trading portfolio
Total fair value option portfolio
Total market-based portfolio
2016
$
9
19
9
30
19
18
30
6
18
(46)
6
36
(46)
5
36
41
5
23
41
11
23
(21)
11
13
(21)
(6)
13
48
(6)
48
Year End
8
$
Year End
11
8
$
25
11
19
25
4
19
(39)
4
28
(39)
6
28
34
6
14
34
6
14
(10)
6
10
(10)
(4)
10
40
(4)
40
Year End
7
$
Year End
22
7
$
29
22
19
29
5
19
(49)
5
33
(49)
5
33
38
5
9
38
7
9
(7)
7
9
(7)
(4)
9
43
(4)
43
High (1)
Low (1)
$
$
$
$
$
$
$
$
$
$
$
portfolio diversification, which is the difference between the total portfolio and the sum of the individual components, is not relevant.
94 Bank of America 2017
94 Bank of America 2017
The graph below presents the daily total market-based trading portfolio VaR for 2017, corresponding to the data in Table 49.
The graph below presents the daily total market-based trading portfolio VaR for 2017, corresponding to the data in Table 49.
Daily Total Market-Based Trading Portfolio VaR History
Daily Total Market-Based Trading Portfolio VaR History
VaR
VaR
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
12/31/2016
0
12/31/2016
3/31/2017
3/31/2017
6/30/2017
6/30/2017
9/30/2017
9/30/2017
12/31/2017
12/31/2017
s
n
o
i
l
l
s
i
M
n
o
n
i
l
l
i
i
M
s
r
a
n
o
s
D
r
a
l
i
l
l
l
o
D
Additional VaR statistics produced within our single VaR model are provided in Table 50 at the same level of detail as in Table 49.
Evaluating VaR with additional statistics allows for an increased understanding of the risks in the portfolio as the historical market
Additional VaR statistics produced within our single VaR model are provided in Table 50 at the same level of detail as in Table 49.
data used in the VaR calculation does not necessarily follow a predefined statistical distribution. Table 50 presents average trading
Evaluating VaR with additional statistics allows for an increased understanding of the risks in the portfolio as the historical market
VaR statistics at 99 percent and 95 percent confidence levels for 2017 and 2016.
data used in the VaR calculation does not necessarily follow a predefined statistical distribution. Table 50 presents average trading
VaR statistics at 99 percent and 95 percent confidence levels for 2017 and 2016.
Table 50 Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics
Table 50 Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics
2017
2016
(Dollars in millions)
99 percent
95 percent
Foreign exchange
(Dollars in millions)
Interest rate
Foreign exchange
Credit
Interest rate
Equity
Credit
Commodity
Equity
Portfolio diversification
Commodity
Portfolio diversification
Impact from less liquid exposures
Total covered positions trading portfolio
Total covered positions trading portfolio
Total market-based trading portfolio
Total market-based trading portfolio
Impact from less liquid exposures
Fair value option loans
Fair value option hedges
Fair value option loans
Fair value option portfolio diversification
Fair value option hedges
Fair value option portfolio diversification
Portfolio diversification
Total fair value option portfolio
Total fair value option portfolio
Total market-based portfolio
Portfolio diversification
Total market-based portfolio
Backtesting
The accuracy of the VaR methodology is evaluated by backtesting,
Backtesting
which compares the daily VaR results, utilizing a one-day holding
The accuracy of the VaR methodology is evaluated by backtesting,
period, against a comparable subset of trading revenue. A
which compares the daily VaR results, utilizing a one-day holding
backtesting excess occurs when a trading loss exceeds the VaR
period, against a comparable subset of trading revenue. A
for the corresponding day. These excesses are evaluated to
backtesting excess occurs when a trading loss exceeds the VaR
understand the positions and market moves that produced the
for the corresponding day. These excesses are evaluated to
trading loss and to assess whether the VaR methodology
understand the positions and market moves that produced the
accurately represents those losses. We expect the frequency of
trading loss and to assess whether the VaR methodology
trading losses in excess of VaR to be in line with the confidence
accurately represents those losses. We expect the frequency of
level of the VaR statistic being tested. For example, with a 99
trading losses in excess of VaR to be in line with the confidence
percent confidence level, we expect one trading loss in excess of
level of the VaR statistic being tested. For example, with a 99
VaR every 100 days or between two to three trading losses in
percent confidence level, we expect one trading loss in excess of
excess of VaR over the course of a year. The number of backtesting
VaR every 100 days or between two to three trading losses in
excesses observed can differ from the statistically expected
excess of VaR over the course of a year. The number of backtesting
number of excesses if the current level of market volatility is
excesses observed can differ from the statistically expected
materially different than the level of market volatility that existed
number of excesses if the current level of market volatility is
during the three years of historical data used in the VaR
materially different than the level of market volatility that existed
calculation.
during the three years of historical data used in the VaR
calculation.
99 percent
95 percent
$
$
$
$
$
$
$
$
$
$
$
$
$
2017
$
95 percent
95 percent
99 percent
99 percent
5
12
5
18
12
11
18
3
11
(30)
3
19
(30)
3
19
22
3
13
22
8
13
(13)
8
8
(13)
(4)
8
26
(4)
26
2016
$
9
19
9
30
19
18
30
6
18
(46)
6
36
(46)
5
36
41
5
23
41
11
23
(21)
11
13
(21)
(6)
13
48
(6)
48
6
11
14
21
6
11
15
26
14
21
10
18
15
26
3
5
10
18
(30)
(47)
3
5
18
34
(30)
(47)
2
6
18
34
20
40
2
6
6
10
20
40
5
7
6
10
(8) (6)
5
7
5
9
(8) (6)
(4) (3)
5
9
22
45
(4) (3)
22
45
The trading revenue used for backtesting is defined by
regulatory agencies in order to most closely align with the VaR
The trading revenue used for backtesting is defined by
component of the regulatory capital calculation. This revenue
regulatory agencies in order to most closely align with the VaR
differs from total trading-related revenue in that it excludes
component of the regulatory capital calculation. This revenue
revenue from trading activities that either do not generate market
differs from total trading-related revenue in that it excludes
risk or the market risk cannot be included in VaR. Some examples
revenue from trading activities that either do not generate market
of the types of revenue excluded for backtesting are fees,
risk or the market risk cannot be included in VaR. Some examples
commissions, reserves, net interest income and intraday trading
of the types of revenue excluded for backtesting are fees,
revenues.
commissions, reserves, net interest income and intraday trading
We conduct daily backtesting on our portfolios, ranging from
revenues.
the total market-based portfolio to individual trading areas.
We conduct daily backtesting on our portfolios, ranging from
Additionally, we conduct daily backtesting on the VaR results used
the total market-based portfolio to individual trading areas.
for regulatory capital calculations as well as the VaR results for
Additionally, we conduct daily backtesting on the VaR results used
key legal entities, regions and risk factors. These results are
for regulatory capital calculations as well as the VaR results for
reported to senior market risk management. Senior management
key legal entities, regions and risk factors. These results are
regularly reviews and evaluates the results of these tests.
reported to senior market risk management. Senior management
During 2017, there were no days in which there was a
regularly reviews and evaluates the results of these tests.
backtesting excess for our total market-based portfolio VaR,
During 2017, there were no days in which there was a
utilizing a one-day holding period.
backtesting excess for our total market-based portfolio VaR,
utilizing a one-day holding period.
$
Bank of America 2017 95
Bank of America 2017 95
Total Trading-related Revenue
Total trading-related revenue, excluding brokerage fees, and CVA,
Total Trading-related Revenue
DVA and funding valuation adjustment gains (losses), represents
Total trading-related revenue, excluding brokerage fees, and CVA,
the total amount earned from trading positions, including market-
DVA and funding valuation adjustment gains (losses), represents
based net interest income, which are taken in a diverse range of
the total amount earned from trading positions, including market-
financial instruments and markets. Trading account assets and
based net interest income, which are taken in a diverse range of
liabilities are reported at fair value. For more information on fair
financial instruments and markets. Trading account assets and
value, see Note 20 – Fair Value Measurements to the Consolidated
liabilities are reported at fair value. For more information on fair
Financial Statements. Trading-related revenue can be volatile and
value, see Note 20 – Fair Value Measurements to the Consolidated
is largely driven by general market conditions and customer
Financial Statements. Trading-related revenue can be volatile and
demand. Also, trading-related revenue is dependent on the volume
is largely driven by general market conditions and customer
and type of transactions, the level of risk assumed, and the
demand. Also, trading-related revenue is dependent on the volume
volatility of price and rate movements at any given time within the
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
ever-changing market environment. Significant daily revenue by
reviewed.
business is monitored and the primary drivers of these are
The following histogram is a graphic depiction of trading
reviewed.
volatility and illustrates the daily level of trading-related revenue
The following histogram is a graphic depiction of trading
for 2017 and 2016. During 2017, positive trading-related revenue
volatility and illustrates the daily level of trading-related revenue
was recorded for 100 percent of the trading days, of which 77
for 2017 and 2016. During 2017, positive trading-related revenue
percent were daily trading gains of over $25 million. This compares
was recorded for 100 percent of the trading days, of which 77
to 2016 where positive trading-related revenue was recorded for
percent were daily trading gains of over $25 million. This compares
99 percent of the trading days, of which 84 percent were daily
to 2016 where positive trading-related revenue was recorded for
trading gains of over $25 million and the largest loss was $24
99 percent of the trading days, of which 84 percent were daily
million.
trading gains of over $25 million and the largest loss was $24
million.
Histogram of Daily Trading-related Revenue
Histogram of Daily Trading-related Revenue
greater than -100
-100 to -75
-75 to -50
-50 to -25
-25 to 0
0 to 25
25 to 50
50 to 75
75 to 100
greater than 100
s
y
a
D
s
f
y
o
a
r
D
e
b
f
o
m
r
u
e
N
b
m
u
N
160
160
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
0
greater than -100
-100 to -75
-75 to -50
-50 to -25
Revenue (dollars in millions)
-25 to 0
0 to 25
25 to 50
50 to 75
75 to 100
greater than 100
Year Ended December 31, 2016
Revenue (dollars in millions)
Year Ended December 31, 2017
Year Ended December 31, 2016
Year Ended December 31, 2017
Trading Portfolio Stress Testing
Because the very nature of a VaR model suggests results can
Trading Portfolio Stress Testing
exceed our estimates and it is dependent on a limited historical
Because the very nature of a VaR model suggests results can
window, we also stress test our portfolio using scenario analysis.
exceed our estimates and it is dependent on a limited historical
This analysis estimates the change in the value of our trading
window, we also stress test our portfolio using scenario analysis.
portfolio that may result from abnormal market movements.
This analysis estimates the change in the value of our trading
A set of scenarios, categorized as either historical or
portfolio that may result from abnormal market movements.
hypothetical, are computed daily for the overall trading portfolio
A set of scenarios, categorized as either historical or
and individual businesses. These scenarios include shocks to
hypothetical, are computed daily for the overall trading portfolio
underlying market risk factors that may be well beyond the shocks
and individual businesses. These scenarios include shocks to
found in the historical data used to calculate VaR. Historical
underlying market risk factors that may be well beyond the shocks
scenarios simulate the impact of the market moves that occurred
found in the historical data used to calculate VaR. Historical
during a period of extended historical market stress. Generally, a
scenarios simulate the impact of the market moves that occurred
multi-week period representing the most severe point during a
during a period of extended historical market stress. Generally, a
crisis is selected for each historical scenario. Hypothetical
multi-week period representing the most severe point during a
scenarios provide estimated portfolio impacts from potential
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
future market stress events. Scenarios are reviewed and updated
information. In addition, new or ad hoc scenarios are developed
in response to changing positions and new economic or political
to address specific potential market events or particular
information. In addition, new or ad hoc scenarios are developed
vulnerabilities in the portfolio. The stress tests are reviewed on
to address specific potential market events or particular
a regular basis and the results are presented to senior
vulnerabilities in the portfolio. The stress tests are reviewed on
management.
a regular basis and the results are presented to senior
Stress testing for the trading portfolio is integrated with
management.
enterprise-wide stress testing and incorporated into the limits
Stress testing for the trading portfolio is integrated with
framework. The macroeconomic scenarios used for enterprise-
enterprise-wide stress testing and incorporated into the limits
wide stress testing purposes differ from the typical trading
framework. The macroeconomic scenarios used for enterprise-
portfolio scenarios in that they have a longer time horizon and the
wide stress testing purposes differ from the typical trading
results are forecasted over multiple periods for use in
portfolio scenarios in that they have a longer time horizon and the
consolidated capital and liquidity planning. For more information,
results are forecasted over multiple periods for use in
see Managing Risk on page 57.
consolidated capital and liquidity planning. For more information,
see Managing Risk on page 57.
96 Bank of America 2017
96 Bank of America 2017
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 in funding mix, product repricing, maturity characteristics
and investment securities premium amortization. Our overall goal
is to manage interest rate risk so that movements in interest rates
do not significantly adversely affect earnings and capital.
Table 51 presents the spot and 12-month forward rates used
in our baseline forecasts at December 31, 2017 and 2016.
Table 51 Forward Rates
Spot rates
12-month forward rates
Spot rates
12-month forward rates
December 31, 2017
Federal
Funds
Three-month
LIBOR
10-Year
Swap
1.50%
2.00
1.69%
2.14
December 31, 2016
0.75%
1.25
1.00%
1.51
2.40%
2.48
2.34%
2.49
Table 52 shows the pre-tax dollar impact to forecasted net
interest income over the next 12 months from December 31, 2017
and 2016, 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 2017, the asset sensitivity of our balance sheet to rising
rates was largely unchanged. 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 available for sale
(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 Basel 3, see Capital Management
– Regulatory Capital on page 61.
Table 52 Estimated Banking Book Net Interest Income
Sensitivity
(Dollars in millions)
Curve Change
Parallel Shifts
+100 bps
instantaneous shift
-50 bps
instantaneous shift
Flatteners
Short-end
instantaneous change
Long-end
instantaneous change
Steepeners
Short-end
instantaneous change
Long-end
instantaneous change
Short
Rate (bps)
Long
Rate (bps)
December 31
2017
2016
+100
+100
$
3,317
$
3,370
-50
-50
(2,273)
(2,900)
+100
—
-50
—
—
-50
2,182
2,473
(1,246)
(961)
—
(1,021)
(1,918)
+100
1,135
928
The sensitivity analysis in Table 52 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 52 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
2017 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.
Bank of America 2017 97
Table 53 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, 2017 and 2016. These amounts do not include derivative
hedges on our MSRs.
Table 53 Asset and Liability Management Interest Rate and Foreign Exchange Contracts
December 31, 2017
Expected Maturity
(Dollars in millions, average estimated duration in
years)
Fair
Value
Receive-fixed interest rate swaps (1)
$
2,330
Total
2018
2019
2020
2021
2022
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
$ 176,390
$ 21,850
$ 27,176
$ 16,347
$
6,498
$ 19,120
$ 85,399
2.42%
3.20%
1.87%
1.88%
2.99%
2.10%
2.52%
(37)
$ 45,873
$ 11,555
$
1,210
$
4,344
$
1,616
$
2.15%
1.73%
2.07%
2.16%
2.22%
— $ 27,148
—%
2.32%
(17)
$ 38,622
$ 11,028
$
6,789
$
1,180
$
2,807
$
955
$ 15,863
Foreign exchange basis swaps (1, 3, 4)
(1,616)
Notional amount
Option products (5)
Notional amount (6)
Foreign exchange contracts (1, 4, 7)
Notional amount (6)
Net ALM contracts
13
1,424
$
2,097
107,263
24,886
11,922
13,367
9,301
6,860
40,927
1,218
1,201
—
—
—
—
17
(11,783)
(28,689)
2,231
(24)
2,471
2,919
9,309
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
—
—
Average
Estimated
Duration
5.38
5.63
Average
Estimated
Duration
4.81
2.77
(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, 2017 and 2016, the notional amount of same-currency basis swaps included $38.6 billion and $59.3 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 $1.2 billion and $1.7 billion at December 31, 2017 and 2016 was substantially all in foreign exchange options.
(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 $(11.8) billion at December 31, 2017 was comprised of $29.1 billion in foreign currency-denominated and cross-currency receive-fixed swaps,
$(35.6) billion in net foreign currency forward rate contracts, $(6.2) billion in foreign currency-denominated pay-fixed swaps and $940 million in net foreign currency futures contracts. Foreign exchange
contracts of $(20.3) billion at December 31, 2016 were 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 foreign currency futures contracts.
98 Bank of America 2017
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
$1.3 billion and $1.4 billion, on a pre-tax basis, at December 31,
2017 and 2016. 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, 2017, the pre-tax net losses are expected to be reclassified
into earnings as follows: $208 million, or 16 percent, within the
next year, 56 percent in years two through five, and 18 percent in
years six through 10, with the remaining 10 percent thereafter. For
more information on derivatives designated as cash flow hedges,
see Note 2 – Derivatives to the Consolidated Financial Statements.
We hedge our net investment in non-U.S. operations determined
to have functional currencies other than the U.S. dollar using
forward foreign exchange contracts that typically settle in less than
180 days, cross-currency basis swaps and foreign exchange
options. We recorded net after-tax losses on derivatives in
accumulated OCI associated with net investment hedges which
were offset by gains on our net investments in consolidated non-
U.S. entities at December 31, 2017.
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. Changes in interest rates and other market
factors impact the volume of mortgage originations. Changes in
interest rates also impact the value of IRLCs and the related
residential first mortgage LHFS between the date of the IRLC and
the date the loans are sold to the secondary market. An increase
in mortgage interest rates typically leads to a decrease in the value
of these instruments. Conversely, the value of the MSRs will
increase driven by lower prepayment expectations when there is
an increase in interest rates. 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
consisting of derivative contracts and securities.
During 2017 and 2016, we recorded gains in mortgage banking
income of $118 million and $366 million related to the change in
fair value of the MSRs, IRLCs and LHFS, net of gains and losses
on the hedge portfolio. For more information on MSRs, see Note
20 – Fair Value Measurements to the Consolidated Financial
Statements and for more information on mortgage banking
income, see Consumer Banking on page 47.
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 developing tests to
be conducted by the Enterprise Independent Testing unit, and
reporting on the state of compliance activities across the
Corporation. Enterprise Independent Testing, an independent
testing function within IRM, works with Global Compliance, the
FLUs and control functions in the identification of testing needs
and test design, and is accountable for test execution, reporting
and analysis of results. 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 57.
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
Operational risk is 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
includes legal risk. Additionally, operational risk is a component
in the calculation of total risk-weighted assets used in the Basel
3 capital calculation. For more information on Basel 3 calculations,
see Capital Management on page 61.
The Corporation’s approach to Operational Risk Management
is outlined in the Operational Risk - Enterprise Policy, and
supporting standards which establish the requirements and
accountabilities
for managing operational risk through a
comprehensive set of integrated practices implemented by the
Corporation so that our business processes are designed and
executed effectively. The Operational Risk - Enterprise Policy is the
basis for the operational risk management program.
The operational risk management program describes the
processes for identifying, measuring, monitoring, controlling and
reporting operational risk information to executive management,
as well as the Board or Appropriate Board-Level committees. Under
the operational risk management program, FLUs and control
functions are responsible for identifying, escalating and debating
risk associated with their business activities. The operational risk
management teams independently monitor and assess processes
and controls, and develop tests to be conducted by the Enterprise
Independent Testing unit to validate that processes are operating
as intended. The requirements work together to drive a
comprehensive
the proactive
identification, management and escalation of operational risks
throughout the Corporation.
risk-based approach
for
Bank of America 2017 99
These fluctuations would not be indicative of deficiencies in our
These fluctuations would not be indicative of deficiencies in our
models or inputs.
models or inputs.
Allowance for Credit Losses
Allowance for Credit Losses
The allowance for credit losses, which includes the allowance for
The allowance for credit losses, which includes the allowance for
loan and lease losses and the reserve for unfunded lending
loan and lease losses and the reserve for unfunded lending
commitments, represents management’s estimate of probable
commitments, represents management’s estimate of probable
losses inherent in the Corporation’s loan portfolio excluding those
losses inherent in the Corporation’s loan portfolio excluding those
loans accounted for under the fair value option. Our process for
loans accounted for under the fair value option. Our process for
determining the allowance for credit losses is discussed in Note
determining the allowance for credit losses is discussed in Note
1 – Summary of Significant Accounting Principles to the
1 – Summary of Significant Accounting Principles to the
Consolidated Financial Statements.
Consolidated Financial Statements.
Our estimate for the allowance for loan and lease losses is
Our estimate for the allowance for loan and lease losses is
sensitive to the loss rates and expected cash flows from our
sensitive to the loss rates and expected cash flows from our
Consumer Real Estate and Credit Card and Other Consumer
Consumer Real Estate and Credit Card and Other Consumer
portfolio segments, as well as our U.S. small business commercial
portfolio segments, as well as our U.S. small business commercial
card portfolio within the Commercial portfolio segment. For each
card portfolio within the Commercial portfolio segment. For each
one-percent increase in the loss rates on loans collectively
one-percent increase in the loss rates on loans collectively
evaluated for impairment in our Consumer Real Estate portfolio
evaluated for impairment in our Consumer Real Estate portfolio
segment, excluding PCI loans, coupled with a one-percent
segment, excluding PCI loans, coupled with a one-percent
decrease in the discounted cash flows on those loans individually
decrease in the discounted cash flows on those loans individually
evaluated for impairment within this portfolio segment, the
evaluated for impairment within this portfolio segment, the
allowance for loan and lease losses at December 31, 2017 would
allowance for loan and lease losses at December 31, 2017 would
have increased $36 million. We subject our PCI portfolio to stress
have increased $36 million. We subject our PCI portfolio to stress
scenarios to evaluate the potential impact given certain events.
scenarios to evaluate the potential impact given certain events.
A one-percent decrease in the expected cash flows could result
A one-percent decrease in the expected cash flows could result
in a $99 million impairment of the portfolio. Within our Credit Card
in a $99 million impairment of the portfolio. Within our Credit Card
and Other Consumer portfolio segment and U.S. small business
and Other Consumer portfolio segment and U.S. small business
commercial card portfolio, for each one-percent increase in the
commercial card portfolio, for each one-percent increase in the
loss rates on loans collectively evaluated for impairment coupled
loss rates on loans collectively evaluated for impairment coupled
with a one-percent decrease in the expected cash flows on those
with a one-percent decrease in the expected cash flows on those
loans individually evaluated for impairment, the allowance for loan
loans individually evaluated for impairment, the allowance for loan
and lease losses at December 31, 2017 would have increased
and lease losses at December 31, 2017 would have increased
$41 million.
$41 million.
Our allowance for loan and lease losses is sensitive to the risk
Our allowance for loan and lease losses is sensitive to the risk
ratings assigned to loans and leases within the Commercial
ratings assigned to loans and leases within the Commercial
portfolio segment (excluding the U.S. small business commercial
portfolio segment (excluding the U.S. small business commercial
card portfolio). Assuming a downgrade of one level in the internal
card portfolio). Assuming a downgrade of one level in the internal
risk ratings for commercial loans and leases, except loans and
risk ratings for commercial loans and leases, except loans and
leases already risk-rated Doubtful as defined by regulatory
leases already risk-rated Doubtful as defined by regulatory
authorities, the allowance for loan and lease losses would have
authorities, the allowance for loan and lease losses would have
increased $2.6 billion at December 31, 2017.
increased $2.6 billion at December 31, 2017.
The allowance for loan and lease losses as a percentage of
The allowance for loan and lease losses as a percentage of
total loans and leases at December 31, 2017 was 1.12 percent
total loans and leases at December 31, 2017 was 1.12 percent
and these hypothetical increases in the allowance would raise the
and these hypothetical increases in the allowance would raise the
ratio to 1.41 percent.
ratio to 1.41 percent.
These sensitivity analyses do not represent management’s
These sensitivity analyses do not represent management’s
expectations of the deterioration in risk ratings or the increases
expectations of the deterioration in risk ratings or the increases
in loss rates but are provided as hypothetical scenarios to assess
in loss rates but are provided as hypothetical scenarios to assess
the sensitivity of the allowance for loan and lease losses to
the sensitivity of the allowance for loan and lease losses to
changes in key inputs. We believe the risk ratings and loss
changes in key inputs. We believe the risk ratings and loss
severities currently in use are appropriate and that the probability
severities currently in use are appropriate and that the probability
of the alternative scenarios outlined above occurring within a short
of the alternative scenarios outlined above occurring within a short
period of time is remote.
period of time is remote.
The process of determining the level of the allowance for credit
The process of determining the level of the allowance for credit
losses requires a high degree of judgment. It is possible that
losses requires a high degree of judgment. It is possible that
others, given the same information, may at any point in time reach
others, given the same information, may at any point in time reach
different reasonable conclusions.
different reasonable conclusions.
The MRC oversees the Corporation’s policies and processes
The MRC oversees the Corporation’s policies and processes
for operational risk management and serves as an escalation point
for operational risk management and serves as an escalation point
for critical operational risk matters with the Corporation. The MRC
for critical operational risk matters with the Corporation. The MRC
reports operational risk activities to the ERC of the Board.
reports operational risk activities to the ERC of the Board.
Reputational Risk Management
Reputational Risk Management
Reputational risk is the risk that negative perceptions of the
Reputational risk is the risk that negative perceptions of the
Corporation’s conduct or business practices may adversely impact
Corporation’s conduct or business practices may adversely impact
its profitability or operations. Reputational risk may result from
its profitability or operations. Reputational risk may result from
many of the Corporation’s activities, including those related to the
many of the Corporation’s activities, including those related to the
management of our strategic, operational, compliance and credit
management of our strategic, operational, compliance and credit
risks.
risks.
risk
risk
reputational
reputational
The Corporation manages
The Corporation manages
through
through
established policies and controls in its businesses and risk
established policies and controls in its businesses and risk
management processes to mitigate reputational risks in a timely
management processes to mitigate reputational risks in a timely
manner and through proactive monitoring and identification of
manner and through proactive monitoring and identification of
potential reputational risk events. The Corporation has processes
potential reputational risk events. The Corporation has processes
and procedures in place to respond to events that give rise to
and procedures in place to respond to events that give rise to
reputational risk, including educating individuals and organizations
reputational risk, including educating individuals and organizations
external
opinion,
that
external
opinion,
that
communication strategies to mitigate the risk, and informing key
communication strategies to mitigate the risk, and informing key
stakeholders of potential reputational risks.
stakeholders of potential reputational risks.
implementing
implementing
influence
influence
public
public
The Corporation’s organization and governance structure
The Corporation’s organization and governance structure
provides oversight of reputational risks, and reputational risk
provides oversight of reputational risks, and reputational risk
reporting is provided regularly and directly to management and the
reporting is provided regularly and directly to management and the
ERC, which provides primary oversight of reputational risk. In
ERC, which provides primary oversight of reputational risk. In
includes
addition, each FLU has a committee, which
addition, each FLU has a committee, which
includes
representatives from Compliance, Legal and Risk, that is
representatives from Compliance, Legal and Risk, that is
for the oversight of reputational risk. Such
responsible
for the oversight of reputational risk. Such
responsible
committees’ oversight includes providing approval for business
committees’ oversight includes providing approval for business
activities that present elevated levels of reputational risks.
activities that present elevated levels of reputational risks.
Complex Accounting Estimates
Complex Accounting Estimates
Our significant accounting principles, as described in Note 1 –
Our significant accounting principles, as described in Note 1 –
Summary of Significant Accounting Principles to the Consolidated
Summary of Significant Accounting Principles to the Consolidated
Financial Statements, are essential in understanding the MD&A.
Financial Statements, are essential in understanding the MD&A.
Many of our significant accounting principles require complex
Many of our significant accounting principles require complex
judgments to estimate the values of assets and liabilities. We
judgments to estimate the values of assets and liabilities. We
have procedures and processes in place to facilitate making these
have procedures and processes in place to facilitate making these
judgments.
judgments.
The more judgmental estimates are summarized in the
The more judgmental estimates are summarized in the
following discussion. We have identified and described the
following discussion. We have identified and described the
development of the variables most important in the estimation
development of the variables most important in the estimation
processes that involve mathematical models to derive the
processes that involve mathematical models to derive the
estimates. In many cases, there are numerous alternative
estimates. In many cases, there are numerous alternative
judgments that could be used in the process of determining the
judgments that could be used in the process of determining the
inputs to the models. Where alternatives exist, we have used the
inputs to the models. Where alternatives exist, we have used the
factors that we believe represent the most reasonable value in
factors that we believe represent the most reasonable value in
developing the inputs. Actual performance that differs from our
developing the inputs. Actual performance that differs from our
estimates of the key variables could impact our results of
estimates of the key variables could impact our results of
operations. Separate from the possible future impact to our
operations. Separate from the possible future impact to our
results of operations from input and model variables, the value
results of operations from input and model variables, the value
of our lending portfolio and market-sensitive assets and liabilities
of our lending portfolio and market-sensitive assets and liabilities
may change subsequent to the balance sheet date, often
may change subsequent to the balance sheet date, often
significantly, due to the nature and magnitude of future credit and
significantly, due to the nature and magnitude of future credit and
market conditions. Such credit and market conditions may change
market conditions. Such credit and market conditions may change
quickly and in unforeseen ways and the resulting volatility could
quickly and in unforeseen ways and the resulting volatility could
have a significant, negative effect on future operating results.
have a significant, negative effect on future operating results.
100 Bank of America 2017
100 Bank of America 2017
Fair Value of Financial Instruments
Fair Value of Financial Instruments
We are, under applicable accounting standards, required to
We are, under applicable accounting standards, required to
maximize the use of observable inputs and minimize the use of
maximize the use of observable inputs and minimize the use of
unobservable inputs in measuring fair value. We classify fair value
unobservable inputs in measuring fair value. We classify fair value
measurements of financial instruments and MSRs based on the
measurements of financial instruments and MSRs based on the
three-level fair value hierarchy in the accounting standards.
three-level fair value hierarchy in the accounting standards.
The fair values of assets and liabilities may include
The fair values of assets and liabilities may include
adjustments, such as market liquidity and credit quality, where
adjustments, such as market liquidity and credit quality, where
appropriate. Valuations of products using models or other
appropriate. Valuations of products using models or other
techniques are sensitive to assumptions used for the significant
techniques are sensitive to assumptions used for the significant
inputs. Where market data is available, the inputs used for
inputs. Where market data is available, the inputs used for
valuation reflect that information as of our valuation date. Inputs
valuation reflect that information as of our valuation date. Inputs
to valuation models are considered unobservable if they are
to valuation models are considered unobservable if they are
supported by little or no market activity. In periods of extreme
supported by little or no market activity. In periods of extreme
volatility, lessened liquidity or in illiquid markets, there may be
volatility, lessened liquidity or in illiquid markets, there may be
more variability in market pricing or a lack of market data to use
more variability in market pricing or a lack of market data to use
in the valuation process. In keeping with the prudent application
in the valuation process. In keeping with the prudent application
of estimates and management judgment in determining the fair
of estimates and management judgment in determining the fair
value of assets and liabilities, we have in place various processes
value of assets and liabilities, we have in place various processes
and controls that include: a model validation policy that requires
and controls that include: a model validation policy that requires
review and approval of quantitative models used for deal pricing,
review and approval of quantitative models used for deal pricing,
risk
financial statement
financial statement
risk
quantification; a trading product valuation policy that requires
quantification; a trading product valuation policy that requires
verification of all traded product valuations; and a periodic review
verification of all traded product valuations; and a periodic review
and substantiation of daily profit and loss reporting for all traded
and substantiation of daily profit and loss reporting for all traded
products. Primarily through validation controls, we utilize both
products. Primarily through validation controls, we utilize both
broker and pricing service inputs which can and do include both
broker and pricing service inputs which can and do include both
internally-modeled values and/or
market-observable and
market-observable and
internally-modeled values and/or
valuation inputs. Our reliance on this information is affected by
valuation inputs. Our reliance on this information is affected by
our understanding of how the broker and/or pricing service
our understanding of how the broker and/or pricing service
develops its data with a higher degree of reliance applied to those
develops its data with a higher degree of reliance applied to those
that are more directly observable and lesser reliance applied to
that are more directly observable and lesser reliance applied to
those developed through their own internal modeling. Similarly,
those developed through their own internal modeling. Similarly,
broker quotes that are executable are given a higher level of
broker quotes that are executable are given a higher level of
reliance than indicative broker quotes, which are not executable.
reliance than indicative broker quotes, which are not executable.
These processes and controls are performed independently of
These processes and controls are performed independently of
the business. For more information, see Note 20 – Fair Value
the business. For more information, see Note 20 – Fair Value
Measurements and Note 21 – Fair Value Option to the Consolidated
Measurements and Note 21 – Fair Value Option to the Consolidated
Financial Statements.
Financial Statements.
fair value determination and
fair value determination and
Level 3 Assets and Liabilities
Level 3 Assets and Liabilities
Financial assets and liabilities, and MSRs, where values are based
Financial assets and liabilities, and MSRs, where values are based
on valuation techniques that require inputs that are both
on valuation techniques that require inputs that are both
unobservable and are significant to the overall fair value
unobservable and are significant to the overall fair value
measurement are classified as Level 3 under the fair value
measurement are classified as Level 3 under the fair value
hierarchy established in applicable accounting standards. The fair
hierarchy established in applicable accounting standards. The fair
value of these Level 3 financial assets and liabilities and MSRs
value of these Level 3 financial assets and liabilities and MSRs
is determined using pricing models, discounted cash flow
is determined using pricing models, discounted cash flow
methodologies or similar techniques for which the determination
methodologies or similar techniques for which the determination
of fair value requires significant management judgment or
of fair value requires significant management judgment or
estimation. Total recurring Level 3 assets were $12.9 billion, or
estimation. Total recurring Level 3 assets were $12.9 billion, or
0.57 percent of total assets, and total recurring Level 3 liabilities
0.57 percent of total assets, and total recurring Level 3 liabilities
were $7.7 billion, or 0.38 percent of total liabilities, at December
were $7.7 billion, or 0.38 percent of total liabilities, at December
31, 2017 compared to $14.5 billion or 0.66 percent and $7.2
31, 2017 compared to $14.5 billion or 0.66 percent and $7.2
billion or 0.37 percent at December 31, 2016.
billion or 0.37 percent at December 31, 2016.
Level 3 financial instruments may be hedged with derivatives
Level 3 financial instruments may be hedged with derivatives
classified as Level 1 or 2; therefore, gains or losses associated
classified as Level 1 or 2; therefore, gains or losses associated
with Level 3 financial instruments may be offset by gains or losses
with Level 3 financial instruments may be offset by gains or losses
associated with financial instruments classified in other levels of
associated with financial instruments classified in other levels of
the fair value hierarchy. The Level 3 gains and losses recorded in
the fair value hierarchy. The Level 3 gains and losses recorded in
earnings did not have a significant impact on our liquidity or
earnings did not have a significant impact on our liquidity or
capital. We conduct a review of our fair value hierarchy
capital. We conduct a review of our fair value hierarchy
classifications on a quarterly basis. Transfers into or out of Level
classifications on a quarterly basis. Transfers into or out of Level
3 are made if the significant inputs used in the financial models
3 are made if the significant inputs used in the financial models
measuring the fair values of the assets and liabilities became
measuring the fair values of the assets and liabilities became
in the current
unobservable or observable, respectively,
unobservable or observable, respectively,
in the current
marketplace. These transfers are considered to be effective as
marketplace. These transfers are considered to be effective as
of the beginning of the quarter in which they occur. For more
of the beginning of the quarter in which they occur. For more
information on the significant transfers into and out of Level 3
information on the significant transfers into and out of Level 3
during 2017 and 2016, see Note 20 – Fair Value Measurements
during 2017 and 2016, see Note 20 – Fair Value Measurements
to the Consolidated Financial Statements.
to the Consolidated Financial Statements.
Accrued Income Taxes and Deferred Tax Assets
Accrued Income Taxes and Deferred Tax Assets
Accrued income taxes, reported as a component of either other
Accrued income taxes, reported as a component of either other
assets or accrued expenses and other liabilities on the
assets or accrued expenses and other liabilities on the
Consolidated Balance Sheet, represent the net amount of current
Consolidated Balance Sheet, represent the net amount of current
income taxes we expect to pay to or receive from various taxing
income taxes we expect to pay to or receive from various taxing
jurisdictions attributable to our operations to date. We currently
jurisdictions attributable to our operations to date. We currently
file income tax returns in more than 100 federal, state and non-
file income tax returns in more than 100 federal, state and non-
U.S. jurisdictions and consider many factors, including statutory,
U.S. jurisdictions and consider many factors, including statutory,
judicial and regulatory guidance, in estimating the appropriate
judicial and regulatory guidance, in estimating the appropriate
accrued income taxes for each jurisdiction.
accrued income taxes for each jurisdiction.
Net deferred tax assets, reported as a component of other
Net deferred tax assets, reported as a component of other
assets on the Consolidated Balance Sheet, represent the net
assets on the Consolidated Balance Sheet, represent the net
decrease in taxes expected to be paid in the future because of
decrease in taxes expected to be paid in the future because of
net operating loss (NOL) and tax credit carryforwards and because
net operating loss (NOL) and tax credit carryforwards and because
of future reversals of temporary differences in the bases of assets
of future reversals of temporary differences in the bases of assets
and liabilities as measured by tax laws and their bases as reported
and liabilities as measured by tax laws and their bases as reported
in the financial statements. NOL and tax credit carryforwards
in the financial statements. NOL and tax credit carryforwards
result in reductions to future tax liabilities, and many of these
result in reductions to future tax liabilities, and many of these
attributes can expire if not utilized within certain periods. We
attributes can expire if not utilized within certain periods. We
consider the need for valuation allowances to reduce net deferred
consider the need for valuation allowances to reduce net deferred
tax assets to the amounts that we estimate are more-likely-than-
tax assets to the amounts that we estimate are more-likely-than-
not to be realized.
not to be realized.
Consistent with the applicable accounting standards, we
Consistent with the applicable accounting standards, we
monitor relevant tax authorities and change our estimates of
monitor relevant tax authorities and change our estimates of
accrued income taxes and/or net deferred tax assets due to
accrued income taxes and/or net deferred tax assets due to
changes in income tax laws and their interpretation by the courts
changes in income tax laws and their interpretation by the courts
and regulatory authorities. These revisions of our estimates,
and regulatory authorities. These revisions of our estimates,
which also may result from our income tax planning and from the
which also may result from our income tax planning and from the
resolution of income tax audit matters, may be material to our
resolution of income tax audit matters, may be material to our
operating results for any given period.
operating results for any given period.
On December 22, 2017, the President signed into law the Tax
On December 22, 2017, the President signed into law the Tax
Act which made significant changes to federal income tax law
Act which made significant changes to federal income tax law
including, among other things, reducing the statutory corporate
including, among other things, reducing the statutory corporate
income tax rate to 21 percent from 35 percent and changing the
income tax rate to 21 percent from 35 percent and changing the
taxation of our non-U.S. business activities. On that same date,
taxation of our non-U.S. business activities. On that same date,
the SEC issued Staff Accounting Bulletin No. 118, which specifies,
the SEC issued Staff Accounting Bulletin No. 118, which specifies,
among other things, that reasonable estimates of the income tax
among other things, that reasonable estimates of the income tax
effects of the Tax Act should be used, if determinable. We have
effects of the Tax Act should be used, if determinable. We have
accounted for the effects of the Tax Act using reasonable
accounted for the effects of the Tax Act using reasonable
estimates based on currently available information and our
estimates based on currently available information and our
interpretations thereof. This accounting may change due to,
interpretations thereof. This accounting may change due to,
among other things, changes in interpretations we have made and
among other things, changes in interpretations we have made and
the issuance of new tax or accounting guidance.
the issuance of new tax or accounting guidance.
See Note 19 – Income Taxes to the Consolidated Financial
See Note 19 – Income Taxes to the Consolidated Financial
Statements for additional information. For more information, see
Statements for additional information. For more information, see
Item 1A. Risk Factors of our 2017 Annual Report on Form 10-K.
Item 1A. Risk Factors of our 2017 Annual Report on Form 10-K.
Goodwill and Intangible Assets
Goodwill and Intangible Assets
The nature of and accounting for goodwill and intangible assets
The nature of and accounting for goodwill and intangible assets
are discussed in Note 1 – Summary of Significant Accounting
are discussed in Note 1 – Summary of Significant Accounting
Principles and Note 8 – Goodwill and Intangible Assets to the
Principles and Note 8 – Goodwill and Intangible Assets to the
Consolidated Financial Statements. Goodwill is reviewed for
Consolidated Financial Statements. Goodwill is reviewed for
potential impairment at the reporting unit level on an annual basis,
potential impairment at the reporting unit level on an annual basis,
which for the Corporation is as of June 30, and in interim periods
which for the Corporation is as of June 30, and in interim periods
if events or circumstances indicate a potential impairment. A
if events or circumstances indicate a potential impairment. A
reporting unit is an operating segment or one level below.
reporting unit is an operating segment or one level below.
Bank of America 2017 101
Bank of America 2017 101
We completed our annual goodwill impairment test as of
We completed our annual goodwill impairment test as of
June 30, 2017 for all of our reporting units that had goodwill. In
June 30, 2017 for all of our reporting units that had goodwill. In
performing that test, we compared the fair value of each reporting
performing that test, we compared the fair value of each reporting
unit to its estimated carrying value as measured by allocated
unit to its estimated carrying value as measured by allocated
equity, which includes goodwill. To determine fair value, we utilized
equity, which includes goodwill. To determine fair value, we utilized
a combination of valuation techniques, consistent with the market
a combination of valuation techniques, consistent with the market
approach and the income approach, and also utilized independent
approach and the income approach, and also utilized independent
valuation specialists.
valuation specialists.
