What would you like
the power to do?
2018 Annual Report
CONTENTS
A letter from
Chairman and CEO
Brian Moynihan
1–9
A message from
Lead Independent Director
Jack Bovender
8
What would you like
the power to do?
10–11
Financing a sustainable world:
A message from Vice Chairman
Anne Finucane
22–23
Improving lives
through community
development
24–25
Driving economic mobility
and social progress
26–27
Transforming financial services with
high-tech and high-touch solutions
Sharing our success —
ESG highlights
12–13
28
Q&A with Dean Athanasia, President
of Consumer and Small Business
Being a great place to work —
2018 highlights
14–15
Delivering tailored
wealth management
solutions for every
stage in life
16–18
Supporting companies as
they grow, innovate and lead
19–21
29
We ask our teammates, too:
A message from
Chief Human Resources Officer
Sheri Bronstein
30–31
Financial
highlights
32
A letter from Chairman and CEO Brian Moynihan
Dear shareholders,
I am pleased to report to you that by adhering to Responsible Growth, the
200,000-strong team at Bank of America produced record earnings in 2018 of
$28.1 billion, or $2.61 per share. We did this by living our purpose, which is to
help make our clients’ financial lives better through the power of every connection
we can make — both for them and with them. Even as we continue to provide
capital to our customers and clients, invest heavily in our company, and deploy
capital to address some of the world’s toughest priorities, we were able to return
nearly $26 billion in capital to our shareholders, including more than $5 billion in
dividends and more than $20 billion in share repurchases. We continue to make
progress to undo the dilution from the shares we issued due to the economic crisis
of 2008-2009 and subsequent regulatory changes. Our capital, liquidity and capa-
city to serve clients are at record levels, and we have reduced the total number of
fully diluted shares outstanding to below 10 billion. Over a three-year period, total
shareholder return increased by more than 50 percent, outpacing the S&P 500
and exceeding the average of our U.S. large cap peers by more than three times.
Our culture of careful expense management has resulted
in a $30 billion reduction in our expense base since 2010.
We achieved this even as we generated greater customer
activity and revenue, addressed industrywide inflation
and cost challenges, and invested consistently. Positive oper-
ating leverage — meaning the change in revenue outpacing
the change in expenses — has resulted in an efficiency ratio
of 58.5 percent for 2018, transforming Bank of America
into one of the most efficient firms in our industry.
Backdrop for 2019
The U.S. economy remains resilient and is growing. We are
proud of our Bank of America Research team, which has been
ranked as the best in the world for six of the last eight years.
As I write this letter in late February 2019, those experts see
the U.S. GDP growing 2.2 percent this year, and the world
economy growing 3.4 percent. The U.S. consumer is solid:
We observed 9 percent growth in 2018 over 2017 in our U.S.
customer spending and money movement through Bank of
America channels. Business and consumer confidence also
remain solid. We see good opportunities ahead as we deepen
our relationships, and add new ones, in each of our businesses.
Driving Responsible Growth
Our commitment to Responsible Growth is resolute. In
previous letters, we have discussed this framework.
Responsible Growth has four tenets: We have to grow — no
excuses. We have to grow by delivering more for our
customers and clients. We have to grow by managing risk well.
And, our growth must be sustainable. Sustainable means
we have to share our success with our communities, we have
53.8%
Total Shareholder Return¹
30.4%
17.4%
Rolling 3-year
Bank of America
U.S. Large Cap Peer Avg.
S&P 500
1 Total shareholder return includes stock price appreciation and dividends paid.
Peer bank average includes C, JPM, MS, GS and WFC.
to be a great place to work for our teammates, and we have
to drive operational excellence. This creates the ability to
reinvest the savings back into our team, our capabilities, our
client experience, and our communities and shareholders.
I’ll review our company’s performance in 2018 by discussing
each of these tenets of Responsible Growth in more detail.
By following them, we have kept credit costs at decade-lows
and have driven positive operating leverage each consecu-
tive quarter for four years running. For the year, we were
the world’s third most valuable financial services company
(as measured by market capitalization) and among the world’s
top 10 most profitable companies. Our fourth-quarter 2018
earnings were the most among all U.S. global banks.
BANK OF AMERICA 2018 | 1
BRIAN MOYNIHAN
Chairman and CEO
External recognition
Being one of the most profitable and efficient banks
makes it possible for us to invest in award-winning capa-
bilities, people and products to serve our customers and
clients well. In 2018, we received top recognition as a
company, including being named “World’s Best Bank” by
Euromoney, an authoritative industry publication. We
also were recognized for our employment practices and
commitment to being a great place to work, our customer
service, our mobile and digital capabilities, and for other
products and services in every major category. In February
2019, we were ranked as one of the “100 Best Companies
to Work For” by Fortune magazine and the global research
and consulting firm Great Place to Work®. Bank of America
also was recognized as the only financial services company
on Fortune’s inaugural “Best Big Companies to Work For”
list, which comprises seven companies with more than
100,000 U.S.-based employees.
What would you like the power to do?
Listening to how customers, our employees and our share-
holders answer the question “What would you like the power
to do?” is how we learn what matters most to them. By asking,
we start a conversation centered on our commitment to serve
by bringing our capabilities to help clients be successful.
We ask this question of our customers, in the communities
we serve, and of our employees. Responsible Growth guides
us in living our purpose to help make financial lives better,
and to achieve strong operating results the right way. The
three-year company strategy that our board of directors
reviews and approves each fall is based on continuing to
adhere to this approach.
What are we asking our clients with our straightforward
question? It’s your financial life; it’s your decision. We will bring
capabilities that are second to none to help you be successful.
2 | BANK OF AMERICA 2018
We will connect our capabilities for clients as no other finan-
cial services company can. Simply put: We are here to serve.
In 2018, we refined our company’s brand and logo to better
reflect our work and progress over many years. Over time,
these will continue to evolve to better visualize the way
we run our company today. We’ll continue to serve by
deepening our relationships, helping each individual, each
business and each investor through the power of every
connection we can help them make. That is our purpose, and
it is how we want everyone — employees, the communities
we serve, clients and investors — to see us.
Grow. No excuses.
The first tenet of Responsible Growth is that we have to grow,
no excuses. As you can see on page 4, each of our businesses
grew, thereby contributing to our record earnings in 2018.
Over the last four years, deposits have grown 4 percent
and loans across all our business segments have grown
6 percent on average. For 2018, deposit and loan growth
within our business segments exceeded the net U.S. GDP
rate. That is our core growth goal: to grow somewhat
faster than the economy. Throughout 2018, our client base
expanded and our market positions continued to improve in
most of our businesses.
Rising interest rates helped us deliver earnings growth, but
we don’t depend on them. Our growth in client deposits
funds our loan growth across all of our businesses and
enables us to continue to grow net interest income, even if
further interest rate rises fail to materialize.
Our eight lines of business grew as a result of deepening
client relationships and developing new relationships.
Growing by focusing on the customer
We are pleased to serve more than one in three U.S. house-
holds and more than 9 million business-owner clients. Our
Consumer Banking business held $684 billion in average
deposits during 2018, representing year-over-year growth
of 5 percent. Average loans in that business grew by 7 percent.
We have grown consumer checking balances for 40 consec-
utive quarters, producing an additional $200 billion in
core checking deposits in our consumer business alone.
In addition, average small business loans in Consumer
Banking have grown 13 percent over the last three years.
Through 2018, we also continued to see rapid growth in our
digital and mobile channels due to decades of investment.
In 2018, our customers registered nearly 6 billion consumer
banking app logins, allowing us to maintain regular connec-
tivity with them, and provide unparalleled convenience.
We have nearly 37 million digital banking users; nearly
27 million are active mobile banking customers. We now
process more deposit transactions through mobile devices
than in our financial centers. And 25 percent of our consumer
sales, including credit cards and auto loans, were completed
through a digital channel in 2018.
While we are seeing digital and mobile growth, we are
investing heavily in our facilities and in the teammates who
serve there, as well. We have retooled many of our ATMs, our
financial centers, and our technology in the branches and call
centers. And we have invested in skills for our teammates to
have more opportunity in our consumer businesses.
These efforts have led to our strongest customer scores
in our history. Our ability to deepen customer and client rela-
tionships is driven in part by the investments we are making
to provide the best client care in the industry. For example,
overall, our company was certified or recognized as having
industry-leading capabilities six times by J.D. Power in 2018.
Specifically, J.D. Power recognized our Digital Mortgage
Experience and Home Loan Navigator for making the home-
buying experience simpler than ever, and identified Bank
of America as a top performer in several areas. We are the
first financial services company to be both mobile app-
Recognition Highlights
2018 and 1Q 2019
Fortune
100 Best Companies
to Work For (2019)
Fortune
Top global bank
on 2018 “Change the
World” list
Working Mother
Among the 100 Best
Companies for
30 consecutive years
Euromoney
• World’s Best Bank
• World’s Best Bank
for Diversity and
Inclusion
J.D. Power
“Outstanding Website
Experience” — Merrill
Edge Call Centers for
7 consecutive years
Military Times
One of the Best
Employers for Vets
Investing in
Women Initiative
2019 Catalyst
Award Winner
Greenwich Associates
Recognized for excellence
in digital design, digital
product capabilities and
security for U.S. corporate
cash management
Barron’s
#1 wealth management
firm on Top 100 Women
Financial Advisors list
for 13 consecutive years
J.D. Power
#1 in Retail Banking
Advice
Kiplinger
A Best Rewards
Credit Card
The Banker
2018 U.S. Bank of the
Year, Top Transaction
Services Bank in N.A.
Forbes
#1 wealth management
firm on America’s
Top Next-Generation
Wealth Advisors list
BANK OF AMERICA 2018 | 3
Consumer Banking
Net income
of $12B, up
47% over 2017
Average loans
and leases up
7% to $284 billion
Average deposits up
5% to $684 billion
Global Banking
Net income
of $8.2B, up
18% over 2017
Average loans
and leases increased
2% to $354 billion
Average deposits
increased 8% to
$336 billion
Global Wealth & Investment Management
Net income
of $4.1B, up
32% over 2017
Average loans
and leases increased
6% to $161 billion
Pretax margin
increased to 28%*
Global Markets
Net income
of $4B, up
21% over 2017
Sales and Trading
revenue of $13.1 billion*
Return on average
allocated capital of 11%,
up from 9% in 2017
*Presented on a fully taxable-equivalent basis.
and online banking-certified by J.D. Power for providing
“An Outstanding Customer Experience.” Our auto finance,
digital, mobile and credit card banking capabilities all were
recognized as best-in-class, as were our small business
offerings.
We saw similar growth in our Global Wealth and Investment
Management business, where net new household growth
was up four times from 2017, and overall client balances
exceeded $2.6 trillion. We have added digital capabilities,
more advisors and new products.
Growing within our Risk Framework
Another core tenet of Responsible Growth is that we
grow within our Risk Framework, and we had solid results
in 2018. Total net charge-offs remained at decade-lows,
while the net charge-off ratio declined 3 basis points to
41 basis points. All key asset quality metrics are solid. We
are committed to being in a strong position to support
clients throughout economic cycles. We have also managed
market risk well during the turbulent markets in 2018, and
our market risk indicators remain low. Through operational
excellence we have also kept operational risk in check.
Our Global Banking business continues to do a great job serving
up to the largest multinational companies. We also are
deepening relationships with those clients, and adding new
clients. As a result of investments we have made in rela-
tionship bankers, we have seen a 28 percent and 32 percent
increase in net new relationships, respectively, in Business
Banking serving smaller companies, and Global Commercial
Banking serving middle-market companies. This is accom-
panied by solid deposit growth in Global Banking overall, up
9 percent at the end of 2018. Our teams earned top awards
for providing the best client care in the industry, including
Euromoney naming us the best bank in North America for
small- and medium-sized enterprises. We received further
recognition as the top Transaction Services bank in North
America and best brand for cash management.
Our customer-centered growth extends into our institu-
tional investor segment. Through our investments in our
Global Markets business, and increased balance sheet
commitment to our clients, we have seen an expansion in
our prime brokerage business. Over the last several years,
we have invested heavily in new systems and expanded
products and electronic trading for investor clients. This
contributed to record revenues in our equities business and
solid fixed income business performance.
4 | BANK OF AMERICA 2018
Delivering sustainable Responsible Growth
As I mentioned earlier, we ensure Responsible Growth is
sustainable. This requires relentless progress across three
dimensions: sharing our success with our communities;
striving to be a great place to work for our employees;
and driving operational excellence. We continued to make
progress in each area in the past year.
Sharing success with the communities we serve
There are many ways we share our success. Our teammates
volunteered 2 million hours supporting local organiza-
tions in 2018, and we introduced enhancements to our
employee giving and matching gift programs. For 2019, we
are increasing total annual philanthropic giving across the
company to $250 million from $200 million. Since 2010,
we have extended nearly $2 billion in philanthropic giving
across the markets we serve in the U.S. and abroad.
Also in 2018, we provided $4.7 billion in loans, tax credit
equity investments and real estate development solutions
through our Community Development Banking business. We
financed affordable housing for seniors, veterans and the
formerly homeless, charter schools and economic develop-
ment. Through our Capital Deployment Group, we have been
developing innovative financing approaches to address
global challenges outlined in the United Nations Sustainable
Development Goals, including affordable housing, clean water
and sanitation, education, health care and renewable energy.
In recognition of the attention we pay to addressing these
important priorities, I’m pleased that Bank of America was
named the top global bank on Fortune magazine’s 2018
“Change the World” list. Fortune recognized our work mobi-
lizing and deploying capital to address global challenges
through our core business strategy.
We know if we continue to align our work to serve
shareholder interests and address the priorities of our
communities at the same time, the progress can be sustain-
able. I’ll discuss that in further detail below, and you can
find an extended review of our work in these areas later
in this report, including a letter from Vice Chairman
Anne Finucane on page 22.
Being a great place to work
Another tenet of sustainability is ensuring we remain
a great place to work for our teammates; the record
employee satisfaction scores in our 2018 annual employee
survey demonstrate this commitment. Our teammates
especially value how we provide for employee health and
wellness. Between current U.S.-based employees and their
families, and retirees, we are responsible for providing
comprehensive health and wellness benefits to nearly
400,000 people. For the ninth consecutive year, we have held
the cost of this benefit flat for the lowest-compensated
employees, even as we continue to improve the coverage.
For all employees, we have managed to keep increases
below national averages.
We also continue to make regular adjustments to starting-
level compensation at our company. We have been a
leader in establishing an internal minimum rate of pay for
our U.S. hourly paid employees and have made regular
increases over many years. Two years ago, we raised our
minimum wage to $15 per hour, and our minimum wage
is higher today. Our average rate for all U.S. hourly paid
employees is significantly above this level.
Our work in this area also includes employee development
and opportunities for growth. We foster our client-centric
culture through strategic workforce planning, anticipating
the future of work and creating a culture of lifelong learning.
In 2018, nearly 40,000 of our Consumer and Small Business
employees completed a learning curriculum, giving them
more skills for broader success. We hired more than
27,000 new teammates to the company last year (including
3,500 plus from colleges and universities); we helped more
than 17,000 employees find new roles in the bank; and
86 percent of eligible managers voluntarily participated in
manager development courses to improve their skills. The
implications are global; we also moved more than 5,000 jobs
from non-U.S. markets to the U.S. over the last four years.
Another area of focus has been sharing the benefits of
the 2017 U.S. tax reform. Since the passage of the Tax Cuts
and Jobs Act in December 2017, we have extended two
special compensation awards, impacting approximately
90 percent (in 2017) and 95 percent (in 2018) of our team-
mates globally. These awards included cash bonuses and
stock, totaling more than $1 billion, and were in addition to
the compensation these teammates otherwise received.
Please look for more details in this report, and in our proxy
statement, about all we do to be a great place to work,
including a letter from Chief Human Resources Officer
Sheri Bronstein on page 30.
Driving operational excellence
We also ensure that Responsible Growth is sustainable
though our focus on operational excellence — continuous
improvement in our internal and external processes to make
it easier for our employees to work with each other and to
serve clients and customers. By pursuing operational excel-
lence, we are becoming more efficient, so we can continue
to invest while providing you good returns. This makes all
the other progress that I’ve discussed possible.
Focusing on operational excellence allows us to continue
to invest in our capabilities and in our team, even as we
maintain expense discipline. While we face the same
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
BANK OF AMERICA 2018 | 5
inflation and cost challenges all employers do (e.g., benefit
increases, wage increases, real estate cost increases, more
investment), we managed through them. We achieved our
2018 expense target of approximately $53 billion. We set
that goal in mid-2016, when our annual expense run rate
was $57 billion. Managing expenses well has contributed to
four straight years of positive operative leverage and allowed
us to grow pretax earnings at 18 percent in 2018 — all while
investing in the company.
I have mentioned some of the areas in which we are
investing: adding relationship managers for our Global
Banking clients, continuing to improve on our leading digital
and mobile capabilities for all client segments and for our
teammates, investing in health and wellness benefits for
employees, our philanthropy increase, and the shared success
bonuses we paid to 95 percent of our teammates in 2018.
Since 2010, we have invested roughly $25 billion in new
technology initiatives. This includes reworking effectively
all of our major systems and adding innovative capabilities,
while also building an internal cloud and software architec-
ture for maximum efficiency and speed to market.
Technology investments are directed at innovation across
our company. Perhaps that is most apparent in the invest-
ments we continue to make in our industry-leading online
consumer platform and state-of-the-art branch network.
Erica™ is one example. Our virtual banking assistant that
combines interactive communications and artificial intelli-
gence (AI) to learn and anticipate client needs is unique in
the industry. Since we introduced Erica in spring 2018, more
than 5 million customers have used the capability and the
adoption rate is growing fast.
Another innovation in which we’ve invested is Zelle™, our
peer-to-peer transfer capability enabled by our mobile app.
Bank of America, along with other large banks, developed
Zelle and we have extended full access to the capability to
a growing network of participating financial institutions.