Under the market approach we estimated the fair value of the
Under the market approach we estimated the fair value of the
individual reporting units utilizing various market multiples from
individual reporting units utilizing various market multiples from
comparable publicly-traded companies in industries similar to the
comparable publicly-traded companies in industries similar to the
reporting unit, including the application of a control premium of
reporting unit, including the application of a control premium of
30 percent, based upon observed comparable premiums paid for
30 percent, based upon observed comparable premiums paid for
change-in-control transactions for financial institutions.
change-in-control transactions for financial institutions.
Under the income approach, we estimated the fair value of
Under the income approach, we estimated the fair value of
the individual reporting units based on the net present value of
the individual reporting units based on the net present value of
estimated future cash flows, utilizing internal forecasts, and an
estimated future cash flows, utilizing internal forecasts, and an
appropriate terminal value. Discount rates used ranged from 8.9
appropriate terminal value. Discount rates used ranged from 8.9
to 13.3 percent and were derived from a capital asset pricing
to 13.3 percent and were derived from a capital asset pricing
model (i.e., cost of equity financing) that we believe adequately
model (i.e., cost of equity financing) that we believe adequately
reflects the risk and uncertainty specifically in our internally-
reflects the risk and uncertainty specifically in our internally-
developed forecasts, the financial markets generally and
developed forecasts, the financial markets generally and
industries similar to each of the reporting units. Cumulative
industries similar to each of the reporting units. Cumulative
average growth rates developed by management for revenues and
average growth rates developed by management for revenues and
expenses in each reporting unit ranged from zero to 5.1 percent.
expenses in each reporting unit ranged from zero to 5.1 percent.
A prolonged decrease in a particular assumption could
A prolonged decrease in a particular assumption could
eventually lead to the fair value of a reporting unit being less than
eventually lead to the fair value of a reporting unit being less than
its carrying value.
its carrying value.
Based on the results of the test, we determined that the fair
Based on the results of the test, we determined that the fair
value exceeded the carrying value for all reporting units that had
value exceeded the carrying value for all reporting units that had
goodwill, indicating there was no impairment.
goodwill, indicating there was no impairment.
Representations and Warranties Liability
Representations and Warranties Liability
The methodology used to estimate the liability for obligations
The methodology used to estimate the liability for obligations
under representations and warranties related to transfers of
under representations and warranties related to transfers of
residential mortgage loans considers, among other things, the
residential mortgage loans considers, among other things, the
repurchase experience implied in prior settlements, and adjusts
repurchase experience implied in prior settlements, and adjusts
the experience implied by those prior settlements based on the
the experience implied by those prior settlements based on the
characteristics of those trusts where the Corporation has a
characteristics of those trusts where the Corporation has a
continuing possibility of timely claims. The estimate of the liability
continuing possibility of timely claims. The estimate of the liability
for obligations under representations and warranties is based
for obligations under representations and warranties is based
upon currently available information, significant judgment, and a
upon currently available information, significant judgment, and a
number of factors, including those set forth above, that are subject
number of factors, including those set forth above, that are subject
to change. Changes to any one of these factors could significantly
to change. Changes to any one of these factors could significantly
impact the estimate of our liability.
impact the estimate of our liability.
The estimate of the liability for representations and warranties
The estimate of the liability for representations and warranties
is sensitive to future defaults, loss severity and the net repurchase
is sensitive to future defaults, loss severity and the net repurchase
rate. An assumed simultaneous increase or decrease of 10
rate. An assumed simultaneous increase or decrease of 10
percent in estimated future defaults, loss severity and the net
percent in estimated future defaults, loss severity and the net
repurchase rate would result in an increase of approximately $250
repurchase rate would result in an increase of approximately $250
million or decrease of approximately $200 million in the
million or decrease of approximately $200 million in the
representations and warranties liability as of December 31, 2017.
representations and warranties liability as of December 31, 2017.
These sensitivities are hypothetical and are intended to provide
These sensitivities are hypothetical and are intended to provide
an indication of the impact of a significant change in these key
an indication of the impact of a significant change in these key
assumptions on the representations and warranties liability. In
assumptions on the representations and warranties liability. In
reality, changes in one assumption may result in changes in other
reality, changes in one assumption may result in changes in other
assumptions, which may or may not counteract the sensitivity.
assumptions, which may or may not counteract the sensitivity.
For more information on representations and warranties
For more information on representations and warranties
exposure and the corresponding estimated range of possible loss,
exposure and the corresponding estimated range of possible loss,
see Off-Balance Sheet Arrangements and Contractual Obligations
see Off-Balance Sheet Arrangements and Contractual Obligations
– Representations and Warranties on page 56, as well as Note 7
– Representations and Warranties on page 56, as well as Note 7
– Representations and Warranties Obligations and Corporate
– Representations and Warranties Obligations and Corporate
Guarantees and Note 12 – Commitments and Contingencies to the
Guarantees and Note 12 – Commitments and Contingencies to the
Consolidated Financial Statements.
Consolidated Financial Statements.
102 Bank of America 2017
102 Bank of America 2017
2016 Compared to 2015
2016 Compared to 2015
The following discussion and analysis provide a comparison of our
The following discussion and analysis provide a comparison of our
results of operations for 2016 and 2015. This discussion should
results of operations for 2016 and 2015. This discussion should
be read in conjunction with the Consolidated Financial Statements
be read in conjunction with the Consolidated Financial Statements
and related Notes.
and related Notes.
Overview
Overview
Net Income
Net Income
Net income was $17.8 billion, or $1.49 per diluted share in 2016
Net income was $17.8 billion, or $1.49 per diluted share in 2016
compared to $15.9 billion, or $1.31 per diluted share in 2015.
compared to $15.9 billion, or $1.31 per diluted share in 2015.
The results for 2016 compared to 2015 were driven by higher net
The results for 2016 compared to 2015 were driven by higher net
interest income and lower noninterest expense, partially offset by
interest income and lower noninterest expense, partially offset by
a decline in noninterest income and higher provision for credit
a decline in noninterest income and higher provision for credit
losses.
losses.
Net Interest Income
Net Interest Income
Net interest income increased $2.1 billion to $41.1 billion in 2016
Net interest income increased $2.1 billion to $41.1 billion in 2016
compared to 2015. The net interest yield increased seven bps to
compared to 2015. The net interest yield increased seven bps to
2.21 percent for 2016. These increases were primarily driven by
2.21 percent for 2016. These increases were primarily driven by
growth in commercial loans, the impact of higher short-end interest
growth in commercial loans, the impact of higher short-end interest
rates and increased debt securities balances, as well as a charge
rates and increased debt securities balances, as well as a charge
of $612 million in 2015 related to the redemption of certain trust
of $612 million in 2015 related to the redemption of certain trust
preferred securities, partially offset by lower loan spreads and
preferred securities, partially offset by lower loan spreads and
market-related hedge ineffectiveness.
market-related hedge ineffectiveness.
Noninterest Income
Noninterest Income
Noninterest income decreased $1.4 billion to $42.6 billion in 2016
Noninterest income decreased $1.4 billion to $42.6 billion in 2016
compared to 2015. The following highlights the significant
compared to 2015. The following highlights the significant
changes.
changes.
Service charges increased $257 million primarily due to higher
Service charges increased $257 million primarily due to higher
treasury-related revenue.
treasury-related revenue.
Investment and brokerage services income decreased $592
Investment and brokerage services income decreased $592
million driven by lower transactional revenue, and decreased
million driven by lower transactional revenue, and decreased
asset management fees due to lower market valuations,
asset management fees due to lower market valuations,
partially offset by the impact of higher long-term AUM flows.
partially offset by the impact of higher long-term AUM flows.
Investment banking income decreased $331 million driven by
Investment banking income decreased $331 million driven by
lower equity issuance fees and advisory fees due to a decline
lower equity issuance fees and advisory fees due to a decline
in market fee pools.
in market fee pools.
Trading account profits increased $429 million due to a
Trading account profits increased $429 million due to a
stronger performance across credit products led by mortgages,
stronger performance across credit products led by mortgages,
and continued strength in rates products, partially offset by
and continued strength in rates products, partially offset by
reduced client activity in equities.
reduced client activity in equities.
Mortgage banking income decreased $511 million primarily
Mortgage banking income decreased $511 million primarily
driven by a decline
income, higher
income, higher
driven by a decline
representations and warranties provision and lower servicing
representations and warranties provision and lower servicing
income, partially offset by more favorable MSR results, net of
income, partially offset by more favorable MSR results, net of
the related hedge performance.
the related hedge performance.
Gains on sales of debt securities decreased $648 million
Gains on sales of debt securities decreased $648 million
primarily driven by lower sales volume.
primarily driven by lower sales volume.
in production
in production
Other income increased $102 million primarily due to lower
Other income increased $102 million primarily due to lower
DVA losses on structured liabilities, improved results from
DVA losses on structured liabilities, improved results from
loans and the related hedging activities in the fair value option
loans and the related hedging activities in the fair value option
portfolio and lower payment protection insurance expense,
portfolio and lower payment protection insurance expense,
partially offset by lower gains on asset sales. DVA losses
partially offset by lower gains on asset sales. DVA losses
related to structured liabilities were $97 million in 2015
related to structured liabilities were $97 million in 2015
compared to $633 million in 2015.
compared to $633 million in 2015.
Provision for Credit Losses
Provision for Credit Losses
The provision for credit losses increased $436 million to $3.6
The provision for credit losses increased $436 million to $3.6
billion for 2016 compared to 2015. The provision for credit losses
billion for 2016 compared to 2015. The provision for credit losses
was $224 million lower than net charge-offs for 2016, resulting in
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 in the allowance for credit losses. This compared to
a reduction of $1.2 billion in the allowance for credit losses in
a reduction of $1.2 billion in the allowance for credit losses in
2015.
2015.
The provision for credit losses for the consumer portfolio
The provision for credit losses for the consumer portfolio
increased $360 million to $2.6 billion in 2016 compared to 2015
increased $360 million to $2.6 billion in 2016 compared to 2015
due to a slower pace of credit quality improvement. Included in
due to a slower pace of credit quality improvement. Included in
the provision is a benefit of $45 million related to the PCI loan
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.
portfolio for 2016 compared to a benefit of $40 million in 2015.
The provision for credit losses for the commercial portfolio,
The provision for credit losses for the commercial portfolio,
including unfunded lending commitments, increased $76 million
including unfunded lending commitments, increased $76 million
to $1.0 billion in 2016 compared to 2015 driven by an increase
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
in energy sector reserves in the first half of 2016 for the higher
risk energy sub-sectors. While we experienced some deterioration
risk energy sub-sectors. While we experienced some deterioration
in the energy sector in 2016, oil prices stabilized which contributed
in the energy sector in 2016, oil prices stabilized which contributed
to a modest improvement in energy-related exposure by year end.
to a modest improvement in energy-related exposure by year end.
Noninterest Expense
Noninterest Expense
Noninterest expense decreased $2.5 billion to $55.1 billion for
Noninterest expense decreased $2.5 billion to $55.1 billion for
2016 compared to 2015. Personnel expense decreased $1.0
2016 compared to 2015. Personnel expense decreased $1.0
billion as we continued to manage headcount and achieve cost
billion as we continued to manage headcount and achieve cost
savings. Continued expense management, as well as the
savings. Continued expense management, as well as the
expiration of advisor retention awards, more than offset the
expiration of advisor retention awards, more than offset the
increases in client-facing professionals. Professional fees
increases in client-facing professionals. Professional fees
decreased $293 million primarily due to lower legal fees. Other
decreased $293 million primarily due to lower legal fees. Other
general operating expense decreased $655 million primarily driven
general operating expense decreased $655 million primarily driven
by lower foreclosed properties expense and lower brokerage fees,
by lower foreclosed properties expense and lower brokerage fees,
partially offset by higher FDIC expense.
partially offset by higher FDIC expense.
Income Tax Expense
Income Tax Expense
The income tax expense was $7.2 billion on pretax income of
The income tax expense was $7.2 billion on pretax income of
$25.0 billion in 2016 compared to tax expense of $6.3 billion on
$25.0 billion in 2016 compared to tax expense of $6.3 billion on
pre-tax income of $22.2 billion in 2015. The effective tax rate for
pre-tax income of $22.2 billion in 2015. The effective tax rate for
2016 was 28.8 percent and was driven by our recurring tax
2016 was 28.8 percent and was driven by our recurring tax
preferences and net tax benefits related to various tax audit
preferences and net tax benefits related to various tax audit
matters, partially offset by a $348 million charge for the impact
matters, partially offset by a $348 million charge for the impact
of the U.K. tax law changes discussed below. The effective tax
of the U.K. tax law changes discussed below. The effective tax
rate for 2015 was 28.3 percent and was driven by our recurring
rate for 2015 was 28.3 percent and was driven by our recurring
tax preferences and by tax benefits related to certain non-U.S.
tax preferences and by tax benefits related to certain non-U.S.
restructurings, partially offset by a charge for the impact of the
restructurings, partially offset by a charge for the impact of the
U.K. tax law change enacted in 2015. The charge recorded in both
U.K. tax law change enacted in 2015. The charge recorded in both
years for the reduction in the U.K. corporate income tax rate was
years for the reduction in the U.K. corporate income tax rate was
the result of remeasuring our U.K. net deferred tax assets using
the result of remeasuring our U.K. net deferred tax assets using
the lower tax rate.
the lower tax rate.
Business Segment Operations
Business Segment Operations
Consumer Banking
Consumer Banking
Net income for Consumer Banking increased $523 million to $7.2
Net income for Consumer Banking increased $523 million to $7.2
billion in 2016 compared to 2015 primarily driven by lower
billion in 2016 compared to 2015 primarily driven by lower
noninterest expense and higher revenue, partially offset by higher
noninterest expense and higher revenue, partially offset by higher
provision for credit losses. Net interest income increased $862
provision for credit losses. Net interest income increased $862
million to $21.3 billion primarily due to the beneficial impact of an
million to $21.3 billion primarily due to the beneficial impact of an
increase in investable assets as a result of higher deposits.
increase in investable assets as a result of higher deposits.
Noninterest income decreased $650 million to $10.4 billion due
Noninterest income decreased $650 million to $10.4 billion due
to lower mortgage banking income and gains in 2015 on certain
to lower mortgage banking income and gains in 2015 on certain
divestitures. The provision for credit losses increased $369 million
divestitures. The provision for credit losses increased $369 million
to $2.7 billion in 2016 primarily driven by a slower pace of
to $2.7 billion in 2016 primarily driven by a slower pace of
improvement in the credit card portfolio. Noninterest expense
improvement in the credit card portfolio. Noninterest expense
decreased $1.1 billion to $17.7 billion driven by improved
decreased $1.1 billion to $17.7 billion driven by improved
operating efficiencies and lower fraud costs, partially offset by
operating efficiencies and lower fraud costs, partially offset by
higher FDIC expense.
higher FDIC expense.
Global Wealth & Investment Management
Global Wealth & Investment Management
Net income for GWIM increased $205 million to $2.8 billion in
Net income for GWIM increased $205 million to $2.8 billion in
2016 compared to 2015 driven by a decrease in noninterest
2016 compared to 2015 driven by a decrease in noninterest
expense, partially offset by a decrease in revenue. Net interest
expense, partially offset by a decrease in revenue. Net interest
income increased $232 million to $5.8 billion driven by the impact
income increased $232 million to $5.8 billion driven by the impact
of growth in loan and deposit balances. Noninterest income, which
of growth in loan and deposit balances. Noninterest income, which
primarily includes investment and brokerage services income,
primarily includes investment and brokerage services income,
decreased $616 million to $11.9 billion. The decline in noninterest
decreased $616 million to $11.9 billion. The decline in noninterest
income was driven by lower transactional revenue and decreased
income was driven by lower transactional revenue and decreased
asset management fees primarily due to lower market valuations
asset management fees primarily due to lower market valuations
in 2016, partially offset by the impact of long-term AUM flows.
in 2016, partially offset by the impact of long-term AUM flows.
Noninterest expense decreased $763 million to $13.2 billion
Noninterest expense decreased $763 million to $13.2 billion
primarily due to the expiration of advisor retention awards, lower
primarily due to the expiration of advisor retention awards, lower
revenue-related incentives and lower operating and support costs,
revenue-related incentives and lower operating and support costs,
partially offset by higher FDIC expense.
partially offset by higher FDIC expense.
Global Banking
Global Banking
Net income for Global Banking increased $390 million to $5.7
Net income for Global Banking increased $390 million to $5.7
billion in 2016 compared to 2015 as higher revenue more than
billion in 2016 compared to 2015 as higher revenue more than
offset an increase in the provision for credit losses. Revenue
offset an increase in the provision for credit losses. Revenue
increased $824 million to $18.4 billion in 2016 compared to 2015
increased $824 million to $18.4 billion in 2016 compared to 2015
driven by higher net interest income, which increased $227 million
driven by higher net interest income, which increased $227 million
to $9.5 billion driven by the impact of growth in loans and leases
to $9.5 billion driven by the impact of growth in loans and leases
and higher deposits. Noninterest income increased $597 million
and higher deposits. Noninterest income increased $597 million
to $9.0 billion primarily due to the impact from loans and the
to $9.0 billion primarily due to the impact from loans and the
related loan hedging activities in the fair value option portfolio and
related loan hedging activities in the fair value option portfolio and
higher treasury-related revenues, partially offset by lower
higher treasury-related revenues, partially offset by lower
investment banking fees. The provision for credit losses increased
investment banking fees. The provision for credit losses increased
$197 million to $883 million in 2016 driven by increases in energy-
$197 million to $883 million in 2016 driven by increases in energy-
related reserves as well as loan growth. Noninterest expense of
related reserves as well as loan growth. Noninterest expense of
$8.5 billion remained relatively unchanged in 2016 as investments
$8.5 billion remained relatively unchanged in 2016 as investments
in client-facing professionals in Commercial and Business
in client-facing professionals in Commercial and Business
Banking, higher severance costs and an increase in FDIC expense
Banking, higher severance costs and an increase in FDIC expense
were largely offset by lower operating and support costs.
were largely offset by lower operating and support costs.
Global Markets
Global Markets
Net income for Global Markets increased $1.4 billion to $3.8 billion
Net income for Global Markets increased $1.4 billion to $3.8 billion
in 2016 compared to 2015. Net DVA losses were $238 million
in 2016 compared to 2015. Net DVA losses were $238 million
compared to losses of $786 million in 2015. Excluding net DVA,
compared to losses of $786 million in 2015. Excluding net DVA,
net income increased $1.1 billion to $4.0 billion in 2016 compared
net income increased $1.1 billion to $4.0 billion in 2016 compared
to 2015 primarily driven by higher sales and trading revenue and
to 2015 primarily driven by higher sales and trading revenue and
lower noninterest expense, partially offset by lower investment
lower noninterest expense, partially offset by lower investment
banking fees and investment and brokerage services revenue.
banking fees and investment and brokerage services revenue.
Sales and trading revenue, excluding net DVA, increased $638
Sales and trading revenue, excluding net DVA, increased $638
million primarily due to a stronger performance globally across
million primarily due to a stronger performance globally across
credit products led by mortgages and continued strength in rates
credit products led by mortgages and continued strength in rates
products. The increase was partially offset by challenging credit
products. The increase was partially offset by challenging credit
market conditions in early 2016 as well as reduced client activity
market conditions in early 2016 as well as reduced client activity
in equities, most notably in Asia, and a less favorable trading
in equities, most notably in Asia, and a less favorable trading
for equity derivatives. Noninterest expense
environment
environment
for equity derivatives. Noninterest expense
decreased $1.2 billion to $10.2 billion primarily due to lower
decreased $1.2 billion to $10.2 billion primarily due to lower
litigation expense and lower revenue-related expenses.
litigation expense and lower revenue-related expenses.
All Other
All Other
The net loss for All Other increased $601 million to $1.7 billion
The net loss for All Other increased $601 million to $1.7 billion
in 2016 primarily due to lower gains on the sale of debt securities,
in 2016 primarily due to lower gains on the sale of debt securities,
lower mortgage banking income, lower gains on sales of consumer
lower mortgage banking income, lower gains on sales of consumer
real estate loans and an increase in noninterest expense, partially
real estate loans and an increase in noninterest expense, partially
offset by an improvement in the provision for credit losses.
offset by an improvement in the provision for credit losses.
Mortgage banking income decreased $133 million primarily due
Mortgage banking income decreased $133 million primarily due
to higher representations and warranties provision, partially offset
to higher representations and warranties provision, partially offset
by more favorable net MSR results. Gains on the sales of loans
by more favorable net MSR results. Gains on the sales of loans
were $232 million in 2016 compared to gains of $1.0 billion in
were $232 million in 2016 compared to gains of $1.0 billion in
2015. The benefit in the provision for credit losses improved $79
2015. The benefit in the provision for credit losses improved $79
million to a benefit of $100 million in 2016 primarily driven by
million to a benefit of $100 million in 2016 primarily driven by
lower loan and lease balances from continued run-off of non-core
lower loan and lease balances from continued run-off of non-core
consumer real estate loans. Noninterest expense increased $486
consumer real estate loans. Noninterest expense increased $486
million to $5.6 billion driven by litigation expense.
million to $5.6 billion driven by litigation expense.
Bank of America 2017 103
Bank of America 2017 103
Non-GAAP Reconciliations
Tables 54 and 55 provide reconciliations of certain non-GAAP financial measures to GAAP financial measures.
Table 54 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
2017
2016
2015
2014
2013
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 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
$
$
$
$
$
$
44,667
925
45,592
87,352
925
88,277
10,981
925
11,906
$
$
$
$
$
$
41,096
900
41,996
83,701
900
84,601
7,199
900
8,099
$
$
$
$
$
$
38,958
889
39,847
82,965
889
83,854
6,277
889
7,166
$
$
$
$
$
$
40,779
851
41,630
85,894
851
86,745
2,443
851
3,294
$
$
$
$
$
$
40,719
859
41,578
87,502
859
88,361
4,194
859
5,053
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
$ 247,101
(69,286)
(2,652)
1,463
$ 176,626
$ 241,187
(69,750)
(3,382)
1,644
$ 169,699
$ 229,576
(69,772)
(4,201)
1,852
$ 157,455
$ 222,907
(69,809)
(5,109)
2,090
$ 150,079
$ 218,340
(69,910)
(6,132)
2,328
$ 144,626
$ 271,289
(69,286)
(2,652)
1,463
$ 200,814
$ 265,843
(69,750)
(3,382)
1,644
$ 194,355
$ 251,384
(69,772)
(4,201)
1,852
$ 179,263
$ 238,317
(69,809)
(5,109)
2,090
$ 165,489
$ 233,819
(69,910)
(6,132)
2,328
$ 160,105
$ 244,823
(68,951)
(2,312)
943
$ 174,503
$ 240,975
(69,744)
(2,989)
1,545
$ 169,787
$ 233,343
(69,761)
(3,768)
1,716
$ 161,530
$ 224,167
(69,777)
(4,612)
1,960
$ 151,738
$ 219,124
(69,844)
(5,574)
2,166
$ 145,872
$ 267,146
(68,951)
(2,312)
943
$ 196,826
$ 266,195
(69,744)
(2,989)
1,545
$ 195,007
$ 255,615
(69,761)
(3,768)
1,716
$ 183,802
$ 243,476
(69,777)
(4,612)
1,960
$ 171,047
$ 232,475
(69,844)
(5,574)
2,166
$ 159,223
$2,281,234
(68,951)
(2,312)
943
$2,210,914
$2,188,067
(69,744)
(2,989)
1,545
$2,116,879
$2,144,606
(69,761)
(3,768)
1,716
$2,072,793
$2,104,539
(69,777)
(4,612)
1,960
$2,032,110
$2,102,064
(69,844)
(5,574)
2,166
$2,028,812
(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 43.
104 Bank of America 2017
Table 55 Quarterly Reconciliations to GAAP Financial Measures (1)
(Dollars in millions)
Fourth
Third
Second
First
Fourth
Third
Second
First
2017 Quarters
2016 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
$
$
11,462
251
11,713
$
$
11,161
240
11,401
$
$
10,986
237
11,223
$
$
11,058
197
11,255
$
$
10,292
234
10,526
$
$
10,201
228
10,429
$
$
10,118
223
10,341
$
$
10,485
215
10,700
Total revenue, net of interest expense
Fully taxable-equivalent adjustment
$
20,436
$
21,839
$
22,829
$
22,248
$
19,990
$
21,635
$
21,286
$
20,790
251
240
237
197
234
228
223
215
Total revenue, net of interest expense on a fully taxable-
equivalent basis
$
20,687
$
22,079
$
23,066
$
22,445
$
20,224
$
21,863
$
21,509
$
21,005
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
$
$
3,796
251
4,047
$
$
2,187
240
2,427
$
$
3,015
237
3,252
$
$
1,983
197
2,180
$
$
1,268
234
1,502
$
$
2,257
228
2,485
$
$
1,943
223
2,166
$
$
1,731
215
1,946
$ 250,838
$ 249,214
$ 245,756
$ 242,480
$ 244,519
$ 243,220
$ 240,078
$ 236,871
(68,954)
(68,969)
(69,489)
(69,744)
(69,745)
(69,744)
(69,751)
(69,761)
(2,399)
1,344
(2,549)
1,465
(2,743)
1,506
(2,923)
1,539
(3,091)
1,580
(3,276)
1,628
(3,480)
1,662
(3,687)
1,707
Tangible common shareholders’ equity
$ 180,829
$ 179,161
$ 175,030
$ 171,352
$ 173,263
$ 171,828
$ 168,509
$ 165,130
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
$ 273,162
$ 273,238
$ 270,977
$ 267,700
$ 269,739
$ 268,440
$ 265,056
$ 260,065
(68,954)
(68,969)
(69,489)
(69,744)
(69,745)
(69,744)
(69,751)
(69,761)
(2,399)
1,344
(2,549)
1,465
(2,743)
1,506
(2,923)
1,539
(3,091)
1,580
(3,276)
1,628
(3,480)
1,662
(3,687)
1,707
$ 203,153
$ 203,185
$ 200,251
$ 196,572
$ 198,483
$ 197,048
$ 193,487
$ 188,324
Common shareholders’ equity
$ 244,823
$ 249,646
$ 245,440
$ 242,770
$ 240,975
$ 244,379
$ 241,884
$ 238,501
Goodwill
Intangible assets (excluding MSRs)
Related deferred tax liabilities
(68,951)
(2,312)
943
(68,968)
(68,969)
(69,744)
(69,744)
(69,744)
(69,744)
(69,761)
(2,459)
1,435
(2,610)
1,471
(2,827)
1,513
(2,989)
1,545
(3,168)
1,588
(3,352)
1,637
(3,578)
1,667
Tangible common shareholders’ equity
$ 174,503
$ 179,654
$ 175,332
$ 171,712
$ 169,787
$ 173,055
$ 170,425
$ 166,829
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
$ 267,146
$ 271,969
$ 270,660
$ 267,990
$ 266,195
$ 269,600
$ 267,104
$ 262,843
(68,951)
(2,312)
943
(68,968)
(68,969)
(69,744)
(69,744)
(69,744)
(69,744)
(69,761)
(2,459)
1,435
(2,610)
1,471
(2,827)
1,513
(2,989)
1,545
(3,168)
1,588
(3,352)
1,637
(3,578)
1,667
$ 196,826
$ 201,977
$ 200,552
$ 196,932
$ 195,007
$ 198,276
$ 195,645
$ 191,171
Assets
Goodwill
Intangible assets (excluding MSRs)
Related deferred tax liabilities
Tangible assets
$ 2,281,234
$ 2,284,174
$ 2,254,714
$ 2,247,794
$ 2,188,067
$ 2,195,588
$ 2,187,149
$ 2,185,818
(68,951)
(2,312)
943
(68,968)
(68,969)
(69,744)
(69,744)
(69,744)
(69,744)
(69,761)
(2,459)
1,435
(2,610)
1,471
(2,827)
1,513
(2,989)
1,545
(3,168)
1,588
(3,352)
1,637
(3,578)
1,667
$ 2,210,914
$ 2,214,182
$ 2,184,606
$ 2,176,736
$ 2,116,879
$ 2,124,264
$ 2,115,690
$ 2,114,146
(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 43.
Bank of America 2017 105
Statistical Tables
Statistical Tables
Table of Contents
Table of Contents
Table I – Outstanding Loans and Leases
Table I – Outstanding Loans and Leases
Table II – Nonperforming Loans, Leases and Foreclosed Properties
Table II – Nonperforming Loans, Leases and Foreclosed Properties
Table III – Accruing Loans and Leases Past Due 90 Days or More
Table III – Accruing Loans and Leases Past Due 90 Days or More
Table IV – Allowance for Credit Losses
Table IV – Allowance for Credit Losses
Table V – Allocation of the Allowance for Credit Losses by Product Type
Table V – Allocation of the Allowance for Credit Losses by Product Type
Table VI – Selected Loan Maturity Data
Table VI – Selected Loan Maturity Data
Page
Page
107
107
108
108
109
109
110
110
112
112
112
112
106 Bank of America 2017
106 Bank of America 2017
Table I 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)
Non-U.S. commercial
Commercial real estate (6)
Commercial lease financing
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
2017
2016
December 31
2015
2014
2013
$
$
203,811
57,744
96,285
—
93,830
2,678
454,348
928
455,276
298,485
97,792
58,298
22,116
476,691
4,782
481,473
—
936,749
$
$
191,797
66,443
92,278
9,214
94,089
2,499
456,320
1,051
457,371
283,365
89,397
57,355
22,375
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
91,549
57,199
21,352
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
80,083
47,682
19,579
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
89,462
47,893
25,199
388,405
7,878
396,283
—
928,233
(1)
(2)
(3)
Includes pay option loans of $1.4 billion, $1.8 billion, $2.3 billion, $3.2 billion and $4.4 billion at December 31, 2017, 2016, 2015, 2014 and 2013, respectively. The Corporation no longer originates
pay option loans.
Includes auto and specialty lending loans of $49.9 billion, $48.9 billion, $42.6 billion, $37.7 billion and $38.5 billion, unsecured consumer lending loans of $469 million, $585 million, $886 million,
$1.5 billion and $2.7 billion, U.S. securities-based lending loans of $39.8 billion, $40.1 billion, $39.8 billion, $35.8 billion and $31.2 billion, non-U.S. consumer loans of $3.0 billion, $3.0 billion,
$3.9 billion, $4.0 billion and $4.7 billion, student loans of $0, $497 million, $564 million, $632 million and $4.1 billion, and other consumer loans of $684 million, $1.1 billion, $1.0 billion, $761
million and $1.0 billion at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
Includes consumer finance loans of $0, $465 million, $564 million, $676 million and $1.2 billion, consumer leases of $2.5 billion, $1.9 billion, $1.4 billion, $1.0 billion and $606 million, and
consumer overdrafts of $163 million, $157 million, $146 million, $162 million and $176 million at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
(4) Consumer loans accounted for under the fair value option includes residential mortgage loans of $567 million, $710 million, $1.6 billion, $1.9 billion and $2.0 billion, and home equity loans of $361
million, $341 million, $250 million, $196 million and $147 million at December 31, 2017, 2016, 2015, 2014 and 2013, respectively. Commercial loans accounted for under the fair value option
includes U.S. commercial loans of $2.6 billion, $2.9 billion, $2.3 billion, $1.9 billion and $1.5 billion, and non-U.S. commercial loans of $2.2 billion, $3.1 billion, $2.8 billion, $4.7 billion and $6.4
billion at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
Includes U.S. small business commercial loans, including card-related products, of $13.6 billion, $13.0 billion, $12.9 billion, $13.3 billion and $13.3 billion at December 31, 2017, 2016, 2015,
2014 and 2013, respectively.
Includes U.S. commercial real estate loans of $54.8 billion, $54.3 billion, $53.6 billion, $45.2 billion and $46.3 billion, and non-U.S. commercial real estate loans of $3.5 billion, $3.1 billion, $3.5
billion, $2.5 billion and $1.6 billion at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
(5)
(6)
(7) Represents non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet.
Bank of America 2017 107
Table II Nonperforming Loans, Leases and Foreclosed Properties (1)
Table II Nonperforming Loans, Leases and Foreclosed Properties (1)
2017
(Dollars in millions)
2016
December 31
2015
2014
2013
$
$
Consumer
Consumer
Commercial
Total consumer (2)
Residential mortgage
(Dollars in millions)
Home equity
Direct/Indirect consumer
Residential mortgage
Other consumer
Home equity
Direct/Indirect consumer
Other consumer
U.S. commercial
Total consumer (2)
Non-U.S. commercial
Commercial real estate
U.S. commercial
Commercial lease financing
Non-U.S. commercial
Commercial real estate
U.S. small business commercial
Commercial lease financing
Commercial
Total commercial (3)
Total nonperforming loans and leases
U.S. small business commercial
Foreclosed properties
Total commercial (3)
Total nonperforming loans, leases and foreclosed properties
Total nonperforming loans and leases
2017
2016
2014
2013
$
$
$
$
$
$
2,476
2,644
46
2,476
—
2,644
5,166
46
—
814
5,166
299
112
814
24
299
1,249
112
55
24
1,304
1,249
6,470
55
288
1,304
6,758
6,470
288
6,758
3,056
2,918
28
3,056
2
2,918
6,004
28
2
1,256
6,004
279
72
1,256
36
279
1,643
72
60
36
1,703
1,643
7,707
60
377
1,703
8,084
7,707
377
8,084
$
December 31
$
4,803
2015
3,337
24
4,803
1
3,337
8,165
24
1
867
8,165
158
93
867
12
158
1,130
93
82
12
1,212
1,130
9,377
82
459
1,212
9,836
9,377
459
9,836
$
$
6,889
3,901
28
6,889
1
3,901
10,819
28
1
701
10,819
1
321
701
3
1
1,026
321
87
3
1,113
1,026
11,932
87
697
1,113
12,629
11,932
697
12,629
11,712
4,075
35
11,712
18
4,075
15,840
35
18
819
15,840
64
322
819
16
64
1,221
322
88
16
1,309
1,221
17,149
88
623
1,309
17,772
17,149
623
17,772
Foreclosed properties
Total nonperforming loans, leases and foreclosed properties
$
(1) Balances do not include PCI loans even though the customer may be contractually past due. PCI loans are 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 $801 million, $1.2
$
billion, $1.4 billion, $1.1 billion and $1.4 billion at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
In 2017, $867 million in interest income was estimated to be contractually due on $5.2 billion of consumer loans and leases classified as nonperforming at December 31, 2017, as presented in
(2)
(1) Balances do not include PCI loans even though the customer may be contractually past due. PCI loans are recorded at fair value upon acquisition and accrete interest income over the remaining life
the table above, plus $10.1 billion of TDRs classified as performing at December 31, 2017. Approximately $578 million of the estimated $867 million in contractual interest was received and
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 $801 million, $1.2
included in interest income for 2017.
billion, $1.4 billion, $1.1 billion and $1.4 billion at December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
In 2017, $90 million in interest income was estimated to be contractually due on $1.3 billion of commercial loans and leases classified as nonperforming at December 31, 2017, as presented in
In 2017, $867 million in interest income was estimated to be contractually due on $5.2 billion of consumer loans and leases classified as nonperforming at December 31, 2017, as presented in
the table above, plus $1.1 billion of TDRs classified as performing at December 31, 2017. Approximately $58 million of the estimated $90 million in contractual interest was received and included
the table above, plus $10.1 billion of TDRs classified as performing at December 31, 2017. Approximately $578 million of the estimated $867 million in contractual interest was received and
in interest income for 2017.
included in interest income for 2017.
In 2017, $90 million in interest income was estimated to be contractually due on $1.3 billion of commercial loans and leases classified as nonperforming at December 31, 2017, as presented in
the table above, plus $1.1 billion of TDRs classified as performing at December 31, 2017. Approximately $58 million of the estimated $90 million in contractual interest was received and included
in interest income for 2017.
$
$
$
$
$
$
(3)
(2)
(3)
108 Bank of America 2017
108 Bank of America 2017
Table III Accruing Loans and Leases Past Due 90 Days or More (1)
Table III Accruing Loans and Leases Past Due 90 Days or More (1)
2017
(Dollars in millions)
2016
December 31
2015
2014
2013
16,961
1,053
131
16,961
408
1,053
2
131
18,555
408
2
47
18,555
17
21
47
41
17
126
21
78
41
204
126
18,759
78
204
18,759
11,407
866
95
11,407
64
866
1
95
12,433
64
1
110
12,433
—
3
110
40
—
153
3
67
40
220
153
12,653
67
220
12,653
2017
2016
2014
2013
$
$
$
$
$
$
Consumer
Consumer
Commercial
Residential mortgage (2)
(Dollars in millions)
U.S. credit card
Non-U.S. credit card
Residential mortgage (2)
Direct/Indirect consumer
U.S. credit card
Other consumer
Non-U.S. credit card
Total consumer
Direct/Indirect consumer
Other consumer
U.S. commercial
Total consumer
Non-U.S. commercial
Commercial real estate
U.S. commercial
Commercial lease financing
Non-U.S. commercial
Commercial real estate
U.S. small business commercial
Commercial lease financing
Commercial
Total commercial
Total accruing loans and leases past due 90 days or more (3)
fair value option as referenced in footnote 3.
Total commercial
Total accruing loans and leases past due 90 days or more (3)
$
$
3,230
900
—
3,230
40
900
—
—
4,170
40
—
144
4,170
3
4
144
19
3
170
4
75
19
245
170
4,415
75
245
4,415
4,793
782
66
4,793
34
782
4
66
5,679
34
4
106
5,679
5
7
106
19
5
137
7
71
19
208
137
5,887
71
208
5,887
$
December 31
$
7,150
2015
789
76
7,150
39
789
3
76
8,057
39
3
113
8,057
1
3
113
15
1
132
3
61
15
193
132
8,250
61
193
8,250
U.S. small business commercial
$
(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
$
$
$
$
$
(2) Balances are fully-insured loans.
(3) Balances exclude loans accounted for under the fair value option. At December 31, 2017, 2016, 2015, 2014 and 2013, $2 million, $1 million, $1 million, $5 million and $8 million of loans accounted
(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
$
$
$
$
for under the fair value option were past due 90 days or more and still accruing interest.
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, 2017, 2016, 2015, 2014 and 2013, $2 million, $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.
Bank of America 2017 109
Bank of America 2017 109
Table IV 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 (1)
Direct/Indirect consumer
Other consumer
Total consumer charge-offs
U.S. commercial (2)
Non-U.S. commercial
Commercial real estate
Commercial lease financing
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 (3)
Non-U.S. commercial
Commercial real estate
Commercial lease financing
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 (4)
Total allowance for loan and lease losses, December 31
Less: Allowance included in assets of business held for sale (5)
Allowance for loan and lease losses, December 31
Reserve for unfunded lending commitments, January 1
Provision for unfunded lending commitments
Other (4)
Reserve for unfunded lending commitments, December 31
Allowance for credit losses, December 31
2017
2016
2015
2014
2013
$
11,237
$
12,234
$
14,419
$
17,428
$
24,179
(188)
(582)
(2,968)
(103)
(487)
(216)
(4,544)
(589)
(446)
(24)
(16)
(1,075)
(5,619)
(403)
(752)
(2,691)
(238)
(392)
(232)
(4,708)
(567)
(133)
(10)
(30)
(740)
(5,448)
(866)
(975)
(2,738)
(275)
(383)
(224)
(5,461)
(536)
(59)
(30)
(19)
(644)
(6,105)
(855)
(1,364)
(3,068)
(357)
(456)
(268)
(6,368)
(584)
(35)
(29)
(10)
(658)
(7,026)
(1,508)
(2,258)
(4,004)
(508)
(710)
(273)
(9,261)
(774)
(79)
(251)
(4)
(1,108)
(10,369)
288
369
455
28
276
50
1,466
142
6
15
11
174
1,640
(3,979)
(207)
3,381
(39)
10,393
—
10,393
762
15
—
777
11,170
272
347
422
63
258
27
1,389
175
13
41
9
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
5
35
10
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
1
112
19
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
34
102
29
452
2,472
(7,897)
(2,336)
3,574
(92)
17,428
—
17,428
513
(18)
(11)
484
17,912
$
(1) Represents net charge-offs related to the non-U.S. credit card loan portfolio, which was included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. In
$
$
$
$
2017, the Corporation sold its non-U.S. consumer credit card business.
Includes U.S. small business commercial charge-offs of $258 million, $253 million, $282 million, $345 million and $457 million in 2017, 2016, 2015, 2014 and 2013, respectively.
Includes U.S. small business commercial recoveries of $43 million, $45 million, $57 million, $63 million and $98 million in 2017, 2016, 2015, 2014 and 2013, respectively.
(2)
(3)
(4) Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments, transfers to held-for-sale and certain other reclassifications.
(5) Represents allowance related to the non-U.S. credit card loan portfolio, which was sold in 2017.
110 Bank of America 2017
Table IV Allowance for Credit Losses (continued)
(Dollars in millions)
Loan and allowance ratios (6):
Loans and leases outstanding at December 31 (7)
Allowance for loan and lease losses as a percentage of total loans and leases
outstanding at December 31 (7)
Consumer allowance for loan and lease losses as a percentage of total consumer loans
and leases outstanding at December 31 (8)
Commercial allowance for loan and lease losses as a percentage of total commercial
loans and leases outstanding at December 31 (9)
Average loans and leases outstanding (7)
Net charge-offs as a percentage of average loans and leases outstanding (7, 10)
Net charge-offs and PCI write-offs as a percentage of average loans and leases
outstanding (7)
Allowance for loan and lease losses as a percentage of total nonperforming loans and
leases at December 31 (7, 11)
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (10)
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 (12)
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 (7, 12)
Loan and allowance ratios excluding PCI loans and the related valuation allowance (6, 13):
Allowance for loan and lease losses as a percentage of total loans and leases
outstanding at December 31 (7)
Consumer allowance for loan and lease losses as a percentage of total consumer loans
and leases outstanding at December 31 (8)
Net charge-offs as a percentage of average loans and leases outstanding (7)
Allowance for loan and lease losses as a percentage of total nonperforming loans and
leases at December 31 (7, 11)
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs
2017
2016
2015
2014
2013
$ 931,039
$ 908,812
$ 890,045
$ 867,422
$ 918,191
1.12%
1.26%
1.37%
1.66%
1.90%
1.18
1.05
1.36
1.16
1.63
1.11
2.05
1.16
2.53
1.03
$ 911,988
$ 892,255
$ 869,065
$ 888,804
$ 909,127
0.44%
0.43%
0.50%
0.49%
0.87%
0.46
161
2.61
2.48
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
$
3,971
$
3,951
$
4,518
$
5,944
$
7,680
99%
98%
82%
71%
57%
1.10%
1.24%
1.31%
1.51%
1.67%
1.15
0.44
156
2.54
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
(6) Loan and allowance ratios for 2016 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 were included in
assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. See footnote 1 for more information.
(7) Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $5.7 billion, $7.1 billion, $6.9 billion, $8.7 billion and $10.0 billion at December
31, 2017, 2016, 2015, 2014 and 2013, respectively. Average loans accounted for under the fair value option were $6.7 billion, $8.2 billion, $7.7 billion, $9.9 billion and $9.5 billion in 2017, 2016,
2015, 2014 and 2013, respectively.
(8) Excludes consumer loans accounted for under the fair value option of $928 million, $1.1 billion, $1.9 billion, $2.1 billion and $2.2 billion at December 31, 2017, 2016, 2015, 2014 and 2013,
respectively.
(9) Excludes commercial loans accounted for under the fair value option of $4.8 billion, $6.0 billion, $5.1 billion, $6.6 billion and $7.9 billion at December 31, 2017, 2016, 2015, 2014 and 2013,
respectively.
(10) Net charge-offs exclude $207 million, $340 million, $808 million, $810 million and $2.3 billion of write-offs in the PCI loan portfolio in 2017, 2016, 2015, 2014 and 2013 respectively. For more
information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 76.
(11) For more information on our definition of nonperforming loans, see page 78 and page 83.
(12) 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.
(13) 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.
Bank of America 2017 111
Table V Allocation of the Allowance for Credit Losses by Product Type
(Dollars in millions)
Allowance for loan and lease losses
Residential mortgage
Home equity
U.S. credit card
Non-U.S. credit card
Direct/Indirect consumer
Other consumer
Total consumer
U.S. commercial (1)
Non-U.S. commercial
Commercial real estate
Commercial lease financing
Total commercial
Total allowance for loan and lease
losses (2)
2017
2016
December 31
2015
2014
2013
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
$
701
1,019
3,368
—
262
33
5,383
3,113
803
935
159
5,010
6.74% $ 1,012
9.80
1,738
32.41
2,934
—
243
2.52
244
0.32
51
51.79
6,222
29.95
3,326
7.73
874
9.00
920
1.53
138
48.21
5,258
8.82% $ 1,500
2,414
2,927
274
223
47
7,385
2,964
754
967
164
4,849
15.14
25.56
2.12
2.13
0.44
54.21
28.97
7.61
8.01
1.20
45.79
12.26% $ 2,900
3,035
19.73
3,320
23.93
369
2.24
299
1.82
59
0.38
9,982
60.36
2,619
24.23
649
6.17
1,016
7.90
153
1.34
4,437
39.64
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
576
4.50
917
7.05
118
1.06
4,005
30.77
23.43%
25.44
22.55
2.63
2.39
0.58
77.02
13.74
3.30
5.26
0.68
22.98
10,393
100.00%
11,480
100.00%
12,234
100.00%
14,419
100.00%
17,428
100.00%
Less: Allowance included in assets of
business held for sale (3)
Allowance for loan and lease losses
Reserve for unfunded lending commitments
Allowance for credit losses
—
10,393
777
$ 11,170
(243)
11,237
762
$ 11,999
—
12,234
646
$ 12,880
—
14,419
528
$ 14,947
—
17,428
484
$ 17,912
(1)
(2)
Includes allowance for loan and lease losses for U.S. small business commercial loans of $439 million, $416 million, $507 million, $536 million and $462 million at December 31, 2017, 2016,
2015, 2014 and 2013, respectively.
Includes $289 million, $419 million, $804 million, $1.7 billion and $2.5 billion of valuation allowance presented with the allowance for loan and lease losses related to PCI loans at December 31,
2017, 2016, 2015, 2014 and 2013, respectively.
(3) Represents allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which was included in assets of business held for sale on the Consolidated Balance Sheet at
December 31, 2016. In 2017, the Corporation sold its non-U.S. consumer credit card business.
December 31, 2017
Due in One
Year or Less
Due After One
Year Through
Five Years
Due After
Five Years
$
$
74,563
14,015
42,933
131,511
$
$
177,459
35,741
53,094
266,294
29%
58%
$
$
17,765
248,529
266,294
$
$
$
$
49,090
5,005
7,457
61,552
$
$
Total
301,112
54,761
103,484
459,357
13%
100%
27,992
33,560
61,552
Table VI 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.
112 Bank of America 2017
Financial Statements and Notes
Table of Contents
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Shareholders’ Equity
Consolidated Statement of Cash Flows
Note 1 – Summary of Significant Accounting Principles
Note 2 – Derivatives
Note 3 – Securities
Note 4 – Outstanding Loans and Leases
Note 5 – Allowance for Credit Losses
Note 6 – Securitizations and Other Variable Interest Entities
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
Note 8 – Goodwill and Intangible Assets
Note 9 – Deposits
Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings
Note 11 – Long-term Debt
Note 12 – Commitments and Contingencies
Note 13 – Shareholders’ Equity
Note 14 – Accumulated Other Comprehensive Income (Loss)
Note 15 – Earnings Per Common Share
Note 16 – Regulatory Requirements and Restrictions
Note 17 – Employee Benefit Plans
Note 18 – Stock-based Compensation Plans
Note 19 – Income Taxes
Note 20 – Fair Value Measurements
Note 21 – Fair Value Option
Note 22 – Fair Value of Financial Instruments
Note 23 – Business Segment Information
Note 24 – Parent Company Information
Note 25 – Performance by Geographical Area
Glossary
Acronyms
Page
116
117
118
120
121
122
131
140
144
156
158
162
164
165
165
168
170
176
178
179
179
181
186
187
189
199
202
203
205
206
207
208
113
Bank of America 2017
Bank of America 2017 113
Report of Management on Internal Control Over Financial Reporting
Bank of America Corporation and Subsidiaries
The management of Bank of America Corporation is responsible
for establishing and maintaining adequate internal control over
financial reporting.
The Corporation’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. The
Corporation’s internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Corporation;
(ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the
United States of America, and that receipts and expenditures of
the Corporation are being made only in accordance with
authorizations of management and directors of the Corporation;
and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition
of the Corporation’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Management assessed the effectiveness of the Corporation’s
internal control over financial reporting as of December 31, 2017
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, 2017, the
Corporation’s internal control over financial reporting is effective.
The Corporation’s internal control over financial reporting
as of December 31, 2017 has been audited by
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, 2017.
Brian T. Moynihan
Chairman, Chief Executive Officer and President
Paul M. Donofrio
Chief Financial Officer
114 Bank of America 2017
114 Bank of America 2017
Report of Independent Registered Public Accounting Firm
Bank of America Corporation and Subsidiaries
To the Board of Directors and Shareholders of Bank
of America Corporation:
Opinions on the Financial Statements and Internal
Control over Financial Reporting
We have audited the accompanying consolidated balance sheets
of Bank of America Corporation and its subsidiaries as of
December 31, 2017 and December 31, 2016, and the related
consolidated statements of income, comprehensive income,
changes in shareholders’ equity and cash flows for each of the
three years in the period ended December 31, 2017, including the
related notes (collectively referred to as the “consolidated financial
statements”). We also have audited the Corporation’s internal
control over financial reporting as of December 31, 2017, based
on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Corporation as of December 31, 2017 and
December 31, 2016, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2017 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, 2017, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the COSO.
Change In Accounting Principle
As discussed in Note 1 to the consolidated financial statements,
the Corporation changed the manner in which it accounts for the
determination of when certain stock-based compensation awards
are considered authorized for purposes of determining their
service inception date.
is
for
responsible
Basis for Opinions
The Corporation’s management
these
consolidated 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 the Corporation’s consolidated financial statements
and on the Corporation’s internal control over financial reporting
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United
States) (“PCAOB”) and are required to be independent with respect
to the Corporation in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
internal control over financial reporting was maintained in all
material respects.
the
Our audits of the consolidated financial statements included
performing procedures
risks of material
to assess
misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. Our audit
of internal control over financial reporting included obtaining an
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
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.
Definition and Limitations of Internal Control over
Financial Reporting
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
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.
reasonable assurance
the company;
(ii) provide
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.
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the
consolidated
free of material
misstatement, whether due to error or fraud, and whether effective
financial statements are
Charlotte, North Carolina
February 22, 2018
We have served as the Corporation’s auditor since 1958.
115
Bank of America 2017
Bank of America 2017 115
Bank of America Corporation and Subsidiaries
Bank of America Corporation and Subsidiaries
Consolidated Statement of Income
Consolidated Statement of Income
(Dollars in millions, except per share information)
(Dollars in millions, except per share information)
Interest income
Interest income
Loans and leases
Loans and leases
Debt securities
Debt securities
Federal funds sold and securities borrowed or purchased under agreements to resell
Federal funds sold and securities borrowed or purchased under agreements to resell
Trading account assets
Trading account assets
Other interest income
Other interest income
Total interest income
Total interest income
Interest expense
Interest expense
Deposits
Deposits
Short-term borrowings
Short-term borrowings
Trading account liabilities
Trading account liabilities
Long-term debt
Long-term debt
Total interest expense
Total interest expense
Net interest income
Net interest income
Noninterest income
Noninterest income
Card income
Card income
Service charges
Service charges
Investment and brokerage services
Investment and brokerage services
Investment banking income
Investment banking income
Trading account profits
Trading account profits
Mortgage banking income
Mortgage banking income
Gains on sales of debt securities
Gains on sales of debt securities
Other income
Other income
Total noninterest income
Total noninterest income
Total revenue, net of interest expense
Total revenue, net of interest expense
Provision for credit losses
Provision for credit losses
Noninterest expense
Noninterest expense
Personnel
Personnel
Occupancy
Occupancy
Equipment
Equipment
Marketing
Marketing
Professional fees
Professional fees
Data processing
Data processing
Telecommunications
Telecommunications
Other general operating
Other general operating
Total noninterest expense
Total noninterest expense
Income before income taxes
Income before income taxes
Income tax expense
Income tax expense
Net income
Net income
Preferred stock dividends
Preferred stock dividends
Net income applicable to common shareholders
Net income applicable to common shareholders
Per common share information
Per common share information
Earnings
Earnings
Diluted earnings
Diluted earnings
Dividends paid
Dividends paid
Average common shares issued and outstanding (in thousands)
Average common shares issued and outstanding (in thousands)
Average diluted common shares issued and outstanding (in thousands)
Average diluted common shares issued and outstanding (in thousands)
2017
2017
2016
2016
2015
2015
$
$
$
$
$
$
$
$
36,221
36,221
10,471
10,471
2,390
2,390
4,474
4,474
4,023
4,023
57,579
57,579
1,931
1,931
3,538
3,538
1,204
1,204
6,239
6,239
12,912
12,912
44,667
44,667
5,902
5,902
7,818
7,818
13,281
13,281
6,011
6,011
7,277
7,277
224
224
255
255
1,917
1,917
42,685
42,685
87,352
87,352
3,396
3,396
31,642
31,642
4,009
4,009
1,692
1,692
1,746
1,746
1,888
1,888
3,139
3,139
699
699
9,928
9,928
54,743
54,743
29,213
29,213
10,981
10,981
18,232
18,232
1,614
1,614
16,618
16,618
1.63
1.63
1.56
1.56
0.39
0.39
10,195,646
10,195,646
10,778,428
10,778,428
$
$
$
$
$
$
$
$
$
$
33,228
33,228
9,167
9,167
1,118
1,118
4,423
4,423
3,121
3,121
51,057
51,057
1,015
1,015
2,350
2,350
1,018
1,018
5,578
5,578
9,961
9,961
41,096
41,096
5,851
5,851
7,638
7,638
12,745
12,745
5,241
5,241
6,902
6,902
1,853
1,853
490
490
1,885
1,885
42,605
42,605
83,701
83,701
31,918
31,918
9,178
9,178
988
988
4,397
4,397
3,026
3,026
49,507
49,507
861
861
2,387
2,387
1,343
1,343
5,958
5,958
10,549
10,549
38,958
38,958
5,959
5,959
7,381
7,381
13,337
13,337
5,572
5,572
6,473
6,473
2,364
2,364
1,138
1,138
1,783
1,783
44,007
44,007
82,965
82,965
3,597
3,597
3,161
3,161
31,748
31,748
4,038
4,038
1,804
1,804
1,703
1,703
1,971
1,971
3,007
3,007
746
746
10,066
10,066
55,083
55,083
25,021
25,021
7,199
7,199
17,822
17,822
1,682
1,682
16,140
16,140
1.57
1.57
1.49
1.49
0.25
0.25
10,284,147
10,284,147
11,046,806
11,046,806
$
$
$
$
$
$
32,751
32,751
4,093
4,093
2,039
2,039
1,811
1,811
2,264
2,264
3,115
3,115
823
823
10,721
10,721
57,617
57,617
22,187
22,187
6,277
6,277
15,910
15,910
1,483
1,483
14,427
14,427
1.38
1.38
1.31
1.31
0.20
0.20
10,462,282
10,462,282
11,236,230
11,236,230
See accompanying Notes to Consolidated Financial Statements.
See accompanying Notes to Consolidated Financial Statements.
116 Bank of America 2017
116 Bank of America 2017
116 Bank of America 2017
Bank of America Corporation and Subsidiaries
Bank of America Corporation and Subsidiaries
Consolidated Statement of Comprehensive Income
Consolidated Statement of Comprehensive Income
(Dollars in millions)
Net income
Other comprehensive income (loss), net-of-tax:
(Dollars in millions)
Net change in debt and marketable equity securities
Net income
Net change in debit valuation adjustments
Other comprehensive income (loss), net-of-tax:
Net change in derivatives
Net change in debt and marketable equity securities
Employee benefit plan adjustments
Net change in debit valuation adjustments
Net change in foreign currency translation adjustments
Net change in derivatives
Employee benefit plan adjustments
Net change in foreign currency translation adjustments
Other comprehensive income (loss)
Comprehensive income
Other comprehensive income (loss)
Comprehensive income
2017
18,232
2017
61
18,232
(293)
64
61
288
(293)
86
64
206
288
18,438
86
206
18,438
$
$
$
$
2016
17,822
2016
(1,345)
17,822
(156)
182
(1,345)
(524)
(156)
(87)
182
(1,930)
(524)
15,892
(87)
(1,930)
15,892
$
$
$
$
2015
15,910
2015
(1,580)
15,910
615
584
(1,580)
394
615
(123)
584
(110)
394
15,800
(123)
(110)
15,800
$
$
$
$
See accompanying Notes to Consolidated Financial Statements.
See accompanying Notes to Consolidated Financial Statements.
Bank of America 2017 117
Bank of America 2017
117
Bank of America 2017 117
Bank of America Corporation and Subsidiaries
Bank of America Corporation and Subsidiaries
Consolidated Statement of Income
Consolidated Balance Sheet
(Dollars in millions, except per share information)
Interest income
(Dollars in millions)
2017
Loans and leases
Assets
Debt securities
Cash and due from banks
Federal funds sold and securities borrowed or purchased under agreements to resell
Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks
Trading account assets
Other interest income
36,221
10,471
2,390
4,474
4,023
Time deposits placed and other short-term investments
57,579
Federal funds sold and securities borrowed or purchased under agreements to resell (includes $52,906 and $49,750 measured at
Cash and cash equivalents
Total interest income
$
fair value)
Interest expense
Trading account assets (includes $106,274 and $106,057 pledged as collateral)
Derivative assets
Debt securities:
Deposits
Short-term borrowings
Trading account liabilities
Carried at fair value (includes $29,830 and $29,804 pledged as collateral)
Long-term debt
Held-to-maturity, at cost (fair value – $123,299 and $115,285; $6,007 and $8,233 pledged as collateral)
Total interest expense
Total debt securities
Net interest income
Loans and leases (includes $5,710 and $7,085 measured at fair value and $40,051 and $31,805 pledged as collateral)
Allowance for loan and lease losses
Noninterest income
Loans and leases, net of allowance
Card income
Premises and equipment, net
Service charges
Mortgage servicing rights
Investment and brokerage services
Goodwill
Investment banking income
Loans held-for-sale (includes $2,156 and $4,026 measured at fair value)
Trading account profits
Customer and other receivables
Mortgage banking income
Assets of business held for sale (includes $619 measured at fair value at December 31, 2016)
Gains on sales of debt securities
Other assets (includes $20,279 and $13,802 measured at fair value)
Other income
Total assets
Total noninterest income
Total revenue, net of interest expense
Assets of consolidated variable interest entities included in total assets above (isolated to settle the liabilities of the variable interest entities)
Provision for credit losses
Trading account assets
Loans and leases
Noninterest expense
Allowance for loan and lease losses
3,396
$
Loans and leases, net of allowance
Personnel
Occupancy
Loans held-for-sale
Equipment
All other assets
Marketing
Professional fees
Data processing
Telecommunications
Other general operating
Total assets of consolidated variable interest entities
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)
$
$
$
1.63
1.56
0.39
10,195,646
10,778,428
1.57
1.49
0.25
10,284,147
11,046,806
2016
December 31
2015
2017
2016
33,228
9,167
29,480
1,118
127,954
4,423
157,434
3,121
11,153
51,057
212,747
209,358
1,015
37,762
2,350
1,018
315,117
5,578
125,013
9,961
440,130
41,096
936,749
(10,393)
926,356
5,851
9,247
7,638
2,302
12,745
68,951
5,241
11,430
6,902
61,623
1,853
—
490
132,741
1,885
2,281,234
42,605
83,701
3,597
6,521
48,929
(1,016)
31,748
47,913
4,038
27
1,804
1,694
1,703
56,155
1,971
3,007
746
10,066
55,083
25,021
7,199
17,822
1,682
16,140
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
31,918
9,178
30,719
988
117,019
4,397
147,738
3,026
9,861
49,507
198,224
180,209
861
42,512
2,387
1,343
313,660
5,958
117,071
10,549
430,731
38,958
906,683
(11,237)
895,446
5,959
9,139
7,381
2,747
13,337
68,969
5,572
9,066
6,473
58,759
2,364
10,670
1,138
123,996
1,783
2,188,067
44,007
82,965
3,161
5,773
56,001
(1,032)
32,751
54,969
4,093
188
2,039
1,596
1,811
62,526
2,264
3,115
823
10,721
57,617
22,187
6,277
15,910
1,483
14,427
1.38
1.31
0.20
10,462,282
11,236,230
1,931
3,538
1,204
6,239
12,912
44,667
5,902
7,818
13,281
6,011
7,277
224
255
1,917
42,685
87,352
31,642
4,009
1,692
1,746
1,888
3,139
699
9,928
54,743
29,213
10,981
18,232
1,614
16,618
See accompanying Notes to Consolidated Financial Statements.
See accompanying Notes to Consolidated Financial Statements.
116 Bank of America 2017
118 Bank of America 2017
Bank of America Corporation and Subsidiaries
Bank of America Corporation and Subsidiaries
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet (continued)
(Dollars in millions)
Net income
Other comprehensive income (loss), net-of-tax:
(Dollars in millions)
Net change in debt and marketable equity securities
Net change in debit valuation adjustments
Liabilities
Net change in derivatives
Deposits in U.S. offices:
Employee benefit plan adjustments
Noninterest-bearing
Net change in foreign currency translation adjustments
Interest-bearing (includes $449 and $731 measured at fair value)
Other comprehensive income (loss)
Deposits in non-U.S. offices:
Comprehensive income
Noninterest-bearing
Interest-bearing
Total deposits
2017
2016
2015
$
18,232
$
17,822
$
15,910
61
(293)
64
288
86
206
18,438
$
$
$
December 31
2017
(1,345)
(156)
182
(524)
430,650
(87)
796,576
(1,930)
15,892
14,024
68,295
1,309,545
$
$
2016
(1,580)
615
584
394
438,125
(123)
750,891
(110)
15,800
12,039
59,879
1,260,934
176,865
170,291
81,187
34,300
32,666
63,031
39,480
23,944
152,123
227,402
2,014,088
147,369
216,823
1,921,872
22,323
25,220
138,089
113,816
(7,082)
267,146
2,281,234
147,038
101,225
(7,288)
266,195
$ 2,188,067
312
9,873
37
10,222
$
$
348
10,646
41
11,035
Federal funds purchased and securities loaned or sold under agreements to repurchase (includes $36,182 and $35,766 measured at
fair value)
Trading account liabilities
Derivative liabilities
Short-term borrowings (includes $1,494 and $2,024 measured at fair value)
Accrued expenses and other liabilities (includes $22,840 and $14,630 measured at fair value and $777 and $762 of reserve for
unfunded lending commitments)
Long-term debt (includes $31,786 and $30,037 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 10 – Commitments and Contingencies)
Shareholders’ equity
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding – 3,837,683 and 3,887,329 shares
Common stock and additional paid-in capital, $0.01 par value; authorized – 12,800,000,000 shares; issued and outstanding –
10,287,302,431 and 10,052,625,604 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 $9,872 and $10,417 of non-recourse debt)
All other liabilities (includes $34 and $38 of non-recourse liabilities)
Total liabilities of consolidated variable interest entities
$
$
$
See accompanying Notes to Consolidated Financial Statements.
See accompanying Notes to Consolidated Financial Statements.
Bank of America 2017 117
Bank of America 2017 119
Bank of America Corporation and Subsidiaries
Bank of America Corporation and Subsidiaries
Consolidated Statement of Income
Consolidated Statement of Changes in Shareholders’ Equity
(Dollars in millions, except per share information)
Interest income
(Dollars in millions, shares in thousands)
Loans and leases
Debt securities
Federal funds sold and securities borrowed or purchased under agreements to resell
Trading account assets
valuation adjustments
Other interest income
Balance, December 31, 2014
Cumulative adjustment for accounting change related to debit
19,309
$
Preferred
Stock
Common Stock and
Additional Paid-in Capital
$
Shares
10,516,542
Amount
$
153,458
$
Cumulative adjustment for accounting change related to
retirement-eligible stock-based compensation expense
Total interest income
Noninterest income
Issuance of preferred stock
Common stock issued under employee plans, net, and related
Net income
Interest expense
Net change in debt and marketable equity securities
Deposits
Net change in debit valuation adjustments
Short-term borrowings
Net change in derivatives
Trading account liabilities
Employee benefit plan adjustments
Long-term debt
Net change in foreign currency translation adjustments
Dividends declared:
Total interest expense
Net interest income
Common
Preferred
Card income
Service charges
tax effects
Investment and brokerage services
Common stock repurchased
Investment banking income
Balance, December 31, 2015
Trading account profits
Net income
Mortgage banking income
Net change in debt and marketable equity securities
Gains on sales of debt securities
Net change in debit valuation adjustments
Other income
Net change in derivatives
Total noninterest income
Employee benefit plan adjustments
Total revenue, net of interest expense
Net change in foreign currency translation adjustments
Provision for credit losses
Dividends declared:
Issuance of preferred stock
Common stock issued under employee plans, net, and related
Noninterest expense
Common
Preferred
Personnel
Occupancy
Equipment
tax effects
Marketing
Professional fees
Data processing
Telecommunications
Other general operating
Common stock repurchased
Balance, December 31, 2016
Net income
Net change in debt and marketable equity securities
Net change in debit valuation adjustments
Total noninterest expense
Net change in derivatives
Income before income taxes
Employee benefit plan adjustments
Income tax expense
Net change in foreign currency translation adjustments
Net income
Dividends declared:
Preferred stock dividends
Common
Net income applicable to common shareholders
Preferred
2,964
4,054
(42)
(140,331)
10,380,265
$
(2,374)
151,042
$
$
22,273
2,947
5,111
1,108
(332,750)
10,052,626
$
(5,112)
147,038
$
$
25,220
Common stock issued in connection with exercise of warrants
Per common share information
and exchange of preferred stock
Earnings
Diluted earnings
Dividends paid
Common stock issued under employee plans, net and other
Common stock repurchased
Balance, December 31, 2017
Average common shares issued and outstanding (in thousands)
Average diluted common shares issued and outstanding (in thousands)
$
(2,897)
700,000
43,329
(508,653)
10,287,302
$
22,323
2,933
932
(12,814)
138,089
$
$
$
$
See accompanying Notes to Consolidated Financial Statements.
See accompanying Notes to Consolidated Financial Statements.
116 Bank of America 2017
120 Bank of America 2017
2017
Retained
Earnings
36,221
10,471
74,731
2,390
4,474
1,226
4,023
57,579
(635)
15,910
1,931
3,538
1,204
6,239
12,912
44,667
(2,091)
(1,483)
5,902
7,818
13,281
6,011
87,658
7,277
17,822
224
255
1,917
42,685
87,352
3,396
(2,573)
(1,682)
31,642
4,009
1,692
1,746
1,888
101,225
3,139
18,232
699
9,928
54,743
29,213
10,981
18,232
1,614
(4,027)
16,618
(1,578)
(36)
1.63
1.56
0.39
113,816
10,195,646
10,778,428
2016
Accumulated
Other
Comprehensive
33,228
$
Income (Loss)
9,167
(4,022) $
1,118
4,423
(1,226)
3,121
51,057
2015
Total
Shareholders’
31,918
$
Equity
9,178
243,476
988
4,397
—
3,026
49,507
(635)
$
(1,580)
1,015
615
2,350
584
1,018
394
5,578
(123)
9,961
41,096
5,851
7,638
12,745
5,241
(5,358) $
6,902
1,853
(1,345)
490
(156)
1,885
182
42,605
(524)
83,701
(87)
3,597
31,748
4,038
1,804
1,703
1,971
(7,288) $
3,007
746
61
10,066
(293)
55,083
64
25,021
288
7,199
86
17,822
1,682
16,140
$
$
$
1.57
1.49
0.25
10,284,147
11,046,806
(7,082) $
15,910
(1,580)
861
615
2,387
584
1,343
394
5,958
(123)
10,549
38,958
(2,091)
(1,483)
2,964
5,959
7,381
(42)
13,337
(2,374)
5,572
255,615
6,473
17,822
2,364
(1,345)
1,138
(156)
1,783
182
44,007
(524)
82,965
(87)
3,161
(2,573)
(1,682)
32,751
2,947
4,093
2,039
1,108
1,811
(5,112)
2,264
266,195
3,115
18,232
823
61
10,721
(293)
57,617
64
22,187
288
6,277
86
15,910
1,483
(4,027)
14,427
(1,578)
—
1.38
932
1.31
(12,814)
0.20
267,146
10,462,282
11,236,230
$
$
$
$
$
$
Bank of America Corporation and Subsidiaries
Bank of America Corporation and Subsidiaries
Consolidated Statement of Comprehensive Income
Consolidated Statement of Cash Flows
(Dollars in millions)
Net income
Other comprehensive income (loss), net-of-tax:
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
(Dollars in millions)
Net change in debt and marketable equity securities
Net change in debit valuation adjustments
Net change in derivatives
Employee benefit plan adjustments
Provision for credit losses
Net change in foreign currency translation adjustments
Gains on sales of debt securities
Depreciation and premises improvements amortization
Comprehensive income
Amortization of intangibles
Net amortization of premium/discount on debt securities
Deferred income taxes
Stock-based compensation
Other comprehensive income (loss)
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
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
Other financing activities, net
Net cash provided by 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
2017
2016
2015
$
18,232
$
17,822
$
15,910
$
$
2017
61
(293)
18,232
64
288
3,396
86
(255)
206
1,482
18,438
621
2,251
8,175
1,649
$
$
2016
(1,345)
(156)
17,822
182
(524)
3,597
(87)
(490)
(1,930)
1,511
15,892
730
3,134
5,793
1,367
$
$
(43,506)
40,059
(13,939)
(19,859)
4,673
7,424
10,403
(1,292)
(14,523)
73,353
93,874
(166,975)
16,653
(25,088)
11,761
(6,846)
(41,104)
8,180
(52,007)
48,611
7,024
8,538
53,486
(49,553)
—
(12,814)
(5,700)
(397)
49,195
2,105
9,696
147,738
157,434
12,852
3,297
(62)
$
$
(33,107)
31,376
(866)
(13,802)
(35)
1,331
18,361
(2,117)
(5,742)
71,547
108,592
(189,061)
18,677
(39,899)
18,230
(12,283)
(31,194)
107
(63,143)
63,675
(4,000)
(4,014)
35,537
(51,849)
2,947
(5,112)
(4,194)
(63)
32,927
240
(11,615)
159,353
147,738
10,510
1,633
(590)
$
$
$
$
2015
(1,580)
615
15,910
584
394
3,161
(123)
(1,138)
(110)
1,555
15,800
834
2,613
2,967
(89)
(37,933)
36,204
2,550
2,645
730
(1,612)
28,397
50
(659)
137,569
92,498
(219,412)
12,872
(36,575)
22,316
(12,629)
(51,895)
294
(55,571)
78,347
(26,986)
(3,074)
43,670
(40,365)
2,964
(2,374)
(3,574)
(73)
48,535
(597)
20,764
138,589
159,353
10,623
2,326
(151)
See accompanying Notes to Consolidated Financial Statements.
See accompanying Notes to Consolidated Financial Statements.
Bank of America 2017 117
Bank of America 2017 121
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 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 materially differ from those
estimates and assumptions. Certain prior-period amounts have
been reclassified to conform to current period presentation.
On June 1, 2017, the Corporation completed the sale of its
non-U.S. consumer credit card business to a third party. The
Corporation has indemnified the purchaser for substantially all
payment protection insurance (PPI) exposure above reserves
assumed by the purchaser. The impact of the sale was an after-
tax gain of $103 million, and is presented in the Consolidated
Statement of Income as other income of $793 million and an
income tax expense of $690 million. The income tax expense was
related to gains on the derivatives used to hedge the currency risk
of the net investment. Total cash proceeds from the sale were
$10.9 billion. The assets of the business sold primarily included
consumer credit card receivables of $9.8 billion and $9.2 billion
at June 1, 2017 and December 31, 2016 and goodwill of $775
million at both of those period ends. This business was included
in All Other.
Change in Tax Law
On December 22, 2017, the President signed into law the Tax Cuts
and Jobs Act (the Tax Act) which made significant changes to
federal income tax law including, among other things, reducing the
statutory corporate income tax rate to 21 percent from 35 percent
and changing the taxation of the Corporation’s non-U.S. business
activities. On the same date, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 118 which
specifies, among other things, that reasonable estimates of the
income tax effects of the Tax Act should be used, if determinable.
The Corporation has accounted for the effects of the Tax Act using
reasonable estimates based on currently available information and
its interpretations thereof. This accounting may change due to,
among other things, changes in interpretations the Corporation
has made and the issuance of new tax or accounting guidance.
GAAP requires that the effects of a change in tax rate from revaluing
deferred tax assets and deferred tax liabilities be recognized upon
enactment, resulting in $1.9 billion of estimated incremental
income tax expense recognized in 2017. The change in tax rate
also resulted in a downward valuation adjustment, primarily related
to tax-advantaged energy investments, of $946 million recorded
in other income.
Change in Accounting Method
GAAP requires that stock-based compensation awards be
expensed over the service period (the period they are earned),
based on their grant-date fair value. Awards to retirement-eligible
employees have no future service requirement, and historically,
the Corporation has deemed these awards to be authorized on the
grant date, resulting in full recognition of the related expense at
that time. Effective October 1, 2017, the Corporation changed its
accounting method for determining when these awards are
deemed authorized, changing from the grant date to the beginning
of the year preceding the grant date when the incentive award
plans are generally approved. As a result, the estimated value of
the awards is now expensed ratably over the year preceding the
grant date. The Corporation believes this change is a preferable
method of accounting as it is consistent with the accounting
method used by several peer institutions for similar awards and
results in an improved pattern of expense recognition.
Adoption of this change is voluntary and has been adopted
retrospectively with all prior periods presented herein being
restated. The change in accounting method resulted in a decrease
in retained earnings of $635 million at January 1, 2015. All other
effects of the change on the Consolidated Statement of Income
and diluted earnings per share were not material for any period
presented; additionally, the impact of the change in accounting
method was not material to any interim periods. The change
affected consolidated financial information and All Other; it did not
affect the business segments.
The following Notes have been impacted by the change in
accounting method: Note 13 – Shareholders’ Equity, Note 15 –
Earnings Per Common Share, Note 16 – Regulatory Requirements
and Restrictions and Note 18 – Stock-based Compensation Plans.
New Accounting Pronouncements
Accounting for Share-based Compensation
Effective January 1, 2017, the Corporation adopted the new
accounting standard 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.
Under this new accounting standard, all excess tax benefits and
tax deficiencies on the delivery of share-based awards are
recognized as discrete items in income tax expense or benefit in
the Consolidated Statement of Income. Previously such amounts
were recorded in shareholders’ equity. The adoption of this new
accounting standard resulted in $236 million of tax benefits upon
the delivery of share-settled awards in 2017.
122 Bank of America 2017
Revenue Recognition
Effective January 1, 2018, the Corporation adopted the new
accounting standard for recognizing revenue from contracts with
customers. The new standard does not impact the timing or
measurement of the Corporation’s revenue recognition as it is
consistent with the Corporation’s existing accounting for contracts
within the scope of the new standard. However, beginning
prospectively in 2018, the Corporation’s presentation of certain
costs, which are primarily related to underwriting activities, will be
presented as operating expenses under the new standard rather
than presented net in investment banking income, resulting in an
expected increase to both line items of approximately $200 million
for the year. The new accounting standard does not have a material
impact on the Corporation’s consolidated financial position or
results of operations and will not have a material impact on the
disclosures in the Notes to the Consolidated Financial Statements.
Hedge Accounting
Effective January 1, 2018, the Corporation early adopted the new
standard that simplifies and expands the ability to apply hedge
accounting to certain risk management activities. The accounting
standard does not have a material impact on the Corporation’s
consolidated financial position or results of operations and will
not have a material impact on the disclosures in the Notes to the
Consolidated Financial Statements. The Corporation recognized
an insignificant cumulative-effect adjustment to its January 1,
2018 opening retained earnings to reflect the impact of applying
the new standard to certain outstanding hedge strategies, mainly
related to fair value hedges of fixed-rate debt instruments.
Recognition and Measurement of Financial Assets and
Financial Liabilities
The Financial Accounting Standards Board (FASB) issued a new
accounting standard on recognition and measurement of financial
instruments, including certain equity investments and financial
liabilities recorded at fair value under the fair value option. Effective
January 1, 2015, the Corporation early adopted the provisions
related to debit valuation adjustments (DVA) on financial liabilities
accounted for under the fair value option. The Corporation adopted
the remaining provisions on January 1, 2018, which will not have
a material impact on the Corporation’s consolidated financial
position, results of operations or disclosures in the Notes to the
Consolidated Financial Statements.
Tax Effects in Accumulated Other Comprehensive Income
The FASB issued a new accounting standard effective on January
1, 2019, with early adoption permitted, that addresses certain tax
effects in accumulated other comprehensive income (OCI) related
to the Tax Act. Under this new accounting standard, those tax
effects, representing the difference between the newly enacted
federal tax rate of 21 percent and the historical tax rate, may, at
the entity’s election, be reclassified from accumulated OCI to
retained earnings. The new accounting standard can be applied
retrospectively to each period in which the effects of the change
in federal tax rate are recognized or applied at the beginning of
the period of adoption. The new accounting standard will not have
a material impact on the Corporation’s consolidated financial
position, results of operations or disclosures in the Notes to the
Consolidated Financial Statements.
Lease Accounting
The FASB issued a new accounting standard effective on January
1, 2019 that requires substantially all leases to be recorded as
assets and liabilities on the balance sheet. On January 5, 2018,
the FASB issued an exposure draft proposing an amendment to
the standard that, if approved, would permit companies the option
to apply the provisions of the new lease standard either
prospectively as of the effective date, without adjusting
comparative periods presented, or using a modified retrospective
transition applicable to all prior periods presented. The Corporation
is in the process of reviewing its existing lease portfolios, including
certain service contracts for embedded leases, to evaluate the
impact of the standard on the consolidated financial statements,
as well as the impact to regulatory capital and risk-weighted
assets. The effect of the adoption will depend on the lease portfolio
at the time of transition and the transition options ultimately
available; however, the Corporation does not expect the new
accounting standard to have a material impact on its consolidated
financial position, results of operations or disclosures in the Notes
to the Consolidated Financial Statements.
Accounting for Financial Instruments -- Credit Losses
The FASB issued a new accounting standard effective on January
1, 2020, with early adoption permitted on January 1, 2019, 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. The
standard also requires expanded credit quality disclosures,
including credit quality indicators disaggregated by vintage. 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 standard, which
at the date of adoption is expected to increase the allowance for
credit losses with a resulting negative adjustment to retained
earnings.
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.
Bank of America 2017 123
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 and loans as collateral that it
is permitted by contract or practice to sell or repledge. At December
31, 2017 and 2016, the fair value of this collateral was $561.9
billion and $452.1 billion, of which $476.1 billion and $372.0
billion was sold or repledged. The primary source of this collateral
is securities borrowed or purchased under agreements to resell.
The Corporation also pledges company-owned securities and
loans as collateral in transactions that include repurchase
agreements, securities loaned, public and trust deposits, U.S.
Treasury tax and loan notes, and short-term borrowings. This
collateral, which in some cases can be sold or repledged by the
counterparties to the transactions, is parenthetically disclosed on
the Consolidated Balance Sheet.
In certain cases, the Corporation has transferred assets to
consolidated VIEs where those restricted assets serve as
collateral for the interests issued by the VIEs. These assets are
included on the Consolidated Balance Sheet in Assets of
Consolidated VIEs.
In addition, the Corporation obtains collateral in connection
with its derivative contracts. Required collateral levels vary
depending on the credit risk rating and the type of counterparty.
Generally, the Corporation accepts collateral in the form of cash,
U.S. Treasury securities and other marketable securities. Based
on provisions contained in master netting agreements, the
Corporation nets cash collateral received against derivative
assets. The Corporation also pledges collateral on its own
derivative positions which can be applied against derivative
liabilities.
Trading Instruments
Financial instruments utilized in trading activities are carried at
fair value. Fair value is generally based on quoted market prices
or quoted market prices for similar assets and liabilities. If these
market prices are not available, fair values are estimated based
on dealer quotes, pricing models, discounted cash flow
methodologies, or similar techniques where the determination of
fair value may require significant management judgment or
estimation. Realized gains and losses are recorded on a trade-
date basis. Realized and unrealized gains and losses are
recognized in trading account profits.
Derivatives and Hedging Activities
Derivatives are entered into on behalf of customers, for trading or
to support risk management activities. Derivatives used in risk
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
include derivatives
(referred to as other risk management activities). The Corporation
manages interest rate and foreign currency exchange rate
sensitivity predominantly through the use of derivatives.
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 qualifying accounting hedge relationships because they did not
qualify or the risk that is being mitigated pertains to an item that
is reported at fair value through earnings so that the effect of
measuring the derivative instrument and the asset or liability to
which the risk exposure pertains will offset in the Consolidated
Statement of Income to the extent effective. The changes in the
fair value of derivatives that serve to mitigate certain risks
associated with mortgage servicing rights (MSRs), interest rate
lock commitments (IRLCs) and first mortgage loans held-for-sale
(LHFS) that are originated by the Corporation are recorded in
mortgage banking income. Changes in the fair value of derivatives
that serve to mitigate interest rate risk and foreign currency risk
are included in other income. 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.
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.
124 Bank of America 2017
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 and liabilities, or forecasted transactions
caused by interest rate or foreign exchange rate fluctuations.
Changes in the fair value of derivatives used in 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.
Net investment hedges are used to manage the foreign
exchange rate sensitivity arising from a net investment in a foreign
operation. Changes in the fair value of derivatives designated as
net investment hedges of foreign operations, to the extent
effective, are recorded as a component of accumulated OCI.
Securities
Debt securities are reported on the Consolidated Balance Sheet
at their trade date. Their classification is dependent on the purpose
for which the assets were acquired. Debt securities purchased for
use in the Corporation’s trading activities are reported in trading
account assets at fair value with unrealized gains and losses
included in trading account profits. Substantially all other debt
securities purchased are used in the Corporation’s asset and
liability management (ALM) activities and are reported on the
Consolidated Balance Sheet as either debt securities carried at
fair value or as debt securities held-to-maturity (HTM). Debt
securities carried at fair value are either available-for-sale (AFS)
securities with unrealized gains and losses net-of-tax included in
accumulated OCI or carried at fair value with unrealized gains and
losses reported in other income. Debt securities HTM, which are
certain debt securities that management has the intent and ability
to hold to maturity, are reported at amortized cost.