Customers of virtually any bank of any size can now send
money to one another through the safety of their bank
account in real time. Zelle transactions by our clients are
growing over 100 percent a year, and we had nearly 5 million
users at the end of 2018. And we’re just getting started.
Another investment we’ve made is in our digital auto
shopping experience, enabling customers to search, select
a car, and get underwritten in real time. Customers can
use our mobile app to search online for a car with access
to thousands of dealers’ inventories, with over 1 million
cars available. We have seen a seven-fold jump in financing
applications in this area since launch in May 2017.
Our investments in digital and mobile preferences for the
customer have resulted in higher customer satisfaction
scores and more deposits, while allowing us to reduce our
branch count by more than 1,300 since 2012.
And we continue to invest in improving our customer branch
experience. Our 4,300 current centers are places where
6 | BANK OF AMERICA 2018
800,000 customers come each day to talk with a relation-
ship or product specialist for the financial advice, products
and services they need.
In 2016, we announced our plans to renovate our financial
centers and upgrade our ATMs nationwide to better serve
our clients, expand our consumer and small business services
into new markets, and grow our presence in existing markets.
I provided an update last year, including our intention to
expand our financial center presence in nine new markets to
offer retail banking, lending, small business and investment
services. Today, we cover more than 80 percent of the U.S.
population with our retail branch footprint. With the sched-
uled investments, we will cover more than 90 percent.
We continued to execute this plan in 2018. We expanded
our presence in 25 markets, including our newest —
Denver, Minneapolis, and Indianapolis. We also entered the
Pittsburgh market in 2018, and will be opening our first
financial center in Salt Lake City in early 2019. In addition
to opening 81 new financial centers last year, we completed
renovations on 567 others. We are redesigning more than
2,500 financial centers by 2021 to make it easier for clients
to access our banking and investing professionals for advice
on their life priorities and financial goals. Adding financial
centers also helps drive local employment, as we have
added teammates across the new centers.
Look for a more detailed discussion of our high-tech,
high-touch capabilities with Dean Athanasia, president of
Consumer and Small Business, on page 15 of this report.
While our investments may be most apparent in the
Consumer and Small Business segment, we are investing
and innovating to better serve all of our clients. We
have extended our mobile consumer experience into
our commercial banking digital platform, with capabili-
ties that enable treasurers of companies, both large and
small, to transact with the same mobile convenience.
This innovation benefits the clients whom we assist with
markets-related services and activities, such as electronic
trading, algorithms, analytical capabilities, systems and
data management, and counterparty risk management and
Focusing on operational
excellence allows us to
continue to invest in our
capabilities and in our
team, even as we maintain
expense discipline.
underwriting systems. For wealth management and invest-
ment clients, we have automated investing tools, enhanced
document scanning and client texting.
Across our company, upgraded, integrated systems allow faster
execution for customers with our enhanced reporting, robotics
and automation. The application of advanced technology,
coupled with our focus on client relationship management,
creates a competitive advantage. And our universal, enter-
prisewide platform increases our efficiency and helps us
better serve clients and customers. All this, combined with
our global reach, creates a tremendous capability for you.
Remember, all this investment is driven by operational
excellence — creating efficiency and investment in the
future. The investments made in 2018 were extensive but
we were able to reduce expenses through operational excel-
lence. For 2019 and 2020, we expect expenses to remain
flat even while we are making these investments. That
makes our growth sustainable so we won’t have to pull back
in times of slower economic growth.
Committed to strong governance
Please read the letter from Jack Bovender, our lead inde-
pendent director, for a description of how the board of
directors supports and oversees our strategy. Jack and our
directors continue their practice of systematic investor
engagement. In 2018, we met with shareholders holding
more than 30 percent of our shares. Jack discusses this
in further detail in his letter on the next page.
We were pleased to welcome back to the board last year
Dr. Clayton S. Rose, who served as a director of our company
from 2013 until 2015. Clayton was named president of Bowdoin
College in Brunswick, Maine in 2015. He was able to rejoin
our board last year and offers terrific perspective. We benefit
from his insight on a range of issues.
Operating at scale to address
important societal priorities
Earlier, I referenced challenges related to affordable housing,
clean water, education, health care, renewable energy, energy
efficiency and other critical areas outlined in the United
Nations Sustainable Development Goals (SDGs). The way I
think of this is that, in effect, we asked the world through
the efforts of the United Nations, “What would you like the
power to do?” And the world spoke. Society would like to
see timely progress in addressing these priorities.
The issues are, of course, a concern to policymakers and
elected officials at every level of government. But they
are also a concern to our teammates, our customers and
clients, the communities we serve, and our shareholders.
At Bank of America, we realize there is a significant gap
between the capital that must be applied to these global
challenges and the amount that is currently being spent.
Credible estimates of what is needed to address the U.N.
SDGs is about $6 trillion per year; the current annual funding
gap is as much as half that.
Government alone can’t solve these challenges. The U.S.
government, with the largest economy in the world, will spend
more than $4 trillion this year. But almost two-thirds of those
total expenditures are committed to non-discretionary needs:
funding the social safety net, servicing U.S. debt and other
commitments. The discretionary elements of the budget
include national security, education, health care and other
priorities. The same is true for other governments and econ-
omies around the world. The government budgets are fully
committed, and in many cases in difficult shape, so counting
on governments to spend more is not a likely solution.
Charitable giving alone also cannot fill the need. Annual giving
from individuals, foundations, and corporations is spread
across many worthy causes and, even in the aggregate, falls
short. The U.S. is the largest philanthropic giver in the world
as a percentage of GDP. Total giving to charitable organiza-
tions overall in the world was around $800 billion in 2017 and
$410 billion in the U.S., primarily from individuals. Assets by
foundations in the world are estimated at about $1.5 trillion;
nearly half of that is held by foundations in the U.S. at
$890 billion. Again, even if we spent all that money in a single
year, it would be insufficient to close the gap.
We operate in nearly 300 cities, towns, and communities,
consolidated into 92 distinct markets in the United States,
and in three dozen countries around the world. We are
part of the fabric of those communities, where our 200,000
teammates live, work, and raise their families.
Public companies that employ and invest at the scale that
we and others do are well-positioned to address income
inequality, clean energy, health care, and affordable housing
through thought leadership, investment, innovation, mobili-
zation of capital and in other ways. Private-sector leadership
is necessary because solutions involving capitalism are inher-
ently sustainable, and the returns will bring continued and
increasing investment.
But, as the great student of business and author Jim Collins
has said, we have to embrace “the genius of the AND.” We
have to do our part to achieve strong and timely progress on
the sustainable development goals AND we have to deliver
BANK OF AMERICA 2018 | 7
A message from
Lead Independent Director
Jack Bovender
Dear fellow shareholders,
On behalf of the independent directors of the company,
I join Brian and the management team in thanking you for
choosing to invest in Bank of America.
Our board continues to focus on its responsibility to
oversee the company’s execution of the strategy that
we review and approve each fall. To do that, the board
engages in a year-round strategic assessment and
planning process. That includes regular discussions with
the company’s management about the current operating
environment, industry trends and global and geopolitical
developments. We also engage in regular and systematic
dialogue with our shareholders. Throughout 2018 and
into this year, we have provided updates to, and solicited
input from, shareholders representing more than a third
of our shares outstanding. Shareholder feedback informs
our board meeting agendas and contributes to governance
enhancements. We seek input and exchange views on matters
ranging from executive compensation to capital deployment
and environmental, social, and governance initiatives.
The board comprises diverse individuals representing a
spectrum of informed viewpoints. Fifteen of the 16 directors
are independent; 63 percent have CEO-level experience; and
38 percent have senior executive experience at financial
institutions. As Brian outlines in his letter, the board in 2018
welcomed the return of Dr. Clayton S. Rose as a director.
Clayton’s expertise includes strategy, ethics, moral leadership
and corporate responsibility. He and all the directors provide
valuable perspective as the company continues to pursue
responsible growth.
We remain committed to providing you all the material
and information you need to understand and appreciate both
the opportunities and the challenges ahead as the company
continues to execute its strategy. Please take the time to
carefully review this annual report, as well as our proxy state-
ment, and the other materials the company makes available
to shareholders.
Thank you again for your investment and for your
continued engagement.
Sincerely,
strong returns to you, our shareholders, as we do so. This
enables us to keep addressing these important priorities. We
are doing this, and we are committed to doing more.
How does Bank of America do this?
First, we continue to align our expense base and our balance
sheet to find every business opportunity to provide good
returns and to make progress toward our goals. We do this
by financing new energy sources, by financing affordable
housing, and by financing other types of development. These
financing opportunities provide a return for investors while
making progress on the goals.
Second, we bring thought leadership to the discussion. Our
Research team has demonstrated that companies adhering to
sound environment, social, and governance (ESG) practices
will avoid serious issues. In fact, their research shows that
investors could have avoided almost all of the bankruptcies
of the last several years by avoiding companies that do not
have good metrics on ESG. Increasingly, investors are looking
for that kind of adherence in making investment decisions.
This is driving more private-sector investment capital from
institutional investors toward companies that are addressing
8 | BANK OF AMERICA 2018
these priorities. We also see this in our wealth manage-
ment businesses, where we are meeting client demands
to construct portfolios focused on companies that meet
standards consistent with progress toward the sustainable
development goals. The practice is growing. By harnessing
private capital in this manner, the alignment we create can
help fill the gap left by limitations in government and phil-
anthropic spending by bringing more resources, capital, and
expense to the task. In addition, we can be a catalyst for
others to act. Our expertise, credibility, and ability to assess
the opportunities can help others who have the desire but
may lack the expertise to deploy capital.
Third, we contribute in the ways we manage our own
activities. We are more than halfway through our 10-year,
$125 billion Environmental Business Initiative, supporting
clients and others who are helping create a sustainable
energy future. We also focus on our own sustainable facilities
management and improved energy efficiency. For instance,
we have set a goal to be carbon neutral by the end of 2020.
We also run your company to provide great opportunities
for teammates. We hire from a diverse range of locations and
backgrounds, and provide opportunities for teammates to pursue their own path
and excel. That kind of opportunity for success allows a teammate to join us, for
instance, from a low- or moderate- income neighborhood (as did more than
30 percent of our Consumer and Small Business external hires last year) and move
into future openings throughout our company based on their own merit and desire.
Fourth, our own ESG work makes a direct impact. The direct investments we
make, the volunteer efforts of our teammates, our philanthropic works — all of
this helps address the challenges. While our own ESG work through giving and
volunteerism cannot solve the challenges as we have relayed, we are proud of
what our teammates directly do to help make progress on these priorities.
Let me give some examples of the different types of activities set forth above:
Bank of America committed more than $50 billion last year in lending, investing
and philanthropy to deploy capital toward the SDGs. In fall 2018, we created
a special $60 million Blended Finance Catalyst Pool to encourage more compa-
nies to participate in addressing those priorities. Our blended finance initiative
combines different sources of capital for a targeted objective, in order to accom-
modate different risk tolerances and rates of return. As this approach expands
over time, we can create the capacity to mobilize vast amounts of capital and
achieve the scale necessary to fundamentally address global challenges driven by
the force of private-sector capital returns.
In one of the first commitments of our catalyst pool, we joined with two other
financial services companies in our headquarter city of Charlotte, North Carolina,
to extend more than $70 million to fund low-income housing developments.
Most of that amount will be low-interest loans to private developers building
income-restricted housing.
We believe it is not only possible, but it is the desired outcome for Bank of
America as a public company to simultaneously serve our clients, deliver for
our shareholders AND address these local, national, and global social priorities.
Delivering on both aspects of the “AND” is the way to ensure that we can continue
to channel the capital from others and from our company that is needed to fund
societal needs. We all have to provide great returns, while delivering on the goals.
Our teammates are called upon in every community where they live and work to
lead efforts that promote economic and social development, and I am proud of
how they step in to help. We welcome the continued interest of elected officials
in these efforts and engage them across the cities, towns and communities we
serve. Our commitment is a core element of Responsible Growth.
Thank you for being a shareholder
I hope you find it informative and enjoyable to read more about Bank of America
in the following pages, where you’ll see more examples of how we’re helping
to make financial lives better through every connection. You can read how we’re
connecting with clients every day to help them achieve their goals, simply by asking:
“What would you like the power to do?”
I am proud to work with my 200,000-plus teammates who are listening for
your answer.
REVENUE ($B)
$85.9
$83.0
$83.7
$91.2
$87.4
2014
2015
2016
2017
2018
NET INCOME ($B)
$28.1
$17.8
$18.2
$15.9
Thank you for your support and investment in Bank of America.
$5.5
Brian Moynihan
March 1, 2019
2014
2015
2016
2017
2018
BANK OF AMERICA 2018 | 9
We work every day to finance progress
and spur entrepreneurship — to help you
build financial know-how and strengthen
communities. Meet people who are
making a difference and the partners
who are championing them.
What would you like
10 | BANK OF AMERICA 2018
the power to do?™
BANK OF AMERICA 2018 | 11
With Bank of America, you
have the power to manage
your financial life here...
Exceptional client service is
high-tech and high-touch.
Technology is transforming financial services and
changing the way clients and banks interact. Yet,
when it comes to making major financial plans, our
clients also want to be able to work directly with
our team of experts who can provide the advice
and counsel they need. It’s the combination of both
of these that makes our offering really powerful.
We’re building relationships based on how clients’
needs evolve throughout their financial lives,
combining digital access for everyday banking —
at any time, from anywhere — with expert advice
for life’s big financial decisions.
12 | BANK OF AMERICA 2018
...and here.
BANK OF AMERICA 2018 | 13
Q&A with Dean Athanasia,
President of Consumer and
Small Business
14 | BANK OF AMERICA 2018
Q: WHAT DO TODAY’S CONSUMERS LOOK FOR IN A BANK,
AND WHAT IS BANK OF AMERICA’S STRATEGY FOR EXCEEDING
THOSE EXPECTATIONS?
A: Clients want a bank that is committed to helping improve their financial
lives, so they have the power to do the things that matter most to them, like
open their first banking account, make payments with ease, buy a home, invest,
grow a business and leave a legacy. We’re working continuously — on both high-
tech and high-touch solutions — to earn our clients’ trust and to give them
more reasons to bank with us. Whether it’s investing in digital banking and new
solutions, redesigning our financial centers, or offering learning and development
programs to help our teammates expand their skills — these actions help us
provide better service, while growing responsibly and sustainably with our clients.
More importantly, client care is how we build and expand rewarding relationships
with our clients and help them at every stage of their financial lives. We put clients’
needs at the heart of every decision we make to ensure they have the best products
and solutions, serving all of their financial needs, delivered with a consistently great
experience that recognizes and rewards them for their relationship with us.
Q: WHICH CURRENT INNOVATIONS BEST DEMONSTRATE
BANK OF AMERICA’S LEADERSHIP IN DIGITAL BANKING?
A: We continue to invest and innovate because clients expect us to be at the
forefront of the technological advances that are transforming banking — and their
financial lives. We have created a best-in-class, innovative digital experience that
gives clients the power to manage their banking and investing activities from their
mobile phone, including checking an account balance, applying for a mortgage,
paying a friend, or even shopping for a car.
Our digital leadership is reflected in our award-winning mobile app, the first to
receive J.D. Power’s certification for “An Outstanding Mobile Banking Customer
Experience.” Erica, our artificial intelligence (AI)-driven virtual financial assistant,
is helping more clients stay on top of their banking every day. Zelle, the person-
to-person payment platform, had nearly 5 million users at the end of 2018. Small
Business clients can now manage more of their banking through mobile devices.
Our Digital Mortgage Experience™ now offers clients the ability to request a
preapproval. And, we’re continuing to expand our digital resources so clients can
bank and invest however, wherever and whenever they choose.
Q: WILL THE FUTURE OF BANKING LEAN MORE TOWARD
DIGITAL OR BRICK-AND-MORTAR CAPABILITIES?
A: Clients want to be able to accomplish their everyday banking conveniently
through their mobile devices, and connect with client representatives in our
financial centers when they have more complex needs. The power of our integrated
high-tech and high-touch approach means they have the best of both worlds;
for example, clients can make an appointment to speak with a specialist on their
mobile device, and Erica can even help them set it up! When clients come to
our financial centers for help, knowledgeable professionals provide advice in a
private setting. We’re on track to redesign more than 2,500 financial centers by
2021 to make them welcoming destinations where clients can have personal,
in-depth conversations with our professionals about their financial goals, including
retirement, purchasing a home, investing or saving for their children’s education.
Our financial centers will always be a welcoming and professional setting
for clients who need to speak with us about their financial priorities and goals.
And with 9.5 million Hispanic and Latino consumer clients, we’re investing in
talent, upgraded financial centers and community outreach, beginning with 300
centers in Los Angeles, New York, Miami, Chicago, Dallas and San Francisco.
We’re expanding into local markets across the U.S. where we see opportunities
to better serve existing clients, grow our business responsibly and help local
communities thrive.
BANK OF AMERICA 2018 | 15
Delivering tailored wealth management
solutions for every stage in life
Our unmatched wealth management businesses serve clients of every age, at every stage of their financial lives, across the
wealth continuum. Our top-ranked advisors provide objective, conflict-free advice and clear, actionable financial plans based
upon our clients’ goals and aspirations. We offer rewards when clients deepen their relationship with us, and access to seamless
integration with the rest of our global firm to help meet every banking need, whether business, commercial, corporate and
investment, or retail.
“I like to show my clients, many of whom
are new to investing, how easy the process
can be when they focus on their life priori-
ties to help define their investing goals. I’m
proud of what we offer investors through
our online investing platform. Clients can
put their own ideas into action or get finan-
cial guidance — either through our digital
capabilities or with the help of an advisor —
and access investing insights supported by
our award-winning research and tools.”
“What our clients are looking for is a
partner who helps them navigate their
financial and family plans. They value
working with someone they trust who can
advise them on all aspects of their financial
affairs — investments, banking, credit,
philanthropy and planning for the next
generation. The combination of Merrill Lynch
investments and Bank of America banking
allows us to provide clients the solutions to
realize their goals throughout their lifetime.”