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 other income. Dividend income on AFS marketable equity
securities is included in other income. Realized gains and losses
on the sale of all AFS marketable equity securities, which are
recorded in other income, are determined using the specific
identification method.
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.
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 (sold in 2017), direct/indirect consumer and other consumer.
The classes within the Commercial portfolio segment are U.S.
commercial, non-U.S. commercial, commercial real estate,
commercial lease financing and U.S. small business commercial.
Bank of America 2017 125
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
126 Bank of America 2017
(SBLCs) and binding unfunded loan commitments, represents
estimated probable credit losses on these unfunded credit
instruments based on utilization assumptions. Lending-related
credit exposures deemed to be uncollectible, excluding loans
carried at fair value, are charged off against these accounts. Write-
offs on PCI loans on which there is a valuation allowance are
recorded against the valuation allowance. For more 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, 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 re-defaults
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
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, 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, or for loans in bankruptcy, within
60 days of receipt of notification of filing, with the remaining
balance classified as nonperforming.
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 (including auto 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 upon repossession of an
auto or, for loans in bankruptcy, within 60 days of receipt of
notification of filing. Credit card and other unsecured customer
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, bankruptcy or fraud.
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.
Bank of America 2017 127
Troubled Debt Restructurings
Consumer and commercial loans and leases whose contractual
terms have been restructured in a manner that grants a concession
to a borrower experiencing financial difficulties are classified as
TDRs. Concessions could include a reduction in the interest rate
to a rate that is below market on the loan, payment extensions,
forgiveness of principal, forbearance or other actions designed to
maximize collections. Loans 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
128 Bank of America 2017
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
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 Corporation compares 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, an additional step must be performed to
measure potential impairment.
This 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. 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
than standard representations and warranties, that could
potentially be significant to the trust.
The Corporation may also transfer trading account securities
and AFS securities into municipal bond or resecuritization trusts.
The Corporation consolidates a municipal bond or resecuritization
trust if it has control over the ongoing activities of the trust such
as the remarketing of the trust’s liabilities or, if there are no ongoing
activities, sole discretion over the design of the trust, including
the identification of securities to be transferred in and the structure
of securities to be issued, and also retains securities or has
liquidity or other commitments that could potentially be significant
to the trust. The Corporation does not consolidate a municipal
bond or resecuritization trust if one or a limited number of third-
party investors share responsibility for the design of the trust or
have control over the significant activities of the trust through
liquidation or other substantive rights.
Other VIEs used by the Corporation include collateralized debt
obligations (CDOs), investment vehicles created on behalf of
customers and other investment vehicles. The Corporation does
not routinely serve as collateral manager for CDOs and, therefore,
does not typically have the power to direct the activities that most
significantly impact the economic performance of a CDO. However,
following an event of default, if the Corporation is a majority holder
of senior securities issued by a CDO and acquires the power to
manage 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.
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
Bank of America 2017 129
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 allocated to common shareholders by the weighted-
average common shares outstanding, excluding unvested common
shares subject to repurchase or cancellation. Net income allocated
to common shareholders is net income 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 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.
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 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.
130 Bank of America 2017
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, 2017 and 2016. 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, 2017
Trading and
Other Risk
Management
Derivatives
Qualifying
Accounting
Hedges
Contract/
Notional (1)
Total
Trading and
Other Risk
Management
Derivatives
Qualifying
Accounting
Hedges
$
$ 15,416.4
4,332.4
1,170.5
1,184.5
$
175.1
0.5
—
37.6
$
$
178.0
0.5
—
37.6
$
172.5
0.5
35.5
—
(Dollars in billions)
Interest rate contracts
Swaps (2)
Futures and forwards (2)
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 (3)
Purchased credit derivatives:
Credit default swaps (2)
Total return swaps/options
Written credit derivatives:
Credit default swaps (2)
Total return swaps/options
Gross derivative assets/liabilities
Less: Legally enforceable master netting agreements (2)
Less: Cash collateral received/paid (2)
Total derivative assets/liabilities
2.9
—
—
—
2.2
0.7
—
—
—
—
—
—
—
—
—
—
—
—
37.8
39.8
—
4.6
4.8
1.5
—
24.7
1.8
3.5
—
1.4
4.1
0.1
35.6
39.1
—
4.6
4.8
1.5
—
24.7
1.8
3.5
—
1.4
4.1
0.1
2,011.1
3,543.3
291.8
271.9
265.6
106.9
480.8
428.2
46.1
47.1
21.7
22.9
470.9
54.1
448.2
55.2
10.6
0.8
345.8
$
$
—
—
5.8
$
$
$
10.6
0.8
351.6
(279.2)
(34.6)
37.8
Total
$
174.2
0.5
35.5
—
38.8
39.9
5.1
—
4.4
0.9
23.9
—
4.6
0.6
1.4
—
11.1
1.3
1.7
—
—
—
2.7
0.8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5.2
$
$
3.6
0.2
346.0
(279.2)
(32.5)
34.3
36.1
39.1
5.1
—
4.4
0.9
23.9
—
4.6
0.6
1.4
—
11.1
1.3
3.6
0.2
340.8
$
(1) Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2) Derivative assets and liabilities reflect the effects of contractual amendments by two central clearing counterparties to legally re-characterize daily cash variation margin from collateral, which secures
an outstanding exposure, to settlement, which discharges an outstanding exposure. One of these central clearing counterparties amended its governing documents, which became effective in January
2017. In addition, the Corporation elected to transfer its existing positions to the settlement platform for the other central clearing counterparty in September 2017.
(3) The net derivative asset and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $6.4 billion and
$435.1 billion at December 31, 2017.
Bank of America 2017 131
(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 (2)
Purchased credit derivatives:
Credit default swaps
Total return swaps/options
Written credit derivatives:
Credit default swaps
Total return swaps/options
Gross Derivative Assets
Gross Derivative Liabilities
December 31, 2016
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
10.7
1.0
619.3
$
—
—
11.8
$
$
10.7
1.0
631.1
(545.3)
(43.3)
42.5
$
(1) Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2) The net derivative asset and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $2.2 billion and
$548.9 billion at December 31, 2016.
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 following table presents derivative instruments included
in derivative assets and liabilities on the Consolidated Balance
Sheet at December 31, 2017 and 2016 by primary risk (e.g.,
interest rate risk) and the platform, where applicable, on which
these derivatives are transacted. Balances are presented on a
gross basis, prior to the application of counterparty and cash
collateral netting. Total gross derivative assets and liabilities are
adjusted on an aggregate basis to take into consideration the
effects of legally enforceable master netting agreements which
includes reducing the balance for counterparty netting and cash
collateral received or paid.
For more information on offsetting of securities financing
agreements, see Note 10 – Federal Funds Sold or Purchased,
Securities Financing Agreements and Short-term Borrowings.
132 Bank of America 2017
Offsetting of Derivatives (1)
(Dollars in billions)
Interest rate contracts
Over-the-counter
Over-the-counter cleared (2)
Foreign exchange contracts
Over-the-counter
Over-the-counter cleared
Equity contracts
Over-the-counter
Exchange-traded
Commodity contracts
Over-the-counter
Exchange-traded
Credit derivatives
Over-the-counter
Over-the-counter cleared (2)
Total gross derivative assets/liabilities, before netting
Over-the-counter
Exchange-traded
Over-the-counter cleared (2)
Less: Legally enforceable master netting agreements and cash collateral received/paid
Over-the-counter
Exchange-traded
Over-the-counter cleared (2)
Derivative assets/liabilities, after netting
Other gross derivative assets/liabilities (3)
Total derivative assets/liabilities
Less: Financial instruments collateral (4)
Derivative
Assets
Derivative
Liabilities
Derivative
Assets
Derivative
Liabilities
December 31, 2017
December 31, 2016
$
$
211.7
1.9
$
206.0
1.8
$
267.3
177.2
78.7
0.9
18.3
9.1
2.9
0.7
9.1
6.1
320.7
9.8
8.9
80.8
0.7
16.2
8.5
4.4
0.8
9.6
6.0
317.0
9.3
8.5
124.3
0.3
15.6
11.4
3.7
1.1
15.3
4.3
426.2
12.5
181.8
258.2
182.8
126.7
0.3
13.7
10.8
4.9
1.0
14.7
4.3
418.2
11.8
187.4
(296.9)
(8.6)
(8.3)
25.6
12.2
37.8
(11.2)
26.6
(294.6)
(8.6)
(8.5)
23.1
11.2
34.3
(10.4)
23.9
(398.2)
(8.9)
(181.5)
31.9
10.6
42.5
(13.5)
29.0
(392.6)
(8.9)
(187.3)
28.6
10.9
39.5
(10.5)
29.0
Total net derivative assets/liabilities
(1) 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, and exchange-traded derivatives include listed options transacted on an exchange.
(2) Derivative assets and liabilities reflect the effects of contractual amendments by two central clearing counterparties to legally re-characterize daily cash variation margin from collateral, which secures
an outstanding exposure, to settlement, which discharges an outstanding exposure. One of these central clearing counterparties amended its governing documents, which became effective in January
2017. In addition, the Corporation elected to transfer its existing positions to the settlement platform for the other central clearing counterparty in September 2017.
(3) Consists of derivatives entered into under master netting agreements where the enforceability of these agreements is uncertain under bankruptcy laws in some countries or industries.
(4) Amounts are limited to the derivative asset/liability balance and, accordingly, do not include excess collateral received/pledged. Financial instruments collateral includes securities collateral received
or pledged and cash securities held and posted at third-party custodians that are not offset on the Consolidated Balance Sheet but shown as a reduction to derive net derivative assets and liabilities.
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 20 – Fair Value Measurements.
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.
Bank of America 2017 133
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
the
Consolidated Balance Sheet at fair value with changes in fair value
recorded in other income.
recorded on
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 following table summarizes information related to fair value
hedges for 2017, 2016 and 2015, 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)
Derivative
Hedged Item
Hedge Ineffectiveness
2017
2016
2015
2017
2016
2015
2017
2016
2015
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)
Total
1,811
(67)
207
$
(941)
227
(718) $ 1,045
(1,767)
35
(1,898)
105
$
646
944
(286)
(687) $ 1,304
$
(77) $
1,812
(127)
$ 1,608
$
(492) $
44
(32)
(480) $
(842) $
3
(59)
(898) $
(795)
(86)
(22)
(903)
$ (2,202) $ (2,511) $
$ (1,537) $ (1,488) $
(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.
Cash Flow and Net Investment Hedges
The table below summarizes certain information related to cash
flow hedges and net investment hedges for 2017, 2016, and
2015. Of the $831 million after-tax net loss ($1.3 billion pre-tax)
on derivatives in accumulated OCI at December 31, 2017, $130
million after-tax ($208 million pre-tax) is expected to be reclassified
into earnings in the next 12 months. These net losses reclassified
into earnings are expected to primarily reduce net interest income
related to the respective hedged items. Amounts related to price
risk on restricted stock awards reclassified from accumulated OCI
are recorded in personnel expense. For terminated cash flow
hedges, the time period over which the majority of the forecasted
transactions are hedged is approximately seven years, with a
maximum length of time for certain forecasted transactions of 19
years.
Derivatives Designated as Cash Flow and Net Investment Hedges
(Dollars in millions, amounts pre-tax)
Cash flow hedges
Interest rate risk on variable-rate portfolios
Price risk on certain restricted stock awards (1)
Total (2)
Net investment hedges
Foreign exchange risk (3)
Gains (Losses) Recognized in
Accumulated OCI on Derivatives
Gains (Losses) in Income
Reclassified from Accumulated OCI
2017
2016
2015
2017
2016
2015
$
$
$
(109) $
59
(50) $
(340) $
41
(299) $
95
(40)
55
(1,588) $
1,636
$
3,010
$
$
$
(327) $
148
(179) $
(553) $
(32)
(585) $
(974)
91
(883)
1,782
$
3
$
153
(3)
(1) Gains (losses) recognized in accumulated OCI are primarily related to the change in the Corporation’s stock price for the period.
(2)
In 2017, 2016 and 2015, amounts representing hedge ineffectiveness were not significant.
In 2017, substantially all of the gains in income reclassified from accumulated OCI were comprised of the gain recognized on derivatives used to hedge the currency risk of the Corporation’s net
investment in its non-U.S. consumer credit card business, which was sold in 2017. For more information, see Note 14 – Accumulated Other Comprehensive Income (Loss). In 2017, 2016 and 2015,
amounts excluded from effectiveness testing in total were $120 million, $325 million and $298 million.
134 Bank of America 2017
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 2017, 2016 and
2015. These gains (losses) are largely offset by the income or
expense that is recorded on the hedged item.
Other Risk Management Derivatives
Gains (Losses)
(Dollars in millions)
Interest rate risk on mortgage banking
income (1)
Credit risk on loans (2)
Interest rate and foreign currency risk on
ALM activities (3)
Price risk on certain restricted stock
awards (4)
2017
2016
2015
$
8
(6)
$
461
$
(107)
254
(22)
(36)
(754)
(222)
301
9
(267)
(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 LHFS, all of which
are measured at fair value with changes in fair value recorded in mortgage banking income.
The fair value of IRLCs is derived from the fair value of related mortgage loans which is based
on observable market data and includes the expected net future cash flows related to servicing
of the loans. 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
$220 million, $533 million and $714 million for 2017, 2016 and 2015, respectively.
(2) Primarily related to derivatives that are economic hedges of credit risk on loans. Net gains
(losses) on these derivatives are recorded in other income.
(3) Primarily related to hedges of debt securities carried at fair value and hedges of foreign currency-
denominated debt. Gains (losses) on these derivatives and the related hedged items are
recorded in other income.
(4) Gains (losses) on these derivatives are recorded in personnel expense.
Transfers of Financial Assets with Risk Retained
through Derivatives
The Corporation enters into certain transactions involving the
transfer of financial assets that are accounted for as sales where
substantially all of the economic exposure to the transferred
financial assets is retained through derivatives (e.g., interest rate
and/or credit), but the Corporation does not retain control over
the assets transferred. Through December 31, 2017 and 2016,
the Corporation transferred $6.0 billion and $6.6 billion of non-
U.S. government-guaranteed MBS to a third-party trust and
retained economic exposure to the transferred assets through
derivative contracts. In connection with these transfers, the
Corporation received gross cash proceeds of $6.0 billion and $6.6
billion at the transfer dates. At December 31, 2017 and 2016,
the fair value of the transferred securities was $6.1 billion and
$6.3 billion. Derivative assets of $46 million and $43 million and
liabilities of $3 million and $10 million were recorded at December
31, 2017 and 2016, and are included in credit derivatives in the
derivative instruments table on page 131.
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.
Bank of America 2017 135
The table below, which includes both derivatives and non-
derivative cash instruments, identifies the amounts in the
respective income statement line items attributable to the
Corporation’s sales and trading revenue in Global Markets,
categorized by primary risk, for 2017, 2016 and 2015. 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 DVA and funding valuation adjustment (FVA)
gains (losses). Global Markets results in Note 23 – Business
Segment Information are presented on a fully taxable-equivalent
(FTE) basis. The following table is not presented on an FTE basis.
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
Trading
Account Profits
Net Interest
Income
Other (1)
Total
$
$
$
$
$
$
1,145
1,417
2,689
1,251
204
6,706
1,613
1,360
1,917
1,250
407
6,547
1,290
1,322
2,115
920
459
6,106
$
$
$
$
$
$
2017
$
980
(1)
(525)
2,537
33
3,024
1,410
(10)
20
2,569
(20)
3,969
1,333
(10)
56
2,333
(81)
3,631
2016
$
2015
$
$
$
$
417
(162)
1,904
577
75
2,811
304
(154)
2,074
424
40
2,688
$
$
$
$
(259) $
(117)
2,152
445
62
2,283
$
2,542
1,254
4,068
4,365
312
12,541
3,327
1,196
4,011
4,243
427
13,204
2,364
1,195
4,323
3,698
440
12,020
(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 $2.0 billion, $2.1 billion, and $2.2 billion for 2017, 2016, and 2015, 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,
2017 and 2016 are summarized in the following table.
136 Bank of America 2017
Credit Derivative Instruments
(Dollars in millions)
Credit default swaps:
Investment grade
Non-investment grade
Total
Total return swaps/options:
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/options:
Investment grade
Non-investment grade
Total
Total credit derivatives
Credit default swaps:
Investment grade
Non-investment grade
Total
Total return swaps/options:
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/options:
Investment grade
Non-investment grade
Total
Total credit derivatives
Less than
One Year
One to
Three Years
Three to
Five Years
Over Five
Years
Total
$
$
$
$
$
$
$
$
$
$
4
203
207
30
150
180
387
$
$
— $
12
12
$
61,388
39,312
100,700
37,394
13,751
51,145
151,845
10
771
781
16
127
143
924
$
$
$
$
— $
70
70
$
December 31, 2017
Carrying Value
3
453
456
—
—
—
456
$
$
— $
4
4
$
61
484
545
—
—
—
545
7
34
41
$
$
$
$
245
2,133
2,378
—
3
3
2,381
689
1,548
2,237
Maximum Payout/Notional
115,480
49,843
165,323
2,581
514
3,095
168,418
$
$
107,081
39,098
146,179
—
143
143
146,322
$
$
21,579
14,420
35,999
143
697
840
36,839
December 31, 2016
Carrying Value
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
Maximum Payout/Notional
$
$
$
$
$
$
$
$
$
$
313
3,273
3,586
30
153
183
3,769
696
1,598
2,294
305,528
142,673
448,201
40,118
15,105
55,223
503,424
1,392
6,071
7,463
16
140
156
7,619
1,977
1,470
3,447
$ 121,083
84,755
205,838
$ 143,200
67,160
210,360
$ 116,540
41,001
157,541
12,792
6,638
19,430
$ 225,268
—
5,127
5,127
$ 215,487
—
589
589
$ 158,130
$
$
21,905
18,711
40,616
$ 402,728
211,627
614,355
—
208
208
40,824
12,792
12,562
25,354
$ 639,709
Credit derivatives 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.
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 so that certain credit
risk-related losses occur within acceptable, predefined limits.
Credit-related notes in the table above 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.
Bank of America 2017 137
certain subsidiaries could be required to post to counterparties
but had not yet posted to counterparties was approximately $3.2
billion, including $2.1 billion for Bank of America, National
Association (Bank of America, N.A. or 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,
2017 and 2016, the liability recorded for these derivative contracts
was not significant.
The following table presents the amount of additional collateral
that would have been contractually required by derivative contracts
and other trading agreements at December 31, 2017 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 at December 31, 2017
(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.
One
incremental
notch
Second
incremental
notch
$
779 $
391
487
230
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, 2017 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 at December 31, 2017
(Dollars in millions)
Derivative liabilities
Collateral posted
One
incremental
notch
Second
incremental
notch
$
428 $
339
1,163
800
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 132, the
Corporation enters into legally enforceable master netting
agreements which reduce risk by permitting 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, 2017 and 2016, the Corporation held cash and
securities collateral of $77.2 billion and $85.5 billion, and posted
cash and securities collateral of $59.2 billion and $71.1 billion in
the normal course of business under derivative agreements,
excluding 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, 2017, the amount of collateral, calculated
based on the terms of the contracts, that the Corporation and
138 Bank of America 2017
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 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 2017, 2016 and 2015. 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. FVA losses have the opposite impact.
Valuation Adjustments on Derivatives (1)
Gains (Losses)
(Dollars in millions)
Derivative assets (CVA)
Derivative assets/liabilities (FVA)
Gross
Net
Gross
Net
Gross
Net
$
2017
330 $
160
98
$
178
2016
374 $
186
$
214
102
2015
255 $
16
227
16
(153)
Derivative liabilities (DVA)
(1) At December 31, 2017, 2016 and 2015, cumulative CVA reduced the derivative assets balance by $677 million, $1.0 billion and $1.4 billion, cumulative FVA reduced the net derivatives balance by
(141)
(18)
24
(281)
(324)
$136 million, $296 million and $481 million, and cumulative DVA reduced the derivative liabilities balance by $450 million, $774 million and $750 million, respectively.
Bank of America 2017 139
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, 2017 and 2016.
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
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 (2)
Available-for-sale marketable equity securities (3)
Available-for-sale debt securities
Mortgage-backed securities:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
December 31, 2017
Fair
Value
$
$
$
194,119
6,846
13,864
2,410
217,239
54,523
6,669
5,699
284,130
20,541
304,671
12,273
316,944
125,013
441,957
27
$
$
$
$
506
39
28
267
840
18
9
73
940
138
1,078
252
1,330
111
1,441
(1,696) $
(81)
(208)
(8)
(1,993)
(1,018)
(1)
(2)
(3,014)
(104)
(3,118)
(39)
(3,157)
(1,825)
(4,982) $
(2) $
192,929
6,804
13,684
2,669
216,086
53,523
6,677
5,770
282,056
20,575
302,631
12,486
315,117
123,299
438,416
25
$
— $
December 31, 2016
$
$
$
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
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
Available-for-sale marketable equity securities (3)
375
(1) At December 31, 2017 and 2016, the underlying collateral type included approximately 62 percent and 60 percent prime, 13 percent and 19 percent Alt-A, and 25 percent and 21 percent subprime.
(2) The Corporation had debt securities from FNMA and FHLMC that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $163.6 billion and $50.3 billion, and a fair value of
$162.1 billion and $50.0 billion at December 31, 2017, and 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.
(1,963) $
(51)
(293)
(31)
(2,338)
(752)
(3)
(23)
(3,116)
(184)
(3,300)
—
(149)
(3,449)
(2,034)
(5,483) $
(1) $
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
Less: Available-for-sale securities of business held for sale (4)
Other debt securities carried at fair value
Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
Total debt securities carried at fair value
Total available-for-sale debt securities
Total debt securities (2)
$
$
$
$
$
$
(3) Classified in other assets on the Consolidated Balance Sheet.
(4) Represents AFS debt securities of business held for sale. In 2017, the Corporation sold its non-U.S. consumer credit card business.
At December 31, 2017, the accumulated net unrealized loss
on AFS debt securities included in accumulated OCI was $1.2
billion, net of the related income tax benefit of $872 million. At
December 31, 2017 and 2016, the Corporation had nonperforming
AFS debt securities of $99 million and $121 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 2017, the Corporation recorded
unrealized mark-to-market net gains of $243 million and realized
net losses of $49 million compared to unrealized mark-to-market
net gains of $51 million and realized net losses of $128 million
in 2016. These amounts exclude hedge results.
140 Bank of America 2017
Other Debt Securities Carried at Fair Value
(Dollars in millions)
Mortgage-backed securities:
December 31
2017
2016
Agency-collateralized mortgage obligations
Non-agency residential
$
Total mortgage-backed securities
Non-U.S. securities (1)
Other taxable securities, substantially all
asset-backed securities
$
5
2,764
2,769
9,488
229
5
3,139
3,144
16,336
240
Total
$
12,486
$
19,720
(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 2017, 2016 and 2015 are presented in the table
below.
Gains and Losses on Sales of AFS Debt Securities
(Dollars in millions)
Gross gains
Gross losses
Net gains on sales of AFS debt securities
Income tax expense attributable to realized
net gains on sales of AFS debt securities
2017
2016
$
$
$
352
(97)
255
97
$
$
$
2015
$ 1,174
(36)
$ 1,138
520
(30)
490
186
$
432
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, 2017 and 2016.
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
Twelve Months or Longer
Total
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
December 31, 2017
$
$
73,535
2,743
5,575
335
82,188
27,537
772
—
110,497
1,090
111,587
$
(352) $
(29)
(50)
(7)
(438)
(251)
(1)
—
(690)
(2)
(692)
72,612
1,684
4,586
—
78,882
24,035
—
92
103,009
7,100
110,109
$
(1,344) $ 146,147
4,427
10,161
335
161,070
51,572
772
92
213,506
8,190
221,696
(52)
(158)
—
(1,554)
(767)
—
(2)
(2,323)
(102)
(2,425)
(1,696)
(81)
(208)
(7)
(1,992)
(1,018)
(1)
(2)
(3,013)
(104)
(3,117)
58
(1)
—
—
58
(1)
AFS debt securities
$ 111,645
$
(693) $ 110,109
$
(2,425) $ 221,754
$
(3,118)
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
$
$ 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)
(1)
Includes OTTI AFS debt securities on which an OTTI loss, primarily related to changes in interest rates, remains in accumulated OCI.
Bank of America 2017 141
Significant assumptions used in estimating the expected cash
flows for measuring credit losses on non-agency residential
mortgage-backed securities (RMBS) were as follows at December
31, 2017.
Significant Assumptions
Range (1)
Weighted-
average
10th
Percentile (2)
90th
Percentile (2)
Prepayment speed
Loss severity
Life default rate
(1) Represents the range of inputs/assumptions based upon the underlying collateral.
(2) The value of a variable below which the indicated percentile of observations will fall.
12.4%
20.2
20.9
3.0%
9.1
1.2
21.3%
36.7
76.6
Annual constant prepayment speed and loss severity rates are
projected considering collateral characteristics such as LTV,
creditworthiness of borrowers as measured using Fair Isaac
Corporation (FICO) scores, and geographic concentrations. The
weighted-average severity by collateral type was 17.5 percent for
prime, 18.1 percent for Alt-A and 29.0 percent for subprime at
December 31, 2017. Default rates are projected by considering
collateral characteristics including, but not limited to, LTV, FICO
and geographic concentration. Weighted-average life default rates
by collateral type were 16.9 percent for prime, 21.4 percent for
Alt-A and 21.6 percent for subprime at December 31, 2017.
The Corporation had $41 million, $19 million and $81 million
of credit-related OTTI losses on AFS debt securities that were
recognized in other income in 2017, 2016 and 2015, respectfully.
The amount of noncredit-related OTTI losses, which is recognized
in OCI, was insignificant for all periods presented.
The cumulative credit loss component of OTTI losses that have
been recognized in income related to AFS debt securities that the
Corporation does not intend to sell was $274 million, $253 million
and $266 million at December 31, 2017, 2016 and 2015,
respectfully.
The Corporation estimates the portion of a loss on a security
that is attributable to credit using a discounted cash flow model
and estimates the expected cash flows of the underlying collateral
using internal credit, interest rate and prepayment risk models
that incorporate management’s best estimate of current key
assumptions such as default rates, loss severity and prepayment
rates. Assumptions used for the underlying loans that support the
MBS can vary widely from loan to loan and are influenced by such
factors as loan interest rate, geographic location of the borrower,
borrower characteristics and collateral type. Based on these
assumptions, the Corporation then determines how the underlying
collateral cash flows will be distributed to each MBS issued from
the applicable special purpose entity. Expected principal and
interest cash flows on an impaired AFS debt security are
discounted using the effective yield of each individual impaired
AFS debt security.
142 Bank of America 2017
The remaining contractual maturity distribution and yields of the Corporation’s debt securities carried at fair value and HTM debt
securities at December 31, 2017 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)
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
Other taxable securities, substantially all asset-backed
securities
Total taxable securities
Tax-exempt securities
Total amortized cost of debt securities carried at fair
value
Amortized cost of HTM debt securities (2)
Debt securities carried at fair value
Mortgage-backed securities:
Agency
Agency-collateralized mortgage obligations
Commercial
Non-agency residential
Total mortgage-backed securities
U.S. Treasury and agency securities
Non-U.S. securities
Other taxable securities, substantially all asset-backed
securities
Total taxable securities
Tax-exempt securities
Total debt securities carried at fair value
Fair value of HTM debt securities (2)
Due in One
Year or Less
Due after One Year
through Five Years
Due after Five Years
through Ten Years
Due after
Ten Years
Total
Amount
Yield (1)
Amount
Yield (1)
Amount
Yield (1)
Amount
Yield (1)
Amount
Yield (1)
December 31, 2017
$
5
—
54
—
59
490
13,832
1,979
16,360
1,327
$ 17,687
$
$
1
5
—
54
—
59
491
13,830
1,981
16,361
1,326
$ 17,687
$
1
4.20% $
3.69% $
—
7.45
—
7.18
0.39
1.02
2.53
1.21
1.81
1.25
5.82
28
—
974
—
1,002
23,395
2,111
2,029
28,537
6,927
$ 35,464
$
71
$
28
—
969
—
997
22,898
2,115
2,006
28,016
6,934
—
1.98
—
2.03
1.42
0.97
3.02
1.52
1.88
1.59
3.06
555
33
11,866
24
12,478
30,615
48
1,151
44,292
9,132
$ 53,424
$
1,144
$
555
32
11,703
33
12,323
30,111
48
1,184
43,666
9,162
$ 34,950
$
71
$ 52,828
$
1,117
2.57% $193,531
3.22% $194,119
3.22%
2.52
2.43
0.01
2.43
2.03
0.72
3.22
2.17
1.79
2.11
2.65
6,817
970
4,955
206,273
23
167
751
207,214
3,155
$ 210,369
$ 123,797
3.18
2.78
9.32
3.36
2.52
6.60
4.74
3.37
1.84
3.35
3.03
6,850
13,864
4,979
219,812
54,523
16,158
5,910
296,403
20,541
$ 316,944
$ 125,013
3.18
2.44
9.28
3.31
1.75
1.07
3.11
2.89
1.83
2.82
3.03
$192,341
$192,929
6,777
958
5,400
205,476
23
172
828
206,499
3,153
$ 209,652
$ 122,110
6,809
13,684
5,433
218,855
53,523
16,165
5,999
294,542
20,575
$ 315,117
$ 123,299
(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
premiums and accretion of discounts, excluding the effect of related hedging derivatives.
(2) Substantially all U.S. agency MBS.
Bank of America 2017 143
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, 2017 and 2016.
In 2017, the Corporation sold its non-U.S. consumer credit card
business. This business, which at December 31, 2016 included
$9.2 billion of non-U.S. credit card loans and the related allowance
for loan and lease losses of $243 million, was presented in assets
of business held for sale on the Consolidated Balance Sheet. In
this Note, all applicable amounts for December 31, 2016 include
these balances, unless otherwise noted. For more information,
see Note 1 – Summary of Significant Accounting Principles.
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
Past Due (3)
Loans
Accounted
for Under
the Fair
Value Option
Purchased
Credit-
impaired (4)
(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
Direct/Indirect consumer (6)
Other consumer (7)
Total consumer
Consumer loans accounted for under the
fair value option (8)
$
$
1,242
215
1,028
224
542
320
10
3,581
$
321
108
468
121
405
102
2
1,527
1,040
473
3,535
572
900
43
1
6,564
December 31, 2017
$
2,603
796
$ 174,015
43,449
5,031
917
1,847
465
13
11,672
14,161
9,866
$
8,001
2,716
94,438
93,365
2,665
431,959
10,717
Total consumer loans and leases
3,581
1,527
6,564
11,672
431,959
10,717
$
928
928
Commercial
U.S. commercial
Non-U.S. commercial
Commercial real estate (9)
Commercial lease financing
U.S. small business commercial
Total commercial
Commercial loans accounted for under
the fair value option (8)
547
52
48
110
95
852
244
1
10
68
45
368
425
3
29
26
88
571
1,216
56
87
204
228
1,791
283,620
97,736
58,211
21,912
13,421
474,900
Total commercial loans and leases
Total loans and leases (10)
852
4,433
$
368
1,895
$
571
7,135
1,791
13,463
$
474,900
$ 906,859
$
$
10,717
$
Total
Outstandings
$ 176,618
44,245
27,193
13,499
96,285
93,830
2,678
454,348
928
455,276
284,836
97,792
58,298
22,116
13,649
476,691
4,782
4,782
5,710
4,782
481,473
$ 936,749
100.00%
Percentage of outstandings
(1) Consumer real estate loans 30-59 days past due includes fully-insured loans of $850 million and nonperforming loans of $253 million. Consumer real estate loans 60-89 days past due includes
96.81%
0.20%
0.48%
0.76%
1.44%
1.14%
0.61%
fully-insured loans of $386 million and nonperforming loans of $195 million.
(2) Consumer real estate includes fully-insured loans of $3.2 billion.
(3) Consumer real estate includes $2.3 billion and direct/indirect consumer includes $43 million of nonperforming loans.
(4) PCI loan amounts are shown gross of the valuation allowance.
(5) Total outstandings includes pay option loans of $1.4 billion. The Corporation no longer originates this product.
(6) Total outstandings includes auto and specialty lending loans of $49.9 billion, unsecured consumer lending loans of $469 million, U.S. securities-based lending loans of $39.8 billion, non-U.S.
consumer loans of $3.0 billion and other consumer loans of $684 million.
(7) Total outstandings includes consumer leases of $2.5 billion and consumer overdrafts of $163 million.
(8) Consumer loans accounted for under the fair value option includes residential mortgage loans of $567 million and home equity loans of $361 million. Commercial loans accounted for under the fair
value option includes U.S. commercial loans of $2.6 billion and non-U.S. commercial loans of $2.2 billion. For more information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value
Option.
(9) Total outstandings includes U.S. commercial real estate loans of $54.8 billion and non-U.S. commercial real estate loans of $3.5 billion.
(10) The Corporation pledged $160.3 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.
144 Bank of America 2017
(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)
Commercial
U.S. commercial
Non-U.S. commercial
Commercial real estate (9)
Commercial lease financing
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)
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
Past Due (3)
Loans
Accounted
for Under
the Fair
Value Option
Purchased
Credit-
impaired (4)
Total
Outstandings
December 31, 2016
$
2,978
795
$ 153,519
48,578
$ 156,497
49,373
$
$
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
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
35,300
17,070
92,278
9,214
94,089
2,499
456,320
1,051
457,371
270,372
89,397
57,355
22,375
12,993
452,492
6,034
458,526
$
1,051
1,051
6,034
6,034
(9,214)
$ 906,683
Total consumer loans and leases
3,984
1,795
8,727
14,506
428,076
13,738
952
348
20
167
96
1,583
263
4
10
21
49
347
400
5
56
27
84
572
1,615
357
86
215
229
2,502
268,757
89,040
57,269
22,160
12,764
449,990
1,583
347
572
2,502
449,990
$
5,567
$
2,142
$
9,299
$
17,008
$ 878,066
$
13,738
$
7,085
$ 915,897
Total loans and leases (11)
Percentage of outstandings (10)
100.00%
(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%
0.61%
1.02%
0.77%
1.50%
1.86%
0.23%
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 includes residential mortgage loans of $710 million and home equity loans of $341 million. Commercial loans accounted for under the fair
value option includes U.S. commercial loans of $2.9 billion and non-U.S. commercial loans of $3.1 billion. For more 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 were 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 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.
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. All other loans are generally
characterized as non-core loans and represent run-off portfolios.
The Corporation has entered into long-term credit protection
agreements with FNMA and FHLMC on loans totaling $6.3 billion
and $6.4 billion at December 31, 2017 and 2016, 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, 2017
and 2016, $330 million and $428 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, 2017,
nonperforming loans discharged in Chapter 7 bankruptcy with no
change in repayment terms were $358 million of which $209
million were current on their contractual payments, while $124
million were 90 days or more past due. Of the contractually current
nonperforming loans, 66 percent were discharged in Chapter 7
Bank of America 2017 145
bankruptcy over 12 months ago, and 57 percent were discharged
24 months or more ago.
transferred consumer nonperforming loans with a net carrying
value of $198 million and $55 million to held-for-sale.
During 2017, the Corporation sold nonperforming and other
delinquent consumer real estate loans with a carrying value of
$1.3 billion, including $803 million of PCI loans, compared to $2.2
billion, including $549 million of PCI loans, in 2016. The
Corporation recorded net recoveries of $105 million related to
these sales during 2017 and net charge-offs of $30 million during
2016. Gains related to these sales of $57 million and $75 million
were recorded in other income in the Consolidated Statement of
Income during 2017 and 2016. In 2017 and 2016, the Corporation
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, 2017 and
2016. 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
Nonperforming Loans
and Leases
Accruing Past Due
90 Days or More
2017
2016
2017
2016
December 31
$
$
1,087
1,079
$
1,274
969
$
417
—
1,389
1,565
n/a
n/a
46
—
5,166
1,782
1,949
n/a
n/a
28
2
6,004
2,813
—
900
—
40
—
4,170
486
—
4,307
—
782
66
34
4
5,679
U.S. commercial
Non-U.S. commercial
Commercial real estate
Commercial lease financing
U.S. small business commercial
106
5
7
19
71
208
5,887
(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, 2017 and 2016, residential mortgage includes $2.2 billion
and $3.0 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 $1.0 billion and $1.8 billion of loans
on which interest is still accruing.
1,256
279
72
36
60
1,703
7,707
Total commercial
Total loans and leases
144
3
4
19
75
245
4,415
814
299
112
24
55
1,304
6,470
$
$
$
$
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.
146 Bank of America 2017
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, 2017 and 2016.
Consumer Real Estate – Credit Quality Indicators (1)
(Dollars in millions)
Refreshed LTV (4)
Less than or equal to 90 percent
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
Core Residential
Mortgage (2)
Non-core
Residential
Mortgage (2)
Residential
Mortgage PCI (3)
Core Home
Equity (2)
Non-core Home
Equity (2)
Home
Equity PCI
December 31, 2017
$
$
$
$
$
$
153,669
3,082
1,322
18,545
176,618
2,234
4,531
22,934
128,374
18,545
$
$
$
12,135
850
1,011
5,196
19,192
2,390
2,086
3,519
6,001
5,196
$
$
$
6,872
559
570
—
8,001
1,941
1,657
2,396
2,007
—
$
$
$
43,048
549
648
—
44,245
1,169
2,371
8,115
32,590
—
$
$
$
7,944
1,053
1,786
—
10,783
2,098
2,393
2,723
3,569
—
$
176,618
$
19,192
$
8,001
$
44,245
$
10,783
$
1,781
412
523
—
2,716
452
466
786
1,012
—
2,716
(1) Excludes $928 million of loans accounted for under the fair value option.
(2) Excludes PCI loans.
(3)
Includes $1.2 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 (1, 2)
Total credit card and other consumer
U.S. Credit
Card
Direct/Indirect
Consumer
Other
Consumer
December 31, 2017
$
$
4,730
$
12,422
35,656
43,477
—
$
1,630
2,000
11,906
34,838
43,456
96,285
$
93,830
$
49
143
398
1,921
167
2,678
(1) Other internal credit metrics may include delinquency status, geography or other factors.
(2) Direct/indirect consumer includes $42.8 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk.
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
U.S.
Commercial
Non-U.S.
Commercial
Commercial
Real Estate
December 31, 2017
Commercial
Lease
Financing
U.S. Small
Business
Commercial (2)
$
275,904
8,932
$
96,199
1,593
$
57,732
566
$
21,535
581
$
$
284,836
$
97,792
$
58,298
$
22,116
$
322
50
223
625
1,875
3,713
6,841
13,649
(1) Excludes $4.8 billion of loans accounted for under the fair value option.
(2) U.S. small business commercial includes $709 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, 2017, 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.
Bank of America 2017
147
Bank of America 2017 147
Consumer Real Estate – Credit Quality Indicators (1)
(Dollars in millions)
Refreshed LTV (4)
Less than or equal to 90 percent
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
Core Residential
Mortgage (2)
Non-core
Residential
Mortgage (2)
Residential
Mortgage PCI (3)
Core Home
Equity (2)
Non-core Home
Equity (2)
Home
Equity PCI
December 31, 2016
$
$
$
$
129,737
3,634
1,872
21,254
156,497
2,479
5,094
22,629
105,041
21,254
156,497
$
$
$
$
14,280
$
1,446
1,972
7,475
25,173
3,198
2,807
4,512
7,181
7,475
25,173
$
$
$
7,811
1,021
1,295
—
10,127
2,741
2,241
2,916
2,229
—
10,127
$
$
$
$
47,171
1,006
1,196
—
49,373
1,254
2,853
10,069
35,197
—
49,373
$
$
$
$
8,480
1,668
3,311
—
13,459
2,692
3,094
3,176
4,497
—
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
U.S. Credit
Card
Non-U.S.
Credit Card
Direct/Indirect
Consumer
Other
Consumer (1)
December 31, 2016
$
$
4,431
$
— $
1,478
$
12,364
34,828
40,655
—
92,278
$
—
—
—
9,214
9,214
2,070
12,491
33,420
44,630
$
94,089
$
187
222
404
1,525
161
2,499
(1) At December 31, 2016, 19 percent of the other consumer portfolio was 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 was 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
U.S.
Commercial
Non-U.S.
Commercial
Commercial
Real Estate
December 31, 2016
Commercial
Lease
Financing
U.S. Small
Business
Commercial (2)
$
261,214
9,158
$
85,689
3,708
$
56,957
398
$
21,565
810
$
$
270,372
$
89,397
$
57,355
$
22,375
$
453
71
200
591
1,741
3,264
6,673
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.
148 Bank of America 2017
148 Bank of America 2017
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 more 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 government programs or the Corporation’s
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 $1.2 billion were included in TDRs
at December 31, 2017, of which $358 million were classified as
nonperforming and $419 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, 2017 and 2016, 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 $236 million and $363 million
at December 31, 2017 and 2016. The carrying value of consumer
real estate loans, including fully-insured and PCI loans, for which
formal foreclosure proceedings were in process at December 31,
2017 was $3.6 billion. During 2017 and 2016, the Corporation
reclassified $815 million and $1.4 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 in the Consolidated Statement of Cash Flows.
The following table provides the unpaid principal balance,
carrying value and related allowance at December 31, 2017 and
2016, and the average carrying value and interest income
recognized for 2017, 2016 and 2015 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.
Bank of America 2017 149
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
Unpaid
Principal
Balance
Carrying
Value
Related
Allowance
Unpaid
Principal
Balance
Carrying
Value
Related
Allowance
December 31, 2017
December 31, 2016
$
$
$
$
$
8,856
3,622
2,908
972
11,764
4,594
$
$
$
6,870
1,956
2,828
900
9,698
2,856
Average
Carrying
Value
Interest
Income
Recognized (1)
2017
$
$
7,737
1,997
3,414
858
311
109
123
24
$
$
$
$
$
— $
—
11,151
3,704
$
$
174
174
174
174
4,041
910
15,192
4,614
Average
Carrying
Value
Interest
Income
Recognized (1)
2016
10,178
1,906
5,067
852
$
$
360
90
167
24
$
$
$
$
$
8,695
1,953
3,936
824
12,631
2,777
$
$
$
—
—
219
137
219
137
Average
Carrying
Value
Interest
Income
Recognized (1)
2015
13,867
1,777
7,290
785
$
$
403
89
236
24
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
15,245
2,758
11,151
2,855
639
113
527
114
434
133
$
$
$
$
$
$
(1)
The table below presents the December 31, 2017, 2016 and 2015 unpaid principal balance, carrying value, and average pre- and
post-modification interest rates on consumer real estate loans that were modified in TDRs during 2017, 2016 and 2015, 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 2017, 2016 and 2015 (1)
Unpaid
Principal
Balance
Carrying
Value
Pre-
Modification
Interest Rate
Post-
Modification
Interest Rate (2)
(Dollars in millions)
Residential mortgage
Home equity
Total
Residential mortgage
Home equity
Total
Residential mortgage
Home equity
Total
824
764
1,588
1,130
849
1,979
2,986
1,019
4,005
$
$
$
$
$
$
December 31, 2017
712
590
1,302
December 31, 2016
1,017
649
1,666
December 31, 2015
2,655
775
3,430
4.43%
4.22
4.33
4.73%
3.95
4.40
4.98%
3.54
4.61
$
$
$
$
$
$
Net
Charge-offs (3)
2017
4.16% $
3.49
3.83
$
4.16% $
2.72
3.54
$
4.43% $
3.17
4.11
$
6
42
48
11
61
72
97
84
181
2016
2015
(1) During 2017, there was no forgiveness of principal related to residential mortgage loans in connection with TDRs compared to $13 million and $396 million during 2016 and 2015.
(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, 2017, 2016 and 2015 due to sales and other dispositions.
150 Bank of America 2017
The table below presents the December 31, 2017, 2016 and 2015 carrying value for consumer real estate loans that were modified
in a TDR during 2017, 2016 and 2015, 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
2017
2015
$
$
$
59
4
22
85
281
63
38
55
437
569
211
1,302
$
$
151
13
23
187
235
40
72
75
422
831
226
1,666
$
431
11
46
488
219
79
168
129
595
1,968
379
3,430
(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 2017, 2016
and 2015 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 monthly payments (not necessarily consecutively) since modification.
Consumer Real Estate – TDRs Entering Payment Default that were Modified During the Preceding 12 Months
(Dollars in millions)
Modifications under government programs
Modifications under proprietary programs
Loans discharged in Chapter 7 bankruptcy (1)
Trial modifications (2)
Total modifications
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.
(1)
(2)
2017
2016
2015
$
$
81
138
116
391
726
$
$
262
196
158
824
1,440
$
$
457
287
285
3,178
4,207
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 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 following table provides the unpaid principal balance,
carrying value and related allowance at December 31, 2017 and
2016, and the average carrying value and interest income
recognized for 2017, 2016 and 2015 on TDRs within the Credit
Card and Other Consumer portfolio segment.
Bank of America 2017 151
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
With an allowance recorded
U.S. credit card
Non-U.S. credit card
Direct/Indirect consumer
Total
Unpaid
Principal
Balance
Carrying
Value (1)
Related
Allowance
Unpaid
Principal
Balance
Carrying
Value (1)
Related
Allowance
December 31, 2017
December 31, 2016
$
$
$
$
$
$
$
$
58
454
n/a
1
454
n/a
59
28
461
n/a
1
461
n/a
29
Average
Carrying
Value
Interest
Income
Recognized (2)
2017
$
$
21
464
47
2
2
25
1
—
$
$
$
$
$
— $
$
$
125
n/a
—
125
n/a
—
$
$
$
49
479
88
3
479
88
52
$
$
$
22
485
100
3
485
100
25
—
128
61
—
128
61
—
Average
Carrying
Value
Interest
Income
Recognized (2)
Average
Carrying
Value
Interest
Income
Recognized (2)
2016
$
$
20
556
111
10
2015
$
$
22
749
145
51
— $
$
31
3
1
—
43
4
3
U.S. credit card
Non-U.S. credit card
Direct/Indirect 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.
749
145
73
556
111
30
464
47
23
31
3
1
43
4
3
25
1
2
$
$
$
$
$
$
(1)
(2)
n/a = not applicable
The table below provides information on the Corporation’s primary modification programs for the Credit Card and Other Consumer
TDR portfolio at December 31, 2017 and 2016.
Credit Card and Other Consumer – TDRs by Program Type at December 31
(Dollars in millions)
U.S. credit card
Non-U.S. credit card
Direct/Indirect consumer
Total TDRs by program type
$
$
Internal Programs
External Programs
Other (1)
Total
Percent of Balances Current or
Less Than 30 Days Past Due
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
203
n/a
1
$
220
$
11
2
257
n/a
—
$
264
$
1
$
7
1
n/a
28
29
$
1
82
22
$
461
n/a
29
485
100
25
610
86.92%
n/a
88.16
87.00
88.99%
38.47
90.49
80.79
204
$
233
$
257
$
272
$
$
105
$
490
$
(1) Other TDRs for non-U.S. credit card included modifications of accounts that are ineligible for a fixed payment plan.
n/a = not applicable
152 Bank of America 2017
The table below provides information on the Corporation’s Credit Card and Other Consumer TDR portfolio including the December
31, 2017, 2016 and 2015 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of loans that
were modified in TDRs during 2017, 2016 and 2015, and net charge-offs recorded during the period in which the modification occurred.
Credit Card and Other Consumer – TDRs Entered into During 2017, 2016 and 2015
(Dollars in millions)
U.S. credit card
Direct/Indirect consumer
Total (2)
U.S. credit card
Non-U.S. credit card
Direct/Indirect consumer
Total (2)
U.S. credit card
Non-U.S. credit card
Direct/Indirect consumer
Total (2)
Includes accrued interest and fees.
(1)
Unpaid
Principal
Balance
Carrying
Value (1)
Pre-
Modification
Interest Rate
Post-
Modification
Interest Rate
$
$
$
$
$
$
203
37
240
163
66
21
250
205
74
19
298
$
$
$
$
$
$
December 31, 2017
213
22
235
18.47%
4.81
17.17
December 31, 2016
172
75
13
260
17.54%
23.99
3.44
18.73
December 31, 2015
218
86
12
316
17.07%
24.05
5.95
18.58
5.32%
4.30
5.22
5.47%
0.52
3.29
3.93
5.08%
0.53
5.19
3.84
(2) Net charge-offs were $52 million, $74 million and $98 million in 2017, 2016 and 2015, respectively.
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 and 15 percent of new direct/indirect consumer
TDRs may be in payment default within 12 months after
modification. Loans that entered into payment default during
2017, 2016 and 2015 that had been modified in a TDR during
the preceding 12 months were $28 million, $30 million and $43
million for U.S. credit card, $0, $127 million and $152 million for
non-U.S. credit card, and $4 million, $2 million and $3 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
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, 2017 and 2016, remaining commitments to
lend additional funds to debtors whose terms have been modified
in a commercial loan TDR were $205 million and $461 million.
Commercial foreclosed properties totaled $52 million and $14
million at December 31, 2017 and 2016.
Bank of America 2017 153
The table below provides information on impaired loans in the Commercial loan portfolio segment including the unpaid principal
balance, carrying value and related allowance at December 31, 2017 and 2016, and the average carrying value and interest income
recognized for 2017, 2016 and 2015. Certain impaired commercial loans do not have a related allowance as the valuation of these
impaired loans exceeded the carrying value, which is net of previously recorded charge-offs.
Impaired Loans – Commercial
(Dollars in millions)
With no recorded allowance
U.S. commercial
Non-U.S. commercial
Commercial real estate
With an allowance recorded
U.S. commercial
Non-U.S. commercial
Commercial real estate
Commercial lease financing
U.S. small business commercial (1)
Total
U.S. commercial
Non-U.S. commercial
Commercial real estate
Commercial lease financing
U.S. small business commercial (1)
With no recorded allowance
U.S. commercial
Non-U.S. commercial
Commercial real estate
With an allowance recorded
U.S. commercial
Non-U.S. commercial
Commercial real estate
Commercial lease financing
U.S. small business commercial (1)
Total
Unpaid
Principal
Balance
Carrying
Value
Related
Allowance
Unpaid
Principal
Balance
Carrying
Value
Related
Allowance
December 31, 2017
December 31, 2016
$
$
$
$
$
$
$
$
$
$
$
$
$
576
14
83
1,393
528
133
20
84
1,969
542
216
20
84
571
11
80
1,109
507
41
18
70
1,680
518
121
18
70
Average
Carrying
Value
Interest
Income
Recognized (2)
2017
$
$
772
46
69
1,260
463
73
8
73
12
—
1
33
13
2
—
—
— $
—
—
$
$
98
58
4
3
27
98
58
4
3
27
860
130
77
2,018
545
243
6
85
2,878
675
320
6
85
Average
Carrying
Value
Interest
Income
Recognized (2)
2016
$
$
787
34
67
1,569
409
92
2
87
14
1
—
59
14
4
—
1
$
$
$
$
$
$
$
$
827
130
71
1,569
432
96
4
73
2,396
562
167
4
73
—
—
—
132
104
10
—
27
132
104
10
—
27
Average
Carrying
Value
Interest
Income
Recognized (2)
2015
$
$
688
29
75
953
125
216
—
109
14
1
1
48
7
7
—
1
U.S. commercial
Non-U.S. commercial
Commercial real estate
Commercial lease financing
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
154
291
—
109
2,356
443
159
2
87
2,032
509
142
8
73
73
15
4
—
1
62
8
8
—
1
45
13
3
—
—
$
$
$
$
$
$
(1)
(2)
154 Bank of America 2017
December 31, 2015
Accretable yield, December 31, 2017
The table below presents the December 31, 2017, 2016 and
2015 unpaid principal balance and carrying value of commercial
loans that were modified as TDRs during 2017, 2016 and 2015,
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 2017, 2016
and 2015
(Dollars in millions)
U.S. commercial
Non-U.S. commercial
Commercial real estate
Commercial lease financing
U.S. small business commercial (1)
Total (2)
U.S. commercial
Non-U.S. commercial
Commercial real estate
Commercial lease financing
U.S. small business commercial (1)
Total (2)
U.S. commercial
Non-U.S. commercial
Commercial real estate
U.S. small business commercial (1)
Total (2)
$
$
$
$
$
$
Unpaid
Principal
Balance
Carrying
Value
December 31, 2017
1,033
105
35
20
13
1,206
$
$
922
105
24
17
13
1,081
December 31, 2016
1,556
255
77
6
1
1,895
$
$
1,482
253
77
4
1
1,817
853
329
42
14
1,238
$
$
779
326
42
11
1,158
(1) U.S. small business commercial TDRs are comprised of renegotiated small business card loans.
(2) Net charge-offs were $138 million, $137 million and $31 million in 2017, 2016 and 2015,
respectively.
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 $64 million, $140 million and $105
million for U.S. commercial and $19 million, $34 million and $25
million for commercial real estate at December 31, 2017, 2016
and 2015, respectively.
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
2017 and 2016 were primarily due to an increase in the expected
principal and interest cash flows due to lower default estimates
and rising interest rate environment.
Rollforward of Accretable Yield
(Dollars in millions)
Accretable yield, January 1, 2016
Accretion
Disposals/transfers
Reclassifications from nonaccretable difference
Accretable yield, December 31, 2016
Accretion
Disposals/transfers
Reclassifications from nonaccretable difference
$
$
4,569
(722)
(486)
444
3,805
(601)
(634)
219
2,789
During 2017 and 2016, the Corporation sold PCI loans with a
carrying value of $803 million and $549 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 $11.4 billion and $9.1 billion at
December 31, 2017 and 2016. Cash and non-cash proceeds from
sales and paydowns of loans originally classified as LHFS were
$41.3 billion, $32.6 billion and $41.2 billion for 2017, 2016 and
2015, respectively. Cash used for originations and purchases of
LHFS totaled $43.5 billion, $33.1 billion and $37.9 billion for
2017, 2016 and 2015, respectively.
Bank of America 2017 155
NOTE 5 Allowance for Credit Losses
The table below summarizes the changes in the allowance for credit losses by portfolio segment for 2017, 2016 and 2015.
Consumer
Real Estate (1)
Credit Card and
Other Consumer
Commercial
Total
Allowance
(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 (2)
Write-offs of PCI loans (3)
Provision for loan and lease losses (4)
Other (5)
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 (2)
Write-offs of PCI loans (3)
Provision for loan and lease losses (4)
Other (5)
Total allowance for loan and lease losses, December 31
Less: Allowance included in assets of business held for sale (6)
Allowance for loan and lease losses, December 31
Reserve for unfunded lending commitments, January 1
Provision for unfunded lending commitments
Other (5)
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 (3)
Provision for loan and lease losses (4)
Other (5)
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
$
$
$
$
$
$
2,750
(770)
657
(113)
(207)
(710)
—
1,720
—
—
—
1,720
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
$
$
$
$
$
$
2017
$
$
2016
$
3,229
(3,774)
809
(2,965)
—
3,437
(38)
3,663
—
—
—
3,663
3,471
(3,553)
770
(2,783)
—
2,826
(42)
3,472
(243)
3,229
—
—
—
—
3,229
4,047
(3,620)
813
(2,807)
—
2,278
(47)
3,471
—
—
—
3,471
$
2015
$
$
5,258
(1,075)
174
(901)
—
654
(1)
5,010
762
15
777
5,787
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
$
$
$
$
$
$
11,237
(5,619)
1,640
(3,979)
(207)
3,381
(39)
10,393
762
15
777
11,170
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
(1)
(2)
(3)
(4)
Includes valuation allowance associated with the PCI loan portfolio.
Includes net charge-offs related to the non-U.S. credit card loan portfolio, which was included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016. In 2017,
the Corporation sold its non-U.S. consumer credit card business.
Includes write-offs of $87 million, $60 million and $234 million associated with the sale of PCI loans in 2017, 2016 and 2015, respectively.
Includes provision expense of $76 million and a benefit of $45 million and $40 million associated with the PCI loan portfolio in 2017, 2016 and 2015, respectively.
(5) Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments, transfers to held-for-sale and certain other reclassifications.
(6) Represents allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which was sold in 2017.
156 Bank of America 2017
The table below presents the allowance and the carrying value of outstanding loans and leases by portfolio segment at December
31, 2017 and 2016.
Allowance and Carrying Value by Portfolio Segment
Consumer
Real Estate
Credit Card and
Other Consumer
Commercial
Total
(Dollars in millions)
Impaired loans and troubled debt restructurings (1)
Allowance for loan and lease losses (2)
Carrying value (3)
Allowance as a percentage of carrying value
Loans collectively evaluated for impairment
Allowance for loan and lease losses
Carrying value (3, 4)
Allowance as a percentage of carrying value (4)
Purchased credit-impaired loans
Valuation allowance
Carrying value gross of valuation allowance
Valuation allowance as a percentage of carrying value
Total
Allowance for loan and lease losses
Carrying value (3, 4)
Allowance as a percentage of carrying value (4)
Impaired loans and troubled debt restructurings (1)
Allowance for loan and lease losses (2)
Carrying value (3)
Allowance as a percentage of carrying value
Loans collectively evaluated for impairment
Allowance for loan and lease losses
Carrying value (3, 4)
Allowance as a percentage of carrying value (4)
Purchased credit-impaired loans
Valuation allowance
Carrying value gross of valuation allowance
Valuation allowance as a percentage of carrying value
Less: Assets of business held for sale (5)
Allowance for loan and lease losses (6)
Carrying value (3)
Total
$
$
$
$
$
$
$
$
$
$
$
$
348
12,554
2.77%
1,083
238,284
0.45%
289
10,717
2.70%
1,720
261,555
0.66%
356
15,408
2.31%
1,975
229,094
0.86%
419
13,738
3.05%
December 31, 2017
$
$
125
490
25.51%
3,538
192,303
1.84%
n/a
n/a
n/a
190
2,407
7.89%
4,820
474,284
1.02%
n/a
n/a
n/a
3,663
192,793
$
1.90%
5,010
476,691
1.05%
December 31, 2016
$
$
189
610
30.98%
3,283
197,470
1.66%
273
3,202
8.53%
4,985
449,290
1.11%
$
$
$
$
$
$
$
$
663
15,451
4.29%
9,441
904,871
1.04%
289
10,717
2.70%
10,393
931,039
1.12%
818
19,220
4.26%
10,243
875,854
1.17%
419
13,738
3.05%
(243)
(9,214)
n/a
n/a
n/a
$
n/a
n/a
(243)
(9,214)
n/a
n/a
n/a
n/a
n/a
Allowance for loan and lease losses
Carrying value (3, 4)
Allowance as a percentage of carrying value (4)
1.25%
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.
11,237
899,598
3,229
188,866
5,258
452,492
2,750
258,240
1.71%
1.16%
1.06%
$
$
$
$
(1)
(2) Allowance for loan and lease losses includes $27 million related to impaired U.S. small business commercial at both December 31, 2017 and 2016.
(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 $5.7 billion and $7.1 billion at December 31, 2017 and 2016.
(5) Represents allowance for loan and lease losses and loans related to the non-U.S. credit card loan portfolio, which was included in assets of business held for sale on the Consolidated Balance
Sheet at December 31, 2016. In 2017, the Corporation sold its non-U.S. consumer credit card business.
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 at December 31, 2016.
(6)
n/a = not applicable
Bank of America 2017 157
NOTE 6 Securitizations and Other Variable
NOTE 6 Securitizations and Other Variable
Interest Entities
Interest Entities
The Corporation utilizes VIEs in the ordinary course of business
The Corporation utilizes VIEs in the ordinary course of business
to support its own and its customers’ financing and investing
to support its own and its customers’ financing and investing
needs. The Corporation routinely securitizes loans and debt
needs. The Corporation routinely securitizes loans and debt
securities using VIEs as a source of funding for the Corporation
securities using VIEs as a source of funding for the Corporation
and as a means of transferring the economic risk of the loans or
and as a means of transferring the economic risk of the loans or
debt securities to third parties. The assets are transferred into a
debt securities to third parties. The assets are transferred into a
trust or other securitization vehicle such that the assets are legally
trust or other securitization vehicle such that the assets are legally
isolated from the creditors of the Corporation and are not available
isolated from the creditors of the Corporation and are not available
to satisfy its obligations. These assets can only be used to settle
to satisfy its obligations. These assets can only be used to settle
obligations of the trust or other securitization vehicle. The
obligations of the trust or other securitization vehicle. The
Corporation also administers, structures or invests in other VIEs
Corporation also administers, structures or invests in other VIEs
including CDOs, investment vehicles and other entities. For more
including CDOs, investment vehicles and other entities. For more
information on the Corporation’s use of VIEs, see Note 1 –
information on the Corporation’s use of VIEs, see Note 1 –
Summary of Significant Accounting Principles.
Summary of Significant Accounting Principles.
The tables in this Note present the assets and liabilities of
The tables in this Note present the assets and liabilities of
consolidated and unconsolidated VIEs at December 31, 2017 and
consolidated and unconsolidated VIEs at December 31, 2017 and
2016 in situations where the Corporation has continuing
2016 in situations where the Corporation has continuing
involvement with transferred assets or if the Corporation
involvement with transferred assets or if the Corporation
otherwise has a variable interest in the VIE. The tables also
otherwise has a variable interest in the VIE. The tables also
present the Corporation’s maximum loss exposure at December
present the Corporation’s maximum loss exposure at December
31, 2017 and 2016 resulting from its involvement with
31, 2017 and 2016 resulting from its involvement with
consolidated VIEs and unconsolidated VIEs in which the
consolidated VIEs and unconsolidated VIEs in which the
Corporation holds a variable interest. The Corporation’s maximum
Corporation holds a variable interest. The Corporation’s maximum
loss exposure is based on the unlikely event that all of the assets
loss exposure is based on the unlikely event that all of the assets
in the VIEs become worthless and incorporates not only potential
in the VIEs become worthless and incorporates not only potential
losses associated with assets recorded on the Consolidated
losses associated with assets recorded on the Consolidated
Balance Sheet but also potential losses associated with off-
Balance Sheet but also potential losses associated with off-
balance sheet commitments, such as unfunded liquidity
balance sheet commitments, such as unfunded liquidity
commitments and other contractual arrangements. The
commitments and other contractual arrangements. The
Corporation’s maximum loss exposure does not include losses
Corporation’s maximum loss exposure does not include losses
previously recognized through write-downs of assets.
previously recognized through write-downs of assets.
The Corporation invests in ABS issued by third-party VIEs with
The Corporation invests in ABS issued by third-party VIEs with
which it has no other form of involvement and enters into certain
which it has no other form of involvement and enters into certain
commercial lending arrangements that may also incorporate the
commercial lending arrangements that may also incorporate the
use of VIEs, for example to hold collateral. These securities and
use of VIEs, for example to hold collateral. These securities and
loans are included in Note 3 – Securities or Note 4 – Outstanding
loans are included in Note 3 – Securities or Note 4 – Outstanding
Loans and Leases. In addition, the Corporation uses VIEs such as
Loans and Leases. In addition, the Corporation uses VIEs such as
trust preferred securities trusts in connection with its funding
trust preferred securities trusts in connection with its funding
activities. For more information, see Note 11 – Long-term Debt.
activities. For more information, see Note 11 – Long-term Debt.
These VIEs, which are generally not consolidated by the
These VIEs, which are generally not consolidated by the
Corporation, as applicable, are not included in the tables herein.
Corporation, as applicable, are not included in the tables herein.
Except as described below, the Corporation did not provide
Except as described below, the Corporation did not provide
financial support to consolidated or unconsolidated VIEs during
financial support to consolidated or unconsolidated VIEs during
2017, 2016 and 2015 that it was not previously contractually
2017, 2016 and 2015 that it was not previously contractually
required to provide, nor does it intend to do so.
required to provide, nor does it intend to do so.
First-lien Mortgage Securitizations
First-lien Mortgage Securitizations
First-lien Mortgages
First-lien Mortgages
As part of its mortgage banking activities, the Corporation
As part of its mortgage banking activities, the Corporation
securitizes a portion of the first-lien residential mortgage loans it
securitizes a portion of the first-lien residential mortgage loans it
originates or purchases from third parties, generally in the form
originates or purchases from third parties, generally in the form
of RMBS guaranteed by government-sponsored enterprises, FNMA
of RMBS guaranteed by government-sponsored enterprises, FNMA
and FHLMC (collectively the GSEs), or the Government National
and FHLMC (collectively the GSEs), or the Government National
Mortgage Association (GNMA) primarily in the case of FHA-insured
Mortgage Association (GNMA) primarily in the case of FHA-insured
and U.S. Department of Veterans Affairs (VA)-guaranteed
and U.S. Department of Veterans Affairs (VA)-guaranteed
mortgage loans. Securitization usually occurs in conjunction with
mortgage loans. Securitization usually occurs in conjunction with
or shortly after origination or purchase, and the Corporation may
or shortly after origination or purchase, and the Corporation may
also securitize loans held in its residential mortgage portfolio. In
also securitize loans held in its residential mortgage portfolio. In
addition, the Corporation may, from time to time, securitize
addition, the Corporation may, from time to time, securitize
commercial mortgages it originates or purchases from other
commercial mortgages it originates or purchases from other
entities. The Corporation typically services the loans it securitizes.
entities. The Corporation typically services the loans it securitizes.
Further, the Corporation may retain beneficial interests in the
Further, the Corporation may retain beneficial interests in the
securitization trusts including senior and subordinate securities
securitization trusts including senior and subordinate securities
and equity tranches issued by the trusts. Except as described
and equity tranches issued by the trusts. Except as described
below and in Note 7 – Representations and Warranties Obligations
below and in Note 7 – Representations and Warranties Obligations
and Corporate Guarantees, the Corporation does not provide
and Corporate Guarantees, the Corporation does not provide
guarantees or recourse to the securitization trusts other than
guarantees or recourse to the securitization trusts other than
standard representations and warranties.
standard representations and warranties.
The table below summarizes select information related to first-
The table below summarizes select information related to first-
lien mortgage securitizations for 2017, 2016 and 2015.
lien mortgage securitizations for 2017, 2016 and 2015.
First-lien Mortgage Securitizations
First-lien Mortgage Securitizations
(Dollars in millions)
(Dollars in millions)
Residential Mortgage - Agency
Residential Mortgage - Agency
2016
2016
2017
2017
2015
2015
Commercial Mortgage
Commercial Mortgage
2016
2016
2015
2015
2017
2017
Cash proceeds from new securitizations (1)
Cash proceeds from new securitizations (1)
$
$
14,467
14,467
$
$
24,201
24,201
$
$
27,164
27,164
$
$
5,641
5,641
$
$
3,887
3,887
$
$
7,945
7,945
Gains on securitizations (2)
Gains on securitizations (2)
Repurchases from securitization trusts (3)
Repurchases from securitization trusts (3)
158
158
2,713
2,713
370
370
3,611
3,611
894
894
3,716
3,716
91
91
—
—
38
38
—
—
49
49
—
—
(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
(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
into the market to third-party investors for cash proceeds.
into the market to third-party investors for cash proceeds.
(2) A majority of the first-lien residential mortgage loans securitized are initially classified as LHFS and accounted for under the fair value option. Gains recognized on these LHFS prior to securitization,
(2) A majority of the first-lien residential 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 $243 million, $487 million and $750 million net of hedges, during 2017, 2016 and 2015, respectively, are not included in the table above.
which totaled $243 million, $487 million and $750 million net of hedges, during 2017, 2016 and 2015, 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
(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. Repurchased loans include FHA-insured mortgages collateralizing GNMA securities.
repurchase loans from securitization trusts to perform modifications. Repurchased loans include 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 $1.9
In addition to cash proceeds as reported in the table above, the Corporation received securities with an initial fair value of $1.9
billion, $4.2 billion and $22.3 billion in connection with first-lien mortgage securitizations in 2017, 2016 and 2015. The receipt of
billion, $4.2 billion and $22.3 billion in connection with first-lien mortgage securitizations in 2017, 2016 and 2015. The receipt of
these securities represents non-cash operating and investing activities and, accordingly, is not reflected in the Consolidated Statement
these securities represents non-cash operating and investing activities and, accordingly, is not reflected in the Consolidated Statement
of Cash Flows. Substantially all of these securities were initially classified as Level 2 assets within the fair value hierarchy. During
of Cash Flows. Substantially all of these securities were initially classified as Level 2 assets within the fair value hierarchy. During
2017, 2016 and 2015, there were no changes to the initial classification.
2017, 2016 and 2015, there were no changes to the initial classification.
158 Bank of America 2017
158 Bank of America 2017
158 Bank of America 2017
The Corporation recognizes consumer MSRs from the sale or
The Corporation recognizes consumer MSRs from the sale or
securitization of consumer real estate loans. The unpaid principal
securitization of consumer real estate loans. The unpaid principal
balance of loans serviced for investors, including residential
balance of loans serviced for investors, including residential
mortgage and home equity loans, totaled $277.6 billion and
mortgage and home equity loans, totaled $277.6 billion and
$326.2 billion at December 31, 2017 and 2016. Servicing fee
$326.2 billion at December 31, 2017 and 2016. Servicing fee
and ancillary fee income on serviced loans was $893 million, $1.2
and ancillary fee income on serviced loans was $893 million, $1.2
billion and $1.4 billion in 2017, 2016 and 2015. Servicing
billion and $1.4 billion in 2017, 2016 and 2015. Servicing
advances on serviced loans, including loans serviced for others
advances on serviced loans, including loans serviced for others
and loans held for investment, were $4.5 billion and $6.2 billion
and loans held for investment, were $4.5 billion and $6.2 billion
at December 31, 2017 and 2016. For more information on MSRs,
at December 31, 2017 and 2016. For more information on MSRs,
see Note 20 – Fair Value Measurements.
see Note 20 – Fair Value Measurements.
During 2016 and 2015, the Corporation deconsolidated
During 2016 and 2015, the Corporation deconsolidated
agency residential mortgage securitization vehicles with total
agency residential mortgage securitization vehicles with total
assets of $3.8 billion and $4.5 billion, and total liabilities of $628
assets of $3.8 billion and $4.5 billion, and total liabilities of $628
million and $0 following the sale of retained interests to third
million and $0 following the sale of retained interests to third
parties, after which the Corporation no longer had the unilateral
parties, after which the Corporation no longer had the unilateral
ability to liquidate the vehicles. Of the balances deconsolidated
ability to liquidate the vehicles. Of the balances deconsolidated
in 2016, $706 million of assets and $628 million of liabilities
in 2016, $706 million of assets and $628 million of liabilities
represent non-cash investing and financing activities and,
represent non-cash investing and financing activities and,
accordingly, are not reflected on the Consolidated Statement of
accordingly, are not reflected on the Consolidated Statement of
Cash Flows. Gains on sale of $125 million and $287 million in
Cash Flows. Gains on sale of $125 million and $287 million in
2016 and 2015 related to these deconsolidations were recorded
2016 and 2015 related to these deconsolidations were recorded
in other income in the Consolidated Statement of Income. There
in other income in the Consolidated Statement of Income. There
were no deconsolidations of agency residential mortgage
were no deconsolidations of agency residential mortgage
securitizations in 2017.
securitizations in 2017.
The table below summarizes select information related to first-
The table below summarizes select information related to first-
lien mortgage securitization trusts in which the Corporation held
lien mortgage securitization trusts in which the Corporation held
a variable interest at December 31, 2017 and 2016.
a variable interest at December 31, 2017 and 2016.
First-lien Mortgage VIEs
First-lien Mortgage VIEs
(Dollars in millions)
(Dollars in millions)
Unconsolidated VIEs
Unconsolidated VIEs
Maximum loss exposure (1)
Maximum loss exposure (1)
On-balance sheet assets
On-balance sheet assets
Senior securities:
Senior securities:
Agency
Agency
Prime
Prime
Residential Mortgage
Residential Mortgage
Non-agency
Non-agency
Subprime
Subprime
December 31
December 31
Alt-A
Alt-A
Commercial Mortgage
Commercial Mortgage
2017
2017
2016
2016
2017
2017
2016
2016
2017
2017
2016
2016
2017
2017
2016
2016
2017
2017
2016
2016
$
$
19,110 $
19,110 $
22,661
22,661
$
$
689 $
689 $
757
757
$
$
2,643 $
2,643 $
2,750
2,750
$
$
403 $
403 $
560
560
$
$
585 $
585 $
344
344
Trading account assets
Trading account assets
Debt securities carried at fair value
Debt securities carried at fair value
Held-to-maturity securities
Held-to-maturity securities
$
$
Subordinate securities
Subordinate securities
Residual interests
Residual interests
All other assets (2)
All other assets (2)
Total retained positions
Total retained positions
Principal balance outstanding (3)
Principal balance outstanding (3)
Consolidated VIEs
Consolidated VIEs
Maximum loss exposure (1)
Maximum loss exposure (1)
On-balance sheet assets
On-balance sheet assets
Trading account assets
Trading account assets
Loans and leases, net
Loans and leases, net
All other assets
All other assets
Total assets
Total assets
On-balance sheet liabilities
On-balance sheet liabilities
$
$
$
$
$
$
$
$
$
$
716 $
716 $
15,036
15,036
3,348
3,348
—
—
—
—
10
10
1,399
1,399
17,620
17,620
3,630
3,630
—
—
—
—
12
12
22,661
22,661
232,761 $ 265,332
232,761 $ 265,332
19,110 $
19,110 $
$
$
$
$
$
$
6 $
6 $
477
477
—
—
5
5
—
—
—
—
488 $
488 $
10,549 $
10,549 $
20
20
441
441
—
—
9
9
—
—
28
28
498
498
16,280
16,280
$
$
$
$
$
$
10 $
10 $
2,221
2,221
—
—
38
38
—
—
—
—
2,269 $
2,269 $
10,254 $
10,254 $
112
112
2,235
2,235
—
—
25
25
—
—
—
—
2,372
2,372
19,373
19,373
$
$
$
$
$
$
50 $
50 $
351
351
—
—
2
2
—
—
—
—
403 $
403 $
28,129 $
28,129 $
118
118
305
305
—
—
24
24
—
—
113
113
560
560
35,788
35,788
$
$
$
$
$
$
108 $
108 $
—
—
274
274
69
69
19
19
—
—
470 $
470 $
26,504 $
26,504 $
51
51
—
—
64
64
81
81
25
25
—
—
221
221
23,826
23,826
14,502 $
14,502 $
18,084
18,084
$
$
571 $
571 $
— $
— $
— $
— $
— $
— $
— $
— $
25
25
$
$
— $
— $
232 $
232 $
14,030
14,030
240
240
14,502 $
14,502 $
434
434
17,223
17,223
427
427
18,084
18,084
$
$
$
$
571 $
571 $
—
—
—
—
571 $
571 $
— $
— $
—
—
—
—
— $
— $
— $
— $
—
—
—
—
— $
— $
— $
— $
—
—
—
—
— $
— $
— $
— $
—
—
—
—
— $
— $
99
99
—
—
—
—
99
99
$
$
$
$
— $
— $
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
—
—
$
$
Long-term debt
Long-term debt
All other liabilities
All other liabilities
Total liabilities
Total liabilities
—
—
—
—
—
—
(1) Maximum loss exposure includes obligations under loss-sharing reinsurance and other arrangements for non-agency residential mortgage and commercial mortgage securitizations, but excludes
(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 reserve for representations and warranties obligations and corporate guarantees and also excludes servicing advances and other servicing rights and obligations. For more information, see
the reserve for representations and warranties obligations and corporate guarantees and also excludes servicing advances and other servicing rights and obligations. For more information, see
Note 7 – Representations and Warranties Obligations and Corporate Guarantees and Note 20 – Fair Value Measurements.
Note 7 – Representations and Warranties Obligations and Corporate Guarantees and Note 20 – Fair Value Measurements.
— $
— $
—
—
— $
— $
— $
— $
—
—
— $
— $
— $
— $
4
4
4
4
— $
— $
—
—
— $
— $
— $
— $
—
—
— $
— $
— $
— $
—
—
— $
— $
— $
— $
—
—
— $
— $
— $
— $
3
3
3 $
3 $
(2) Not included in the table above are all other assets of $148 million and $189 million, representing the unpaid principal balance of mortgage loans eligible for repurchase from unconsolidated
(2) Not included in the table above are all other assets of $148 million and $189 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 $148 million and $189 million, representing the principal amount that would be payable to
residential mortgage securitization vehicles, principally guaranteed by GNMA, and all other liabilities of $148 million and $189 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, 2017 and 2016.
the securitization vehicles if the Corporation was to exercise the repurchase option, at December 31, 2017 and 2016.
(3) Principal balance outstanding includes loans where the Corporation was the transferor to securitization vehicles with which it has continuing involvement, which may include servicing the loans.
(3) Principal balance outstanding includes loans where the Corporation was the transferor to securitization vehicles with which it has continuing involvement, which may include servicing the loans.
74
74
—
—
74
74
$
$
$
$
$
$
$
$
Bank of America 2017 159
Bank of America 2017 159
Other Asset-backed Securitizations
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
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, 2017 and 2016.
Corporation held a variable interest at December 31, 2017 and 2016.
Home Equity Loan, Credit Card and Other Asset-backed VIEs
Home Equity Loan, Credit Card and Other Asset-backed VIEs
(Dollars in millions)
(Dollars in millions)
Unconsolidated VIEs
Unconsolidated VIEs
Maximum loss exposure
Maximum loss exposure
On-balance sheet assets
On-balance sheet assets
Senior securities (4):
Senior securities (4):
Trading account assets
Trading account assets
Debt securities carried at fair value
Debt securities carried at fair value
Held-to-maturity securities
Held-to-maturity securities
Subordinate securities (4)
Subordinate securities (4)
Total retained positions
Total retained positions
Total assets of VIEs (5)
Total assets of VIEs (5)
Consolidated VIEs
Consolidated VIEs
Maximum loss exposure
Maximum loss exposure
On-balance sheet assets
On-balance sheet assets
Trading account assets
Trading account assets
Loans and leases
Loans and leases
Allowance for loan and lease losses
Allowance for loan and lease losses
All other assets
All other assets
Total assets
Total assets
On-balance sheet liabilities
On-balance sheet liabilities
Short-term borrowings
Short-term borrowings
Long-term debt
Long-term debt
All other liabilities
All other liabilities
Total liabilities
Total liabilities
Home Equity Loan (1)
Home Equity Loan (1)
Credit Card (2, 3)
Credit Card (2, 3)
Resecuritization Trusts
Resecuritization Trusts
Municipal Bond Trusts
Municipal Bond Trusts
2017
2017
2016
2016
2017
2017
2016
2016
2017
2017
2016
2016
2017
2017
2016
2016
December 31
December 31
$
$
1,522 $
1,522 $
2,732
2,732
$
$
— $
— $
— $
— $
8,204 $
8,204 $
9,906
9,906
$
$
1,631 $
1,631 $
1,635
1,635
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
— $
— $
36
36
—
—
—
—
36 $
36 $
2,432 $
2,432 $
— $
— $
46
46
—
—
—
—
46
46
4,274
4,274
$
$
$
$
— $
— $
—
—
—
—
—
—
— $
— $
— $
— $
— $
— $
—
—
—
—
—
—
— $
— $
— $
— $
869 $
869 $
1,661
1,661
5,644
5,644
30
30
8,204 $
8,204 $
19,281 $
19,281 $
902
902
2,338
2,338
6,569
6,569
97
97
9,906
9,906
22,155
22,155
$
$
$
$
$
$
33 $
33 $
—
—
—
—
—
—
33 $
33 $
2,287 $
2,287 $
—
—
—
—
—
—
—
—
—
—
2,406
2,406
112 $
112 $
149
149
$
$
24,337 $
24,337 $
25,859
25,859
$
$
628 $
628 $
420
420
$
$
1,453 $
1,453 $
1,442
1,442
— $
— $
177
177
(9)
(9)
6
6
174 $
174 $
— $
— $
76
76
—
—
76 $
76 $
— $
— $
— $
— $
— $
— $
244
244
(16)
(16)
7
7
235
235
$
$
— $
— $
108
108
—
—
108
108
$
$
32,554
32,554
(988)
(988)
1,385
1,385
32,951 $
32,951 $
35,135
35,135
(1,007)
(1,007)
793
793
34,921
34,921
$
$
— $
— $
8,598
8,598
16
16
8,614 $
8,614 $
— $
— $
9,049
9,049
13
13
9,062
9,062
$
$
1,557 $
1,557 $
—
—
—
—
—
—
1,557 $
1,557 $
— $
— $
929
929
—
—
929 $
929 $
1,428
1,428
—
—
—
—
—
—
1,428
1,428
$
$
$
$
— $
— $
1,008
1,008
—
—
1,008
1,008
$
$
1,452 $
1,452 $
—
—
—
—
1
1
1,453 $
1,453 $
312 $
312 $
—
—
—
—
312 $
312 $
1,454
1,454
—
—
—
—
—
—
1,454
1,454
348
348
12
12
—
—
360
360
(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
(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 reserve for representations and warranties obligations and corporate guarantees. For more information, see
and unconsolidated home equity loan VIEs, the maximum loss exposure excludes the reserve for representations and warranties obligations and corporate guarantees. For more information, see
Note 7 – Representations and Warranties Obligations and Corporate Guarantees.
Note 7 – Representations and Warranties Obligations and Corporate Guarantees.
(2) At December 31, 2017 and 2016, loans and leases in the consolidated credit card trust included $15.6 billion and $17.6 billion of seller’s interest.
(2) At December 31, 2017 and 2016, loans and leases in the consolidated credit card trust included $15.6 billion and $17.6 billion of seller’s interest.
(3) At December 31, 2017 and 2016, all other assets in the consolidated credit card trust included restricted cash, certain short-term investments, and unbilled accrued interest and fees.
(3) At December 31, 2017 and 2016, all other assets in the consolidated credit card trust included restricted cash, certain short-term investments, and unbilled accrued interest and fees.
(4) The retained senior and subordinate securities were valued using quoted market prices or observable market inputs (Level 2 of the fair value hierarchy).
(4) The retained senior and subordinate securities were valued using quoted market prices or observable market inputs (Level 2 of the fair value hierarchy).
(5) Total assets include loans the Corporation transferred with which it has continuing involvement, which may include servicing the loan.
(5) Total assets include loans the Corporation transferred with which it has continuing involvement, which may include servicing the loan.
Home Equity Loans
Home Equity Loans
The Corporation retains interests in home equity securitization
The Corporation retains interests in home equity securitization
trusts to which it transferred home equity loans. These retained
trusts to which it transferred home equity loans. These retained
interests primarily include senior securities. In addition, the
interests primarily include senior securities. In addition, the
Corporation may be obligated to provide subordinate funding to
Corporation may be obligated to provide subordinate funding to
the trusts during a rapid amortization event. This obligation is
the trusts during a rapid amortization event. This obligation is
included in the maximum loss exposure in the table above. The
included in the maximum loss exposure in the table above. The
charges that will ultimately be recorded as a result of the rapid
charges that will ultimately be recorded as a result of the rapid
amortization events depend on the undrawn portion of the home
amortization events depend on the undrawn portion of the home
equity lines of credit (HELOCs), performance of the loans, the
equity lines of credit (HELOCs), performance of the loans, the
amount of subsequent draws and the timing of related cash flows.
amount of subsequent draws and the timing of related cash flows.