“One of the advantages we provide to
our clients is our team-based approach
and high level of client service. Our teams
spend a lot of time up-front with clients
to understand their needs and goals.
When combined with access to all of
Bank of America’s capabilities, our teams
are able to provide solutions to address
the opportunities and challenges our
clients face.”
M i a Z i r i n g
Financial Solutions Advisor, Merrill Edge
D e b b i e J o r g e n s e n
Managing Director, Wealth Management
Advisor, Merrill Lynch Wealth Management
J a n e t R y a n
Managing Director, Private Client
Advisor, U.S. Trust, Bank of America
Private Wealth Management
When Fidelia retired from her successful career as
a retail executive, she turned to Bank of America
for help planning her financial future. With goals
that included caring for her mother, continuing
her education and launching a second career, she
consolidated her accounts to Merrill Edge and rolled
over her pension and 401 (k). She also set up a new
Merrill Guided Investing account to help her retire-
ment savings stay on track with a professionally
managed portfolio. “I’m able to direct my own
investing, but I always have an advisor to turn to,”
she said. According to Fidelia, putting her Bank
of America and Merrill Edge accounts together and
having advisors who understand her goals make
her feel more in control of her future. “I feel
like Bank of America is invested in
my success. They know where I want
to go and how to help me get there.”
I would like the power
to have a second act
FIDELIA
16 | BANK OF AMERICA 2018
I would like the power
to be my own boss
LISA
When faced with any of life’s sizable decisions,
one of Lisa Young’s initial calls inevitably is
to her Merrill Lynch financial advisor, Sammie
Kothari Peng. “I literally asked her for advice
about how I should most strategically allocate
my very first paycheck,” Lisa said with
a chuckle.
That forethought and attention to detail
explain how Lisa enjoyed a successful corpo-
rate career before making the complicated
transition to start her own business. “Within
just a few years, my life underwent a series
of significant changes: marriage, children,
buying a home, starting my own business,
needing to save for retirement and colleges,”
said Lisa, who, like her parents, is a longtime
Merrill Lynch client.
business, she clearly understood my financial
risks and helped me plan for them. She even
connected me with one of her clients who
was in the same industry, which led to my
first contract.”
Lisa added, “I want to be a role model for my
kids — especially my daughter — to show her
that you can work hard and be successful
and also do it on your terms. To achieve that
success, we all need people we can trust,
who have the most reliable and sound advice.
Sammie knows and understands
us so well — our family’s needs,
our dreams and our approach
to finances. She is always there
when significant decisions need
to be made.”
“These life events raised questions that
required proactive solutions: ‘What are my
long-term and short-term needs? What type
of budgets should I establish, and which
accounts and investments will that involve?
How much should I put away for a house, and
for our children’s education?’ Sammie not only
answered our questions — she anticipated
those that my husband and I didn’t even know
to ask. And when it came to launching my own
“Lisa and I never lose focus on the big picture,”
Sammie said. “That can involve a conversation
about the equity and fixed-income markets,
529 plans, 401(k)s, or even the ability to say
no to a particular work contract if it does not
align with her ultimate work-life balance goals.
I am so proud of all that she has accomplished,
and will always be available to her as she
continues her journey. She knows I’m just a
phone call away.”
BANK OF AMERICA 2018 | 17
We would like the power
to create a legacy
RAFAT AND ZOREEN
“If I have a financial issue, or almost any
issue, the first person I would call is my
Merrill Lynch advisor,” said Rafat Ansari.
That level of trust was established in the
first meeting Rafat and his wife, Zoreen,
had with Merrill Lynch financial advisor
Matt Kahn, who hit on a series of questions
that proved invaluable. Their daughter, who
has autism, was about to gain access to a
trust in her name that had been established
by a previous firm. But the trust didn’t
incorporate her need for certain services
she would have lost if she had gained
access. “We had no idea she was close to
losing what mattered most, benefits that
you cannot buy,” said Zoreen.
To ensure her medical and financial needs
could both be met, Matt brought in exper-
tise from another Merrill Lynch team with
unique experience serving families with
special needs. After much hard work and
collaboration on a new trust, they retained
her benefits and strengthened her financial
future. “Since that day, Merrill Lynch has
been an integral part of her care plan,
and in all aspects of our family’s financial
planning,” said Zoreen.
With their daughter’s stability secured,
the Ansaris began to focus more on their
legacy. “We want to give something back
to humanity,” said Rafat. The family, which
is passionate about philanthropy, brought
the idea of making a significant gift to the
University of Notre Dame to their advisory
team with a common question: What can
we afford to give? Financial Advisor Jennifer
Haggerty prepared multiple options and
carefully explained how different gift
levels may affect their financial future over
time, as well as options for structuring the
gift. “We had to think, how is it going to
affect us? There were a lot of parts,” said
Rafat. Over the course of several months,
Matt and Jennifer worked closely with
the Ansaris and their children, their CPA
and the university to make their vision
a reality, creating the Rafat and Zoreen
Ansari Institute for Global Engagement with
Religion, which was established to foster a
better understanding of religion by studying
the similarities and roles of religions and
their impact on the public sphere around
the world.
“This institute is a legacy for us,” Rafat said.
“Merrill Lynch was quite helpful
through the entire process.
Our relationship with them has
been great, and it’s on multiple
levels, including investments,
estate planning, lending, and
advice. It’s a complete service
line for us. Whatever we need, it’s just
one call away from being taken care of. Our
team is easily accessible at any time, and I
feel very comfortable knowing that,” said
Rafat. The couple agrees that working with
Merrill Lynch has helped them meet their
most important life goals. Zoreen added,
“We’ve gained in our financial strength.
We’ve established estate planning for our
children and the program at Notre Dame.
We feel taken care of, as a whole.”
18 | BANK OF AMERICA 2018
Supporting companies as
they grow, innovate and lead
Clients down the street and around the world look to our teams to
help power their growth. Small business owners get the support
they need to open their first business accounts, including access
to solutions for cash management, paying suppliers and meeting
liquidity requirements. Larger companies may need currency risk
management, sophisticated treasury solutions, and ongoing capital
and liquidity financing. Companies and institutional investors alike
rely on our talented teams and leading research for ideas and
opportunities to grow and innovate.
$8.6 billion
in new credit extended to
small business owners in 2018
One of the
top small
business lenders
with approximately
$35 billion total outstanding
small business loan balances1
A top
SBA lender
with more than $275 million
in combined SBA 504 and 7(a)
loan volume in 20182
$1.5 billion+
in loans and investments to
community development
financial institutions
A leading
commercial
lender
with nearly $500 billion in
commercial loans and leases
at the end of 2018
Relationships with
79 percent of the 2018
Global
Fortune 500
and 94 percent of the 2018
U.S. Fortune 1,000
Leading dealer in
FX cash, derivatives,
electronic trading and
payment services in
151 currencies
#1
global green bond
underwriter 3
Rated #1
global research
firm 6 of last
8 years
by Institutional Investor
magazine (ranked second
in 2017 and 2018)
650+
analysts
covering
3,000+ companies,
1,100+ corporate bond
issuers across
54 economies and
25 industries
1 Source: FDIC, as of Q3 2018.
2 Based on 2018 gross loan approval as provided by the SBA for fiscal year ending 9/30/2018.
3 Source: Environmental Finance.
BANK OF AMERICA 2018 | 19
Skookum would like the
power to change the world
Skookum Contract Services operates with a mission to
change the world through its diverse workforce of more
than 1,100 employees, including over 400 U.S. veterans.
The Bremerton, Washington-based nonprofit began over
30 years ago with just a dozen employees; today, it has
grown its presence to 11 states and Washington, D.C. by
providing world-class logistics, aerospace manufacturing,
and facilities management services to government and
commercial customers.
“We’re here to change the world,” said Skookum President
and CEO Jeff Dolven. “Each of us brings abilities to work
that can drive performance and create value. Think about
the engagement you get in the workforce when you help
people realize their dreams.” That Bank of America has
been with Skookum through each stage of its continuing
evolution is no accident.
“Years ago, we were smaller and focused on our finan-
cial health and our balance sheet, but we had a very
clear agenda to expand the scope of our impact,” Jeff
said. “We wanted to be associated with a bank that
had a brand that was clearly recognized as a symbol of
strength. To us, there was no question that was Bank
of America. So we made it a goal to become a client of
the bank. Every step we took financially was to achieve
that goal. And we did it.”
For more than 15 years, Bank of America has provided
financial and strategic guidance to Skookum — providing
liquidity for new client contracts, financing their head-
quarters purchase, and even introducing a series of
wealth management seminars to Skookum employees.
“Skookum is a best-in-class organization that lives its
exceptional mission every day,” said Jeremy Bolles,
Bank of America’s senior relationship manager. “While
they are focused on helping job seekers overcome
barriers and find long-term success in the workplace,
we are working to help the company operate efficiently,
act on growth opportunities, and continue to plan for
the long term. We’re proud to support their efforts,
whether that’s providing a new line of credit, custom-
izing payroll solutions, joining the board for strategic
planning sessions, or even flipping burgers at the
company picnic.”
“Jeremy and the team at Bank of America
have taken the time to know us so well, to
become so embedded in our planning and
our strategies, that they’re always out in
front of us,” Jeff said. “Whenever we are ready to
take a step, every aspect of every financial instrument
already is in place. We have never had to slow down, not
once. How many banks can you say that about? Our goal
is to make a lasting impact on communities around the
world. And we take tremendous comfort in knowing that
no matter where we go, Bank of America will have been
there first.”
Photos above (left to right): Skookum employee Maurice Correia
pursues his passion for fishing. Skookum employee and U.S. veteran
Bonnie White puts her skills as a mechanic to work.
20 | BANK OF AMERICA 2018
IPG would like the power
to lead an industry
Intertape Polymer Group Inc. (IPG), a
manufacturer of a variety of tapes,
films, protective packaging and woven
products, had ambitious aspirations.
Already the second-largest tape manu-
facturer in North America, the Montreal,
Quebec- and Sarasota, Florida-based
company several years ago was driving
to become a global leader through multi-
national acquisitions, investments in
manufacturing capacity, and additions to
its product bundle. What IPG needed was
the power to grow on an international
scale — and a financial partner to help.
“Bank of America has been a key
relationship for us,” said IPG Chief
Financial Officer Jeffrey Crystal.
“They put their heart and soul into
creating solutions that work.”
During the course of a relationship of
10-plus years, Bank of America delivered
a world of financial solutions to IPG.
At the outset, when IPG faced challenges
from an unsuccessful takeover attempt
and economic recession in 2007, Bank
of America provided an asset-based loan
facility. Once IPG was on strong footing
and ready to progress to a different
capital structure, Bank of America
provided a revolving credit facility and
term loan. Over time, IPG has expanded
through joint ventures and acquisitions —
including operations in India — while
bolstering its world-class manufacturing
capacity. Bank of America supported
those initiatives, leading a $250 million
high-yield bond financing with a flexible
leverage covenant, providing IPG the
capacity for future growth while removing
risk from its balance sheet. On a daily
basis, services such as foreign exchange
and interest rate hedging enable the
global business to manage its finances
effectively.
A local Bank of America relation-
ship management team, led by Greg
Banach and based near IPG’s Sarasota
head quarters, ensures an attentive,
personalized approach to service while
providing connections to resources around
the world. “We’ve earned our strong
relationship with IPG by understanding
where they want to go, and bringing
ideas and solutions to help them get
there,” Greg said. As IPG’s business has
evolved, teams from Global Commercial
Banking, Investment Banking and other
Bank of America units have worked
together to deliver tailor-made solutions
to advance the company’s strategic plans.
“Bank of America stuck with us through
a tough time early on, and consistently
comes to the plate with unique ideas,”
Jeffrey said. “They’re a great partner,
whether in North America or around
the world.”
Caviar & Caviar USA
would like the power to
grow with confidence
Entrepreneur Michael Jalileyan describes
Bank of America in much the same
manner as top chefs, five-star hospitality
groups and specialty retail outlets react
after tasting the high-end caviar and
smoked salmon supplied by his business:
“It’s almost too good to be true.”
A Bank of America customer since he
was a teenager, Michael never hesitated
when weighing the banking needs
associated with launching, nurturing
and growing Caviar & Caviar USA into
the top domestic supplier of caviar and
specialty seafood. “We don’t even
look at other banks,” Michael
said. “We would never need to.
There are no surprises. We’re
simply constantly impressed.”
Small business banker Marc Ramer leads
a team that supports Michael, including
a recent, nearly two-year search for a
larger facility to house the flourishing
business. Marc’s extensive due diligence
enabled Michael’s company to identify
and avoid a potentially six-figure repair
issue at one site. “Michael is the client
every banker wishes to have,” Marc said.
“Knowledgeable, engaged, enthusiastic —
I am always curious to see which trend-
setting innovation he plans to pursue,
and how our entire range of products can
assist him.”
“Bank of America has tremendous
size and scale,” Michael said. “But the
attention always feels specialized
and personal. Marc deftly handles the
financial aspects, leaving me free to
concentrate on running and growing my
business. And that’s a lot off my plate.”
BANK OF AMERICA 2018 | 21
Financing
a sustainable
world
A message from
Vice Chairman
Anne Finucane
We are bringing together private banks,
institutional and individual investors,
development banks, and nonprofits to
ensure more capital can be applied
to a single issue or opportunity.
Every day, our teams are creating new
solutions, forging new partnerships, and
providing guidance and support to fuel
progress. In 2019, we will continue to
use our focus on responsible growth
and ESG leadership to help define how
we operate as a force for good in the
global economy.
In 2018,
we mobilized,
conservatively,
more than
$50 billion that
impacted a
key subset of
the SDGs.
Over the last several years, we have discussed with you
how our focus on environmental, social and governance
(ESG) principles is an essential part of how we deliver
responsible growth. Our ESG leadership defines how we
deploy our capital and resources, informs our business
practices, and helps determine how and when we use
our voice in support of our values. It also enables us
to pursue growing business opportunities and manage
risk associated with addressing the world’s biggest
environmental and social issues.
Over the next several pages, you will see highlights of our 2018 work in
all of these areas. One particular area of focus has been solidifying a
more formal approach to how we deploy our own capital and engage our
partners on this topic to create greater impact around the world.
Today, the world is facing monumental challenges, and it is clear that
potential solutions are woefully under-resourced. There is a significant
gap between the capital that must be applied to global challenges and
the amount that is being deployed today. This gap cannot be filled by
public-sector and philanthropic capital alone; it requires private-sector
engagement.
One important aspect of our ESG focus is how we can help mobilize
players across the entire financial system to increase the flow of capital
to address the major global challenges that are articulated by the United
Nations Sustainable Development Goals (SDGs), such as affordable
housing, sustainable energy, clean water and sanitation, education and
health care. We refer to our efforts as Capital Deployment — an enterprise-
wide initiative designed to unlock the necessary financing and investment
to address these issues.
Continued financial innovation is also required to make a greater impact
and spur additional private capital toward the SDGs. A key opportunity
for us to stimulate additional private capital to finance sustainable
development in emerging and developing markets is through an approach
known as blended finance — the combination of various sources of capital
to accommodate different risk tolerances and return requirements.
22 | BANK OF AMERICA 2018
water and sanitation. This $50 million
fund will impact 4.6 million people in
India, Indonesia, Cambodia and the
Philippines.
We also provided a $250,000 grant
to GivePower Foundation to install
solar-powered desalination systems,
bringing safe water to communities in
developing areas. Since 2015, we have
delivered $1.75 million in grants to
the GivePower Foundation, which has
supported solar technology in over 1,800
schools and 22 community microgrids.
Case study:
Transforming communities
by empowering women
Solar power is transforming villages
across India. In 2018, we partnered with
four non-governmental organizations
(NGOs) in India to set up 49 solar micro-
grids — electrifying 1,420 homes and
38 public institutions, including health
care centers and schools. Powering
the villages also empowered women in
the community. With the solar panels
installed, women could collect water
in 20 minutes, rather than the typical
three hours, which gave them more time
to pursue education and employment
opportunities.
Driving innovation
We work closely with many organi-
zations to help find solutions and
drive innovation in sustainability. In
2018, Bank of America was named
a founding member of the Stanford
Strategic Energy Alliance, which
has produced a Sustainable Finance
Initiative and will facilitate research
and education between companies and
faculty members.
We will continue to pursue capital
deployment efforts that mobilize players
across the entire financial system to
increase the flow of capital to address
major global challenges.
Photo: Our $500,000 grant to GRID Alternatives
supports the organization’s SolarCorps Fellowship
Program, which provides solar installation
training while expanding access to solar power
in underserved communities.
BANK OF AMERICA 2018 | 23
Meeting global challenges
with committed capital
Our Capital Deployment efforts aim
to unlock vital financing to address
our target SDGs. Highlights of our
work include:
Environmental business
commitment
Bank of America is leveraging resources
to support clean and renewable energy
around the globe. In 2018, we deployed
$21.5 billion in capital to support low-
carbon, sustainable business activities
through lending, investing, capital raising
and developing financial solutions for
clients. Over the past six years, we have
delivered nearly $105 billion toward our
environmental business commitment to
deploy $125 billion by 2025. For example,
in partnership with Vivint Solar, Inc., we
developed a standalone financing vehicle
that allowed the company to completely
recycle its working capital in a rooftop
installation. This work is reshaping how
the residential solar industry develops
and finances rooftop solar and supports
95MWs of residential solar for the
company, providing more attractive
clean energy solutions for thousands of
customers nationwide.
Blended Finance Catalyst Pool
In November 2018, we launched the
Blended Finance Catalyst Pool, a new
financing initiative to provide $60 million
in capital and mobilize additional private
capital to help address the SDGs. This
new pool of Bank of America funding
supports deals that would ordinarily fall
outside of our Risk Framework, but by
which, through our participation, we can
drive significant leverage and impact.
In January 2019, we announced the first
two projects that will benefit from this
capital. We are investing $2.5 million in
the $50 million LISC Charlotte Housing
Investment Fund, which will support the
construction of affordable housing in
our headquarter city. Our investment is
expected to help house more than 1,500
families. We also made a $5 million
commitment to invest in the soon-to-be
launched responAbility Access to Clean
Power Fund, which aims to finance the
expansion of off-grid, affordable solar
power for residential and small busi-
nesses in sub-Saharan Africa and India.
Our investment is expected to help
provide clean energy to 6 million people
and 6,000 small businesses in energy
impoverished areas.
Addressing clean water
and sanitation
In 2018, we closed on our $5 million
loan to WaterEquity’s WaterCredit
Investment Fund 3, which immediately
deployed the capital to microfinance
institutions on the ground to provide
loans that connect households to clean
Improving
lives through
community
development
As a leader in community development, Bank of America is delivering financing solutions
that build and preserve affordable housing, create jobs through economic development,
and support environmentally sustainable business activity. This includes a commitment
from our Community Development Banking, which deployed $4.7 billion in loans, tax credit
equity investments and other real estate development solutions in 2018.
Community Development Banking remains focused on providing safe housing options,
with an added emphasis on employment opportunities. Much of this effort is driven by
creating affordable housing for families, seniors, students, veterans, the formerly homeless,
those with special needs and other at-risk groups. In 2018, Community Development
Banking financed more than 16,000 housing units — of which, over 15,000 were affordable.
Revitalizing the
Jordan Downs
housing project
Jordan Downs, a 1950s-era public housing
development in the Watts neighborhood of
Los Angeles, is being transformed through
a public-private partnership involving Bank
of America Merrill Lynch, the city of Los
Angeles, the Los Angeles Housing Authority,
nonprofit developer BRIDGE Housing, and
for-profit developer Michaels Organization
Development Company.
The multiyear redevelopment project encom-
passes construction of 1,400 new affordable
housing units with new retail, a community
center and parks. For the initial phase of
the project, Bank of America Merrill Lynch
provided $56.7 million in construction loans
and $50.4 million in low-income housing tax
credit (LIHTC) equity to construct 250 new
affordable housing units.
Improving resident services and creating
jobs are also part of the life-changing impact
of Jordan Downs. The project created 65
new jobs, of which 46 were filled by Jordan
Downs residents, participants in YouthBuild®
and other community members. As the
project continues, there will be additional
opportunities for residents to apply for jobs
to help rebuild their community — and build
successful lives.
24 | BANK OF AMERICA 2018
“We are committed to helping
underserved neighborhoods become
thriving communities. Community
Development Banking uses a wide
variety of financing solutions to
help provide affordable housing,
improve education and create jobs,
thereby improving the quality of
life for residents and creating more
sustainable neighborhoods.”
Jim DeMare
Co-Head of Global FICC Trading and Head of
the Commercial Real Estate Bank (CREB)
1,400
Redevelopment of Jordan Downs
will include 1,400 new affordable
housing units
Photo: Raul Anaya, market president for
Greater Los Angeles, is joined by Mayor Eric
Garcetti and other city officials, developers,
activists, and residents at the groundbreaking
ceremony for the new Jordan Downs housing
development. (Photo by Ted7 Photography,
courtesy of BRIDGE Housing).
A deep connection to
the communities we serve
At Bank of America, we are making
financial lives better through a
tailored, community-centered
approach that matches our products
and services, jobs, and capital
to meet the unique needs of our
clients in low- and moderate-
income (LMI) communities.
From managing daily finances
to establishing good credit, we
help people build their financial
foundations through safe and
transparent products, such as
our Bank of America Advantage
SafeBalance Banking™, an account
that prevents overdraft fees. In the
past two years, more than 400,000
Advantage SafeBalance Banking
accounts have been opened, under-
scoring how we are connecting
people to tailored products that
best serve their needs.
Our community financial
centers also provide convenient
access to our team of professionals
trained to serve our clients’ needs.
In addition to being well-versed
in banking resources, employees
in community financial centers
receive training on Better Money
Habits® to share financial know-
how with clients about topics such
as rebuilding credit, savings and
budgeting, and more.
To build pathways to economic
mobility, we invest in and hire
directly from the communities
we serve by partnering with local
nonprofit organizations to foster
a diverse pipeline of talent and
connect individuals to meaningful
career opportunities. In June 2018,
we committed to hiring 10,000 indi-
viduals from LMI neighborhoods
over five years through our Pathways
career development program.
We are also equipping our
employees with career develop-
ment tools and resources through
the Academy at Bank of America,
including on- boarding, mentoring
and career advice, and long-term
development training. Nearly
40,000 Consumer and Small
Business employees participated
in the training in 2018, with one-
quarter moving their careers forward.
Rounding out our approach to
enable economic mobility in LMI
communities, loans and philan-
thropic investments help to finance
the institutions, individuals and
programs that help make neighbor-
hoods stronger. For example, we
invest in community development
financial institutions (CDFIs) to
extend credit to those unable to
qualify for traditional loans, and we
now have a $1.5 billion portfolio of
loans and investments to 255 CDFIs
across the United States, Puerto
Rico and the District of Columbia.
Photo Above: At the Boyle Heights
Community financial center in Los Angeles,
and all around the U.S., we are connecting
communities to the resources they need
to succeed.
“We understand the unique challenges clients in LMI neighborhoods
face managing their day-to-day finances, improving credit and
building long-term financial wellness. Delivering tailored resources
to these clients is an important part of our strategy because when
these communities are made stronger, we all benefit.”
Dean Athanasia
President of Consumer and Small Business
BANK OF AMERICA 2018 | 25
Driving economic mobility
and social progress
To help individuals and families achieve a more secure financial life, we
have invested $2 billion of philanthropic capital over the past 10 years to
advance economic mobility through the funding of workforce development
and education, community development and basic needs. For example, in
early 2019, the Women of Ireland Fund established the first endowment
in Ireland to support charities and social enterprises seeking to enhance
women’s economic mobility. The €1 million, three-year fund will be matched
by the Irish government to create a €2 million fund for women’s workforce
development programs.
Additionally, we are creating thriving communities through resources,
capital deployment, and the power of our employee volunteers. This
includes our free Better Money Habits financial education platform, now
fully available in Spanish and English. Recent analysis indicated 1 in 4 users
of Better Money Habits content and tools grew their savings by 20 percent
or more.
Arts matter
We believe in the power of the arts to help
economies thrive, educate and enrich societies,
and create greater cultural understanding.
That is why we are a leader in helping the arts
flourish across the globe, supporting more than
2,000 nonprofit cultural institutions each year.
With unique programs such as Museums
on Us®, Art in our Communities®, and the
Bank of America Art Conservation Project,
we are creating access for our customers
and employees, helping art museums create
revenue-generating opportunities, and
conserving cultural treasures from around
the world.
>2,000
nonprofit cultural institutions
supported annually
Investing in young people
In 2019, as part of our broader commitment to
preparing young adults for workforce success,
we expanded our long-standing partnership with
City Year to help students succeed in school and
prepare young leaders for fulfilling careers in the
United States, United Kingdom and South Africa.
The collaboration represents the first time a cor-
porate sponsor is investing in teams in all three
countries where City Year operates.
Celebrating 15 years of Neighborhood Builders
and creating stronger communities
In response to nonprofits’ need to
access capital for strategic growth,
we’ve developed Capital Connections,
which leverages our robust partnerships
with CDFIs to connect Neighborhood
Builders to low-interest loans. Recently,
Habitat for Humanity® of Durham in
Durham, N.C., a 2017 Neighborhood
Builder awardee, secured $1.5 million in
capital to expand its housing program.
The organization typically builds, sells
and finances 25 homes and repairs 50
homes annually, mostly in low-income
areas of the city.
To mark the 15th year of our
Neighborhood Builders® program in
2018, which supports nonprofits and
nonprofit leaders who address economic
mobility, we expanded the number of
annual program awards from 66 to 98.
The awards offer selected nonprofits
$200,000 in flexible funding, in-person
leadership development, a network of
peer organizations, and the opportunity
to access capital. A complementary
program, Neighborhood Champions, will
be introduced in 42 new cities in 2019
to support nonprofit leadership across
the U.S. Each nonprofit awardee will
receive $50,000 in flexible funding and
virtual leadership development for the
organization.
26 | BANK OF AMERICA 2018
>$220M
Through Neighborhood Builders,
we’ve invested more than
$220 million in 1,000+ local
nonprofits and provided leader-
ship development to 2,000+
nonprofit executives since 2004.
Investing in
women
Women play a vital role in driving the economic growth that fuels the global economy. Through our partnerships, women
entrepreneurs have the power to succeed through mentoring, training and access to capital; we have helped more than
10,000 women from 80 countries grow their businesses.
Global Ambassadors
Program
Through our Global Ambassadors
Program, a partnership with Vital
Voices, more than 160 women
leaders of small businesses and
social enterprises from 66 coun-
tries have been connected to
mentoring and workshops to build
organizational management, finan-
cial acumen and leadership skills.
Cherie Blair
Foundation
We partner with the Cherie Blair
Foundation on its Mentoring
Women in Business program, which
has matched more than 2,000
women in developing and emerg-
ing countries to online mentors,
including more than 500 mentors
from Bank of America.
Tory Burch Foundation
Capital Program
Our $50 million investment in the
Tory Burch Foundation Capital
Program, which connects women
business owners to affordable
loans, has delivered capital through
CDFIs to more than 1,800 women
in 16 states.
Kiva
Through our partnership with
Kiva, we are providing more than
$1 million in funds to women busi-
ness owners, and have assisted
more than 7,200 women entrepre-
neurs in more than 30 countries.
The Bank of America
Institute for Women’s
Entrepreneurship
at Cornell
The Bank of America Institute
for Women’s Entrepreneurship
at Cornell offers the only online
certificate program that helps
women entrepreneurs develop the
skills and knowledge they need to
build, manage and grow successful
businesses. The institute will train
5,000 women entrepreneurs over
the next four years.
BANK OF AMERICA 2018 | 27
Sharing our success — ESG highlights
Environmental, social and governance (ESG) principles help define how Bank of America delivers
responsible, sustainable growth, how we contribute to the global economy, and how we share success
with the clients and communities we serve.
Capital deployment
ESG client balances
In 2018, we mobilized, conservatively,
more than $50 billion that impacted
a key subset of the SDGs.
Environmental business
commitment
Deployed $21.5 billion in capital to
support low-carbon, sustainable business
activities through lending, investing,
capital raising, and developing financial
solutions for clients around the world
as part of our environmental business
commitment to deploy $125 billion by
2025. Since 2013, we have delivered
nearly $105 billion toward this goal.
Green bonds and
social bonds
Issued our fourth and largest green
bond for $2.25 billion and issued a
$500 million social bond — the first
social bond issued by a U.S. bank.
“Our green bond and social bond
programs demonstrate that
the bank is truly committed
to the communities we serve,
while also giving us access
to investors that would not
typically be funding sources for
a bank. Fundamentally, these are
a means for society to advocate
for a sustainable composition
of the asset side of the balance
sheet.”
Andrei Magasiner
Treasurer
$17.9 billion in assets with a clearly
defined ESG investment approach.
CDFI lending
We originated $200 million in loans
as part of our more than $1.5 billion
investment in 255 CDFIs.
Announced a $20 million Veteran
Entrepreneur Lending Program to
connect veteran business owners with
affordable capital through participating
CDFIs to help grow their businesses.
Community
Development Banking
Through Community Development
Banking, we deployed more than
$4.7 billion in loans, tax credit equity
investments and other real estate
development solutions in 2018.
Small business lending
One of the top small business lenders
with $34.7 billion total outstanding
small business loan balances as of Q3
2018, according to the FDIC.
Bank of America
Art Conservation
Project
Through the Bank of America Art
Conservation Project, we provided grants
to fund 21 conservation projects
in nine countries to conserve paintings,
sculptures, and archaeological pieces that
are important to cultural heritage.
Better Money
Habits
In 2018, visitors to Better Money Habits
home loans content were 13 times
more likely to obtain a home loan
within 30 days.
In 2018, visitors to Better Money Habits
college content were five times more
likely to open a savings account within
30 days.
BetterMoneyHabits.com Spanish
content has resulted in higher average
time on site, up 37%, and visitors are
more likely to return to the site by
4 percentage points.
Philanthropic giving
Invested more than $200 million in
philanthropic capital from the Bank of
America Charitable Foundation as part of
our $2 billion, 10-year giving goal.
Employee giving
and volunteering
Last year, employees volunteered
2 million hours, and donated or pledged
$23 million to causes they care about.
The impact of employee giving and
matching gifts from the bank totaled
$53 million in support of the communi-
ties we serve.
28 | BANK OF AMERICA 2018
Being a great place to work — 2018 highlights
A critical component of how we drive responsible growth is making Bank of America a great place to work.
We deliver on our commitment to be a great place to work by recognizing and rewarding performance,
ensuring an inclusive workplace for our employees around the world, creating opportunities for our
employees to develop and grow, and supporting employees’ physical, emotional and financial wellness.
Being an inclusive workplace
for all of our employees around
the world
Creating opportunities
for employees to grow
and develop
Recognizing and
rewarding performance
• More than 50% of our global
workforce are women and more than
45% of our U.S.-based workforce
are people of color.
• Our 11 Employee Networks, with more
than 250 chapters made up of over
120,000 memberships worldwide,
connect employees with shared interests
and those who support them.
• 60,000+ employees have par-
ticipated in courageous conversations,
group and one-on-one discussions which
encourage employees to discuss topics
that are important to them, like race and
gender dynamics, social justice, LGBT+
equality and mental health.
• In 2018, more than 27,000 new
teammates joined our company, includ-
ing more than 3,500 future leaders who
were recent college graduates.
• We have invested in leading platforms,
including The Learning Hub,
myLearning and myCareer, to help
employees develop their skills and grow
their careers at Bank of America.
• 86% of eligible managers
participated in some form of manager
development training in 2018.
• Our tuition reimbursement program
provides employees up to $5,250 per
year for courses related to current or
future roles at our company.
• Bank of America supports employees’
commitment to improving their commu-
nities, and allows individuals up to two
paid hours per week for volunteering
with nonprofi t organizations.
• We have been an industry leader in
establishing an internal minimum rate
of pay for our U.S. hourly employees and
have made regular increases over many
years. Two years ago, we raised
our minimum wage to $15 per
hour and our minimum wage is
higher today. Our average rate for
all U.S. hourly employees is signifi cantly
above this level.
• In 2017 and 2018, 90% and 95% of
our employees, respectively, shared in
our success by receiving special compen-
sation awards. We’re a leader in providing
this type of award for two consecutive
years.
• We had 4 million+ recognition
moments (eCards given and received) in
2018. That’s more than eight recognition
moments every minute.
Supporting employees’
physical, emotional and
financial wellness
• There has been no increase in
medical premiums for employees earning
less than $50,000 since 2012. For higher-
paid employees, the average contribution
increase since 2012 has been below the
national health care trend.
• On average, 85% of employees
and their partners have completed
annual health screenings over the past
fi ve years; in 2018, nearly 200,000
employees, spouses/partners
completed their annual health screenings.
• In 2018, we doubled the number
of free, in-person confi dential
counseling sessions available
through our Employee Assistance Pro-
gram for our U.S. employees and eligible
family members.
• Since 2014, 85,000+ employees
have been supported by our Life Event
Services team, an internal, highly special-
ized group providing resources, benefi ts,
counseling and other personalized
support to employees who faced major
life events.
• We provide 401(k) matching contribu-
tions of up to 5% of eligible pay a er
one year of service, plus 2% or 3% in
annual company contributions.
BANK OF AMERICA 2018 | 29
We ask our
teammates, too
A message from Sheri Bronstein
Chief Human Resources Officer
Listening to our teammates answer the question “What
would you like the power to do?” has helped us shape
all we do to be a great place to work. To serve our
customers and communities well, we have built a
great team. And we are investing in our teammates
so they can deliver for our clients and customers and
impact the communities where we live and work.
30 | BANK OF AMERICA 2018
Our focus includes recognizing and
rewarding performance, ensuring a
diverse and inclusive workplace for our
employees around the world, creating
opportunities for our employees to
develop and grow, and supporting
employees’ physical, emotional and
financial wellness.
Rewarding our
teammates’ performance
We offer fair, competitive compensa-
tion based on market rates by role and
performance. We regularly benchmark
compensation against other companies,
both within and outside our industry,
to ensure our pay is competitive with
comparable roles in the market.
We’re committed to supporting a competi-
tive minimum rate of pay. We have been an
industry leader in establishing an internal
minimum rate of pay for our U.S. hourly
employees and have made regular increases
over many years. Two years ago, we raised
our minimum wage to $15 per hour, and our
minimum wage is higher today. Our average
rate for all U.S. hourly employees is signifi-
cantly above this level.
For the last two
years, we’ve shared
our success with our
employees through
special compensation
awards for approxi-
mately 90 percent
and 95 percent,
respectively, of our
teammates globally.
We’re proud to be a leader among compa-
nies providing awards of this type to our
employees for two consecutive years, from
cash bonuses to stock, totaling more than
$1 billion. These awards were in addition
to the compensation these teammates
otherwise received. These awards recognize
the contributions of our employees to
drive responsible growth, and reflect the
continuing benefits of U.S. tax reform to
our company.
Bringing our whole selves to work
We are proud to be a team that mirrors
the diversity of our customers, clients and
communities: More than 50 percent of our
global workforce are women, and more than
45 percent of our U.S.-based workforce are
people of color. Our commitment comes
from the top: Our CEO chairs the company’s
Global Diversity and Inclusion Council,
which is composed of leaders representing
every line of business and geography, and is
responsible for setting and upholding diver-
sity and inclusion goals and practices. And
at every level, we drive a culture of inclusion
through a range of programs to connect
employees, executives, and thought leaders
across our company, including our 11 Employee Networks with over 120,000
memberships worldwide. We also encourage our teammates to have coura-
geous conversations, which foster inclusion, understanding, and positive action
by creating awareness of employees’ experiences and perspectives related to
differences in background, experience or viewpoints.