During 2015, the Corporation deconsolidated several HELOC
During 2015, the Corporation deconsolidated several HELOC
trusts with total assets of $488 million and total liabilities of $611
trusts with total assets of $488 million and total liabilities of $611
million as its obligation to provide subordinated funding is no
million as its obligation to provide subordinated funding is no
longer considered to be a potentially significant variable interest
longer considered to be a potentially significant variable interest
in the trusts following a decline in the amount of credit available
in the trusts following a decline in the amount of credit available
to be drawn by borrowers. In connection with deconsolidation, the
to be drawn by borrowers. In connection with deconsolidation, the
Corporation recorded a gain of $123 million in other income in
Corporation recorded a gain of $123 million in other income in
the Consolidated Statement of Income. The derecognition of
the Consolidated Statement of Income. The derecognition of
assets and liabilities represents non-cash investing and financing
assets and liabilities represents non-cash investing and financing
activities and, accordingly, is not reflected on the Consolidated
activities and, accordingly, is not reflected on the Consolidated
Statement of Cash Flows. There were no deconsolidations of
Statement of Cash Flows. There were no deconsolidations of
HELOC trusts in 2017 or 2016.
HELOC trusts in 2017 or 2016.
Credit Card Securitizations
Credit Card Securitizations
The Corporation securitizes originated and purchased credit card
The Corporation securitizes originated and purchased credit card
loans. The Corporation’s continuing involvement with the
loans. The Corporation’s continuing involvement with the
securitization trust includes servicing the receivables, retaining
securitization trust includes servicing the receivables, retaining
an undivided interest (seller’s interest) in the receivables, and
an undivided interest (seller’s interest) in the receivables, and
holding certain retained interests including subordinate interests
holding certain retained interests including subordinate interests
in accrued interest and fees on the securitized receivables and
in accrued interest and fees on the securitized receivables and
cash reserve accounts.
cash reserve accounts.
During 2017, 2016 and 2015, new senior debt securities
During 2017, 2016 and 2015, new senior debt securities
issued to third-party investors from the credit card securitization
issued to third-party investors from the credit card securitization
trust were $3.1 billion, $750 million and $2.3 billion.
trust were $3.1 billion, $750 million and $2.3 billion.
At December 31, 2017 and 2016, the Corporation held
At December 31, 2017 and 2016, the Corporation held
subordinate securities issued by the credit card securitization
subordinate securities issued by the credit card securitization
trust with a notional principal amount of $7.4 billion and $7.5
trust with a notional principal amount of $7.4 billion and $7.5
billion. These securities serve as a form of credit enhancement
billion. These securities serve as a form of credit enhancement
to the senior debt securities and have a stated interest rate of
to the senior debt securities and have a stated interest rate of
zero percent. During 2017, 2016 and 2015, the credit card
zero percent. During 2017, 2016 and 2015, the credit card
securitization trust issued $500 million, $121 million and $371
securitization trust issued $500 million, $121 million and $371
million of these subordinate securities.
million of these subordinate securities.
160 Bank of America 2017
160 Bank of America 2017
Resecuritization Trusts
Resecuritization Trusts
The Corporation transfers securities, typically MBS,
into
into
The Corporation transfers securities, typically MBS,
resecuritization vehicles at the request of customers seeking
resecuritization vehicles at the request of customers seeking
securities with specific characteristics. Generally, there are no
securities with specific characteristics. Generally, there are no
significant ongoing activities performed in a resecuritization trust,
significant ongoing activities performed in a resecuritization trust,
and no single investor has the unilateral ability to liquidate the
and no single investor has the unilateral ability to liquidate the
trust.
trust.
The Corporation resecuritized $25.1 billion, $23.4 billion and
The Corporation resecuritized $25.1 billion, $23.4 billion and
$30.7 billion of securities in 2017, 2016 and 2015. Securities
$30.7 billion of securities in 2017, 2016 and 2015. Securities
transferred into resecuritization vehicles during 2017, 2016 and
transferred into resecuritization vehicles during 2017, 2016 and
2015 were measured at fair value with changes in fair value
2015 were measured at fair value with changes in fair value
recorded in trading account profits prior to the resecuritization
recorded in trading account profits prior to the resecuritization
and no gain or loss on sale was recorded. During 2017, 2016
and no gain or loss on sale was recorded. During 2017, 2016
and 2015, resecuritization proceeds included securities with an
and 2015, resecuritization proceeds included securities with an
initial fair value of $3.3 billion, $3.3 billion and $9.8 billion,
initial fair value of $3.3 billion, $3.3 billion and $9.8 billion,
including $6.9 billion which were classified as HTM during 2015.
including $6.9 billion which were classified as HTM during 2015.
Substantially all of
received as
Substantially all of
received as
resecuritization proceeds were classified as trading securities and
resecuritization proceeds were classified as trading securities and
were categorized as Level 2 within the fair value hierarchy.
were categorized as Level 2 within the fair value hierarchy.
the other securities
the other securities
Municipal Bond Trusts
Municipal Bond Trusts
The Corporation administers municipal bond trusts that hold
The Corporation administers municipal bond trusts that hold
highly-rated, long-term, fixed-rate municipal bonds. The trusts
highly-rated, long-term, fixed-rate municipal bonds. The trusts
obtain financing by issuing floating-rate trust certificates that
obtain financing by issuing floating-rate trust certificates that
reprice on a weekly or other short-term basis to third-party
reprice on a weekly or other short-term basis to third-party
investors.
investors.
The Corporation’s liquidity commitments to unconsolidated
The Corporation’s liquidity commitments to unconsolidated
municipal bond trusts, including those for which the Corporation
municipal bond trusts, including those for which the Corporation
was transferor, totaled $1.6 billion at both December 31, 2017
was transferor, totaled $1.6 billion at both December 31, 2017
and 2016. The weighted-average remaining life of bonds held in
and 2016. The weighted-average remaining life of bonds held in
the trusts at December 31, 2017 was 6.0 years. There were no
the trusts at December 31, 2017 was 6.0 years. There were no
material write-downs or downgrades of assets or issuers during
material write-downs or downgrades of assets or issuers during
2017, 2016 and 2015.
2017, 2016 and 2015.
Other Variable Interest Entities
Other Variable Interest Entities
The table below summarizes select information related to other
The table below summarizes select information related to other
VIEs in which the Corporation held a variable interest at December
VIEs in which the Corporation held a variable interest at December
31, 2017 and 2016.
31, 2017 and 2016.
Other VIEs
Other VIEs
(Dollars in millions)
(Dollars in millions)
Maximum loss exposure
Maximum loss exposure
On-balance sheet assets
On-balance sheet assets
Trading account assets
Trading account assets
Debt securities carried at fair value
Debt securities carried at fair value
Loans and leases
Loans and leases
Allowance for loan and lease losses
Allowance for loan and lease losses
Loans held-for-sale
Loans held-for-sale
All other assets
All other assets
Total
Total
On-balance sheet liabilities
On-balance sheet liabilities
Long-term debt (1)
Long-term debt (1)
All other liabilities
All other liabilities
Total
Total
Total assets of VIEs
Total assets of VIEs
(1)
(1)
Consolidated
Consolidated
Unconsolidated
Unconsolidated
Total
Total
Consolidated
Consolidated
Unconsolidated
Unconsolidated
Total
Total
2017
2017
2016
2016
December 31
December 31
4,660
4,660
$
$
19,785
19,785
$
$
24,445
24,445
$
$
6,114
6,114
$
$
17,754
17,754
$
$
23,868
23,868
2,709
2,709
—
—
2,152
2,152
(3)
(3)
27
27
62
62
4,947
4,947
270
270
18
18
288
288
4,947
4,947
$
$
$
$
$
$
$
$
$
$
346
346
160
160
3,596
3,596
(32)
(32)
940
940
14,276
14,276
19,286
19,286
$
$
$
$
— $
— $
3,417
3,417
3,417
3,417
69,746
69,746
$
$
$
$
3,055
3,055
160
160
5,748
5,748
(35)
(35)
967
967
14,338
14,338
24,233
24,233
270
270
3,435
3,435
3,705
3,705
74,693
74,693
$
$
$
$
$
$
$
$
$
$
2,358
2,358
—
—
3,399
3,399
(9)
(9)
188
188
369
369
6,305
6,305
395
395
24
24
419
419
6,305
6,305
$
$
$
$
$
$
$
$
$
$
233
233
122
122
3,249
3,249
(24)
(24)
464
464
13,156
13,156
17,200
17,200
$
$
$
$
— $
— $
2,959
2,959
2,959
2,959
62,269
62,269
$
$
$
$
2,591
2,591
122
122
6,648
6,648
(33)
(33)
652
652
13,525
13,525
23,505
23,505
395
395
2,983
2,983
3,378
3,378
68,574
68,574
$
$
$
$
$
$
$
$
$
$
$
$
Includes $1 million and $229 million of long-term debt at December 31, 2017 and 2016 issued by other consolidated VIEs, which has recourse to the general credit of the Corporation.
Includes $1 million and $229 million of long-term debt at December 31, 2017 and 2016 issued by other consolidated VIEs, which has recourse to the general credit of the Corporation.
Customer Vehicles
Customer Vehicles
Customer vehicles
include credit-linked, equity-linked and
include credit-linked, equity-linked and
Customer vehicles
commodity-linked note vehicles, repackaging vehicles, and asset
commodity-linked note vehicles, repackaging vehicles, and asset
acquisition vehicles, which are typically created on behalf of
acquisition vehicles, which are typically created on behalf of
customers who wish to obtain market or credit exposure to a
customers who wish to obtain market or credit exposure to a
specific company, index, commodity or financial instrument.
specific company, index, commodity or financial instrument.
The Corporation’s maximum loss exposure to consolidated
The Corporation’s maximum loss exposure to consolidated
and unconsolidated customer vehicles totaled $2.3 billion and
and unconsolidated customer vehicles totaled $2.3 billion and
$2.9 billion at December 31, 2017 and 2016, including the
$2.9 billion at December 31, 2017 and 2016, including the
notional amount of derivatives to which the Corporation is a
notional amount of derivatives to which the Corporation is a
counterparty, net of losses previously recorded, and the
counterparty, net of losses previously recorded, and the
Corporation’s investment, if any, in securities issued by the
Corporation’s investment, if any, in securities issued by the
vehicles. The Corporation also had liquidity commitments,
vehicles. The Corporation also had liquidity commitments,
including written put options and collateral value guarantees, with
including written put options and collateral value guarantees, with
certain unconsolidated vehicles of $442 million and $323 million
certain unconsolidated vehicles of $442 million and $323 million
at December 31, 2017 and 2016, that are included in the table
at December 31, 2017 and 2016, that are included in the table
above.
above.
Collateralized Debt Obligation Vehicles
Collateralized Debt Obligation Vehicles
The Corporation receives fees for structuring CDO vehicles, which
The Corporation receives fees for structuring CDO vehicles, which
hold diversified pools of fixed-income securities, typically
hold diversified pools of fixed-income securities, typically
corporate debt or ABS, which the CDO vehicles fund by issuing
corporate debt or ABS, which the CDO vehicles fund by issuing
multiple tranches of debt and equity securities. CDOs are generally
multiple tranches of debt and equity securities. CDOs are generally
managed by third-party portfolio managers. The Corporation
managed by third-party portfolio managers. The Corporation
typically transfers assets to these CDOs, holds securities issued
typically transfers assets to these CDOs, holds securities issued
by the CDOs and may be a derivative counterparty to the CDOs.
by the CDOs and may be a derivative counterparty to the CDOs.
The Corporation’s maximum loss exposure to consolidated and
The Corporation’s maximum loss exposure to consolidated and
unconsolidated CDOs totaled $358 million and $430 million at
unconsolidated CDOs totaled $358 million and $430 million at
December 31, 2017 and 2016.
December 31, 2017 and 2016.
Investment Vehicles
Investment Vehicles
The Corporation sponsors, invests in or provides financing, which
The Corporation sponsors, invests in or provides financing, which
may be in connection with the sale of assets, to a variety of
may be in connection with the sale of assets, to a variety of
investment vehicles that hold loans, real estate, debt securities
investment vehicles that hold loans, real estate, debt securities
or other financial instruments and are designed to provide the
or other financial instruments and are designed to provide the
desired investment profile to investors or the Corporation. At
desired investment profile to investors or the Corporation. At
December 31, 2017 and 2016, the Corporation’s consolidated
December 31, 2017 and 2016, the Corporation’s consolidated
investment vehicles had total assets of $249 million and $846
investment vehicles had total assets of $249 million and $846
million. The Corporation also held investments in unconsolidated
million. The Corporation also held investments in unconsolidated
vehicles with total assets of $20.3 billion and $17.3 billion at
vehicles with total assets of $20.3 billion and $17.3 billion at
December 31, 2017 and 2016. The Corporation’s maximum loss
December 31, 2017 and 2016. The Corporation’s maximum loss
exposure associated with both consolidated and unconsolidated
exposure associated with both consolidated and unconsolidated
investment vehicles totaled $5.7 billion and $5.1 billion at
investment vehicles totaled $5.7 billion and $5.1 billion at
December 31, 2017 and 2016 comprised primarily of on-balance
December 31, 2017 and 2016 comprised primarily of on-balance
sheet assets less non-recourse liabilities.
sheet assets less non-recourse liabilities.
In prior periods, the Corporation transferred servicing advance
In prior periods, the Corporation transferred servicing advance
receivables to independent third parties in connection with the
receivables to independent third parties in connection with the
sale of MSRs. Portions of the receivables were transferred into
sale of MSRs. Portions of the receivables were transferred into
unconsolidated securitization trusts. The Corporation retained
unconsolidated securitization trusts. The Corporation retained
senior interests in such receivables with a maximum loss
senior interests in such receivables with a maximum loss
exposure and funding obligation of $50 million and $150 million,
exposure and funding obligation of $50 million and $150 million,
Bank of America 2017 161
Bank of America 2017 161
including a funded balance of $39 million and $75 million at
December 31, 2017 and 2016, 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 $2.0 billion and $2.6 billion at December 31, 2017
and 2016. 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 $13.8 billion and $12.6
billion at December 31, 2017 and 2016. 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 $8.0 billion and $7.4 billion,
including unfunded commitments to provide capital contributions
of $3.1 billion and $2.7 billion at December 31, 2017 and 2016.
The unfunded commitments are expected to be paid over the next
5 years. During 2017, 2016 and 2015, the Corporation recognized
tax credits and other tax benefits from investments in affordable
housing partnerships of $1.0 billion, $1.1 billion and $928 million
and reported pre-tax losses in other noninterest income of $766
million, $789 million and $629 million, respectively. 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.
NOTE 7 Representations and Warranties
Obligations and Corporate Guarantees
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
its subsidiaries or legacy companies make and have made various
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
162 Bank of America 2017
162 Bank of America 2017
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. 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 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, 2017 and 2016. 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 originated
primarily between 2004 and 2008. For more 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
Total unresolved repurchase claims by
counterparty, net of duplicate claims
December 31
2017
2016
$
$
16,064
$
16,685
1,565
5
1,583
9
17,634
$
18,277
(1)
Includes $11.4 billion and $11.9 billion of claims based on individual file reviews and $4.7
billion and $4.8 billion of claims submitted without individual file reviews at December 31, 2017
and 2016.
During 2017, the Corporation received $151 million in new
repurchase claims and $794 million in claims were resolved,
including $640 million related to settlements. 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 a
sponsor of third-party securitizations with whom the Corporation
engaged in whole-loan transactions indicating that the Corporation
may have indemnity obligations with respect to specific loans for
which the Corporation has not received a repurchase request.
These notifications were received prior to 2015, and totaled $1.3
billion at both December 31, 2017 and 2016. During 2017, the
Corporation reached agreements with certain parties requesting
indemnity. One such agreement is subject to acceptance by a
securitization trustee. The impact of these agreements is included
in the provision and reserve for representations and warranties.
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 reserve for representations and warranties and
the corresponding estimated range of possible loss.
Private-label Securitizations and Whole-loan Sales
Experience
The notional amount of unresolved repurchase claims at December
31, 2017 and 2016 included $6.9 billion and $5.6 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 overall decrease in the notional amount of outstanding
unresolved repurchase claims in 2017 was primarily due to claims
that were resolved as a result of settlements. 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. 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.
Reserve and Estimated Range of Possible Loss
The reserve 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 reserve for representations and
warranties is established when those obligations are both
probable and reasonably estimable.
The Corporation’s representations and warranties reserve and
the corresponding estimated range of possible loss at December
31, 2017 consider, among other things, the repurchase experience
implied in prior settlements, and uses the experience implied in
those prior settlements in the assessment for those trusts where
the Corporation has a continuing possibility of timely claims in
order to determine the representations and warranties reserve
and the corresponding estimated range of possible loss.
The table below presents a rollforward of the reserve for
representations and warranties and corporate guarantees.
Representations and Warranties and Corporate
Guarantees
(Dollars in millions)
2017
2016
Reserve for representations and warranties
and corporate guarantees, January 1
$
2,339
$
11,326
Additions for new sales
Payments (1)
Provision
4
(814)
393
4
(9,097)
106
Reserve for representations and
warranties and corporate guarantees,
December 31
$
1,922
$
2,339
(1)
In February 2016, the Corporation made an $8.5 billion settlement payment as part of the
settlement with BNY Mellon.
The representations and warranties reserve represents the
Corporation’s best estimate of probable incurred losses as of
December 31, 2017. 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
$1 billion over existing accruals at December 31, 2017. This
estimate is lower than the estimate at December 31, 2016 due
to recent reductions in risk as we reach settlements with
counterparties. 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, including related indemnity claims. 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 reserve 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
the Corporation’s
assumptions in predictive models.
from
Bank of America 2017 163
Bank of America 2017
163
NOTE 8 Goodwill and Intangible Assets
Goodwill
The table below presents goodwill balances by business segment and All Other at December 31, 2017 and 2016. 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
2017
2016
30,123
9,677
23,923
5,182
46
—
68,951
$
$
30,123
9,681
23,923
5,197
820
(775)
68,969
$
$
(1) Reflects the goodwill assigned to the non-U.S. consumer credit card business, which was included in assets of business held for sale on the Consolidated Balance Sheet at December 31, 2016.
In 2017, the Corporation sold its non-U.S. consumer credit card business.
During 2017, the Corporation completed its annual goodwill impairment test as of June 30, 2017 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,
2017 and 2016.
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)
Gross
Carrying Value
Accumulated
Amortization
Net
Carrying Value
Gross
Carrying Value
Accumulated
Amortization
Net
Carrying Value
December 31, 2017
5,919
3,835
3,886
13,640
$
$
5,604
2,140
3,584
11,328
$
$
$
$
315
1,695
302
2,312
$
$
December 31, 2016
6,830
3,836
3,887
14,553
$
$
6,243
2,046
3,275
11,564
$
$
587
1,790
612
2,989
(1) Excludes fully amortized intangible assets.
(2) At December 31, 2017 and 2016, none of the intangible assets were impaired.
(3)
(4)
Includes $1.6 billion at both December 31, 2017 and 2016 of intangible assets associated with trade names that have an indefinite life and, accordingly, are not amortized.
Includes $67 million at December 31, 2016 of intangible assets assigned to the non-U.S. consumer credit card business, which was included in assets of business held for sale on the Consolidated
Balance Sheet at December 31, 2016.
Amortization of intangibles expense was $621 million, $730 million and $834 million for 2017, 2016 and 2015. The Corporation
estimates aggregate amortization expense will be $538 million, $105 million and $53 million for the years through 2020 and none
for the years thereafter.
164 Bank of America 2017
164 Bank of America 2017
NOTE 9 Deposits
The table below presents information about the Corporation’s time deposits of $100 thousand or more at December 31, 2017 and
2016. The Corporation also had aggregate time deposits of $17.0 billion and $18.3 billion in denominations that met or exceeded
the Federal Deposit Insurance Corporation (FDIC) insurance limit at December 31, 2017 and 2016.
Time Deposits of $100 Thousand or More
(Dollars in millions)
December 31, 2017
December 31
2016
Three Months
or Less
Over Three
Months to
Twelve Months
Thereafter
Total
Total
U.S. certificates of deposit and other time deposits
Non-U.S. certificates of deposit and other time deposits
$
12,505
10,561
$
10,660
3,652
$
$
2,027
1,259
25,192
15,472
$
32,898
14,677
The scheduled contractual maturities for total time deposits at December 31, 2017 are presented in the table below.
Contractual Maturities of Total Time Deposits
(Dollars in millions)
Due in 2018
Due in 2019
Due in 2020
Due in 2021
Due in 2022
Thereafter
Total time deposits
U.S.
Non-U.S.
Total
$
$
46,774
2,623
1,661
514
452
264
52,288
$
$
14,264
657
49
15
562
9
15,556
$
$
61,038
3,280
1,710
529
1,014
273
67,844
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
Amount
Rate
Amount
Rate
2017
2016
$ 222,818
237,064
$ 199,501
218,017
1.07% $ 216,161
225,015
n/a
1.30% $ 183,818
196,631
n/a
37,337
46,202
2.48%
n/a
29,440
33,051
0.52%
n/a
0.97%
n/a
1.95%
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 $14.2 billion and $9.3 billion at December 31, 2017 and 2016. 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.
Bank of America 2017 165
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 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, 2017 and 2016. Balances are presented on a gross
basis, prior to the application of counterparty netting. Gross assets
and liabilities are adjusted on an aggregate basis to take into
consideration the effects of legally enforceable master netting
agreements. For more information on the offsetting of derivatives,
see Note 2 – Derivatives.
Securities Financing Agreements
(Dollars in millions)
Securities borrowed or purchased under agreements to resell (3)
Securities loaned or sold under agreements to repurchase
Other (4)
Total
Gross Assets/
Liabilities (1)
Amounts
Offset
Net Balance
Sheet Amount
Financial
Instruments (2)
Net Assets/
Liabilities
December 31, 2017
$
$
$
348,472
312,582
22,711
335,293
$
$
$
(135,725) $
(135,725) $
—
(135,725) $
212,747
176,857
22,711
199,568
$
$
$
(165,720) $
(146,205) $
(22,711)
(168,916) $
47,027
30,652
—
30,652
December 31, 2016
Securities borrowed or purchased under agreements to resell (3)
Securities loaned or sold under agreements to repurchase
Other (4)
Total
$
Includes activity where uncertainty exists as to the enforceability of certain master netting agreements under bankruptcy laws in some countries or industries.
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 derive a net asset or liability. Securities collateral received or pledged where the legal enforceability of the master netting
agreements is uncertain is excluded from the table.
198,224
170,282
14,448
184,730
326,970
299,028
14,448
313,476
43,250
29,508
—
29,508
(128,746) $
(128,746) $
(154,974) $
(140,774) $
(155,222) $
(128,746) $
(14,448)
$
$
$
$
$
$
—
$
$
(1)
(2)
(3) Excludes repurchase activity of $10.2 billion and $10.1 billion reported in loans and leases on the Consolidated Balance Sheet at December 31, 2017 and 2016.
(4) Balance is reported in accrued expenses and other liabilities on the Consolidated Balance Sheet and 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.
Repurchase Agreements and Securities Loaned
Transactions Accounted for as Secured Borrowings
The following tables 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.
Overnight and
Continuous
30 Days or
Less
After 30 Days
Through 90
Days
Greater than
90 Days (1)
Total
$
$
$
$
125,956
9,853
22,711
158,520
129,853
8,564
14,448
152,865
$
$
$
$
December 31, 2017
79,913
5,658
—
85,571
$
$
46,091
2,043
—
48,134
December 31, 2016
77,780
6,602
—
84,382
$
$
31,851
1,473
—
33,324
$
$
$
$
38,935
4,133
—
43,068
40,752
2,153
—
42,905
$
$
$
$
290,895
21,687
22,711
335,293
280,236
18,792
14,448
313,476
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.
166 Bank of America 2017
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
Securities
Sold Under
Agreements
to Repurchase
Securities
Loaned
Other
Total
$
$
$
$
158,299
12,787
23,975
90,857
4,977
290,895
153,184
11,086
24,007
84,171
7,788
280,236
$
$
$
$
December 31, 2017
— $
2,669
13,523
5,495
—
21,687
$
1,630
11,175
5,987
—
18,792
$
December 31, 2016
— $
409
624
21,628
50
—
22,711
70
127
14,196
55
—
14,448
$
$
$
$
158,708
16,080
59,126
96,402
4,977
335,293
153,254
12,843
49,378
90,213
7,788
313,476
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 determine whether 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.
Bank of America 2017 167
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, 2017 and 2016, and the related contractual rates and maturity dates as of December 31, 2017.
(Dollars in millions)
Notes issued by Bank of America Corporation
Senior notes:
Fixed, with a weighted-average rate of 3.64%, ranging from 0.39% to 8.40%, due 2018 to 2048
Floating, with a weighted-average rate of 1.54%, ranging from 0.04% to 6.13%, due 2018 to 2044
Senior structured notes
Subordinated notes:
Fixed, with a weighted-average rate of 4.90%, ranging from 2.94% to 8.57%, due 2018 to 2045
Floating, with a weighted-average rate of 1.00%, ranging from 0.20% to 2.56%, due 2018 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 2.13%, ranging from 1.91% to 2.60%, 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 1.78%, ranging from 0.02% to 2.05%, due in 2018
Floating, with a weighted-average rate of 2.60%, ranging from 1.44% to 2.80%, due 2018 to 2041
Subordinated notes:
Fixed, with a rate of 6.00%, due in 2036
Floating, with a rate of 1.33%, due in 2019
Advances from Federal Home Loan Banks:
Fixed, with a weighted-average rate of 5.22%, ranging from 0.01% to 7.72%, due 2018 to 2034
Floating, with a weighted-average rate of 1.42%, ranging from 1.35% to 1.60%, due 2018 to 2019
Securitizations and other BANA VIEs (1)
Other
Total notes issued by Bank of America, N.A.
Other debt
Structured liabilities
Nonbank VIEs (1)
Other
Total other debt
Total long-term debt
December 31
2017
2016
$
$
119,548
21,048
15,460
22,004
4,058
3,282
553
185,953
4,686
1,033
1,679
1
146
5,000
8,641
432
21,618
18,574
1,232
25
19,831
227,402
$
$
108,933
13,164
17,049
26,047
4,350
3,280
552
173,375
5,936
3,383
4,424
598
162
—
9,164
3,084
26,751
15,171
1,482
44
16,697
216,823
(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, 2017 and
2016, the amount of foreign currency-denominated debt translated
into U.S. dollars included in total long-term debt was $51.8 billion
and $44.7 billion. Foreign currency contracts may be used to
convert certain foreign currency-denominated debt into U.S.
dollars.
At December 31, 2017, long-term debt of consolidated VIEs in
the table above included debt from credit card, home equity and
all other VIEs of $8.6 billion, $76 million and $1.2 billion,
respectively. Long-term debt of VIEs is collateralized by the assets
of the VIEs. For more 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 3.44 percent, 3.87 percent and 1.49
percent, respectively, at December 31, 2017, and 3.80 percent,
4.36 percent and 1.52 percent, respectively, at December 31,
2016. 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
$2.7 billion at December 31, 2017 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
annual contractual maturities of long-term debt as of December
31, 2017. 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 prior
to the contractual maturity date. These borrowings are reflected
in the table as maturing at their contractual maturity date.
During 2017, the Corporation had total long-term debt
maturities and redemptions in the aggregate of $48.8 billion
consisting of $29.1 billion for Bank of America Corporation, $13.3
billion for Bank of America, N.A. and $6.4 billion of other debt.
During 2016, the Corporation had total long-term debt maturities
and redemptions in the aggregate of $51.6 billion consisting of
168 Bank of America 2017
$30.6 billion for Bank of America Corporation, $11.6 billion for
Bank of America, N.A. and $9.4 billion of other debt.
In December 2017, pursuant to a private offering, the
Corporation exchanged $11.0 billion of outstanding long-term debt
for new fixed/floating-rate senior notes, subject to certain terms
and conditions. Based on the attributes of the exchange
transactions, the newly issued securities are not considered
substantially different, for accounting purposes, from the
exchanged securities. Therefore, there was no impact to the
Corporation’s results of operations as any amounts paid to debt
holders were capitalized, and the premiums or discounts on the
outstanding long-term debt were carried over to the new securities
and will be amortized over their contractual lives using a revised
effective interest rate.
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
Structured liabilities
Nonbank VIEs (1)
Other
Total other debt
Total long-term debt
2018
2019
2020
2021
2022
Thereafter
Total
$
$
19,577
2,749
2,973
—
25,299
5,699
—
3,009
2,300
51
11,059
5,677
22
—
5,699
42,057
$
$
15,115
1,486
1,552
—
18,153
—
1
2,013
3,200
194
5,408
2,340
45
—
2,385
25,946
$
$
10,580
950
—
—
11,530
—
—
11
3,098
15
3,124
1,545
—
—
1,545
16,199
$
$
16,196
437
375
—
17,008
9,691
2,017
476
—
12,184
$
69,437
7,821
20,686
3,835
101,779
$
140,596
15,460
26,062
3,835
185,953
—
—
2
—
—
2
—
—
3
—
9
12
20
1,679
108
43
163
2,013
5,719
1,680
5,146
8,641
432
21,618
870
—
—
870
17,880
$
803
—
—
803
12,999
7,339
1,165
25
8,529
$ 112,321
18,574
1,232
25
19,831
227,402
$
$
(1) Represents the total long-term debt included in the liabilities of consolidated VIEs on the Consolidated Balance Sheet.
Trust Preferred and Hybrid Securities
Trust preferred securities (Trust Securities) are primarily issued by
trust companies (the Trusts) that are not consolidated. These Trust
Securities are mandatorily
redeemable preferred security
obligations of the Trusts. The sole assets of the Trusts generally
are junior subordinated deferrable interest notes of the
Corporation or its subsidiaries (the Notes). The Trusts generally
are 100 percent-owned finance subsidiaries of the Corporation.
Obligations associated with the Notes are included in the long-
term debt table on page 168.
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.
Bank of America 2017 169
The Trust Securities Summary table details the outstanding Trust Securities and the related Notes previously issued which remained
outstanding at December 31, 2017.
Trust Securities Summary
(Dollars in millions)
Issuer
Issuance Date
Aggregate
Principal Amount
of Trust Securities
Aggregate
Principal Amount
of the Notes
Stated Maturity
of the Trust
Securities
Per Annum Interest
Rate of the Notes
Interest
Payment
Dates
Redemption Period
December 31, 2017
Bank of America
Capital Trust VI
Capital Trust VII (1)
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
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
6
658
1
131
103
79
53
102
70
200
1,495
1,050
750
$
27
6
678
1
March 2035
August 2035
May 2036
5.63%
Semi-Annual
5.25
6.63
Semi-Annual
Semi-Annual
Any time
Any time
Any time
June 2056
3-mo. LIBOR + 80 bps
Quarterly
On or after 6/01/37
135
January 2027
3-mo. LIBOR + 55 bps
Quarterly
On or after 1/15/07
105
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
3-mo. LIBOR + 75 bps
June 2028
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
$
4,725
$
4,772
(1) Notes are denominated in British pound. Presentation currency is U.S. dollar.
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 following table
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 $11.0 billion and $12.1 billion at December 31,
2017 and 2016. At December 31, 2017, the carrying value of
these commitments, excluding commitments accounted for under
the fair value option, was $793 million, including deferred revenue
of $16 million and a reserve for unfunded lending commitments
of $777 million. At December 31, 2016, the comparable amounts
were $779 million, $17 million and $762 million, respectively. The
carrying value of these commitments is classified in accrued
expenses and other liabilities on the Consolidated Balance Sheet.
The following table also includes the notional amount of
commitments of $4.8 billion and $7.0 billion at December 31,
2017 and 2016 that are accounted for under the fair value option.
However, the following table excludes cumulative net fair value of
$120 million and $173 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.
170 Bank of America 2017
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
Expire in One
Year or Less
Expire After One
Year Through
Three Years
Expire After Three
Years Through Five
Years
December 31, 2017
Expire After Five
Years
Total
$
$
$
$
85,804
6,172
19,976
1,291
113,243
362,030
475,273
82,609
8,806
19,165
1,285
111,865
377,773
489,638
$
$
$
$
140,942
4,457
11,261
117
156,777
—
156,777
$
$
147,043
2,288
3,420
129
152,880
—
152,880
December 31, 2016
133,063
10,701
10,754
103
154,621
—
154,621
$
$
152,854
2,644
3,225
114
158,837
—
158,837
$
$
$
$
21,342
31,250
1,144
87
53,823
—
53,823
22,129
25,050
1,027
53
48,259
—
48,259
$
$
$
$
395,131
44,167
35,801
1,624
476,723
362,030
838,753
390,655
47,201
34,171
1,555
473,582
377,773
851,355
(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 $27.3 billion and $8.1 billion at December 31, 2017, and $25.5 billion and $8.3 billion at December 31, 2016. Amounts in the table include consumer SBLCs of $421 million and $376 million
at December 31, 2017 and 2016.
(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, 2017 and 2016, the Corporation had
commitments to purchase loans (e.g., residential mortgage and
commercial real estate) of $344 million and $767 million, and
commitments to purchase commercial loans of $994 million and
$636 million, which upon settlement will be included in loans or
LHFS.
At December 31, 2017 and 2016, the Corporation had
commitments to purchase commodities, primarily liquefied natural
gas, of $1.5 billion and $1.9 billion, which upon settlement will
be included in trading account assets. At December 31, 2017 and
2016, the Corporation had commitments to enter into resale and
forward-dated resale and securities borrowing agreements of
$56.8 billion and $48.9 billion, and commitments to enter into
forward-dated repurchase and securities lending agreements of
$34.3 billion and $24.4 billion. These commitments expire
primarily within the next 12 months.
The Corporation has entered into agreements to purchase retail
automobile 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, 2017 and 2016, the Corporation’s
maximum purchase commitment was $345 million and $475
million. In addition, the Corporation has a commitment to originate
or purchase auto loans and leases up to $3.0 billion from a
strategic partner during 2018. This commitment extends through
November 2022 and can be terminated with 12 months prior
notice.
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, $1.9 billion, $1.7 billion
and $1.4 billion for 2018 through 2022, respectively, and $5.1
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. At December 31, 2017 and 2016,
the notional amount of these guarantees, which is recorded as
derivatives totaled $10.4 billion and $13.9 billion. At December
31, 2017 and 2016, the Corporation’s maximum exposure related
to these guarantees totaled $1.6 billion and $3.2 billion, with
estimated maturity dates between 2033 and 2039. The net fair
value including the fee receivable associated with these
guarantees was $3 million and $4 million at December 31, 2017
and 2016, 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 any early termination clauses. Historically, any payments
made under these guarantees have been de minimis. The
Bank of America 2017 171
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 2017 and 2016, the sponsored
entities processed and settled $812.2 billion and $731.4 billion
of transactions and recorded losses of $28 million and $33 million.
A significant portion of this activity was processed by a joint venture
in which the Corporation holds a 49 percent ownership, which is
recorded in other assets on the Consolidated Balance Sheet and
in All Other. At both December 31, 2017 and 2016, the carrying
value of the Corporation’s investment in the merchant services
joint venture was $2.9 billion.
As of December 31, 2017 and 2016, the maximum potential
exposure for sponsored transactions totaled $346.4 billion and
$325.7 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 $5.9 billion and $6.7 billion
at December 31, 2017 and 2016. 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
On June 1, 2017, the Corporation sold its non-U.S. consumer credit
card business. Included in the calculation of the gain on sale, the
Corporation recorded an obligation to indemnify the purchaser for
substantially all PPI exposure above reserves assumed by the
purchaser.
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
theories or involve a large number of parties, the Corporation
generally cannot predict what the eventual outcome of the pending
matters will be, what the timing of the ultimate resolution of these
matters will be, or what the eventual loss, fines or penalties related
to each pending matter may be.
In accordance with applicable accounting guidance, the
Corporation establishes an accrued liability when those matters
present loss contingencies that are both probable and estimable.
In such cases, there may be an exposure to loss in excess of any
amounts accrued. As a matter develops, the Corporation, in
conjunction with any outside counsel handling the matter,
evaluates on an ongoing basis whether such matter presents a
loss contingency that is probable and estimable. Once the loss
contingency is deemed to be both probable and estimable, the
Corporation will establish an accrued liability and record a
corresponding amount of
litigation-related expense. The
further
Corporation continues to monitor the matter
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 $753 million was recognized for 2017 compared to
$1.2 billion for 2016.
for
172 Bank of America 2017
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 $1.3 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 asserts claims for fraudulent
inducement as well as breach of contract and seeks damages in
excess of $2.2 billion, plus unspecified punitive damages.
On May 16, 2017, the First Department issued its decision on
the parties’ cross-appeals of the trial court’s October 22, 2015
summary judgment rulings. Among other things, the First
Department reversed on the applicability of New York insurance
law to Ambac’s common-law fraud claim, ruling that Ambac must
prove all of the elements of its fraudulent inducement claim,
including justifiable reliance and loss causation; reversed as to
Ambac’s remedy for its breach of contract claims, finding that
Ambac’s sole remedy is the repurchase protocol of cure,
repurchases or substitution of any materially defective loan;
affirmed the trial court’s ruling that Ambac’s compensatory
damages claim was an impermissible request for rescissory
for
damages;
reimbursement of claims payments, but affirmed the dismissal of
Ambac’s claim for reimbursements of attorneys’ fees; and
reversed as to the meaning of specific representations and
warranties, ruling that disputed issues of fact precluded summary
judgment. On July 25, 2017, the First Department granted Ambac’s
motion for leave to appeal to the Court of Appeals. That appeal is
pending.
the dismissal of Ambac’s claim
reversed
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
Wisconsin Court of Appeals reversed. On June 30, 2017, the
Wisconsin Supreme Court reversed the decision of the Wisconsin
Court of Appeals and held that Countrywide did not consent to the
jurisdiction of the Wisconsin courts and remanded the case to the
Court of Appeals for further consideration of whether specific
jurisdiction exists. On December 14, 2017, the Wisconsin Court
of Appeals ruled that specific jurisdiction over Countrywide does
not exist for this matter. On January 16, 2018, Ambac asked the
Wisconsin Supreme Court to review the decision of the Court of
Appeals.
Bank of America 2017 173
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 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.
ATM Access Fee Litigation
On January 10, 2012, a putative consumer class action was filed
in U.S. District Court for the District of Columbia against Visa, Inc.,
MasterCard, Inc. and several financial institutions, including the
Corporation and BANA alleging that surcharges paid at financial
institution 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 financial
institutions in violation of Section 1 of the Sherman Act. Plaintiffs
seek compensatory and treble damages and injunctive relief.
On February 13, 2013, the District Court granted defendants’
motion to dismiss. On August 4, 2015, the U.S. Court of Appeals
for the District of Columbia Circuit vacated the District Court’s
decision and remanded the case to the District Court, where
proceedings have resumed.
Deposit Insurance Assessment
On January 9, 2017, the FDIC filed suit against BANA in U.S. District
Court for 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. On April 7, 2017, the
FDIC amended its complaint to add a claim for additional deposit
insurance and interest in the amount of $583 million for the
quarters ending March 31, 2012 through March 31, 2013. The
FDIC asserts these claims based on BANA’s alleged underreporting
of counterparty exposures that resulted in underpayment of
assessments for those quarters. BANA disagrees with the FDIC’s
interpretation of the regulations as they existed during the relevant
time period and is defending itself against the FDIC’s claims.
Pending final resolution, BANA has pledged security satisfactory
to the FDIC related to the disputed additional assessment
amounts.
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
were unreasonable
trade. Plaintiffs sought
compensatory and treble damages and injunctive relief.
restraints of
On October 19, 2012, defendants reached a proposed
settlement that would have provided for, among other things, (i)
payments by defendants to the class and individual plaintiffs
totaling approximately $6.6 billion, allocated 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; and (iii) modifications to certain Visa and MasterCard
rules. Although the District Court approved the class settlement
agreement, the U.S. Court of Appeals for the Second Circuit
reversed the decision on appeal. The Interchange class case was
remanded to the District Court, where proceedings have resumed.
In addition to the class actions, a number of merchants filed
individual actions against the defendants. The Corporation was
named as a defendant in one such individual action. In addition,
a number of 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.
174 Bank of America 2017
LIBOR, Other Reference Rates, Foreign Exchange (FX) and
Bond Trading Matters
Government authorities in the U.S. and various international
jurisdictions continue to conduct investigations, to make inquiries
of, and to pursue proceedings against, 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 other reference rates as well as the
trading of government, sovereign, supranational and agency
bonds. The Corporation is responding to and cooperating with
these proceedings and 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 by persons alleging they sustained losses on U.S.
dollar LIBOR-based financial instruments 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.
All cases naming the Corporation and its affiliates relating to U.S.
dollar LIBOR have been consolidated for pre-trial purposes in the
U.S. District Court for the Southern District of New York.
In a series of rulings beginning in March 2013, the District
Court dismissed antitrust, RICO, Exchange Act and certain state
law claims, dismissed all manipulation claims based on alleged
trader conduct as to the Corporation and BANA, and substantially
limited the scope of CEA and various other claims. 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 again dismissed certain plaintiffs’
antitrust claims in their entirety and substantially limited the scope
of the remaining antitrust claims.
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. Plaintiffs whose antitrust, Exchange Act and/or
state law claims were previously dismissed by the District Court
are pursuing appeals in the Second Circuit.
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 District 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 and, in certain instances, have received claims for
contractual indemnification related to the MBS securities actions.