Providing opportunities for development and growth
We provide resources, programs and tools to help employees develop and grow
at the company. Our tuition reimbursement program provides employees up to
$5,250 per year for courses related to current or future roles at our company.
We also offer online learning courses, professional growth, and development
of our managers through programs like Manager Excellence and access to the
myCareer website to view open positions. In 2018, we helped support more
than 17,000 employees find new roles within the company, and we had
historically low employee turnover.
Supporting wellness
We support the physical, emotional and financial wellness of our teammates
by providing quality health care with annual premium increases below the
national U.S. average. We offer health care coverage for all U.S. benefits-
eligible employees that costs them no more than 7 percent of their wages.
We also provide industry-leading benefits such as 16 weeks of paid parental
leave — maternity, paternity, and adoption; 20 days of paid bereavement leave
for full-time employees who lose a spouse, partner or child; and confidential
counseling through our Employee Assistance Program. And for the moments
when employees and their families need support the most, our internal,
highly specialized Life Event Services (LES) group provides personalized
support to them. More than 85,000 team members have worked with the
highly trained and empathetic LES team members for needs around survivor
support, domestic violence, natural and man-made disasters, transition
related to military service, and other major life events. The team provides
resources, benefits, counseling and other support, tapping experts inside and
outside the company. Overall, employee satisfaction with our benefits is at an
all-time high. You can read more about our benefits, resources and programs
on the previous page.
We are proud that others have recognized us for our focus on our teammates.
For instance, Euromoney recognized us as the World’s Best Bank for Diversity
and Inclusion, and we were awarded the 2019 Catalyst Award for our innova-
tive organizational efforts to advance women in the workplace. We were also
named as one of the 100 Best Companies to Work For by Fortune magazine
and the global research and consulting firm, Great Place to Work® for our focus
on being a great place to work and delivering value for our customers and
clients, and named as the only financial services company on Fortune’s
inaugural Best Big Companies to Work For list, which recognized seven
companies with more than 100,000 U.S.-based employees that passed the
Great Place to Work Certification bar. You can read more about the external
recognition we have received in our proxy statement.
We had one of our best years ever in 2018: strong recognition for customer
service in every category, the highest levels of customer satisfaction, and
record financial results that allowed us to keep investing in how we serve our
clients and customers. We attracted more than 27,000 new teammates to our
company, including more than 3,500 future leaders who were recent college
graduates. Our teammates’ consistent commitment to our purpose allows us
to deliver for our customers, communities and shareholders. Our commitment
to our teammates is demonstrated by our continued investment in making
Bank of America a great place to work.
BANK OF AMERICA 2018 | 31
Bank of America Corporation — Financial Highlights
Bank of America Corporation (NYSE: BAC) is headquartered in Charlotte, North Carolina. As of December 31, 2018, 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
Effi ciency 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 share 1
Market price per common share
Common shares issued and outstanding
Tangible common equity ratio 1
$
2018
91,247
28,147
2.64
2.61
0.54
1.21%
15.55
58.50
10,237
$
2018
946,895
2,354,507
1,381,476
265,325
25.13
17.91
24.64
9,669
7.6%
$
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
7.9%
$
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
8.0%
1Represents 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 39 and Non-GAAP Reconciliations on page 40 of the 2018 Financial Review section.
Total Cumulative Shareholder Return2
BAC Five-Year Stock Performance
$250
$200
$150
$100
$50
$0
2013
2014
2015
2016
2017
2018
December 31
2013 2014 2015 2016 2017 2018
Bank of America Corporation
S&P 500
KBW Bank Sector Index
$100 $116 $110 $147 $199 $169
150
100
138
100
114
109
157
167
129
141
115
110
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, 2013 through 2018. The graph assumes an initial investment of
$100 at the end of 2013 and the reinvestment of all dividends during the years indicated.
32 | BANK OF AMERICA 2018
$35
$30
$25
$20
$15
$10
$5
$0
2014
2015
2016
2017
HIGH $18.13
$18.45
$23.16
$29.88
LOW
14.51
CLOSE 17.89
15.15
16.83
11.16
22.10
22.05
29.52
2018
$32.84
22.73
24.64
Book Value Per Share/
Tangible Book Value Per Share
.
2
3
1
2
$
3
4
.
4
1
$
8
4
.
2
2
$
6
5
.
5
1
$
.
7
9
3
2
$
.
9
8
6
1
$
0
8
.
3
2
$
.
6
9
6
1
$
3
1
.
5
2
$
.
1
9
7
1
$
2014
2015
2016
2017
2018
Book Value Per Share
Tangible Book Value Per Share 3
3Tangible book value per share is a non-GAAP fi nancial measure.
Table 10 Average Balances and Interest Rates - FTE Basis
(Dollars in millions)
Earning assets
Interest-bearing deposits with the Federal Reserve, non-U.S.
Average
Balance
Interest
Income/
Expense
2018
Yield/
Rate
Average
Balance
Interest
Income/
Expense
2017
Yield/
Rate
Average
Balance
Interest
Income/
Expense
2016
Yield/
Rate
central banks and other banks
$
139,848
$
1,926
1.38% $
127,431
$
1,122
0.88% $
133,374
$
Time deposits placed and other short-term investments
9,446
216
Federal funds sold and securities borrowed or purchased under
12,112
241
1.99
9,026
agreements to resell (1)
Trading account assets
Debt securities
Loans and leases (2):
Residential mortgage
Home equity
U.S. credit card
Non-U.S. credit card (3)
Direct/Indirect and other consumer (4)
Total consumer
U.S. commercial
Non-U.S. commercial
Commercial real estate (5)
Commercial lease financing
Total commercial
Total loans and leases (3)
Other earning assets (1)
Total earning assets (1,6)
Cash and due from banks
251,328
132,724
437,312
207,523
53,886
94,612
—
93,036
449,057
304,387
97,664
60,384
21,557
3,176
4,901
11,837
7,294
2,573
9,579
—
3,104
22,550
11,937
3,220
2,618
698
483,992
18,473
2.29
1.26
3.69
2.66
3.51
4.77
10.12
—
3.34
5.02
3.92
3.30
4.34
3.24
3.82
222,818
129,007
435,005
197,766
62,260
91,068
3,929
96,002
451,025
292,452
95,005
58,502
21,747
1,806
4,618
10,626
6,831
2,608
8,791
358
2,734
21,322
9,765
2,566
2,116
706
467,706
15,153
0.81
3.58
2.44
3.45
4.19
9.65
9.12
2.85
4.73
3.34
2.70
3.62
3.25
3.24
2018 Financial Review
1,922,061
1,980,231
918,731
933,049
58,112
36,475
76,957
67,379
76,524
41,023
3,224
4,300
5.62
3.40
4.40
3.97
4.19
3.02
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 (1)
Trading account liabilities
Long-term debt
Total interest-bearing liabilities (1,6)
Noninterest-bearing sources:
Noninterest-bearing deposits
Other liabilities (1)
Shareholders’ equity
Total liabilities and shareholders’ equity
Net interest spread
Impact of noninterest-bearing sources
25,830
319,185
$ 2,325,246
$
54,226
$
676,382
39,823
50,593
821,024
2,312
810
65,097
68,219
6
2,636
157
991
3,790
39
—
666
705
889,243
4,495
269,748
50,928
230,693
1,440,612
5,839
1,358
7,645
19,337
425,698
194,188
264,748
$ 2,325,246
27,995
318,577
$ 2,268,633
0.01% $
0.39
0.39
1.96
0.46
1.69
0.01
1.02
1.03
0.51
2.17
2.67
3.31
1.34
53,783
$
628,647
44,794
36,782
764,006
2,442
1,006
62,386
65,834
5
873
121
354
1,353
21
10
547
578
829,840
1,931
274,975
45,518
225,133
1,375,466
3,146
1,204
6,239
12,520
439,956
181,922
271,289
$ 2,268,633
0.14
0.27
0.96
0.18
0.85
0.95
0.88
0.88
0.23
1.14
2.64
2.77
0.91
605
140
967
4,563
9,263
6,488
2,713
8,170
926
2,371
20,668
8,101
2,337
1,773
627
12,838
33,506
2,496
51,540
5
294
133
160
592
32
9
382
423
216,161
129,766
418,289
188,250
71,760
87,905
9,527
94,148
451,590
276,887
93,263
57,547
21,146
448,843
900,433
59,775
1,866,824
27,893
295,501
$ 2,190,218
589,737
48,594
32,889
720,715
3,891
1,437
59,183
64,511
785,226
1,015
1,933
1,018
5,578
9,544
252,585
37,897
228,617
1,304,325
437,335
182,715
265,843
$ 2,190,218
0.01% $
49,495
$
0.45%
1.55
0.45
3.52
2.23
3.45
3.78
9.29
9.72
2.52
4.58
2.93
2.51
3.08
2.97
2.86
3.72
4.18
2.76
0.01%
0.05
0.27
0.49
0.08
0.82
0.64
0.65
0.66
0.13
0.77
2.69
2.44
0.73
2.03%
0.22
2.25%
2.06%
0.36
2.42%
2.11%
0.26
2.37%
$ 45,592
$ 41,996
Net interest income/yield on earning assets (7)
$ 48,042
(1) Certain prior-period amounts have been reclassified to conform to current period presentation.
(2) Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis.
(3)
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 $2.8 billion, $2.9 billion and $3.4 billion in 2018, 2017 and 2016, respectively.
Includes U.S. commercial real estate loans of $56.4 billion, $55.0 billion and $54.2 billion, and non-U.S. commercial real estate loans of $4.0 billion, $3.5 billion and $3.4 billion in 2018, 2017
and 2016, respectively.
Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets by $171 million, $44 million and $176 million in 2018,
2017 and 2016, respectively. Interest expense includes the impact of interest rate risk management contracts, which decreased interest expense on the underlying liabilities by $130 million, $1.4
billion and $2.1 billion in 2018, 2017 and 2016, respectively. For more information, see Interest Rate Risk Management for the Banking Book on page 89.
(4)
(5)
(6)
(7) Net interest income includes FTE adjustments of $610 million, $925 million and $900 million in 2018, 2017 and 2016, respectively.
Bank of America 2018 33
Financial Review
Table of Contents
Executive Summary
Recent Developments
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 and Operational Risk Management
Reputational Risk Management
Complex Accounting Estimates
2017 Compared to 2016
Statistical Tables
Page
35
36
36
38
39
45
46
48
50
52
53
54
55
58
58
62
66
66
74
80
82
82
85
86
89
91
91
92
92
94
96
34 Bank of America 2018
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(the “Corporation”) and
its
Bank of America Corporation
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 2018 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 and the possibility
that amounts may be in excess of the Corporation’s recorded liability
and estimated range of possible loss for litigation and regulatory
exposures; the possibility that the Corporation could face increased
servicing, securities, fraud, indemnity, contribution or other claims
from one or more counterparties, including trustees, purchasers of
loans, underwriters, issuers, other parties involved in securitizations,
monolines or private-label and other investors; the possibility that
future representations and warranties losses may occur in excess
of the Corporation’s recorded liability and estimated range of
possible loss for its representations and warranties exposures; 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; the risks related to the discontinuation of the London
InterBank Offered Rate and other reference rates, including
increased expenses and litigation and the effectiveness of hedging
strategies; 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, inflation, currency
exchange rates, economic conditions, trade policies, including
tariffs, 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 and expectations regarding net interest income,
net charge-offs, loan growth or other projections; adverse changes
to the Corporation’s credit ratings from the major credit rating
agencies; an inability to access capital markets or maintain deposits;
estimates of the fair value and other accounting values, subject to
impairment assessments, of certain of the Corporation’s assets and
liabilities; uncertainty regarding the content, timing and impact of
regulatory capital and liquidity requirements; the impact of adverse
changes to total loss-absorbing capacity requirements and/or global
systemically important bank surcharges; the success of our
reorganization of Merrill Lynch, Pierce, Fenner & Smith Incorporated;
the potential impact of actions of the Board of Governors of the
Federal Reserve System on the Corporation’s capital plans; the
effect of regulations, other guidance or additional information on
the impact from the Tax Cuts and Jobs 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 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; the impact of a prolonged federal government
shutdown and uncertainty regarding the federal government’s debt
limit; 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, 2018, the Corporation had approximately
$2.4 trillion in assets and a headcount of approximately 204,000
employees.
As of December 31, 2018, we served clients through
operations across the U.S., its territories and more than 35
countries. Our retail banking footprint covers approximately 85
percent of the U.S. population, and we serve approximately 66
million consumer and small business clients with approximately
4,300 retail financial centers, approximately 16,300 ATMs, and
Bank of America 2018 35
leading digital banking platforms (www.bankofamerica.com) with
more than 36 million active users, including over 26 million active
mobile users. We offer industry-leading support to approximately
three million small business owners. Our wealth management
businesses, with client balances of approximately $2.6 trillion,
provide tailored solutions to meet client needs through a full set
of investment management, brokerage, banking, trust and
retirement products. We are a global leader in corporate and
investment banking and trading across a broad range of asset
classes serving corporations, governments, institutions and
individuals around the world.
Recent Developments
Capital Management
During 2018, we repurchased $20.1 billion of common stock
pursuant to the Board of Directors’ (the Board) repurchase
authorizations under our 2018 and 2017 Comprehensive Capital
Analysis and Review (CCAR) plans, including repurchases to offset
equity-based compensation awards. Also, in addition to the
previously announced repurchases associated with the 2018
CCAR capital plan, on February 7, 2019, we announced a plan to
repurchase an additional $2.5 billion of common stock through
June 30, 2019, which was approved by the Board of Governors of
the Federal Reserve System (Federal Reserve). For additional
information, see Capital Management on page 58.
U.K. Exit from the EU
We conduct business in Europe, the Middle East and Africa
primarily through our subsidiaries in the U.K. and Ireland. A
referendum held in the U.K. in 2016 resulted in a majority vote in
favor of exiting the European Union (EU). In March 2017, the U.K.
notified the EU of its intent to withdraw from the EU, which is
scheduled to occur on March 29, 2019. Negotiations between the
U.K. and the EU regarding the terms, conditions and timing of the
withdrawal are ongoing and the outcome remains uncertain. In
preparation for the withdrawal, we have implemented changes to
our operating model in the region, including establishing our
principal EU banking and broker-dealer operations outside the U.K.
The changes are expected to enable us to continue to service our
clients with minimal disruption, retain operational flexibility,
minimize transition risks and maximize legal entity efficiencies,
independent of the outcome and timing of the withdrawal.
LIBOR and Other Benchmark Rates
The U.K. Financial Conduct Authority (FCA), which regulates the
London InterBank Offered Rate (LIBOR), announced in July 2017
that it will no longer persuade or require banks to submit rates for
LIBOR after 2021. This announcement along with financial
benchmark reforms more generally and changes in the interbank
lending markets have resulted in uncertainty about the future of
LIBOR and certain other rates or indices used as interest rate
“benchmarks.” These actions and uncertainties may trigger future
changes in the rules or methodologies used to calculate
benchmarks or lead to the discontinuation or unavailability of
benchmarks.
The Corporation has established an enterprise-wide initiative
to identify, assess and monitor risks associated with the potential
discontinuation or unavailability of benchmarks, including LIBOR,
and the transition to alternative reference rates. As part of this
initiative, the Corporation is actively engaged with global
regulators, industry working groups and trade associations to
develop strategies for transitions from current benchmarks to
alternative reference rates. We are updating our operational
processes and models to support new alternative reference rate
36 Bank of America 2018
activity. In addition, we continue to analyze and evaluate legacy
contracts across all products to determine the impact of a
discontinuation of LIBOR or other benchmarks and to address
consequential changes to those legacy contracts. Certain actions
required to mitigate risks associated with the unavailability of
benchmarks and implementation of new methodologies and
contractual mechanics are dependent on a consensus being
reached by the industry or the markets in various jurisdictions
around the world. As a result, there is uncertainty as to the
solutions that will be developed to address the unavailability of
LIBOR or other benchmarks, as well as the overall impact to our
businesses, operations and results. Additionally, any transition
from current benchmarks may alter the Corporation’s risk profiles
and models, valuation tools, product design and effectiveness of
hedging strategies, as well as increase the costs and risks related
to potential regulatory requirements.
Financial Highlights
Table 1 Summary Income Statement and Selected
Financial Data
(Dollars in millions, except per share information)
2018
2017
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
Preferred stock dividends
Net income applicable to common
Per common share information
Earnings
Diluted earnings
Dividends paid
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
$
$
$
47,432
43,815
91,247
3,282
53,381
34,584
6,437
28,147
1,451
26,696
2.64
2.61
0.54
$
$
$
44,667
42,685
87,352
3,396
54,743
29,213
10,981
18,232
1,614
16,618
1.63
1.56
0.39
1.21%
0.80%
11.04
15.55
58.50
6.72
9.41
62.67
$ 946,895
2,354,507
1,381,476
242,999
265,325
$ 936,749
2,281,234
1,309,545
244,823
267,146
(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 40.
Net income was $28.1 billion, or $2.61 per diluted share in 2018
compared to $18.2 billion, or $1.56 per diluted share in 2017.
The improvement in net income was driven by a decrease in income
tax expense due to the impacts of the Tax Cuts and Jobs Act (the
Tax Act), an increase in net interest income, higher noninterest
income, lower provision for credit losses and a decline in
noninterest expense. Impacts from the Tax Act include a reduction
in the federal corporate income tax rate to 21 percent from 35
percent. In addition, results for 2017 included a 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.