Plaintiffs
these cases generally sought unspecified
compensatory and/or rescissory damages, unspecified costs and
legal fees and generally alleged false and misleading statements.
The indemnification claims include 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.
in
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, alleging
breaches of representations and warranties. This litigation has
been stayed since March 23, 2017, pending finalization of the
settlement discussed below.
On December 5, 2016, the defendants and certain certificate-
holders in the Trust agreed to settle the litigation in an amount
not material to the Corporation, subject to acceptance by U.S.
Bank. U.S. Bank has initiated a trust instruction proceeding in
Minnesota state court relating to the proposed settlement, and
that proceeding is ongoing.
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.
Bank of America 2017 175
NOTE 13 Shareholders’ Equity
Common Stock
Declared Quarterly Cash Dividends on Common Stock (1)
Declaration Date
Record Date
Payment Date
January 31, 2018
October 25, 2017
July 26, 2017
April 26, 2017
January 26, 2017
(1)
March 2, 2018
December 1, 2017
September 1, 2017
June 2, 2017
March 3, 2017
In 2017 and through February 22, 2018.
March 30, 2018
December 29, 2017
September 29, 2017
June 30, 2017
March 31, 2017
Dividend
Per Share
$
0.12
0.12
0.12
0.075
0.075
The following table summarizes common stock repurchases
during 2017, 2016 and 2015.
Common Stock Repurchase Summary
(in millions)
2017
2016
2015
Total share repurchases, including CCAR
capital plan repurchases
509
333
140
Purchase price of shares repurchased and
retired (1)
CCAR capital plan repurchases
Other authorized repurchases
$
9,347 $
4,312 $
2,374
3,467
800
—
Total shares repurchased
$ 12,814 $
5,112 $
2,374
(1) Represents reductions to shareholders’ equity due to common stock repurchases.
On June 28, 2017, following the Federal Reserve’s non-
objection to the Corporation’s 2017 Comprehensive Capital
Analysis and Review (CCAR) capital plan, the Board of Directors
(Board) authorized the repurchase of $12.0 billion of common
stock from July 1, 2017 through June 30, 2018, plus repurchases
expected to be approximately $900 million to offset the effect of
equity-based compensation plans during the same period. The
common stock repurchase authorization includes both common
stock and warrants. The Corporation’s 2017 capital plan also
included a request to increase the quarterly common stock
dividend from $0.075 per share to $0.12 per share. On December
5, 2017, following approval by the Federal Reserve, the Board
authorized the repurchase of an additional $5.0 billion of common
stock through June 30, 2018.
In 2017, the Corporation repurchased $12.8 billion of common
stock in connection with the 2017 and 2016 CCAR capital plans
and pursuant to other repurchases approved by the Board and the
Federal Reserve. Other authorized repurchases included $1.8
billion of common stock pursuant to the Corporation’s plan
announced on January 13, 2017 and $1.7 billion under the
authorization announced on December 5, 2017.
At December 31, 2017, 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 143 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 $0.12 per share for the third
176 Bank of America 2017
and fourth quarters of 2017, and cash dividends of $0.075 per
share for the first and second quarter of 2017, or $0.39 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
2017 dividends of $0.39 per common share, the exercise price
of the warrants expiring on January 16, 2019 was adjusted to
$12.757 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.
On August 24, 2017, the holders of the Corporation’s Series
T 6% Non-cumulative preferred stock (Series T) exercised warrants
to acquire 700 million shares of the Corporation’s common stock.
The carrying value of the preferred stock was $2.9 billion and,
upon conversion, was recorded as additional paid-in capital. For
more information, see Note 15 – Earnings Per Common Share.
In connection with employee stock plans, in 2017, the
issued approximately 66 million shares and
Corporation
repurchased approximately 27 million shares of its common stock
to satisfy tax withholding obligations. At December 31, 2017, the
Corporation had reserved 869 million unissued shares of common
stock for future issuances under employee stock plans, common
stock warrants, convertible notes and preferred stock.
Preferred Stock
The cash dividends declared on preferred stock were $1.6 billion,
$1.7 billion and $1.5 billion for 2017, 2016 and 2015,
respectively. The following table presents a summary of perpetual
preferred stock outstanding at December 31, 2017.
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 vote together with
the common stock. The holders of the other series included in the
table have no general voting rights. All outstanding series of
preferred stock of the Corporation have preference over the
Corporation’s common stock with respect to the payment of
dividends and distribution of the Corporation’s assets in the event
of a liquidation or dissolution. With the exception of the Series B,
F, G and T Preferred Stock, if any dividend payable on these series
is in arrears for three or more semi-annual or six or more quarterly
dividend periods, as applicable (whether consecutive or not), the
holders of these series and any other class or series of preferred
stock ranking equally as to payment of dividends and upon which
equivalent voting rights have been conferred and are exercisable
(voting as a single class) will be entitled to vote for the election
of two additional directors. These voting rights terminate when the
Corporation has paid in full dividends on these series for at least
two semi-annual or four quarterly dividend periods, as applicable,
following the dividend arrearage.
The 7.25% Non-Cumulative Perpetual Convertible Preferred
Stock, Series L (Series L Preferred Stock) 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.
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)
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)
7,110
$
100
$
1
26,174
12,691
1,409
4,926
14,584
61,773
25,000
25,000
100,000
100,000
25,000
654
317
141
493
365
Per Annum
Dividend Rate
Redemption Period (2)
7.00%
6.204%
3-mo. LIBOR + 35 bps (4)
3-mo. LIBOR + 40 bps (4)
3-mo. LIBOR + 40 bps (4)
6.625%
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
25,000
1,544
8.00% to, but excluding, 1/30/18;
3-mo. LIBOR + 363 bps thereafter
On or after
January 30, 2018
3,080,182
1,000
3,080
7.25%
52,399
25,000
1,310
8.125% to, but excluding, 5/15/18;
3-mo. LIBOR + 364 bps thereafter
n/a
On or after
May 15, 2018
354
100,000
35
6.00%
After May 7, 2019
40,000
60,000
44,000
80,000
44,000
56,000
76,000
44,000
40,000
36,000
3,275
9,967
21,773
7,010
14,056
3,837,683
25,000
1,000
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
25,000
1,100
6.625%
25,000
2,000
6.250% to, but excluding, 9/5/24;
3-mo. LIBOR + 370.5 bps thereafter
25,000
1,100
6.500%
25,000
1,400
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
25,000
1,100
6.200%
25,000
1,000
6.300% to, but excluding, 3/10/26;
3-mo. LIBOR + 455.3 bps thereafter
25,000
30,000
30,000
30,000
30,000
30,000
900
98
299
653
210
422
$
22,622
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)
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 $299 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) Represents shares that were not surrendered when the holders of Series T preferred stock exercised warrants to acquire 700 million shares of common stock in the third quarter of 2017.
(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
Bank of America 2017 177
NOTE 14 Accumulated Other Comprehensive Income (Loss)
The table below presents the changes in accumulated OCI after-tax for 2015, 2016 and 2017.
(Dollars in millions)
Balance, December 31, 2014
Cumulative adjustment for accounting change
Net change
Balance, December 31, 2015
Net change
Balance, December 31, 2016
Net change
Balance, December 31, 2017
$
$
$
$
Debt
Securities
Available-for-
Sale Marketable
Equity Securities
Debit Valuation
Adjustments
Derivatives
Employee
Benefit Plans
Foreign
Currency (1)
Total
$
1,641
—
(1,625)
16
(1,315)
(1,299) $
91
(1,208) $
$
$
17
— $
45
62
(30)
32
(30)
2
$
$
$
n/a
(1,226)
615
(611) $
(156)
(767) $
(293)
(1,060) $
(1,661) $
—
584
(1,077) $
182
(895) $
64
(831) $
(3,350) $
—
394
(2,956) $
(524)
(3,480) $
288
(3,192) $
(669) $
—
(123)
(792) $
(87)
(879) $
86
(793) $
(4,022)
(1,226)
(110)
(5,358)
(1,930)
(7,288)
206
(7,082)
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 2017, 2016 and 2015.
Changes in OCI Components Before- and After-tax
(Dollars in millions)
Debt securities:
Net increase in fair value
Reclassifications into earnings:
Gains on sales of debt securities
Other income
Net realized gains reclassified into earnings
Net change
Available-for-sale marketable equity securities:
Net increase (decrease) in fair value
Net realized gains reclassified into earnings (2)
Net change
Debit valuation adjustments:
Net increase (decrease) in fair value
Net realized losses reclassified into earnings (2)
Net change
Derivatives:
Net increase (decrease) in fair value
Reclassifications into earnings:
Net interest income
Personnel
Net realized 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 losses reclassified into earnings (3)
Settlements, curtailments and other
Net change
Foreign currency:
Before-
tax
Tax
effect
2017
After-
tax
Before-
tax
Tax
effect
2016
After-
tax
Before-
tax
Tax
effect
2015
After-
tax
$
202
$
26
$
228
$ (1,645) $
622
$ (1,023) $ (1,564) $
595
$
(969)
(304)
12
(292)
(1,315)
(1,138)
81
(1,057)
(2,621)
(255)
41
(214)
(12)
38
(90)
(52)
(490)
42
(448)
97
(20)
77
103
(12)
34
22
171
(16)
155
(158)
21
(137)
91
26
(56)
(30)
(319)
26
(293)
(490)
19
(471)
(2,116)
(49)
—
(49)
(271)
17
(254)
186
(7)
179
801
19
—
19
104
(6)
98
(30)
—
(30)
(167)
11
(156)
(50)
1
(49)
(299)
113
(186)
327
(148)
179
129
223
4
175
179
3
405
(122)
56
(66)
(65)
(55)
(1)
(60)
(61)
(1)
(117)
205
(92)
113
64
168
3
115
118
2
288
553
32
585
286
(205)
(12)
(217)
(104)
348
20
368
182
(921)
329
(592)
5
92
97
15
(809)
(2)
(34)
(36)
(8)
285
3
58
61
7
(524)
432
(31)
401
996
(27)
—
(27)
(166)
(211)
(377)
(22)
(367)
35
(332)
(354)
(121)
(2)
(60)
(62)
(1)
(184)
(706)
50
(656)
(1,625)
45
—
45
270
345
615
33
607
(56)
551
584
287
3
104
107
—
394
72
—
72
436
556
992
55
974
(91)
883
938
408
5
164
169
1
578
Net increase (decrease) in fair value
Net realized gains reclassified into earnings (1,2)
(123)
—
(123)
(110)
(1) During 2017, foreign currency included a pre-tax gain on derivatives and related income tax expense associated with the Corporation’s net investment in its non-U.S. consumer credit card business,
430
701
1,131
$ (1,023) $ 1,229
514
—
514
$ (2,428) $
(723)
38
(685)
(631) $
Total other comprehensive income (loss)
(601)
—
(601)
498
(439)
(606)
(1,045)
600
(38)
562
521
(9)
95
86
206
(87)
—
(87)
$ (1,930) $
Net change
$
$
which was sold in 2017. The derivative gain was partially offset by a loss on the related foreign currency translation adjustment.
(2) Reclassifications of pre-tax AFS marketable equity securities, DVA and foreign currency are recorded in other income in the Consolidated Statement of Income.
(3) Reclassifications of pre-tax employee benefit plan costs are recorded in personnel expense in the Consolidated Statement of Income.
n/a = not applicable
178 Bank of America 2017
NOTE 15 Earnings Per Common Share
The calculation of EPS and diluted EPS for 2017, 2016 and 2015 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)
2017
2016
2015
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 (1)
Net income allocated to common shareholders
Average common shares issued and outstanding
Dilutive potential common shares (2)
Total diluted average common shares issued and outstanding
Diluted earnings per common share
(1) Represents the Series T dividends under the “if-converted” method prior to conversion.
(2)
Includes incremental dilutive shares from RSUs, restricted stock and warrants.
In connection with an investment in the Corporation’s Series
T preferred stock in 2011, the Series T holders also received
warrants to purchase 700 million shares of the Corporation’s
common stock at an exercise price of $7.142857 per share. On
August 24, 2017, the Series T holders exercised the warrants and
acquired the 700 million shares of the Corporation’s common
stock using the Series T preferred stock as consideration for the
exercise price, which increased common shares outstanding, but
had no effect on diluted earnings per share as this conversion had
been included in the Corporation’s diluted earnings per share
calculation under the applicable accounting guidance. The use of
the Series T preferred stock as consideration represents a non-
cash financing activity and, accordingly, is not reflected in the
Consolidated Statement of Cash Flows. 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 2017, 2016 and 2015, 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 2017,
2016 and 2015, average options to purchase 21 million, 45 million
and 66 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 2017, 2016 and 2015, 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. For 2017,
average warrants to purchase 143 million shares of common stock
were included in the diluted EPS calculation under the treasury
stock method compared to 150 million shares of common stock
in both 2016 and 2015.
$
$
$
$
$
$
18,232
(1,614)
16,618
10,195,646
1.63
16,618
186
16,804
10,195,646
582,782
10,778,428
1.56
$
$
$
$
$
$
17,822
(1,682)
16,140
10,284,147
1.57
16,140
300
16,440
10,284,147
762,659
11,046,806
1.49
$
$
$
$
$
$
15,910
(1,483)
14,427
10,462,282
1.38
14,427
300
14,727
10,462,282
773,948
11,236,230
1.31
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, and was the Advanced approaches method at
December 31, 2017 and 2016.
The following table presents capital ratios and related
information in accordance with Basel 3 Standardized and
Advanced approaches – Transition as measured at December 31,
2017 and 2016 for the Corporation and BANA.
Bank of America 2017 179
Regulatory Capital under Basel 3 – Transition (1)
(Dollars in millions, except as noted)
Risk-based capital metrics:
Common equity tier 1 capital
Tier 1 capital
Total capital (4)
Risk-weighted assets (in billions) (5)
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 (4)
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
Bank of America Corporation
Bank of America, N.A.
Standardized
Approach
Advanced
Approaches
Regulatory
Minimum (2)
Standardized
Approach
Advanced
Approaches
Regulatory
Minimum (3)
December 31, 2017
$ 171,063
191,496
227,427
1,434
$ 171,063
191,496
218,529
1,449
$ 150,552
150,552
163,243
1,201
$ 150,552
150,552
154,675
1,007
11.9%
13.4
15.9
11.8%
13.2
15.1
7.25%
8.75
10.75
12.5%
12.5
13.6
14.9%
14.9
15.4
6.5%
8.0
10.0
$
2,224
$
2,224
$
1,672
$
1,672
8.6%
8.6%
4.0
9.0%
9.0%
5.0
December 31, 2016
$ 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
(1) Under the applicable bank regulatory rules, the Corporation is not required to and, accordingly, will not restate previously-filed regulatory capital metrics and ratios in connection with the change in
accounting method as described in Note 1 – Summary of Significant Accounting Principles . Therefore, the December 31, 2016 amounts in the table are as originally reported. The cumulative impact
of the change in accounting method resulted in an insignificant pro forma change to the Corporation’s capital metrics and ratios.
(2) The December 31, 2017 and 2016 amounts include a transition capital conservation buffer of 1.25 percent and 0.625 percent and a transition global systemically important bank surcharge of 1.5
percent and 0.75 percent. The countercyclical capital buffer for both periods is zero.
(3) Percentage required to meet guidelines to be considered “well capitalized” under the PCA framework.
(4) 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.
(5) During the fourth quarter of 2017, the Corporation obtained approval from U.S. banking regulators to use its Internal Models Methodology to calculate counterparty credit risk-weighted assets for
derivatives under the Advanced approaches.
(6) Reflects adjusted average total assets for the three months ended December 31, 2017 and 2016.
The capital adequacy rules issued by the U.S. banking
regulators require institutions to meet the established minimums
outlined in the table above. 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, 2017 and
2016, the Corporation and its banking entity affiliates were “well
capitalized.”
Other Regulatory Matters
The Federal Reserve requires the Corporation’s bank 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 $8.9 billion and $7.7 billion for 2017 and
2016. At December 31, 2017 and 2016, the Corporation had cash
and cash equivalents in the amount of $4.1 billion and $4.8 billion,
and securities with a fair value of $17.3 billion and $14.6 billion
that were segregated in compliance with securities regulations. In
addition, at December 31, 2017 and 2016, the Corporation had
cash deposited with clearing organizations of $11.9 billion and
$10.2 billion primarily recorded in other assets on the
Consolidated Balance Sheet.
The primary sources of funds for cash distributions by the
Corporation to its shareholders are capital distributions received
from its bank subsidiaries, BANA and Bank of America California,
N.A. In 2017, the Corporation received dividends of $22.2 billion
from BANA and $275 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 2018, BANA can
declare and pay dividends of approximately $6.0 billion to the
Corporation plus an additional amount equal to its retained net
profits for 2018 up to the date of any such dividend declaration.
Bank of America California, N.A. can pay dividends of $195 million
in 2018 plus an additional amount equal to its retained net profits
for 2018 up to the date of any such dividend declaration.
180 Bank of America 2017
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.
Benefits earned under the Qualified Pension Plan have been
frozen. Thereafter, the cash balance accounts continue to earn
investment credits or interest credits in accordance with the terms
of the plan document.
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
2017 or 2016. 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. During 2017, the
Corporation established and funded a Voluntary Employees’
Beneficiary Association trust in the amount of $300 million for 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, 2017 and 2016. 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 decreases in the
weighted-average discount rate in 2017 and 2016 resulted in
increases to the PBO of approximately $1.1 billion and $1.3 billion
at December 31, 2017 and 2016.
Pension and Postretirement Plans (1)
(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
Amounts recognized on Consolidated Balance Sheet
Other assets
Accrued expenses and other liabilities
Net 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
Non-U.S.
Pension Plans
Nonqualified and Other
Pension Plans
Postretirement
Health and Life Plans
2017
2016
2017
2016
2017
2016
2017
2016
$
$
$
$
$
$
$
18,239
2,285
—
—
—
(816)
n/a
n/a
19,708
14,982
—
606
—
—
—
934
(816)
n/a
n/a
15,706
4,002
—
4,002
15,706
4,002
—
15,706
$
$
$
$
$
$
$
$
$
$
$
$
$
$
17,962
1,075
—
—
—
(798)
n/a
n/a
18,239
14,461
—
634
—
—
—
685
(798)
n/a
n/a
14,982
3,257
—
3,257
14,982
3,257
—
14,982
$
$
$
$
$
$
$
2,789
118
23
1
(190)
(54)
n/a
256
2,943
2,763
24
72
1
—
(200)
(26)
(54)
n/a
234
2,814
610
(481)
129
2,731
212
83
2,814
$
$
$
$
$
$
$
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
475
(449)
26
2,645
144
118
2,763
$
$
$
$
$
$
$
2,744
128
98
—
—
(246)
n/a
n/a
2,724
3,047
1
117
—
—
—
128
(246)
n/a
n/a
3,047
730
(1,053)
(323)
3,046
(322)
1
3,047
2,805
74
104
—
(6)
(233)
n/a
n/a
2,744
3,053
—
127
—
—
(6)
106
(233)
n/a
n/a
3,047
760
(1,063)
(303)
3,046
(302)
1
3,047
$
$
$
$
$
$
$
— $
—
393
125
—
(230)
12
n/a
300
$
1,125
6
43
125
(19)
—
(7)
(230)
12
1
1,056
$
$
— $
(756)
(756)
n/a
n/a
n/a
1,056
$
$
—
—
104
125
—
(242)
13
n/a
—
1,152
7
47
125
—
—
25
(242)
13
(2)
1,125
—
(1,125)
(1,125)
n/a
n/a
n/a
1,125
3.68%
n/a
4.16%
n/a
2.39%
4.31
2.56%
4.51
3.58%
4.00
4.01%
4.00
3.58%
n/a
3.99%
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
Bank of America 2017 181
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 2018 is $17 million,
$92 million and $19 million, respectively. The Corporation does
not expect to make a contribution to the Qualified Pension Plan in
2018. 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 Plans with ABO and PBO in excess of plan assets as
of December 31, 2017 and 2016 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 net actuarial loss
Other
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 net actuarial loss (gain)
Other
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
2017
2016
2017
2016
$
$
671
644
191
$
626
594
179
$
1,054
1,053
1
1,065
1,064
1
Qualified Pension Plan
2016
2015
2017
Non-U.S. Pension Plans
2016
2015
2017
$
— $
— $
— $
606
(1,068)
154
—
(308)
$
634
(1,038)
139
—
(265)
$
621
(1,045)
170
—
(254)
$
$
4.16%
6.00
n/a
4.51%
6.00
n/a
4.12%
6.00
n/a
$
$
24
72
(136)
8
(7)
(39)
2.56%
4.73
4.51
$
$
25
86
(123)
6
2
(4)
3.59%
4.84
4.67
27
93
(133)
6
1
(6)
3.56%
5.27
4.70
Nonqualified and
Other Pension Plans
Postretirement Health
and Life Plans
2017
2016
2015
2017
2016
2015
$
$
1
117
(95)
34
—
57
4.01%
3.50
4.00
$
— $
— $
$
127
(101)
25
3
54
4.34%
3.66
4.00
$
122
(92)
34
—
64
3.80%
3.26
4.00
$
6
43
—
(21)
4
32
$
$
7
47
—
(81)
4
(23)
$
$
8
48
(1)
(46)
4
13
3.99%
n/a
n/a
4.32%
n/a
n/a
3.75%
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.
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. Net
periodic postretirement health and life expense was determined
using the “projected unit credit” actuarial method. 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.
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 2018,
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 $26 million in 2017. 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 $23 million in 2017.
182 Bank of America 2017
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 assets
assumptions would have resulted in an increase in the net periodic
benefit cost for the Qualified Pension Plan of approximately $6
million and $45 million in 2017, and approximately $6 million and
$47 million to be recognized in 2018. For the Non-U.S. Pension
Plans, Nonqualified and Other Pension Plans, and Postretirement
Health and Life Plans, a 25 bp decline in discount rates and
expected return on assets would not have a significant impact on
the net periodic benefit cost for 2017 and 2018.
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
Qualified
Pension Plan
Non-U.S.
Pension Plans
Nonqualified
and Other
Pension Plans
Postretirement
Health and
Life Plans
Total
2017
$ 3,992
—
$ 3,992
2016
$ 4,429
—
$ 4,429
2017
$
$
196
4
200
2016
$ 216
4
$ 220
2017
$ 1,014
—
$ 1,014
2016
$ 953
—
$ 953
2017
2016
2017
$
$
(30) $
(11)
(41) $
(44) $ 5,172
(7)
12
(32) $ 5,165
2016
$ 5,554
16
$ 5,570
Qualified
Pension Plan
Non-U.S.
Pension Plans
Nonqualified
and Other
Pension Plans
Postretirement
Health and
Life Plans
Total (1)
(Dollars in millions)
2017
2016
2017
2016
2017
Current year actuarial loss (gain)
Amortization of actuarial gain (loss)
Current year prior service cost (credit)
Amortization of prior service cost
(12) $ 100
(6)
—
(1)
93
(1) Pretax amounts to be amortized from accumulated OCI as period cost during 2018 are estimated to be $176 million.
$ (283) $ 648
(139)
—
—
$ (437) $ 509
(8)
—
—
(20) $
Amounts recognized in OCI
(154)
—
—
$
$
$
$
95
(34)
—
—
61
2016
$ 133
(28)
—
—
$ 105
2017
2016
2017
2016
$
$
(7) $
25
21
81
(19)
—
(4)
(4)
(9) $ 102
$ (207) $ 906
(92)
—
(5)
$ (405) $ 809
(175)
(19)
(4)
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 2018.
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 to 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 2018 by asset category for the
Qualified Pension Plan, Non-U.S. Pension Plans, and Nonqualified
and Other Pension Plans are presented in the following table.
Equity securities for the Qualified Pension Plan include common
stock of the Corporation in the amounts of $261 million (1.33
percent of total plan assets) and $203 million (1.11 percent of
total plan assets) at December 31, 2017 and 2016.
Bank of America 2017 183
2018 Target Allocation
Asset Category
Equity securities
Debt securities
Real estate
Other
Percentage
Qualified
Pension Plan
Non-U.S.
Pension Plans
Nonqualified
and Other
Pension Plans
30-60
40-70
0-10
0-5
5-35
40-80
0-15
0-25
0-5
95-100
0-5
0-5
Fair Value Measurements
For more 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, 2017 and 2016 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
$
2,190
—
$
December 31, 2017
— $
1,004
854
2,417
1,832
898
1,676
—
1,753
—
— $
—
9
—
—
—
—
—
—
—
—
13
155
649
11,251
$
93
831
85
74
1,092
$
December 31, 2016
— $
997
— $
—
$
$
816
1,892
2,246
705
1,503
—
1,225
—
10
—
—
—
—
—
—
—
3,331
—
—
693
775
5,833
271
138
—
—
—
101
13,332
776
—
3,125
—
—
789
778
6,120
735
145
—
—
—
15
12,483
$
—
12
132
732
10,260
$
150
748
38
83
1,029
$
2,190
1,004
4,194
2,417
1,832
1,591
2,451
5,833
2,024
138
93
844
240
824
25,675
776
997
3,951
1,892
2,246
1,494
2,281
6,120
1,960
145
150
760
170
830
23,772
$
$
$
(1) Other investments include interest rate swaps of $156 million and $257 million, participant loans of $20 million and $36 million, commodity and balanced funds of $451 million and $369 million
and other various investments of $197 million and $168 million at December 31, 2017 and 2016.
184 Bank of America 2017
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 2017, 2016 and 2015.
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
Real estate
Private real estate
Real estate commingled/mutual funds
Limited partnerships
Other investments
Total
Balance
January 1
Actual Return on
Plan Assets Still
Held at the
Reporting Date
Purchases, Sales
and Settlements
Balance
December 31
$
$
$
$
$
$
10
$
150
748
38
83
1,029
$
11
$
144
731
49
102
1,037
$
11
$
127
632
65
127
962
$
2017
— $
8
63
14
5
90
$
2016
— $
1
21
(2)
4
24
$
2015
— $
14
37
(1)
(5)
45
$
(1) $
(65)
20
33
(14)
(27) $
(1) $
5
(4)
(9)
(23)
(32) $
— $
3
62
(15)
(20)
30
$
9
93
831
85
74
1,092
10
150
748
38
83
1,029
11
144
731
49
102
1,037
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
(Dollars in millions)
Qualified
Pension Plan (1)
Non-U.S.
Pension Plans (2)
Nonqualified
and Other
Pension Plans (2)
Postretirement
Health and
Life Plans (3)
2018
2019
2020
2021
2022
2023 - 2027
(1) Benefit payments expected to be made from the plan’s assets.
(2) Benefit payments expected to be made from a combination of the plans’ and the Corporation’s assets.
(3) Benefit payments (net of retiree contributions) expected to be made from a combination of the plans’ and the Corporation’s assets.
927
912
924
912
919
4,455
$
$
$
90
98
104
112
121
695
$
237
239
242
239
232
1,073
92
87
84
81
78
343
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 2017, 2016 and 2015 related to the
qualified defined contribution plans. At December 31, 2017 and
2016, 218 million and 224 million shares of the Corporation’s
common stock were held by these plans. Payments to the plans
for dividends on common stock were $86 million, $60 million and
$48 million in 2017, 2016 and 2015, respectively.
Certain non-U.S. employees are covered under defined
contribution pension plans that are separately administered in
accordance with local laws.
Bank of America 2017 185
The table below presents the status at December 31, 2017 of
the cash-settled RSUs granted under the KEEP and changes during
2017.
Cash-settled Restricted Units
Outstanding at January 1, 2017
Granted
Vested
Canceled
Outstanding at December 31, 2017
Units
121,235,489
3,105,988
(79,525,864)
(2,605,987)
42,209,626
At December 31, 2017, there was an estimated $1.1 billion of
total unrecognized compensation cost related to certain share-
based compensation awards that is expected to be recognized
over a period of up to four years, with a weighted-average period
of 1.7 years. The total fair value of restricted stock vested in 2017,
2016 and 2015 was $1.3 billion, $358 million and $145 million,
respectively. In 2017, 2016 and 2015, the amount of cash paid
to settle equity-based awards for all equity compensation plans
was $1.9 billion, $1.7 billion and $3.0 billion, respectively.
Stock Options
The table below presents the status of all option plans at December
31, 2017 and changes during 2017.
Stock Options
Weighted-
average
Exercise Price
Options
Outstanding at January 1, 2017
Forfeited
Outstanding at December 31, 2017
$
42,357,282
(25,769,108)
16,588,174
50.57
55.15
43.44
All options outstanding as of December 31, 2017 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 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 are authorized
to be used for grants of awards.
During 2017 and 2016, the Corporation granted 85 million and
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
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 years prior to 2016 were
predominantly cash settled.
these awards
Effective October 1, 2017, the Corporation changed its
for determining when stock-based
accounting method
compensation awards granted to retirement-eligible employees are
deemed authorized, changing from the grant date to the beginning
of the year preceding the grant date when the incentive award
plans are generally approved. As a result, the estimated value of
the awards is now expensed ratably over the year preceding the
grant date. The compensation cost for all prior periods presented
herein has been restated. For more information, see Note 1 –
Summary of Significant Accounting Principles.
The compensation cost for the stock-based plans was $2.2
billion, $2.2 billion and $2.1 billion in 2017, 2016 and 2015 and
the related income tax benefit was $829 million, $835 million and
$792 million for 2017, 2016 and 2015, respectively.
Restricted Stock/Units
The table below presents the status at December 31, 2017 of the
share-settled restricted stock/units and changes during 2017.
Stock-settled Restricted Stock/Units
Outstanding at January 1, 2017
Granted
Vested
Canceled
Outstanding at December 31, 2017
Shares/Units
156,492,946
81,555,447
(52,187,746)
(6,587,404)
179,273,243
Weighted-
average Grant
Date Fair Value
$
11.99
24.58
12.01
16.93
17.53
186 Bank of America 2017
NOTE 19 Income Taxes
On December 22, 2017, the President signed into law the Tax Act
which made significant changes to federal income tax law
including, among other things, reducing the statutory corporate
income tax rate to 21 percent from 35 percent and changing the
taxation of the Corporation’s non-U.S. business activities. The
estimated impact on net income was $2.9 billion, driven by $2.3
billion in income tax expense, largely from a lower valuation of
certain U.S. deferred tax assets and liabilities. The change in the
statutory tax rate also impacted the Corporation’s tax-advantaged
energy investments, resulting in a downward valuation adjustment
of $946 million recorded in other income and a related income
tax benefit of $347 million, which when netted against the $2.3
billion, resulted in a net impact on income tax expense of $1.9
billion. For more information on the Tax Act, see Note 1 – Summary
of Significant Accounting Principles.
The components of income tax expense for 2017, 2016 and
2015 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
2017
2016
2015
$
$
1,310
557
939
2,806
7,238
835
102
8,175
10,981
$
$
302
120
984
1,406
5,416
(279)
656
5,793
7,199
$
$
2,539
210
561
3,310
1,855
515
597
2,967
6,277
Total income tax expense does not reflect the tax effects of
items that are included in OCI each period. For more information,
see Note 14 – Accumulated Other Comprehensive Income (Loss).
Other tax effects included in OCI each period resulted in a benefit
of $1.2 billion and $498 million in 2017 and 2016 and an expense
of $631 million in 2015. In addition, prior to 2017, 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 and $44 million in
2016 and 2015.
Income tax expense for 2017, 2016 and 2015 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 2017, 2016 and 2015
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
Tax law changes (1)
Changes in prior-period UTBs, including interest
Nondeductible expenses
Affordable housing/energy/other credits
Tax-exempt income, including dividends
Non-U.S. tax rate differential
Share-based compensation
Other
Total income tax expense
(1) Amounts for 2016 and 2015 are for Non-U.S. tax law changes.
Amount
Percent
Amount
Percent
Amount
Percent
2017
2016
2015
$
10,225
35.0% $
8,757
35.0% $
7,765
35.0%
881
2,281
133
97
(1,406)
(672)
(272)
(236)
(50)
10,981
$
3.0
7.8
0.5
0.3
(4.8)
(2.3)
(0.9)
(0.8)
(0.2)
37.6% $
420
348
(328)
180
(1,203)
(562)
(307)
—
(106)
7,199
1.7
1.4
(1.3)
0.7
(4.8)
(2.2)
(1.2)
—
(0.5)
28.8% $
438
289
(52)
40
(1,087)
(539)
(559)
—
(18)
6,277
2.0
1.3
(0.2)
0.1
(4.9)
(2.4)
(2.5)
—
(0.1)
28.3%
The reconciliation of the beginning unrecognized tax benefits (UTB) balance to the ending balance is presented in the following table.
Reconciliation of the Change in Unrecognized Tax Benefits
(Dollars in millions)
Balance, January 1
Increases related to positions taken during the current year
Increases related to positions taken during prior years
Decreases related to positions taken during prior years
Settlements
Expiration of statute of limitations
Balance, December 31
2017
2016
2015
$
$
875
292
750
(122)
(17)
(5)
1,773
$
$
1,095
104
1,318
(1,091)
(503)
(48)
875
$
$
1,068
36
187
(177)
(1)
(18)
1,095
Bank of America 2017 187
Deferred Tax Assets and Liabilities
(Dollars in millions)
Deferred tax assets
Net operating loss carryforwards
Security, loan and debt valuations
Allowance for credit losses
Accrued expenses
Tax credit carryforwards
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
Tax credit partnerships
Intangibles
Fee income
Mortgage servicing rights
Long-term borrowings
Other
Gross deferred tax liabilities
Net deferred tax assets, net of valuation
allowance
December 31
2017
2016
$
$
8,506
2,939
2,598
2,021
1,793
1,705
510
1,034
21,106
(1,644)
9,199
4,726
4,362
3,016
3,125
3,042
784
1,599
29,853
(1,117)
19,462
28,736
2,492
734
670
601
349
227
1,764
6,837
3,489
539
1,171
847
829
355
1,915
9,145
$
12,625
$ 19,591
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, 2017.
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. $
Net operating losses -
868
$
— $
868
After 2027
U.K. (1)
5,347
—
5,347
None
Net operating losses - other
non-U.S.
Net operating losses - U.S.
657
(578)
79
Various
states (2)
1,634
(584)
1,050
Various
General business credits
Foreign tax credits
(1) Represents U.K. broker/dealer net operating losses which may be carried forward indefinitely.
(2) The net operating losses and related valuation allowances for U.S. states before considering
After 2036
n/a
1,721
72
1,721
—
—
(72)
the benefit of federal deductions were $2.1 billion and $739 million.
n/a = not applicable
At December 31, 2017, 2016 and 2015, the balance of the
Corporation’s UTBs which would, if recognized, affect the
Corporation’s effective tax rate was $1.2 billion, $0.6 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
table
summarizes the status of examinations by major jurisdiction for
the Corporation and various subsidiaries at December 31, 2017.
jurisdictions). The
in some
following
Tax Examination Status
Years under
Examination (1)
Status at
December 31
2017
United States
United States
New York
United Kingdom
(1) All tax years subsequent to the years shown remain subject to examination.
2012 – 2013
2014 – 2016
2015
2016
IRS Appeals
Field examination
Field examination
To begin in 2018
It is reasonably possible that the UTB balance may decrease
by as much as $0.4 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 $1 million and $56
million in 2017 and 2016 and a benefit of $82 million in 2015
for interest and penalties, net-of-tax, in income tax expense. At
December 31, 2017 and 2016, the Corporation’s accrual for
interest and penalties that related to income taxes, net of taxes
and remittances, was $185 million and $167 million.
Significant components of the Corporation’s net deferred tax
assets and liabilities at December 31, 2017 and 2016 are
presented in the following table. Amounts at December 31, 2017
reflect appropriate revaluations as a result of the Tax Act’s new
21 percent federal tax rate.
188 Bank of America 2017
Management concluded that no valuation allowance was
necessary to reduce the deferred tax assets related to the U.K.
NOL carryforwards and U.S. NOL and general business credit
carryforwards since estimated future taxable income will be
sufficient to utilize these assets prior to their expiration. The
majority of the Corporation’s U.K. net deferred tax assets, which
consist primarily of NOLs, are expected to be realized by certain
subsidiaries over an extended number of years. Management’s
conclusion is supported by financial results, profit forecasts for
the relevant entities and the indefinite period to carry forward
NOLs. However, a material change in those estimates could lead
management
its U.K. valuation allowance
conclusions.
reassess
to
At December 31, 2017, U.S. federal income taxes had not been
provided on approximately $5 billion of temporary differences
associated with investments in non-U.S. subsidiaries that are
essentially permanent in duration. If the Corporation were to
record the associated deferred tax liability, the amount would be
approximately $1 billion.
NOTE 20 Fair Value Measurements
Under applicable accounting standards, 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 standards that require
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 more 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 2017, 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.
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 such as 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.
Bank of America 2017 189
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.
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 spread 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 spread 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
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,
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
190 Bank of America 2017
Recurring Fair Value
Assets and liabilities carried at fair value on a recurring basis at December 31, 2017 and 2016, 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, 3)
Corporate securities, trading loans and other
Equity securities (3)
Non-U.S. sovereign debt (3)
Mortgage trading loans, MBS and ABS:
U.S. government-sponsored agency guaranteed (2)
Mortgage trading loans, ABS and other MBS
Total trading account assets (4)
Derivative assets (3, 5)
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 (6)
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 (3)
Non-U.S. sovereign debt (3)
Corporate securities and other
Total trading account liabilities
Derivative liabilities (3, 5)
Short-term borrowings
Accrued expenses and other liabilities
Long-term debt
Fair Value Measurements
December 31, 2017
Level 1
Level 2
Level 3
Netting
Adjustments (1)
Assets/Liabilities
at Fair Value
$
— $
52,906
$
— $
— $
52,906
38,720
—
60,747
6,545
—
—
106,012
6,305
51,915
—
—
—
—
772
—
—
52,687
—
—
8,191
—
8,191
—
—
—
19,367
192,562
$
1,922
28,714
23,958
15,839
20,586
8,174
99,193
341,178
1,608
192,929
6,804
2,669
13,684
5,880
5,261
20,106
248,941
5
2,764
1,297
229
4,295
5,139
—
1,466
789
753,907
— $
449
$
$
—
1,864
235
556
—
1,498
4,153
4,067
—
—
—
—
—
25
509
469
1,003
—
—
—
—
—
571
2,302
690
123
12,909
—
—
—
—
—
—
—
(313,788)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
(313,788) $
40,642
30,578
84,940
22,940
20,586
9,672
209,358
37,762
53,523
192,929
6,804
2,669
13,684
6,677
5,770
20,575
302,631
5
2,764
9,488
229
12,486
5,710
2,302
2,156
20,279
645,590
— $
— $
449
—
36,182
—
—
36,182
17,266
33,019
11,976
—
62,261
6,029
—
21,887
—
90,177
734
3,885
7,382
6,901
18,902
334,261
1,494
945
29,923
422,156
—
—
—
24
24
5,781
—
8
1,863
7,676
—
—
—
—
—
(311,771)
—
—
—
(311,771) $
18,000
36,904
19,358
6,925
81,187
34,300
1,494
22,840
31,786
208,238
Total liabilities
$
(1) Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2)
$
$
$
Includes $21.3 billion of GSE obligations.
(3) During 2017, for trading account assets and liabilities, $1.1 billion of U.S. Treasury and agency securities assets, $5.3 billion of equity securities assets, $3.1 billion of equity securities liabilities,
$3.3 billion of non-U.S. sovereign debt assets and $1.5 billion of non-U.S. sovereign debt liabilities were transferred from Level 1 to Level 2 based on the liquidity of the positions. In addition, $14.1
billion of equity securities assets and $4.3 billion of equity securities liabilities were transferred from Level 2 to Level 1. Also in 2017, $4.2 billion of derivative assets and $3.0 billion of derivative
liabilities were transferred from Level 1 to Level 2 and $758 million of derivative assets and $608 million of derivative liabilities were transferred from Level 2 to Level 1 based on the observability
of inputs used to measure fair value. For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives.
Includes securities with a fair value of $16.8 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)
(5) Derivative assets and liabilities reflect the effects of contractual amendments by two central clearing counterparties to legally re-characterize daily cash variation margin from collateral, which secures
an outstanding exposure, to settlement, which discharges an outstanding exposure. One of these central clearing counterparties amended its governing documents, which became effective in January
2017. In addition, the Corporation elected to transfer its existing positions to the settlement platform for the other central clearing counterparty in September 2017.
(6) MSRs include the $1.7 billion core MSR portfolio held in Consumer Banking, the $135 million non-core MSR portfolio held in All Other and the $510 million non-U.S. MSR portfolio held in Global
Markets.
Bank of America 2017 191
(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 (5)
Loans held-for-sale
Debt securities in assets of business 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
—
—
—
—
1,934
—
—
48,721
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
—
—
—
619
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
5,763
10,614
17,160
293,940
5
3,139
16,336
240
19,720
7,085
2,747
4,026
619
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 observability of inputs used to measure fair value. For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives.
(5) MSRs include 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 held in Global
Markets.
192 Bank of America 2017
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 2017, 2016 and 2015, including net realized and unrealized gains (losses) included in earnings
and accumulated OCI.