Net Interest Income
Net interest income increased $2.8 billion to $47.4 billion in 2018
compared to 2017. Net interest yield on a fully taxable-equivalent
(FTE) basis increased five basis points (bps) to 2.42 percent for
2018. These increases were primarily driven by higher interest
rates as well as loan and deposit growth, partially offset by
tightening spreads, higher Global Markets funding costs and the
impact of the sale of the non-U.S. consumer credit card business
in 2017. For more information on net interest yield and the FTE
basis, see Supplemental Financial Data on page 39, and for more
information on interest rate risk management, see Interest Rate
Risk Management for the Banking Book on page 89.
Provision for Credit Losses
The provision for credit losses decreased $114 million to $3.3
billion in 2018 compared to 2017, primarily reflecting a 2017
single-name non-U.S. commercial charge-off and improvement in
the commercial portfolio. In the consumer portfolio, the impact of
the sale of the non-U.S. consumer credit card business in 2017
was more than offset by a slower pace of improvement in the
consumer real estate portfolio, and portfolio seasoning and loan
growth in the U.S. credit card portfolio. For more information on
the provision for credit losses, see Provision for Credit Losses on
page 82.
Noninterest Expense
Table 3 Noninterest Expense
Noninterest Income
Table 2 Noninterest Income
(Dollars in millions)
Card income
Service charges
Investment and brokerage services
Investment banking income
Trading account profits
Other income
Total noninterest income
2018
2017
$
$
6,051
7,767
14,160
5,327
8,540
1,970
43,815
$
$
5,902
7,818
13,836
6,011
7,277
1,841
42,685
(Dollars in millions)
Personnel
Occupancy
Equipment
Marketing
Professional fees
Data processing
Telecommunications
Other general operating
Total noninterest expense
2018
2017
$
$
31,880
4,066
1,705
1,674
1,699
3,222
699
8,436
53,381
$
$
31,931
4,009
1,692
1,746
1,888
3,139
699
9,639
54,743
Noninterest income increased $1.1 billion to $43.8 billion in 2018
compared to 2017. The following highlights the significant
changes.
Card income increased $149 million primarily driven by an
increase in credit and debit card spending, as well as increased
late fees and annual fees, partially offset by higher rewards
costs, lower cash advance fees, and the impact of the sale of
the non-U.S. consumer credit card business in 2017.
Investment and brokerage services income increased $324
million primarily due to 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 decreased $684 million primarily
due to declines in advisory fees and debt underwriting, the
latter of which was driven by lower fee pools.
Trading account profits increased $1.3 billion primarily due to
increased client activity in equity financing and derivatives,
higher market interest rates and strong trading performance
in equity derivatives, partially offset by weakness in credit
products.
Other income increased $129 million primarily due to gains on
sales of consumer real estate loans, primarily non-core, of
$731 million, offset by a $729 million charge related to the
redemption of certain trust preferred securities in 2018. Other
income for 2017 included a downward valuation adjustment
of $946 million on tax-advantaged energy investments in
connection with the Tax Act and a $793 million pretax gain
recognized in connection with the sale of the non-U.S.
consumer credit card business.
Noninterest expense decreased $1.4 billion to $53.4 billion in
2018 compared to 2017. The decrease was primarily due to lower
other general operating expense, primarily driven by a decline in
litigation and Federal Deposit Insurance Corporation (FDIC)
expense as well as a $316 million impairment charge in 2017
related to certain data centers.
Income Tax Expense
Table 4 Income Tax Expense
(Dollars in millions)
Income before income taxes
Income tax expense
Effective tax rate
2018
$ 34,584
6,437
2017
$ 29,213
10,981
18.6%
37.6%
Tax expense for 2018 reflected the new 21 percent federal income
tax rate and the other provisions of the Tax Act, as well as our
recurring tax preference benefits.
Tax expense for 2017 included a charge of $1.9 billion
reflecting the initial impact of the Tax Act, including a tax charge
of $2.3 billion related primarily to a lower valuation of certain
deferred tax assets and liabilities and a $347 million tax benefit
on the pretax 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 from the sale of the
non-U.S. consumer credit card business, largely offset by benefits
related to stock-based compensation and the restructuring of
certain subsidiaries.
We expect the effective tax rate for 2019 to be approximately
19 percent, absent unusual items.
Bank of America 2018 37
Balance Sheet Overview
Table 5 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
2018
2017
% Change
$
$
$
$
177,404
261,131
214,348
441,753
946,895
(9,601)
322,577
2,354,507
$
157,434
212,747
209,358
440,130
936,749
(10,393)
335,209
$ 2,281,234
1,381,476
186,988
68,220
20,189
229,340
202,969
2,089,182
265,325
2,354,507
$ 1,309,545
176,865
81,187
32,666
227,402
186,423
2,014,088
267,146
$ 2,281,234
13%
23
2
—
1
(8)
(4)
3
5
6
(16)
(38)
1
9
4
(1)
3
Assets
At December 31, 2018, total assets were approximately $2.4
trillion, up $73.3 billion from December 31, 2017. The increase
in assets was primarily due to higher securities borrowed or
purchased under agreements to resell due to investment of excess
cash levels in higher yielding assets and increased client activity,
and higher cash and cash equivalents driven by deposit growth.
and liquidity risk and to take advantage of market conditions that
create economically attractive returns on these investments. Debt
securities increased $1.6 billion primarily driven by the deployment
of deposit inflows. In 2018, the Corporation transferred available-
for-sale (AFS) debt securities with an amortized cost of $64.5
billion to held to maturity. For more information on debt securities,
see Note 4 – Securities to the Consolidated Financial Statements.
Cash and Cash Equivalents
Cash and cash equivalents increased $20.0 billion primarily driven
by deposit growth, partially offset by investment of short-term
excess cash into securities purchased under agreements to resell,
and loan growth.
Loans and Leases
Loans and leases increased $10.1 billion primarily due to net loan
growth driven by client demand for commercial loans and increases
in residential mortgage. For more information on the loan portfolio,
see Credit Risk Management on page 66.
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 $48.4 billion due to investment of
excess cash levels in higher yielding assets and 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 $5.0 billion primarily driven by
additional inventory in fixed-income, currencies and commodities
(FICC) to meet expected client demand.
Debt Securities
Debt securities primarily include U.S. Treasury and agency
securities, mortgage-backed securities (MBS), principally agency
MBS, non-U.S. bonds, corporate bonds and municipal debt. We
use the debt securities portfolio primarily to manage interest rate
Allowance for Loan and Lease Losses
The allowance for loan and lease losses decreased $792 million
primarily due to the impact of improvements in credit quality from
a stronger economy and continued runoff and sales in the non-
core consumer real estate portfolio. For additional information,
see Allowance for Credit Losses on page 82.
Liabilities
At December 31, 2018, total liabilities were approximately $2.1
trillion, up $75.1 billion from December 31, 2017, primarily due
to deposit growth.
Deposits
Deposits increased $71.9 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 $10.1 billion primarily due to an increase in matched
book funding within Global Markets.
38 Bank of America 2018
Trading Account Liabilities
Trading account liabilities consist primarily of short positions in
equity and fixed-income securities including U.S. Treasury and
agency securities, corporate securities and non-U.S. sovereign
debt. Trading account liabilities decreased $13.0 billion primarily
due to lower levels of short positions in government and corporate
bonds driven by expected client demand within Global Markets.
Short-term Borrowings
Short-term borrowings provide an additional funding source and
primarily consist of Federal Home Loan Bank (FHLB) short-term
borrowings, notes payable and various other borrowings that
generally have maturities of one year or less. Short-term
borrowings decreased $12.5 billion primarily due to a decrease
in short-term FHLB advances. For more information on short-term
borrowings, see Note 10 – Federal Funds Sold or Purchased,
Securities Financing Agreements, Short-term Borrowings and
Restricted Cash to the Consolidated Financial Statements.
Long-term Debt
Long-term debt increased $1.9 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 decreased $1.8 billion driven by returns of
capital to shareholders of $27.0 billion through common and
preferred stock dividends and share repurchases and a $4.0 billion
after-tax decrease in the fair value of AFS debt securities recorded
in accumulated other comprehensive income (OCI), largely offset
by earnings.
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 62.
Supplemental Financial Data
In this Form 10-K, we present certain non-GAAP financial
measures. Non-GAAP financial measures exclude certain items or
otherwise include components that differ from the most directly
comparable measures calculated in accordance with GAAP. Non-
GAAP financial measures are provided as additional useful
information to assess our financial condition, results of operations
(including period-to-period operating performance) or compliance
with prospective regulatory requirements. These non-GAAP
financial measures are not intended as a substitute for GAAP
financial measures and may not be defined or calculated the same
way as non-GAAP financial measures used by other companies.
We view net interest income and related ratios and analyses
on an 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 used the
federal statutory tax rate of 21 percent for 2018 (35 percent for
all prior periods) and a representative state tax rate. Net interest
yield, which measures the basis points we earn over the cost of
funds, utilizes net interest income (and thus total revenue) on an
FTE basis. 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)
gains (losses)) which result in non-GAAP financial measures. We
believe that the presentation of measures that exclude these items
is useful because such measures 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 mortgage
servicing rights (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 8 and 9.
Bank of America 2018 39
Non-GAAP Reconciliations
Tables 6 and 7 provide reconciliations of certain non-GAAP financial measures to GAAP financial measures.
Table 6 Five-year Reconciliations to GAAP Financial Measures (1)
(Dollars in millions, shares in thousands)
Reconciliation of average shareholders’ equity to average tangible shareholders’ equity and
average tangible common shareholders’ equity
Shareholders’ equity
Goodwill
Intangible assets (excluding MSRs)
Related deferred tax liabilities
Tangible shareholders’ equity
Preferred stock
Tangible common shareholders’ equity
Reconciliation of year-end shareholders’ equity to year-end tangible shareholders’ equity and
year-end tangible common shareholders’ equity
Shareholders’ equity
Goodwill
Intangible assets (excluding MSRs)
Related deferred tax liabilities
Tangible shareholders’ equity
Preferred stock
Tangible common shareholders’ equity
Reconciliation of year-end assets to year-end tangible assets
Assets
Goodwill
Intangible assets (excluding MSRs)
Related deferred tax liabilities
Tangible assets
2018
2017
2016
2015
2014
$
$
$
$
$
$
264,748
(68,951)
(2,058)
906
194,645
(22,949)
171,696
$ 271,289
(69,286)
(2,652)
1,463
$ 200,814
(24,188)
$ 176,626
$ 265,843
(69,750)
(3,382)
1,644
$ 194,355
(24,656)
$ 169,699
$ 251,384
(69,772)
(4,201)
1,852
$ 179,263
(21,808)
$ 157,455
$ 238,317
(69,809)
(5,109)
2,090
$ 165,489
(15,410)
$ 150,079
265,325
(68,951)
(1,774)
858
195,458
(22,326)
173,132
$ 267,146
(68,951)
(2,312)
943
$ 196,826
(22,323)
$ 174,503
$ 266,195
(69,744)
(2,989)
1,545
$ 195,007
(25,220)
$ 169,787
$ 255,615
(69,761)
(3,768)
1,716
$ 183,802
(22,272)
$ 161,530
$ 243,476
(69,777)
(4,612)
1,960
$ 171,047
(19,309)
$ 151,738
$ 2,354,507
(68,951)
(1,774)
858
$ 2,284,640
$ 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
(1) Presents reconciliations of non-GAAP financial measures to GAAP financial measures. 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 39.
Table 7 Quarterly Reconciliations to GAAP Financial Measures (1)
(Dollars in millions)
Fourth
Third
Second
First
Fourth
Third
Second
First
2018 Quarters
2017 Quarters
Reconciliation of average shareholders’ equity to average tangible
shareholders’ equity and average tangible common shareholders’
equity
Shareholders’ equity
Goodwill
Intangible assets (excluding MSRs)
Related deferred tax liabilities
Tangible shareholders’ equity
Preferred stock
$ 263,698
$ 264,653
$ 265,181
$ 265,480
$ 273,162
$ 273,238
$ 270,977
$ 267,700
(68,951)
(1,857)
874
(68,951)
(68,951)
(68,951)
(68,954)
(68,969)
(69,489)
(69,744)
(1,992)
896
(2,126)
(2,261)
916
939
(2,399)
1,344
(2,549)
1,465
(2,743)
1,506
(2,923)
1,539
$ 193,764
$ 194,606
$ 195,020
$ 195,207
$ 203,153
$ 203,185
$ 200,251
$ 196,572
(22,326)
(22,841)
(23,868)
(22,767)
(22,324)
(24,024)
(25,221)
(25,220)
Tangible common shareholders’ equity
$ 171,438
$ 171,765
$ 171,152
$ 172,440
$ 180,829
$ 179,161
$ 175,030
$ 171,352
Reconciliation of period-end shareholders’ equity to period-end
tangible shareholders’ equity and period-end tangible common
shareholders’ equity
Shareholders’ equity
Goodwill
Intangible assets (excluding MSRs)
Related deferred tax liabilities
Tangible shareholders’ equity
Preferred stock
$ 265,325
$ 262,158
$ 264,216
$ 266,224
$ 267,146
$ 271,969
$ 270,660
$ 267,990
(68,951)
(1,774)
858
(68,951)
(68,951)
(68,951)
(68,951)
(68,968)
(68,969)
(69,744)
(1,908)
878
(2,043)
(2,177)
(2,312)
900
920
943
(2,459)
1,435
(2,610)
1,471
(2,827)
1,513
$ 195,458
$ 192,177
$ 194,122
$ 196,016
$ 196,826
$ 201,977
$ 200,552
$ 196,932
(22,326)
(22,326)
(23,181)
(24,672)
(22,323)
(22,323)
(25,220)
(25,220)
Tangible common shareholders’ equity
$ 173,132
$ 169,851
$ 170,941
$ 171,344
$ 174,503
$ 179,654
$ 175,332
$ 171,712
Reconciliation of period-end assets to period-end tangible assets
Assets
Goodwill
Intangible assets (excluding MSRs)
Related deferred tax liabilities
Tangible assets
$ 2,354,507
$ 2,338,833
$ 2,291,670
$ 2,328,478
$ 2,281,234
$ 2,284,174
$ 2,254,714
$ 2,247,794
(68,951)
(1,774)
858
(68,951)
(68,951)
(68,951)
(68,951)
(68,968)
(68,969)
(69,744)
(1,908)
878
(2,043)
(2,177)
(2,312)
900
920
943
(2,459)
1,435
(2,610)
1,471
(2,827)
1,513
$ 2,284,640
$ 2,268,852
$ 2,221,576
$ 2,258,270
$ 2,210,914
$ 2,214,182
$ 2,184,606
$ 2,176,736
(1) Presents reconciliations of non-GAAP financial measures to GAAP financial measures. 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 39.
40 Bank of America 2018
Table 8 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 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)
Allowance for loan and lease losses as a percentage of total nonperforming loans
and leases (4)
Net charge-offs (5)
Net charge-offs as a percentage of average loans and leases outstanding (4, 5)
Capital ratios at year end (6)
Common equity tier 1 capital
Tier 1 capital
Total capital
Tier 1 leverage
Supplementary leverage ratio
Tangible equity (1)
Tangible common equity (1)
$
$
$
$
$
2018
2017
2016
2015
2014
47,432
43,815
91,247
3,282
53,381
34,584
6,437
28,147
26,696
10,096.5
10,236.9
$
44,667
42,685
87,352
3,396
54,743
29,213
10,981
18,232
16,618
10,195.6
10,778.4
$
41,096
42,605
83,701
3,597
55,083
25,021
7,199
17,822
16,140
10,284.1
11,046.8
$
38,958
44,007
82,965
3,161
57,617
22,187
6,277
15,910
14,427
10,462.3
11,236.2
$
40,779
45,115
85,894
2,275
75,656
7,963
2,443
5,520
4,476
10,527.8
10,584.5
1.21%
11.04
15.55
10.63
14.46
11.27
11.39
20.31
0.80%
6.72
9.41
6.72
9.08
11.71
11.96
24.24
0.81%
6.69
9.51
6.70
9.17
12.17
12.14
15.94
0.74%
6.28
9.16
6.33
8.88
11.92
11.64
14.49
0.26%
2.01
2.98
2.32
3.34
11.57
11.11
28.20
2.64
2.61
0.54
25.13
17.91
238,251
933,049
2,325,246
1,314,941
230,693
241,799
264,748
$
$
$
1.63
1.56
0.39
23.80
16.96
303,681
918,731
2,268,633
1,269,796
225,133
247,101
271,289
$
$
$
1.57
1.49
0.25
23.97
16.89
222,163
900,433
2,190,218
1,222,561
228,617
241,187
265,843
$
$
$
1.38
1.31
0.20
22.48
15.56
174,700
876,787
2,160,536
1,155,860
240,059
229,576
251,384
$
$
$
0.43
0.42
0.12
21.32
14.43
188,141
898,703
2,145,393
1,124,207
253,607
222,907
238,317
10,398
5,244
$
11,170
6,758
$
11,999
8,084
$
12,880
9,836
$
14,947
12,629
1.02%
1.12%
1.26%
1.37%
1.66%
194
161
149
130
$
3,763
$
3,979
$
3,821
$
4,338
$
0.44%
0.43%
0.50%
121
4,383
0.49%
0.41%
11.6%
13.2
15.1
8.4
6.8
8.6
7.6
11.5%
13.0
14.8
8.6
n/a
8.9
7.9
10.8%
12.4
14.2
8.8
n/a
9.2
8.0
9.8%
9.6%
11.2
12.8
8.4
n/a
8.9
7.8
11.0
12.7
7.8
n/a
8.4
7.5
(1) Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios and corresponding reconciliations to GAAP financial
measures, see Supplemental Financial Data on page 39.
(2) Asset quality metrics include $75 million of non-U.S. consumer credit card net charge-offs in 2017 and $243 million of non-U.S. consumer credit card allowance for loan and lease losses, $9.2
billion of non-U.S. consumer credit card loans and $175 million of non-U.S. consumer credit card net charge-offs in 2016. The Corporation sold its non-U.S. consumer credit card business in 2017.
Includes the allowance for loan and leases losses and the reserve for unfunded lending commitments.
(3)
(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 73 and corresponding Table 31 and Commercial Portfolio Credit Risk Management –
Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 78 and corresponding Table 38.
(5) Net charge-offs exclude $273 million, $207 million, $340 million, $808 million and $810 million of write-offs in the purchased credit-impaired (PCI) loan portfolio for 2018, 2017, 2016, 2015 and
2014, respectively.
(6) Basel 3 transition provisions for regulatory capital adjustments and deductions were fully phased-in as of January 1, 2018. Prior periods are presented on a fully phased-in basis. For additional
information, including which approach is used to assess capital adequacy, see Capital Management on page 58.
n/a = not applicable
Bank of America 2018 41
Table 9 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 capitalization
Average balance sheet
Total loans and leases
Total assets
Total deposits
Long-term debt
Common shareholders’ equity
Total shareholders’ equity
Asset quality (4)
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)
Allowance for loan and lease losses as a percentage of total
nonperforming loans and leases (6)
Net charge-offs (7)
Annualized net charge-offs as a percentage of average loans and
leases outstanding (6, 7)
Capital ratios at period end (8)
Common equity tier 1 capital
Tier 1 capital
Total capital
Tier 1 leverage
Supplementary leverage ratio
Tangible equity (3)
Tangible common equity (3)
2018 Quarters
2017 Quarters
Fourth
Third
Second
First
Fourth
Third
Second
First
$ 12,304
10,432
22,736
905
13,133
8,698
1,420
7,278
7,039
9,855.8
9,996.0
$ 11,870
10,907
22,777
716
13,067
8,994
1,827
7,167
6,701
10,031.6
10,170.8
$ 11,650
10,959
22,609
827
13,284
8,498
1,714
6,784
6,466
10,181.7
10,309.4
$ 11,608
11,517
23,125
834
13,897
8,394
1,476
6,918
6,490
10,322.4
10,472.7
$ 11,462
8,974
20,436
1,001
13,274
6,161
3,796
2,365
2,079
10,470.7
10,621.8
$ 11,161
10,678
21,839
834
13,394
7,611
2,187
5,424
4,959
10,197.9
10,746.7
$ 10,986
11,843
22,829
726
13,982
8,121
3,015
5,106
4,745
10,013.5
10,834.8
$ 11,058
11,190
22,248
835
14,093
7,320
1,983
5,337
4,835
10,099.6
10,919.7
1.24%
1.21
11.57
16.29
10.95
14.90
11.27
11.30
20.90
0.71
0.70
0.15
25.13
17.91
$
1.23%
1.00
10.99
15.48
10.74
14.61
11.21
11.42
22.35
0.67
0.66
0.15
24.33
17.23
$
1.17%
0.93
10.75
15.15
10.26
13.95
11.53
11.42
18.83
0.64
0.63
0.12
24.07
17.07
$
1.21%
0.86
10.85
15.26
10.57
14.37
11.43
11.41
19.06
0.63
0.62
0.12
23.74
16.84
$
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
$
$ 238,251
$ 290,424
$ 282,259
$ 305,176
$ 303,681
$ 264,992
$ 239,643
$ 235,291
$ 934,721
2,334,586
1,344,951
230,616
241,372
263,698
$ 930,736
2,317,829
1,316,345
233,475
241,812
264,653
$ 934,818
2,322,678
1,300,659
229,037
241,313
265,181
$ 931,915
2,325,878
1,297,268
229,603
242,713
265,480
$ 927,790
2,301,687
1,293,572
227,644
250,838
273,162
$ 918,129
2,271,104
1,271,711
227,309
249,214
273,238
$ 914,717
2,269,293
1,256,838
224,019
245,756
270,977
$ 914,144
2,231,649
1,256,632
221,468
242,480
267,700
$ 10,398
5,244
$ 10,526
5,449
$ 10,837
6,181
$ 11,042
6,694
$ 11,170
6,758
$ 11,455
6,869
$ 11,632
7,127
$ 11,869
7,637
1.02%
1.05%
1.08%
1.11%
1.12%
1.16%
1.20%
1.25%
194
924
$
189
932
$
170
996
$
161
911
$
161
$
1,237
$
163
900
$
160
908
$
156
934
0.39%
0.40%
0.43%
0.40%
0.53%
0.39%
0.40%
0.42%
11.6%
13.2
15.1
8.4
6.8
8.6
7.6
11.4%
12.9
14.7
8.3
6.7
8.5
7.5
11.4%
13.0
14.8
8.4
6.7
8.7
7.7
11.3%
13.0
14.8
8.4
6.8
8.7
7.6
11.5%
13.0
14.8
8.6
n/a
8.9
7.9
11.9%
13.4
15.1
8.9
n/a
9.1
8.1
11.5%
13.2
15.0
8.8
n/a
9.2
8.0
11.0%
12.6
14.3
8.8
n/a
9.1
7.9
(1) Net income for the fourth quarter of 2017 included a charge of $2.9 billion related to the Tax Act effects which consisted of $946 million in noninterest income and $1.9 billion in income tax expense.
(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 and corresponding reconciliations to GAAP financial
measures, see Supplemental Financial Data on page 39.
(4) Asset quality metrics include $31 million of non-U.S. consumer credit card net charge-offs for the second quarter of 2017 and $242 million of non-U.S. consumer credit card allowance for loan and
lease losses, $9.5 billion of non-U.S. consumer credit card loans and $44 million of non-U.S. consumer credit card net charge-offs for the first quarter of 2017. The Corporation sold its non-U.S.
consumer credit card business in the second quarter of 2017.
Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments.
(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 73 and corresponding Table 31 and Commercial Portfolio Credit Risk Management –
Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 78 and corresponding Table 38.
(7) Net charge-offs exclude $107 million, $95 million, $36 million and $35 million of write-offs in the PCI loan portfolio in the fourth, third, second and first quarters of 2018, and $46 million, $73 million,
$55 million and $33 million in the fourth, third, second and first quarters of 2017, respectively.
(8) Basel 3 transition provisions for regulatory capital adjustments and deductions were fully phased-in as of January 1, 2018. Prior periods are presented on a fully phased-in basis. For additional
information, including which approach is used to assess capital adequacy, see Capital Management on page 58.
n/a = not applicable
42 Bank of America 2018
Table 10 Average Balances and Interest Rates - FTE Basis
(Dollars in millions)
Earning assets
Interest-bearing deposits with the Federal Reserve, non-U.S.
Average
Balance
Interest
Income/
Expense
2018
Yield/
Rate
Average
Balance
Interest
Income/
Expense
2017
Yield/
Rate
Average
Balance
Interest
Income/
Expense
2016
Yield/
Rate
central banks and other banks
$
139,848
$
1,926
1.38% $
127,431
$
1,122
0.88% $
133,374
$
12,112
241
1.99
9,026
Time deposits placed and other short-term investments
9,446
216
Federal funds sold and securities borrowed or purchased under
agreements to resell (1)
Trading account assets
Debt securities
Loans and leases (2):
Residential mortgage
Home equity
U.S. credit card
Non-U.S. credit card (3)
Direct/Indirect and other consumer (4)
Total consumer
U.S. commercial
Non-U.S. commercial
Commercial real estate (5)
Commercial lease financing
Total commercial
Total loans and leases (3)
Other earning assets (1)
Total earning assets (1,6)
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 (1)
Trading account liabilities
Long-term debt
Total interest-bearing liabilities (1,6)
Noninterest-bearing sources:
Noninterest-bearing deposits
Other liabilities (1)
Shareholders’ equity
Total liabilities and shareholders’ equity
Net interest spread
Impact of noninterest-bearing sources
251,328
132,724
437,312
207,523
53,886
94,612
—
93,036
449,057
304,387
97,664
60,384
21,557
483,992
933,049
76,524
1,980,231
25,830
319,185
$ 2,325,246
$
54,226
$
676,382
39,823
50,593
821,024
2,312
810
65,097
68,219
3,176
4,901
11,837
7,294
2,573
9,579
—
3,104
22,550
11,937
3,220
2,618
698
18,473
41,023
4,300
67,379
6
2,636
157
991
3,790
39
—
666
705
889,243
4,495
269,748
50,928
230,693
1,440,612
5,839
1,358
7,645
19,337
425,698
194,188
264,748
$ 2,325,246
Net interest income/yield on earning assets (7)
$ 48,042
2.29
1.26
3.69
2.66
3.51
4.77
10.12
—
3.34
5.02
3.92
3.30
4.34
3.24
3.82
4.40
5.62
3.40
1,806
4,618
10,626
6,831
2,608
8,791
358
2,734
21,322
9,765
2,566
2,116
706
15,153
36,475
3,224
58,112
222,818
129,007
435,005
197,766
62,260
91,068
3,929
96,002
451,025
292,452
95,005
58,502
21,747
467,706
918,731
76,957
1,922,061
27,995
318,577
$ 2,268,633
0.01% $
0.39
0.39
1.96
0.46
1.69
0.01
1.02
1.03
0.51
2.17
2.67
3.31
1.34
53,783
$
628,647
44,794
36,782
764,006
2,442
1,006
62,386
65,834
5
873
121
354
1,353
21
10
547
578
829,840
1,931
274,975
45,518
225,133
1,375,466
3,146
1,204
6,239
12,520
439,956
181,922
271,289
$ 2,268,633
605
140
967
4,563
9,263
6,488
2,713
8,170
926
2,371
20,668
8,101
2,337
1,773
627
12,838
33,506
2,496
51,540
5
294
133
160
592
32
9
382
423
0.81
3.58
2.44
3.45
4.19
9.65
9.12
2.85
4.73
3.34
2.70
3.62
3.25
3.24
3.97
4.19
3.02
216,161
129,766
418,289
188,250
71,760
87,905
9,527
94,148
451,590
276,887
93,263
57,547
21,146
448,843
900,433
59,775
1,866,824
27,893
295,501
$ 2,190,218
0.01% $
49,495
$
589,737
48,594
32,889
720,715
3,891
1,437
59,183
64,511
0.14
0.27
0.96
0.18
0.85
0.95
0.88
0.88
0.23
1.14
2.64
2.77
0.91
785,226
1,015
1,933
1,018
5,578
9,544
252,585
37,897
228,617
1,304,325
437,335
182,715
265,843
$ 2,190,218
0.45%
1.55
0.45
3.52
2.23
3.45
3.78
9.29
9.72
2.52
4.58
2.93
2.51
3.08
2.97
2.86
3.72
4.18
2.76
0.01%
0.05
0.27
0.49
0.08
0.82
0.64
0.65
0.66
0.13
0.77
2.69
2.44
0.73
2.03%
0.22
2.25%
2.06%
0.36
2.42%
2.11%
0.26
2.37%
$ 45,592
$ 41,996
(1) Certain prior-period amounts have been reclassified to conform to current period presentation.
(2) Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis.
(3)
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 $2.8 billion, $2.9 billion and $3.4 billion in 2018, 2017 and 2016, respectively.
Includes U.S. commercial real estate loans of $56.4 billion, $55.0 billion and $54.2 billion, and non-U.S. commercial real estate loans of $4.0 billion, $3.5 billion and $3.4 billion in 2018, 2017
and 2016, respectively.
Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets by $171 million, $44 million and $176 million in 2018,
2017 and 2016, respectively. Interest expense includes the impact of interest rate risk management contracts, which decreased interest expense on the underlying liabilities by $130 million, $1.4
billion and $2.1 billion in 2018, 2017 and 2016, respectively. For more information, see Interest Rate Risk Management for the Banking Book on page 89.
(4)
(5)
(6)
(7) Net interest income includes FTE adjustments of $610 million, $925 million and $900 million in 2018, 2017 and 2016, respectively.
Bank of America 2018 43
Table 11 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 2017 to 2018
Net Change
Due to Change in (1)
Rate
Volume
From 2016 to 2017
Net Change
banks
$
109
$
695
$
804
$
(32) $
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 (2)
Direct/Indirect and other consumer
Total consumer
U.S. commercial
Non-U.S. commercial
Commercial real estate
Commercial lease financing
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 (3)
(53)
230
134
44
329
(350)
339
(358)
(82)
402
71
70
(5)
28
1,140
149
1,167
134
315
449
—
452
1,770
583
432
(3)
(18)
1,094
$
$
$
— $
74
(13)
132
1
1,689
49
505
(1)
(2)
26
(71)
140
151
19
(8)
93
2,764
14
1,255
$
(25)
1,370
283
1,211
463
(35)
788
(358)
370
1,228
2,172
654
502
(8)
3,320
4,548
1,076
9,267
1
1,763
36
637
2,437
18
(10)
119
127
2,564
2,693
154
1,406
6,817
2,450
48
36
(22)
438
335
(360)
290
(544)
48
468
48
29
19
721
$
— $
20
(12)
20
(12)
(3)
24
184
206
(85)
$
549
53
803
77
925
8
255
331
(24)
315
1,196
181
314
60
7
$
— $
559
—
174
1
4
141
517
101
839
55
1,363
343
(105)
621
(568)
363
654
1,664
229
343
79
2,315
2,969
728
6,572
—
579
(12)
194
761
(11)
1
165
155
916
1,029
(20)
746
$
1,213
186
661
2,976
3,596
(1) The changes for each category of interest income and expense are divided between the portion of change attributable to the variance in volume and the portion of change attributable to the variance
in rate for that category. The unallocated change in rate or volume variance is allocated between the rate and volume variances.
(2) The Corporation sold its non-U.S. credit card business in the second quarter of 2017.
(3)
Includes changes in FTE basis adjustments of a $315 million decrease from 2017 to 2018 and a $25 million increase from 2016 to 2017.
44 Bank of America 2018
Business Segment Operations
Business Segment Operations
Business Segment Operations
Segment Description and Basis of Presentation
Segment Description and Basis of Presentation
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
We report our results of operations through the following four business segments: Consumer Banking, GWIM, Global Banking and Global
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. We manage our segments and report their results on an FTE basis. For
Markets, with the remaining operations recorded in All Other. We manage our segments and report their results on an FTE basis. For
Markets, with the remaining operations recorded in All Other. We manage our segments and report their results on an FTE basis. For
more information on our presentation of financial information on an FTE basis, see Supplemental Financial Data on page 39. The
more information on our presentation of financial information on an FTE basis, see Supplemental Financial Data on page 39. The
more information on our presentation of financial information on an FTE basis, see Supplemental Financial Data on page 39. The
primary activities, products and businesses of the business segments and All Other are shown below.
primary activities, products and businesses of the business segments and All Other are shown below.
primary activities, products and businesses of the business segments and All Other are shown below.
Bank of America Corporation
Bank of America Corporation
Bank of America Corporation
Consumer
Consumer
Consumer
Banking
Banking
Banking
Global Wealth &
Global Wealth &
Global Wealth &
Investment
Investment
Investment
Management
Management
Management
Deposits
Deposits
Deposits
• Consumer
• Consumer
• Consumer
Deposits
Deposits
Deposits
• Merrill Edge
• Merrill Edge
• Merrill Edge
• Small Business
• Small Business
• Small Business
Client
Client
Client
Management
Management
Management
• Merrill Lynch Global
• Merrill Lynch Global
• Merrill Lynch Global
Wealth
Wealth
Wealth
Management
Management
Management
• U.S. Trust, Bank of
• U.S. Trust, Bank of
• U.S. Trust, Bank of
America Private
America Private
America Private
Wealth
Wealth
Wealth
Management
Management
Management
Consumer Lending
Consumer Lending
Consumer Lending
• Consumer and
• Consumer and
• Consumer and
Small Business
Small Business
Small Business
Credit Card
Credit Card
Credit Card
• Debit Card
• Debit Card
• Debit Card
• Core Consumer
• Core Consumer
• Core Consumer
Real Estate Loans
Real Estate Loans
Real Estate Loans
• Consumer Vehicle
• Consumer Vehicle
• Consumer Vehicle
Lending
Lending
Lending
Global Banking
Global Banking
Global Banking
Global Markets
Global Markets
Global Markets
All Other
All Other
All Other
• Fixed Income,
• Fixed Income,
• Fixed Income,
Currencies and
Currencies and
Currencies and
Commodities
Commodities
Commodities
Markets
Markets
Markets
• Equity Markets
• Equity Markets
• Equity Markets
• Investment
• Investment
• Investment
Banking
Banking
Banking
• Global Corporate
• Global Corporate
• Global Corporate
Banking
Banking
Banking
• Global
• Global
• Global
Commercial
Commercial
Commercial
Banking
Banking
Banking
• Business Banking
• Business Banking
• Business Banking
• ALM Activities
• ALM Activities
• ALM Activities
• Non-Core Mortgage
• Non-Core Mortgage
• Non-Core Mortgage
Loans
Loans
Loans
• MSR Valuations
• MSR Valuations
• MSR Valuations
• Liquidating
• Liquidating
• Liquidating
Businesses
Businesses
Businesses
• Equity Investments
• Equity Investments
• Equity Investments
• Corporate Activities
• Corporate Activities
• Corporate Activities
and Residual
and Residual
and Residual
Expense Allocations
Expense Allocations
Expense Allocations
• Accounting
• Accounting
• Accounting
Reclassifications
Reclassifications
Reclassifications
and Eliminations
and Eliminations
and Eliminations
• Initial Impact of
• Initial Impact of
• Initial Impact of
Tax Act
Tax Act
Tax Act
We periodically review capital allocated to our businesses and
We periodically review capital allocated to our businesses and
We periodically review capital allocated to our businesses and
allocate capital annually during the strategic and capital planning
allocate capital annually during the strategic and capital planning
allocate capital annually during the strategic and capital planning
processes. We utilize a methodology that considers the effect of
processes. We utilize a methodology that considers the effect of
processes. We utilize a methodology that considers the effect of
regulatory capital requirements in addition to internal risk-based
regulatory capital requirements in addition to internal risk-based
regulatory capital requirements in addition to internal risk-based
capital models. Our internal risk-based capital models use a risk-
capital models. Our internal risk-based capital models use a risk-
capital models. Our internal risk-based capital models use a risk-
adjusted methodology incorporating each segment’s credit,
adjusted methodology incorporating each segment’s credit,
adjusted methodology incorporating each segment’s credit,
market, interest rate, business and operational risk components.
market, interest rate, business and operational risk components.
market, interest rate, business and operational risk components.