Level 3 – Fair Value Measurements in 2017 (1)
Total
Realized/
Unrealized
Gains/
(Losses) (2)
Gains/
(Losses)
in OCI (3)
Balance
January 1
2017
Gross
Purchases
Sales
Issuances
Settlements
Gross
Transfers
into
Level 3
Gross
Transfers
out of
Level 3
Balance
December 31
2017
Change in
Unrealized
Gains/
(Losses)
Related to
Financial
Instruments
Still Held (2)
(Dollars in millions)
Trading account assets:
229 $ — $
547 $ (702) $
Corporate securities, trading loans and other $ 2,777 $
Equity securities
Non-U.S. sovereign debt
281
510
Mortgage trading loans, ABS and other MBS
Total trading account assets
Net derivative assets (4)
AFS debt securities:
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, 7)
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
1,211
4,779
(1,313)
229
594
542
1,365
25
720
2,747
656
239
(359)
(27)
18
74
165
486
(984)
2
4
1
7
(1)
15
70
100
74
(5)
14
—
(8)
(2)
(10)
—
16
8
3
27
—
—
—
(3)
(57)
—
—
55
53
(70)
(59)
1,210
(990)
1,865 (1,821)
(979)
664
49
5
14
68
—
3
—
3
2
—
8
—
—
(70)
(70)
(21)
(34)
(25)
(189)
(189)
(17)
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)
(9)
(1,514)
—
(135)
—
(31)
—
84
—
—
5 $
—
—
(666) $
(10)
(73)
728 $(1,054) $
146
72
(185)
(13)
—
5
—
—
—
—
—
—
—
258
—
—
(233)
(982)
949
(271)
(42)
(11)
(324)
(3)
(126)
(748)
(346)
(10)
218
1,164
48
(81)
(1,333)
(99)
—
34
35
69
—
—
—
501
64
—
(94)
(45)
(139)
—
(7)
—
(32)
—
1,864 $
235
556
1,498
4,153
(1,714)
25
509
469
1,003
—
571
2,302
690
123
—
(12)
171
(58)
263
—
(2)
—
(288)
—
1
514
—
—
(711)
—
—
218
(24)
(8)
(1,863)
2
(1)
70
72
143
(409)
—
—
—
—
—
11
(248)
14
22
—
2
—
(196)
Includes gains/losses reported in earnings in the following income statement line items: Trading account assets/liabilities - primarily trading account profits; Net derivative assets - primarily trading
account profits and mortgage banking income; MSRs - primarily mortgage banking income; Long-term debt - primarily trading account profits. For MSRs, the 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, and periodic adjustments to the valuation model to reflect changes in the
modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service.
Includes unrealized gains/losses in OCI on AFS 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. For more information, see Note 1 – Summary of Significant Accounting Principles.
(3)
(4) Net derivatives include derivative assets of $4.1 billion and derivative liabilities of $5.8 billion.
(5) Amounts represent instruments that are accounted for under the fair value option.
(6)
Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales.
(7) Settlements represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.
Significant transfers into Level 3, primarily due to decreased
price observability, during 2017 included $1.2 billion of trading
account assets, $501 million of LHFS and $711 million of long-
term debt. Transfers occur on a regular basis for 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 2017 included $1.3 billion of trading
account assets, $139 million of AFS debt securities, $263 million
of federal funds purchased and securities loaned or sold under
agreements to repurchase and $218 million of long-term debt.
Bank of America 2017 193
Level 3 – Fair Value Measurements in 2016 (1)
(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, 7)
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
Total
Realized/
Unrealized
Gains/
(Losses) (2)
Gains/
(Losses)
in OCI (3)
Balance
January 1
2016
Gross
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)
$ 2,838 $
78 $
2 $ 1,508 $ (847) $
— $
(725) $
728 $ (805) $
2,777 $
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 (2,653)
470 (1,155)
— (106)
(92)
—
—
(198)
584
—
1
585
—
69
—
22
38
—
—
—
(553)
(80)
(256)
(111)
(11)
—
—
—
—
—
—
—
—
—
—
—
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
(82)
(59)
120
64
43
(376)
—
—
—
—
—
—
17
(107)
70
(36)
4
4
—
—
(184)
—
(22)
27
(19)
1
(359)
—
—
—
(521)
—
29
—
948
—
—
—
(939)
—
—
—
465
(27)
—
(9)
(1,514)
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)
—
—
140
—
—
(20)
1
—
(74)
Includes gains/losses reported in earnings in the following income statement line items: Trading account assets/liabilities - trading account profits; Net derivative assets - primarily trading account
profits and mortgage banking income; MSRs - primarily mortgage banking income; Long-term debt - primarily trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair
value due principally to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve.
Includes unrealized gains/losses in OCI on AFS 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. For more information, see Note 1 – Summary of Significant Accounting Principles.
(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 recognized following securitizations or whole-loan sales.
(7) Settlements represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.
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 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.
194 Bank of America 2017
Level 3 – Fair Value Measurements in 2015 (1)
(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, 7)
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
Total
Realized/
Unrealized
Gains/
(Losses) (2)
Gains/
(Losses)
in OCI (3)
Balance
January 1
2015
Gross
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; Net derivative assets - primarily trading account
profits and mortgage banking income; MSRs - primarily mortgage banking income; Long-term debt - primarily trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair
value due principally to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve.
Includes unrealized gains/losses in OCI on AFS 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. For more information, see Note 1 – Summary of Significant Accounting Principles.
(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 recognized following securitizations or whole-loan sales.
(7) Settlements represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.
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.
Bank of America 2017 195
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, 2017 and 2016.
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2017
(Dollars in millions)
Inputs
Financial Instrument
Loans and Securities (1)
Instruments backed by residential real estate assets
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
Commercial loans, debt securities and other
Trading account assets – Corporate securities, trading loans and other
Trading account assets – Non-U.S. sovereign debt
Trading account assets – Mortgage trading loans, 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
Fair
Value
Valuation
Technique
Significant Unobservable
Inputs
Ranges of
Inputs
Weighted
Average
$
$
871
298
570
3
286
244
42
$
4,023
1,613
556
1,158
$
8
1
687
977
7
501
469
Discounted cash
flow
Discounted cash
flow
Yield
Prepayment speed
Default rate
Loss severity
Yield
Price
Yield
Prepayment speed
Discounted cash
flow, Market
comparables
Default rate
Loss severity
Price
0% to 25%
0% to 22% CPR
0% to 3% CDR
0% to 53%
0% to 25%
6%
12%
1%
17%
9%
$0 to $100
$67
0% to 12%
10% to 20%
3% to 4%
35% to 40%
$0 to $145
5%
16%
4%
37%
$63
Price
$10 to $100
$94
Discounted cash
flow, Market
comparables
MSRs
$
2,302
Weighted-average life, fixed rate (4)
Discounted cash
flow
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
$ (1,863)
Discounted cash
flow, Market
comparables,
Industry standard
derivative pricing (2)
$
(282)
Discounted cash
flow, Stochastic
recovery correlation
model
$ (2,059)
$
(3)
$
630
Industry standard
derivative pricing (2)
Discounted cash
flow, Industry
standard derivative
pricing (2)
Industry standard
derivative pricing (3)
Total net derivative assets
$ (1,714)
Equity correlation
Long-dated equity volatilities
Yield
Price
Yield
Upfront points
Credit correlation
Prepayment speed
Default rate
Loss severity
Price
Equity correlation
Long-dated equity volatilities
Natural gas forward price
$1/MMBtu to $5/MMBtu
$3/MMBtu
Correlation
Volatilities
Correlation (IR/IR)
Correlation (FX/IR)
Long-dated inflation rates
Long-dated inflation volatilities
71% to 87%
26% to 132%
15% to 92%
0% to 46%
-14% to 38%
0% to 1%
81%
57%
50%
1%
4%
1%
0 to 14 years
0 to 10 years
9% to 14%
9% to 15%
15% to 100%
4% to 84%
7.5%
$0 to $100
5 years
3 years
10%
12%
63%
22%
n/a
$66
1% to 5%
3%
0 points to 100 points
71 points
35% to 83%
15% to 20% CPR
1% to 4% CDR
35%
$0 to $102
15% to 100%
4% to 84%
42%
16%
2%
n/a
$82
63%
22%
(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 191: Trading
account assets – Corporate securities, trading loans and other of $1.9 billion, Trading account assets – Non-U.S. sovereign debt of $556 million, Trading account assets – Mortgage trading loans,
ABS and other MBS of $1.5 billion, AFS debt securities – Other taxable securities of $509 million, AFS debt securities – Tax-exempt securities of $469 million, Loans and leases of $571 million and
LHFS of $690 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)
(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
n/a = not applicable
196 Bank of America 2017
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2016
(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
$
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
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
MSRs
$
2,747
Weighted-average life, fixed rate (4)
Structured liabilities
Long-term debt
Net derivative assets
Credit derivatives
Equity derivatives
Discounted cash
flow
Weighted-average life, variable rate (4)
Option Adjusted Spread, fixed rate
Option Adjusted Spread, variable rate
$ (1,514)
Discounted cash
flow, Market
comparables,
Industry standard
derivative pricing (2)
$
(129)
Discounted cash
flow, Stochastic
recovery correlation
model
$ (1,690)
Industry standard
derivative pricing (2)
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
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 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%
Commodity derivatives
$
6
Interest rate derivatives
$
500
Discounted cash
flow, Industry
standard derivative
pricing (2)
Industry standard
derivative pricing (3)
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%
Total net derivative assets
$ (1,313)
(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 192: 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)
(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
Bank of America 2017 197
In the previous tables, 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 results 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 impacts the weighted-average life, could result in an increase
in fair value of $83 million or $172 million, while a 10 percent or
20 percent increase in prepayment rates could result in a decrease
in fair value of $76 million or $147 million. A 100 bp or 200 bp
decrease in OAS levels could result in an increase in fair value of
$69 million or $143 million, while a 100 bp or 200 bp increase
in OAS levels could result in a decrease in fair value of $65 million
or $125 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. The Corporation manages the risk in MSRs with
derivatives such as options and interest rate swaps, which are not
designated as accounting hedges, as well as securities including
MBS and U.S. Treasury securities. The securities used to manage
the risk in the MSRs are classified in other assets on the
Consolidated Balance Sheet.
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.
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 (i.e., 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 depend 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.
198 Bank of America 2017
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 2017, 2016 and 2015.
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, 2017
December 31, 2016
Level 2
Level 3
Level 2
Level 3
$
— $
—
—
425
$
2
894
83
—
$
193
—
—
358
44
1,416
77
—
2017
Gains (Losses)
2016
2015
Loans held-for-sale
Loans and leases (1)
Foreclosed properties
Other assets
Includes $135 million of losses on loans that were written down to a collateral value of zero during 2017 compared to losses of $150 million and $174 million for 2016 and 2015.
(458)
(41)
(74)
(336)
(41)
(124)
(6) $
(54) $
$
(1)
(8)
(993)
(57)
(28)
(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 recorded during the first 90 days after transfer of a loan to foreclosed properties.
(3) Excludes $801 million and $1.2 billion of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) at December 31, 2017 and 2016.
The table below presents information about significant unobservable inputs related to the Corporation’s nonrecurring Level 3 financial
assets and liabilities at December 31, 2017 and 2016. Loans and leases 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
Loans and leases backed by residential real estate assets $
894
Market comparables
Loans and leases backed by residential real estate assets $
1,416
Market comparables
Significant
Unobservable
Inputs
December 31, 2017
OREO discount
Costs to sell
December 31, 2016
OREO discount
Costs to sell
Inputs
Ranges of
Inputs
15% to 58%
5% to 49%
8% to 56%
7% to 45%
Weighted Average
23%
7%
21%
9%
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. 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. 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.
Bank of America 2017 199
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
Fair Value Option Elections
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.
Fair Value Option Elections
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, 2017 and 2016.
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
December 31, 2017
December 31, 2016
(Dollars in millions)
Federal funds sold and securities borrowed or purchased under
agreements to resell
$
52,906
$
52,907
$
(1) $
49,750
$
49,615
$
Loans reported as trading account assets (1)
Trading inventory – other
Consumer and commercial loans
Loans held-for-sale
Customer receivables and other assets
Long-term deposits
Federal funds purchased and securities loaned or sold under
agreements to repurchase
5,735
12,027
5,710
2,156
3
449
11,804
n/a
5,744
3,717
n/a
421
(6,069)
n/a
(34)
(1,561)
n/a
28
6,215
8,206
7,085
4,026
253
731
11,557
n/a
7,190
5,595
250
672
135
(5,342)
n/a
(105)
(1,569)
3
59
36,182
36,187
(5)
35,766
35,929
(163)
Short-term borrowings
Unfunded loan commitments
Long-term debt (2)
(1) A significant portion of the loans reported as trading account assets are distressed loans that trade and were purchased at a deep discount to par, and the remainder are loans with a fair value near
2,024
173
30,037
2,024
n/a
29,862
1,494
120
31,786
1,494
n/a
31,512
—
n/a
175
—
n/a
274
contractual principal outstanding.
Includes structured liabilities with a fair value of $31.4 billion and $29.7 billion, and contractual principal outstanding of $31.1 billion and $29.5 billion at December 31, 2017 and 2016.
(2)
n/a = not applicable
200 Bank of America 2017
The following tables provide information about where changes in the fair value of assets and liabilities accounted for under the fair
value option are included in the Consolidated Statement of Income for 2017, 2016 and 2015.
Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option
(Dollars in millions)
Federal funds sold and securities borrowed or purchased under agreements to resell
Loans reported as trading account assets
Trading inventory – other (1)
Consumer and commercial loans
Loans held-for-sale (2)
Unfunded loan commitments
Long-term debt (3, 4)
Other (5)
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)
Unfunded loan commitments
Long-term debt (3, 4)
Other (5)
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)
Unfunded loan commitments
Long-term debt (3, 4)
Other (5)
Total
Trading
Account
Profits
Mortgage
Banking
Income
Other
Income
Total
$
$
$
$
$
$
(57) $
318
3,821
(9)
—
—
(1,044)
(36)
2,993
$
(64) $
301
57
49
11
—
(489)
(21)
(156) $
(195) $
(199)
1,284
52
(36)
—
2,107
37
3,050
$
2017
— $
—
—
—
211
—
—
—
211
$
2016
— $
—
—
—
518
—
—
—
518
$
2015
— $
—
—
—
673
—
—
—
673
$
— $
—
—
35
87
36
(146)
13
25
$
1
—
—
(37)
6
487
(97)
52
412
$
$
— $
—
—
(295)
63
(210)
(633)
23
(1,052) $
(57)
318
3,821
26
298
36
(1,190)
(23)
3,229
(63)
301
57
12
535
487
(586)
31
774
(195)
(199)
1,284
(243)
700
(210)
1,474
60
2,671
(1) The gains in trading account profits are primarily offset by 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.
(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.
(5) Includes gains (losses) on other assets, long-term deposits, federal funds purchased and securities loaned or sold under agreements to repurchase and short-term borrowings.
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
2017
2016
2015
$
$
24
36
(22)
$
7
(53)
(34)
37
(200)
37
Bank of America 2017 201
NOTE 22 Fair Value of Financial Instruments
Financial instruments are classified within the fair value hierarchy
using the methodologies described in Note 20 – Fair Value
Measurements. The following disclosures include financial
instruments that are not carried at fair value or only a portion of
the ending balance is carried at fair value on the Consolidated
Balance Sheet.
Short-term Financial Instruments
The carrying value of short-term financial instruments, including
cash and cash equivalents, time deposits placed and other short-
term investments, federal funds sold and purchased, certain
resale and repurchase agreements, customer and other
receivables, customer payables (within accrued expenses and
other liabilities on the Consolidated Balance Sheet), and short-
term borrowings, approximates the fair value of these instruments.
These financial instruments generally expose the Corporation to
limited credit risk and have no stated maturities or have short-
term maturities and carry interest rates that approximate market.
The Corporation accounts for certain resale and repurchase
agreements under the fair value option.
Under the fair value hierarchy, cash and cash equivalents are
classified as Level 1. Time deposits placed and other short-term
investments, such as U.S. government securities and short-term
commercial paper, are classified as Level 1 or Level 2. Federal
funds sold and purchased are classified as Level 2. Resale and
repurchase agreements are classified as Level 2 because they
are generally short-dated and/or variable-rate instruments
collateralized by U.S. government or agency securities. Customer
and other receivables primarily consist of margin loans, servicing
advances and other accounts receivable and are classified as
Level 2 or Level 3. Customer payables and short-term borrowings
are classified as Level 2.
Held-to-maturity Debt Securities
HTM debt securities, which consist primarily of U.S. agency debt
securities, are classified as Level 2 using the same methodologies
as AFS U.S. agency debt securities. For more information on HTM
debt securities, see Note 3 – Securities.
Loans
The fair values for commercial and consumer loans are generally
determined by discounting both principal and interest cash flows
expected to be collected using a discount rate for similar
instruments with adjustments that the Corporation believes a
market participant would consider in determining fair value. The
Corporation estimates the cash flows expected to be collected
using internal credit risk, interest rate and prepayment risk models
that incorporate the Corporation’s best estimate of current key
assumptions, such as default rates, loss severity and prepayment
speeds for the life of the loan. The carrying value of loans is
presented net of the applicable allowance for loan losses and
excludes leases. The Corporation accounts for certain commercial
loans and residential mortgage loans under the fair value option.
Deposits
The fair value for certain deposits with stated maturities is
determined by discounting contractual cash flows using current
market rates for instruments with similar maturities. The carrying
value of non-U.S. time deposits approximates fair value. For
deposits with no stated maturities, the carrying value is considered
to approximate fair value and does not take into account the
significant value of the cost advantage and stability of the
Corporation’s long-term relationships with depositors. The
Corporation accounts for certain long-term fixed-rate deposits
under the fair value option.
Long-term Debt
The Corporation uses quoted market prices, when available, to
estimate fair value for its long-term debt. When quoted market
prices are not available, fair value is estimated based on current
market interest rates and credit spreads for debt with similar terms
and maturities. The Corporation accounts for certain structured
liabilities under the fair value option.
Fair Value of Financial Instruments
The carrying values and fair values by fair value hierarchy of certain
financial instruments where only a portion of the ending balance
was carried at fair value at December 31, 2017 and 2016 are
presented in the following table.
Fair Value of Financial Instruments
Fair Value
Carrying
Value
Level 2
Level 3
Total
December 31, 2017
(Dollars in millions)
Financial assets
Loans
Loans held-for-sale
$ 904,399
11,430
$
68,586
10,521
$ 849,576
909
$ 918,162
11,430
Financial liabilities
Deposits
Long-term debt
Financial assets
1,309,545
227,402
1,309,398
235,126
— 1,309,398
236,989
1,863
December 31, 2016
Loans
Loans held-for-sale
$ 873,209
9,066
$
71,793
8,082
$ 815,329
984
$ 887,122
9,066
Financial liabilities
Deposits
Long-term debt
1,260,934
216,823
1,261,086
220,071
— 1,261,086
221,585
1,514
Commercial Unfunded Lending Commitments
Fair values are generally determined using a discounted cash flow
valuation approach which is applied using market-based CDS or
internally developed benchmark credit curves. The Corporation
accounts for certain loan commitments under the fair value option.
The carrying values and fair values of the Corporation’s commercial
unfunded lending commitments were $897 million and $4.0 billion
at December 31, 2017, and $937 million and $4.9 billion at
December 31, 2016. Substantially all commercial unfunded
lending commitments are classified as Level 3. The carrying value
of these commitments is included in accrued expenses and other
liabilities on the Consolidated Balance Sheet.
The Corporation does not estimate the fair values of consumer
unfunded lending commitments because, in many instances, the
Corporation can reduce or cancel these commitments by providing
notice to the borrower. For more information on commitments, see
Note 12 – Commitments and Contingencies.
202 Bank of America 2017
202 Bank of America 2017
NOTE 23 Business Segment Information
NOTE 23 Business Segment Information
The Corporation reports its results of operations through the
The Corporation reports its results of operations through the
following four business segments: Consumer Banking, GWIM,
following four business segments: Consumer Banking, GWIM,
Global Banking and Global Markets, with the remaining operations
Global Banking and Global Markets, with the remaining operations
recorded in All Other.
recorded in All Other.
Consumer Banking
Consumer Banking
Consumer Banking offers a diversified range of credit, banking and
Consumer Banking offers a diversified range of credit, banking and
investment products and services to consumers and small
investment products and services to consumers and small
include
businesses. Consumer Banking product offerings
include
businesses. Consumer Banking product offerings
traditional savings accounts, money market savings accounts, CDs
traditional savings accounts, money market savings accounts, CDs
and IRAs, checking accounts, and investment accounts and
and IRAs, checking accounts, and investment accounts and
products, as well as credit and debit cards, residential mortgages
products, as well as credit and debit cards, residential mortgages
and home equity loans, and direct and indirect loans to consumers
and home equity loans, and direct and indirect loans to consumers
and small businesses in the U.S. Consumer Banking includes the
and small businesses in the U.S. Consumer Banking includes the
impact of servicing residential mortgages and home equity loans
impact of servicing residential mortgages and home equity loans
in the core portfolio.
in the core portfolio.
Global Wealth & Investment Management
Global Wealth & Investment Management
GWIM provides a high-touch client experience through a network
GWIM provides a high-touch client experience through a network
of financial advisors focused on clients with over $250,000 in
of financial advisors focused on clients with over $250,000 in
total investable assets, including tailored solutions to meet
total investable assets, including tailored solutions to meet
clients’ needs through a full set of investment management,
clients’ needs through a full set of investment management,
brokerage, banking and retirement products. GWIM also provides
brokerage, banking and retirement products. GWIM also provides
comprehensive wealth management solutions targeted to high net
comprehensive wealth management solutions targeted to high net
worth and ultra high net worth clients, as well as customized
worth and ultra high net worth clients, as well as customized
solutions to meet clients’ wealth structuring, investment
solutions to meet clients’ wealth structuring, investment
management, trust and banking needs, including specialty asset
management, trust and banking needs, including specialty asset
management services.
management services.
Global Banking
Global Banking
Global Banking provides a wide range of lending-related products
Global Banking provides a wide range of lending-related products
and services, integrated working capital management and treasury
and services, integrated working capital management and treasury
solutions, and underwriting and advisory services through the
solutions, and underwriting and advisory services through the
Corporation’s network of offices and client relationship teams.
Corporation’s network of offices and client relationship teams.
Global Banking also provides investment banking products to
Global Banking also provides investment banking products to
clients. The economics of certain investment banking and
clients. The economics of certain investment banking and
underwriting activities are shared primarily between Global Banking
underwriting activities are shared primarily between Global Banking
revenue-sharing
and Global Markets under an
revenue-sharing
and Global Markets under an
arrangement. Global Banking clients generally include middle-
arrangement. Global Banking clients generally include middle-
market companies, commercial real estate firms, not-for-profit
market companies, commercial real estate firms, not-for-profit
companies, large global corporations, financial institutions,
companies, large global corporations, financial institutions,
leasing clients, and mid-sized U.S.-based businesses requiring
leasing clients, and mid-sized U.S.-based businesses requiring
customized and integrated financial advice and solutions.
customized and integrated financial advice and solutions.
internal
internal
Global Markets
Global Markets
Global Markets offers sales and trading services, including
Global Markets offers sales and trading services, including
research, to institutional clients across fixed-income, credit,
research, to institutional clients across fixed-income, credit,
currency, commodity and equity businesses. Global Markets
currency, commodity and equity businesses. Global Markets
provides market-making, financing, securities clearing, settlement
provides market-making, financing, securities clearing, settlement
and custody services globally to institutional investor clients in
and custody services globally to institutional investor clients in
support of their investing and trading activities. Global Markets
support of their investing and trading activities. Global Markets
also works with commercial and corporate clients to provide risk
also works with commercial and corporate clients to provide risk
management products. As a result of market-making activities,
management products. As a result of market-making activities,
Global Markets may be required to manage risk in a broad range
Global Markets may be required to manage risk in a broad range
of financial products. In addition, the economics of certain
of financial products. In addition, the economics of certain
investment banking and underwriting activities are shared primarily
investment banking and underwriting activities are shared primarily
between Global Markets and Global Banking under an internal
between Global Markets and Global Banking under an internal
revenue-sharing arrangement.
revenue-sharing arrangement.
All Other
All Other
All Other consists of ALM activities, equity investments, non-core
All Other consists of ALM activities, equity investments, non-core
mortgage loans and servicing activities, the net impact of periodic
mortgage loans and servicing activities, the net impact of periodic
revisions to the MSR valuation model for both core and non-core
revisions to the MSR valuation model for both core and non-core
MSRs and the related economic hedge results and ineffectiveness,
MSRs and the related economic hedge results and ineffectiveness,
liquidating businesses, and residual expense allocations. 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 a portfolio of equity, real estate and other alternative
investments. The initial impact of the Tax Act was recorded in All
Other.
liquidating businesses, and residual expense allocations. 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 a portfolio of equity, real estate and other alternative
investments. The initial impact of the Tax Act was recorded in All
Other.
Basis of Presentation
Basis of Presentation
The management accounting and reporting process derives
The management accounting and reporting process derives
segment and business
results by utilizing allocation
segment and business
results by utilizing allocation
methodologies for revenue and expense. The net income derived
methodologies for revenue and expense. The net income derived
for the businesses is dependent upon revenue and cost allocations
for the businesses is dependent upon revenue and cost allocations
using an activity-based costing model, funds transfer pricing, and
using an activity-based costing model, funds transfer pricing, and
other methodologies and assumptions management believes are
other methodologies and assumptions management believes are
appropriate to reflect the results of the business.
appropriate to reflect the results of the business.
Total revenue, net of interest expense, includes net interest
Total revenue, net of interest expense, includes net interest
income on an FTE basis and noninterest income. The adjustment
income on an FTE basis and noninterest income. The adjustment
of net interest income to an FTE basis results in a corresponding
of net interest income to an FTE basis results in a corresponding
increase in income tax expense. The segment results also reflect
increase in income tax expense. The segment results also reflect
certain revenue and expense methodologies that are utilized to
certain revenue and expense methodologies that are utilized to
determine net income. The net interest income of the businesses
determine net income. The net interest income of the businesses
includes the results of a funds transfer pricing process that
includes the results of a funds transfer pricing process that
matches assets and liabilities with similar interest rate sensitivity
matches assets and liabilities with similar interest rate sensitivity
and maturity characteristics. In segments where the total of
and maturity characteristics. In segments where the total of
liabilities and equity exceeds assets, which are generally deposit-
liabilities and equity exceeds assets, which are generally deposit-
taking segments, the Corporation allocates assets to match
taking segments, the Corporation allocates assets to match
liabilities. Net interest income of the business segments also
liabilities. Net interest income of the business segments also
includes an allocation of net interest income generated by certain
includes an allocation of net interest income generated by certain
of the Corporation’s ALM activities.
of the Corporation’s ALM activities.
In addition, the business segments are impacted by the
In addition, the business segments are impacted by the
migration of customers and clients and their deposit, loan and
migration of customers and clients and their deposit, loan and
brokerage balances between businesses. Subsequent to the date
brokerage balances between businesses. Subsequent to the date
of migration, the associated net interest income, noninterest
of migration, the associated net interest income, noninterest
income and noninterest expense are recorded in the business to
income and noninterest expense are recorded in the business to
which the customers or clients migrated.
which the customers or clients migrated.
The Corporation’s ALM activities include an overall interest rate
The Corporation’s ALM activities include an overall interest rate
risk management strategy that incorporates the use of various
risk management strategy that incorporates the use of various
derivatives and cash instruments to manage fluctuations in
derivatives and cash instruments to manage fluctuations in
earnings and capital that are caused by interest rate volatility. The
earnings and capital that are caused by interest rate volatility. The
Corporation’s goal is to manage interest rate sensitivity so that
Corporation’s goal is to manage interest rate sensitivity so that
movements in interest rates do not significantly adversely affect
movements in interest rates do not significantly adversely affect
earnings and capital. The results of a majority of the Corporation’s
earnings and capital. The results of a majority of the Corporation’s
ALM activities are allocated to the business segments and
ALM activities are allocated to the business segments and
fluctuate based on the performance of the ALM activities. ALM
fluctuate based on the performance of the ALM activities. ALM
activities include external product pricing decisions including
activities include external product pricing decisions including
deposit pricing strategies, the effects of the Corporation’s internal
deposit pricing strategies, the effects of the Corporation’s internal
funds transfer pricing process and the net effects of other ALM
funds transfer pricing process and the net effects of other ALM
activities.
activities.
Certain expenses not directly attributable to a specific
Certain expenses not directly attributable to a specific
business segment are allocated to the segments. The costs of
business segment are allocated to the segments. The costs of
certain centralized or shared functions are allocated based on
certain centralized or shared functions are allocated based on
methodologies that reflect utilization.
methodologies that reflect utilization.
The tables below present net income (loss) and the
The tables below present net income (loss) and the
components thereto (with net interest income on an FTE basis)
components thereto (with net interest income on an FTE basis)
for 2017, 2016 and 2015, and total assets at December 31, 2017
for 2017, 2016 and 2015, and total assets at December 31, 2017
and 2016 for each business segment, as well as All Other, including
and 2016 for each business segment, as well as All Other, including
a reconciliation of the four business segments’ total revenue, net
a reconciliation of the four business segments’ total revenue, net
of interest expense, on an FTE basis, and net income to the
of interest expense, on an FTE basis, and net income to the
Consolidated Statement of Income, and total assets to the
Consolidated Statement of Income, and total assets to the
Consolidated Balance Sheet.
Consolidated Balance Sheet.
Bank of America 2017 203
Bank of America 2017 203
$
$
$
$
$
$
$
$
$
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
Period-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
Period-end total assets
Net interest income (FTE basis)
Noninterest income (loss)
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)
Period-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
2017
45,592
42,685
88,277
3,396
54,743
30,138
11,906
18,232
2,281,234
Total Corporation (1)
2016
$
41,996
42,605
84,601
3,597
55,083
25,921
8,099
$
17,822
$ 2,188,067
$
$
39,847
44,007
83,854
3,161
57,617
23,076
7,166
15,910
Global Wealth &
Investment Management
2016
2015
2017
6,173
12,417
18,590
56
13,564
4,970
1,882
3,088
284,321
$
$
$
5,759
11,891
17,650
68
13,175
4,407
1,632
2,775
298,931
2017
3,744
12,207
15,951
164
10,731
5,056
1,763
3,293
629,007
Global Markets
2016
$
$
$
4,558
11,532
16,090
31
10,169
5,890
2,072
3,818
566,060
$
$
$
$
5,527
12,507
18,034
51
13,938
4,045
1,475
2,570
2015
4,191
10,822
15,013
99
11,374
3,540
1,117
2,423
2015
2017
Consumer Banking
2016
2015
$
$
$
$
$
$
$
$
$
24,307
10,214
34,521
3,525
17,787
13,209
5,002
8,207
749,325
$
$
$
21,290
10,441
31,731
2,715
17,654
11,362
4,190
7,172
702,333
Global Banking
2017
2016
10,504
9,495
19,999
212
8,596
11,191
4,238
6,953
424,533
$
$
$
9,471
8,974
18,445
883
8,486
9,076
3,347
5,729
408,330
$
$
$
$
20,428
11,091
31,519
2,346
18,710
10,463
3,814
6,649
2015
9,244
8,377
17,621
686
8,482
8,453
3,114
5,339
2017
All Other
2016
2015
$
864
(1,648)
(784)
(561)
4,065
(4,288)
(979)
(3,309) $
$
194,048
$
918
(233)
685
(100)
5,599
(4,814)
(3,142)
(1,672) $
212,413
457
1,210
1,667
(21)
5,113
(3,425)
(2,354)
(1,071)
2017
2016
2015
$
89,061
$
83,916
$
82,187
312
(1,096)
(925)
87,352
21,541
(355)
(2,954)
18,232
$
$
(300)
985
(900)
83,701
19,494
(651)
(1,021)
17,822
$
$
(208)
1,875
(889)
82,965
16,981
(694)
(377)
15,910
December 31
2017
2,087,186
2016
$ 1,975,654
625,488
89,008
(520,448)
2,281,234
612,996
118,073
(518,656)
$ 2,188,067
$
$
$
$
(1) There were no material intersegment revenues.
(2) Adjustments include consolidated income, expense and asset amounts not specifically allocated to individual business segments.
(3) At December 31, 2016, includes assets of the non-U.S. consumer credit card business which were included in assets of business held for sale on the Consolidated Balance Sheet.
204 Bank of America 2017
204 Bank of America 2017
NOTE 24 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 expense (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
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
2017
2016
2015
$
$
12,088
202
7,043
28
19,361
189
5,555
1,672
7,416
11,945
950
10,995
8,725
(1,488)
7,237
18,232
$
$
$
$
$
$
$
4,127
77
2,996
111
7,311
969
5,096
2,704
8,769
(1,458)
(2,311)
853
16,817
152
16,969
17,822
$
18,970
53
2,004
(623)
20,404
1,169
5,098
4,631
10,898
9,506
(3,532)
13,038
3,068
(196)
2,872
15,910
December 31
2017
2016
$
4,747
596
20,248
909
146,566
146
4,745
296,506
5,225
14,554
473,085
10,286
359
1
9,340
185,953
205,939
267,146
473,085
$
$
$
117,072
171
26,500
287,416
6,875
11,038
470,229
14,284
352
4,013
12,010
173,375
204,034
266,195
470,229
(1) Balance includes third-party cash held of $193 million and $342 million at December 31, 2017 and 2016.
(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 Corporation.
Bank of America 2017 205
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 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 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 decrease in cash held at bank subsidiaries
Cash held at bank subsidiaries at January 1
Cash held at bank subsidiaries at December 31
2017
2016
2015
$
18,232
$
17,822
$
15,910
(7,237)
(2,593)
8,402
312
(7,087)
(1)
(6,776)
—
(6,672)
37,704
(29,645)
—
(12,814)
(5,700)
(17,127)
(15,501)
20,248
4,747
$
(16,969)
(2,860)
(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)
(2,583)
10,455
15
(7,944)
70
(7,859)
(221)
(770)
26,492
(27,393)
2,964
(2,374)
(3,574)
(4,876)
(2,280)
100,304
98,024
$
NOTE 25 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
Total Assets at
Year End (1)
Total Revenue,
Net of Interest
Expense (2)
Income Before
Income Taxes
Net Income
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
$
1,965,490
1,901,043
$
103,255
85,410
189,661
174,934
22,828
26,680
315,744
287,024
$
2,281,234
2,188,067
$
$
$
74,830
72,418
72,117
3,405
3,365
3,524
7,907
6,608
6,081
1,210
1,310
1,243
12,522
11,283
10,848
87,352
83,701
82,965
$
$
25,108
22,282
20,181
676
674
726
2,990
1,705
938
439
360
342
4,105
2,739
2,006
29,213
25,021
22,187
15,550
16,183
14,711
464
488
457
1,926
925
516
292
226
226
2,682
1,639
1,199
18,232
17,822
15,910
(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.
206 Bank of America 2017
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. 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.
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.
Client Brokerage Assets – Client assets which are held in brokerage
accounts.
Committed Credit Exposure – 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 specified credit event on one or more
referenced obligations.
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 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.
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.
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.
Operating Margin – Income before income taxes divided by total
revenue, net of interest expense.
Prompt Corrective Action (PCA) – A framework established by the
U.S. banking regulators requiring banks to maintain certain levels
of regulatory capital ratios, comprised of five categories of
capitalization: “well capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized” and “critically
undercapitalized.” Insured depository institutions that fail to meet
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.
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.
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.
Value-at-Risk (VaR) – VaR is a model that simulates the value of
a portfolio under a range of hypothetical scenarios in order to
generate a distribution of potential gains and losses. VaR
represents the loss the portfolio is expected to experience with a
given confidence level based on historical data. A VaR model is
an effective tool in estimating ranges of potential gains and losses
on our trading portfolios.
Bank of America 2017 207
Acronyms
ABS
AFS
ALM
AUM
AVM
BANA
BHC
bps
CCAR
CDO
CDS
CGA
CLO
CLTV
CVA
DIF
DVA
EAD
EPS
ERC
FASB
FCA
FDIC
FHA
FHLB
FHLMC
FICC
FICO
FLUs
FNMA
FTE
FVA
GAAP
GLS
GM&CA
GNMA
GSE
G-SIB
GWIM
HELOC
HQLA
HTM
Asset-backed securities
Available-for-sale
Asset and liability management
Assets under management
Automated valuation model
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
Debit valuation adjustment
Exposure at Default
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
Government-sponsored enterprise
Global systemically important bank
Global Wealth & Investment Management
Home equity line of credit
High Quality Liquid Assets
Held-to-maturity
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
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
NSFR
OAS
OCC
OCI
OREO
OTC
OTTI
PCA
PCI
PPI
RMBS
RSU
SBLC
SEC
SLR
TDR
TLAC
TTF
VA
VaR
VIE
Incorporated
Management Risk Committee
Metropolitan Statistical Area
Mortgage servicing right
Net Stable Funding Ratio
Option-adjusted spread
Office of the Comptroller of the Currency
Other comprehensive income
Other real estate owned
Over-the-counter
Other-than-temporary impairment
Prompt Corrective Action
Purchased credit-impaired
Payment protection insurance
Residential mortgage-backed securities
Restricted stock unit
Standby letter of credit
Securities and Exchange Commission
Supplementary leverage ratio
Troubled debt restructurings
Total loss-absorbing capacity
Time-to-required funding
U.S. Department of Veterans Affairs
Value-at-Risk
Variable interest entity
208 Bank of America 2017
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.
Bank of America 2017
209
Bank of America 2017 209
Executive Management Team and Board of Directors
Bank of America Corporation
Monica C. Lozano
Chief Executive Officer,
College Futures Foundation;
Former Chairman,
US Hispanic Media Inc.
Thomas J. May
Former Chairman and
Chief Executive Officer,
Eversource Energy;
Chairman, Viacom, Inc.
Lionel L. Nowell, III
Former Senior Vice President
and Treasurer, PepsiCo, Inc.
Michael D. White
Former Chairman, President and
Chief Executive Officer, DIRECTV
Thomas D. Woods
Former Vice Chairman and Senior
Executive Vice President,
Canadian Imperial Bank of Commerce
R. David Yost
Former Chief Executive Officer,
AmerisourceBergen Corporation
Maria T. Zuber
Vice President for Research and E. A.
Griswold Professor of Geophysics,
Massachusetts Institute of Technology
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.
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 and Head of
Global Wealth & Investment
Management
David G. Leitch*
Global General Counsel
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
210 Bank of America 2017
210 Bank of America 2017
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.
Annual Report on Form 10-K
The Corporation’s 2017 Annual Report on Form 10-K is available
at http://investor.bankofamerica.com. The Corporation also will
provide a copy of the 2017 Annual Report on Form 10-K (without
exhibits) upon written request addressed to:
Stock Listing
The Corporation’s common stock is listed on the New York
Stock Exchange (NYSE) under the symbol BAC. The stock is
typically listed as BankAm in newspapers. As of December 31,
2017, there were 175,958 registered holders of the Corporation’s
common stock.
Bank of America Corporation
Office of the Corporate Secretary
Hearst Tower, 214 North Tryon Street
NC1-027-20-05
Charlotte, NC 28255
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 http://newsroom.bankofamerica.com for news
releases, press kits and other items relating to the Corporation,
including a complete list of the Corporation’s media relations
specialists grouped by business specialty or geography.
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 505005, Louisville, KY 40233. 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,
As part of our ongoing commitment to reduce paper consumption,
we offer electronic methods for customer communications and
we offer electronic methods for customer communications and
transactions. Customers can sign up to receive online statements
transactions. Customers can sign up to receive online statements
through their Bank of America or Merrill Lynch account website.
through their Bank of America or Merrill Lynch account website.
In 2012, we adopted the SEC’s
In 2012, we adopted the SEC’s Notice and Access rule, which allows
Notice and Access rule, which allows certain issuers to inform
certain issuers to inform shareholders of the electronic availability
shareholders of the electronic availability of Proxy materials,
of Proxy materials, including the Annual Report, which significantly
including the Annual Report, which significantly reduced the
reduced the number of printed copies we produce and mail to
number of printed copies we produce and mail to shareholders.
shareholders. Shareholders still receiving printed copies can join
Shareholders still receiving printed copies can join our efforts by
our efforts by electing to receive an electronic copy of the Annual
electing to receive an electronic copy of the Annual Report and
Report and Proxy materials. If you have an account maintained in
Proxy materials. If you have an account maintained in your name
your name at Computershare Investor Services, you may sign up
at Computershare Investor Services, you may sign up for this
for this service at www.computershare.com/bac. If your shares are
service at www.computershare.com/bac. If your shares are held by
held by a broker, bank or other nominee, you may elect to receive an
a broker, bank or other nominee, you may elect to receive an
electronic copy of the Proxy materials online at
electronic copy of the Proxy materials online at
www.proxyvote.com, or contact your broker.
www.proxyvote.com, or contact your broker
Bank of America 2017 211
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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 and Investment Management is a division of Bank of America Corporation (“BofA Corp.”). Merrill
Lynch Wealth Management, Merrill Edge®, U.S. Trust, and Bank of America Merrill Lynch are affiliated sub-divisions
within Global Wealth and Investment Management.
Merrill Lynch makes 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 subsid-
iaries of BofA Corp.
Bank of America Merrill Lynch is a marketing name for the Retirement Services businesses 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.
Zelle and Zelle related marks are wholly owned by Early Warning Services, LLC and are used herein under license.
Transfers require enrollment in the service and must be made from a Bank of America consumer checking or sav-
ings account to a domestic bank account or debit card. Recipients have 14 days to register to receive money or the
transfer will be canceled. It may take 1 to 3 business days to complete the first transfer to a newly registered recip-
ient. After that, future transfers between registered users will typically be completed within minutes. We will send
you an email alert with delivery details immediately after you schedule the transfer. Dollar and frequency limits
apply. See the Online Banking Service Agreement for details, including cut-off and delivery times. Data connection
required. Wireless carrier charges may apply.
Please recycle. The annual report is printed on 30% post-consumer waste (PCW) recycled paper.
© 2018 Bank of America Corporation. All rights reserved.
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