For more information on the nature of these risks, see Managing
For more information on the nature of these risks, see Managing
For more information on the nature of these risks, see Managing
Risk on page 55. The capital allocated to the business segments
Risk on page 55. The capital allocated to the business segments
Risk on page 55. The capital allocated to the business segments
is referred to as allocated capital. Allocated equity in the reporting
is referred to as allocated capital. Allocated equity in the reporting
is referred to as allocated capital. Allocated equity in the reporting
units is comprised of allocated capital plus capital for the portion
units is comprised of allocated capital plus capital for the portion
units is comprised of allocated capital plus capital for the portion
of goodwill and intangibles specifically assigned to the reporting
of goodwill and intangibles specifically assigned to the reporting
of goodwill and intangibles specifically assigned to the reporting
unit. For more information, including the definition of reporting unit,
unit. For more information, including the definition of reporting unit,
unit. For more information, including the definition of reporting unit,
see Note 8 – Goodwill and Intangible Assets to the Consolidated
see Note 8 – Goodwill and Intangible Assets to the Consolidated
see Note 8 – Goodwill and Intangible Assets to the Consolidated
Financial Statements.
Financial Statements.
Financial Statements.
For more information on the basis of presentation for business
For more information on the basis of presentation for business
For more information on the basis of presentation for business
segments and reconciliations to consolidated total revenue, net
segments and reconciliations to consolidated total revenue, net
segments and reconciliations to consolidated total revenue, net
income and year-end total assets, see Note 23 – Business Segment
income and year-end total assets, see Note 23 – Business Segment
income and year-end total assets, see Note 23 – Business Segment
Information to the Consolidated Financial Statements.
Information to the Consolidated Financial Statements.
Information to the Consolidated Financial Statements.
Bank of America 2018 45
Bank of America 2018 45
Bank of America 2018 45
Consumer Banking
(Dollars in millions)
Net interest income
Noninterest income:
Card income
Service charges
All other income
Total noninterest income
Total revenue, net of interest expense
Provision for credit losses
Noninterest expense
Income before income taxes
Income tax expense
Net income
Effective tax rate (1)
Net interest yield
Return on average allocated capital
Efficiency ratio
Balance Sheet
Average
Total loans and leases
Total earning assets (2)
Total assets (2)
Total deposits
Allocated capital
Year end
Total loans and leases
Total earning assets (2)
Total assets (2)
Total deposits
(1) Estimated at the segment level only.
(2)
Deposits
2018
16,024
2017
13,353
$
$
Consumer Lending
2018
2017
Total Consumer Banking
2017
2018
% Change
$
11,099
$
10,954
$
27,123
$
24,307
12%
8
4,298
430
4,736
20,760
195
10,522
10,043
2,561
7,482
2.35%
62
50.68
5,233
682,600
710,925
678,640
12,000
5,470
694,676
724,015
691,666
8
4,265
391
4,664
18,017
201
10,388
7,428
2,813
4,615
2.05%
38
57.66
5,084
651,963
679,306
646,930
12,000
5,143
675,485
703,330
670,802
$
$
$
$
$
$
$
$
$
5,281
2
381
5,664
16,763
3,469
7,191
6,103
1,556
4,547
3.97%
18
42.90
278,574
279,217
290,068
5,533
25,000
288,865
289,249
299,970
4,480
$
$
$
5,062
1
487
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
275,330
275,742
287,390
5,728
$
$
$
5,289
4,300
811
10,400
37,523
3,664
17,713
16,146
4,117
12,029
$
5,070
4,266
878
10,214
34,521
3,525
17,795
13,201
4,999
8,202
25.5%
37.9%
3.78
33
47.20
3.54
22
51.55
$
$
283,807
717,197
756,373
684,173
37,000
294,335
728,817
768,877
696,146
266,058
686,612
725,406
653,320
37,000
280,473
709,832
749,325
676,530
4
1
(8)
2
9
4
—
22
(18)
47
7%
4
4
5
—
5%
3
3
3
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. Deposits and Consumer Lending include the net
impact of migrating customers and their related deposit,
brokerage asset and loan balances between Deposits, Consumer
Lending and GWIM, as well as other client-managed 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 4,300 financial
centers, approximately 16,300 ATMs, nationwide call centers, and
leading digital banking platforms with more than 36 million active
users, including over 26 million active mobile users.
Consumer Banking Results
Net income for Consumer Banking increased $3.8 billion to $12.0
billion in 2018 compared to 2017 primarily driven by higher pretax
income and lower income tax expense from the reduction in the
federal income tax rate. The increase in pretax income was driven
by higher revenue and lower noninterest expense, partially offset
by higher provision for credit losses. Net interest income
increased $2.8 billion to $27.1 billion primarily due to the
beneficial impact of an increase in investable assets as a result
of an increase in deposits, as well as higher interest rates, pricing
discipline and loan growth. Noninterest income increased $186
million to $10.4 billion driven by higher card income, partially
offset by lower mortgage banking income, which is included in all
other income.
46 Bank of America 2018
The provision for credit losses increased $139 million to $3.7
billion driven by portfolio seasoning and loan growth in the U.S.
credit card portfolio. Noninterest expense decreased $82 million
to $17.7 billion driven by operating efficiencies and lower litigation
and FDIC expense. These decreases were partially offset by
investments in digital capabilities and business growth, including
primary sales professionals, combined with investments in new
financial centers and renovations.
The return on average allocated capital was 33 percent, up
from 22 percent, driven by higher net income. For more information
on capital allocated to the business segments, see Business
Segment Operations on page 45.
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, and 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 capabilities including access to the Corporation’s network
of financial centers and ATMs.
Net income for Deposits increased $2.9 billion to $7.5 billion
in 2018 driven by higher revenue and lower income tax expense,
partially offset by higher noninterest expense. Net interest income
increased $2.7 billion to $16.0 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 $72 million to $4.7 billion primarily driven by higher
service charges.
The provision for credit losses decreased $6 million to $195
million in 2018. Noninterest expense increased $134 million to
$10.5 billion primarily driven by investments in digital capabilities
and business growth, including primary sales professionals,
combined with investments in new financial centers and
renovations. These increases were partially offset by lower
litigation and FDIC expense.
Average deposits increased $31.7 billion to $678.6 billion in
2018 driven by strong organic growth. Growth in checking, money
market savings and traditional savings of $36.3 billion was
partially offset by a decline in time deposits of $4.6 billion.
Key Statistics – Deposits
Total deposit spreads (excludes noninterest costs) (1)
2.14%
1.84%
2018
2017
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.
Net income for Consumer Lending increased $960 million to
$4.5 billion in 2018 driven by lower income tax expense, higher
revenue and lower noninterest expense, partially offset by higher
provision for credit losses. Net interest income increased $145
million to $11.1 billion primarily driven by higher interest rates
and the impact of an increase in loan balances. Noninterest
income increased $114 million to $5.7 billion driven by higher
card income, partially offset by lower mortgage banking income.
The provision for credit losses increased $145 million to $3.5
billion driven by portfolio seasoning and loan growth in the U.S.
credit card portfolio. Noninterest expense decreased $216 million
to $7.2 billion primarily driven by operating efficiencies.
Average loans increased $17.6 billion to $278.6 billion in
2018 driven by increases in residential mortgages and U.S. credit
card loans, partially offset by lower home equity 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
Debit card purchase volumes
(1)
2018
2017
10.12%
8.34
4,544
$ 264,706
$ 318,562
9.65%
8.67
4,939
$244,753
$298,641
In addition to the U.S. credit card portfolio in Consumer Banking, the remaining U.S. credit
card portfolio is in GWIM.
Year end
Client brokerage assets (in millions)
Active digital banking users (units in thousands) (2)
Active mobile banking users (units in thousands)
Financial centers
ATMs
(1)
Includes deposits held in Consumer Lending.
$ 185,881
36,264
26,433
4,341
16,255
$177,045
34,855
24,238
4,477
16,039
(2) Digital users represents mobile and/or online users across consumer businesses.
During 2018, the total U.S. credit card risk-adjusted margin
decreased 33 bps compared to 2017, primarily driven by
increased net charge-offs and higher credit card rewards costs.
Total U.S. credit card purchase volumes increased $20.0 billion
to $264.7 billion, and debit card purchase volumes increased
$19.9 billion to $318.6 billion, reflecting higher levels of
consumer spending.
Client brokerage assets increased $8.8 billion in 2018 driven
by strong client flows, partially offset by market performance.
Active mobile banking users increased 2.2 million reflecting
continuing changes in our customers’ banking preferences. The
number of financial centers declined by a net 136 reflecting
changes in customer preferences to self-service options as we
continue to optimize our consumer banking network and improve
our cost to serve.
Consumer Lending
Consumer Lending offers products to consumers and small
businesses across the U.S. The products offered include credit
and debit cards, residential mortgages and home equity loans,
and direct and indirect loans such as automotive, recreational
vehicle and consumer personal loans. In addition to earning net
interest spread revenue on its lending activities, Consumer
Lending generates interchange revenue from credit and debit card
transactions, late fees, cash advance fees, annual credit card
fees, mortgage banking fee income and other miscellaneous fees.
Consumer Lending products are available to our customers
through our retail network, direct telephone, and online and mobile
channels. Consumer Lending results also include the impact of
Key Statistics – Loan Production (1)
(Dollars in millions)
Total (2):
First mortgage
Home equity
2018
2017
$
41,195
14,869
$ 50,581
16,924
Consumer Banking:
First mortgage
Home equity
$ 34,065
15,199
(1) The loan production amounts represent the unpaid principal balance of loans and, in the case
27,280
13,251
$
(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 $6.8 billion and $9.4 billion in
2018 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 decreased $1.9 billion and $2.1 billion in 2018
primarily driven by lower demand.
Bank of America 2018 47
Global Wealth & Investment Management
(Dollars in millions)
Net interest income
Noninterest income:
Investment and brokerage services
All other income
Total noninterest income
Total revenue, net of interest expense
Provision for credit losses
Noninterest expense
Income before income taxes
Income tax expense
Net income
Effective tax rate
Net interest yield
Return on average allocated capital
Efficiency ratio
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
2018
2017
% Change
$
6,294
$
6,173
2%
11,959
1,085
13,044
19,338
86
13,777
5,475
1,396
4,079
$
11,394
1,023
12,417
18,590
56
13,556
4,978
1,885
3,093
25.5%
37.9%
2.42
28
71.24
2.32
22
72.92
$
$
161,342
259,807
277,219
241,256
14,500
164,854
287,197
305,906
268,700
152,682
265,670
281,517
245,559
14,000
159,378
267,026
284,321
246,994
$
$
$
5
6
5
4
54
2
10
(26)
32
6%
(2)
(2)
(2)
4
3%
8
8
9
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 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 $986 million to $4.1 billion
in 2018 compared to 2017 due to higher revenue and lower
income tax expense from the reduction in the federal income tax
rate, partially offset by an increase in noninterest expense and
provision for credit losses. The operating margin was 28 percent
compared to 27 percent a year ago.
Net interest income increased $121 million to $6.3 billion due
to higher deposit spreads and average loan balances, partially
offset by lower loan spreads and average deposit balances.
Noninterest income, which primarily includes investment and
brokerage services income, increased $627 million to $13.0
billion. The increase 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 $221 million to $13.8 billion
primarily due to higher revenue-related incentive expense and
investments for business growth, partially offset by continued
expense discipline.
The return on average allocated capital was 28 percent, up
from 22 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 45.
Revenue from MLGWM of $15.9 billion and revenue from U.S.
Trust of $3.4 billion both increased four percent due to higher
asset management fees driven by higher net flows and market
valuations, and an increase in net interest income. The increase
in MLGWM revenue was partially offset by lower AUM pricing and
transactional revenue.
48 Bank of America 2018
Key Indicators and Metrics
(Dollars in millions, except as noted)
Revenue by Business
Merrill Lynch Global Wealth Management
U.S. Trust
Other
Total revenue, net of interest expense
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 and other assets
Deposits
Loans and leases (1)
Total client balances
Assets Under Management Rollforward
Assets under management, beginning of year
Net client flows
Market valuation/other
Total assets under management, end of year
Associates, at year end (2)
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
Financial advisor productivity (3) (in thousands)
U.S. Trust Metric, at year end
Primary sales professionals
(1)
Includes margin receivables which are classified in customer and other receivables on the Consolidated Balance Sheet.
$
$
$
$
$
$
$
$
2018
2017
15,895
3,432
11
19,338
2,193,562
427,294
2,620,856
1,021,221
1,162,997
268,700
167,938
2,620,856
1,080,747
36,406
(95,932)
1,021,221
$
$
$
$
$
$
$
$
15,288
3,295
7
18,590
2,305,664
446,199
2,751,863
1,080,747
1,261,990
246,994
162,132
2,751,863
886,148
95,707
98,892
1,080,747
17,518
19,459
20,556
17,355
19,238
20,318
$
1,034
$
1,005
1,747
1,714
(2) Includes financial advisors in the Consumer Banking segment of 2,722 and 2,402 at December 31, 2018 and 2017.
(3) 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).
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. The net client AUM flows represent
the net change in clients’ AUM balances over a specified period
of time, excluding market appreciation/depreciation and other
adjustments.
Client balances decreased $131.0 billion, or five percent, in
2018 to $2.6 trillion, primarily due to lower market valuations on
AUM and brokerage balances, as measured at December 31,
2018, partially offset by positive flows.
Bank of America 2018 49
Global Banking
(Dollars in millions)
Net interest income
Noninterest income:
Service charges
Investment banking fees
All other income
Total noninterest income
Total revenue, net of interest expense
Provision for credit losses
Noninterest expense
Income before income taxes
Income tax expense
Net income
Effective tax rate
Net interest yield
Return on average allocated capital
Efficiency ratio
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
2018
2017
% Change
$
10,881
$
10,504
4%
3,027
2,891
2,845
8,763
19,644
8
8,591
11,045
2,872
8,173
$
3,125
3,471
2,899
9,495
19,999
212
8,596
11,191
4,238
6,953
26.0%
37.9%
2.98
20
43.73
2.93
17
42.98
$
$
354,236
364,748
424,353
336,337
41,000
365,717
377,812
441,477
360,248
346,089
358,302
416,038
312,859
40,000
350,668
365,560
424,533
329,273
$
$
$
(3)
(17)
(2)
(8)
(2)
(96)
—
(1)
(32)
18
2%
2
2
8
3
4%
3
4
9
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 $8.2
billion in 2018 compared to 2017 primarily driven by lower income
tax expense from the reduction in the federal income tax rate and
lower provision for credit losses, partially offset by lower revenue.
Noninterest expense was relatively unchanged.
50 Bank of America 2018
Revenue decreased $355 million to $19.6 billion driven by
lower noninterest income, partially offset by higher net interest
income. Net interest income increased $377 million to $10.9
billion primarily due to the impact of higher interest rates, as well
as loan and deposit growth. Noninterest income decreased $732
million to $8.8 billion primarily due to lower investment banking
fees. The provision for credit losses improved $204 million to $8
million primarily driven by Global Banking’s portion of a 2017 single-
name non-U.S. commercial charge-off and continued improvement
in the commercial portfolio.
The return on average allocated capital was 20 percent, up
from 17 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 45.
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.
Global Corporate, Global Commercial and Business Banking
(Dollars in millions)
Revenue
Business Lending
Global Transaction Services
Total revenue, net of interest expense
Balance Sheet
Average
Total loans and leases
Total deposits
Year end
Total loans and leases
Total deposits
Global Corporate Banking
Global Commercial Banking
Business Banking
Total
2018
2017
2018
2017
2018
2017
2018
2017
$
$
$
$
4,122
3,656
7,778
$
$
4,387
3,322
7,709
163,516
163,559
$ 158,292
148,704
174,378
173,183
$ 163,184
155,614
$
$
$
$
4,039
3,288
7,327
$
$
4,280
3,017
7,297
174,279
135,337
$ 170,101
127,720
175,937
149,118
$ 169,997
137,538
$
$
$
$
393
973
1,366
16,432
37,462
15,402
37,973
$
$
$
$
404
849
1,253
17,682
36,435
17,500
36,120
$
$
$
$
8,554
7,917
16,471
$
$
9,071
7,188
16,259
354,227
336,358
$ 346,075
312,859
365,717
360,274
$ 350,681
329,272
Business Lending revenue decreased $517 million in 2018
compared to 2017. The decrease was primarily driven by the
impact of tax reform on certain tax-advantaged investments and
lower leasing-related revenues.
Global Transaction Services revenue increased $729 million
to $7.9 billion in 2018 compared to 2017 driven by higher short-
term rates and increased deposits.
Average loans and leases increased two percent in 2018
compared to 2017 driven by growth in the commercial and
industrial, and commercial real estate portfolios. Average deposits
increased eight percent due to growth in domestic and
international interest-bearing balances.
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. Global Banking originates certain
deal-related transactions with our corporate and commercial
clients that are executed and distributed by Global Markets. To
provide a complete discussion of our consolidated investment
banking fees, the following table presents total Corporation
investment banking fees and the portion attributable to Global
Banking.
Investment Banking Fees
(Dollars in millions)
Products
Advisory
Debt issuance
Equity issuance
Gross investment
banking fees
Self-led deals
Total investment
banking fees
Global Banking
2018
2017
Total Corporation
2018
2017
$
$
$
1,152
1,327
412
2,891
(68)
1,557
1,506
408
3,471
(113)
$
1,258
3,084
1,183
5,525
(198)
1,691
3,635
940
6,266
(255)
$
2,823
$
3,358
$
5,327
$
6,011
Total Corporation investment banking fees, excluding self-led
deals, of $5.3 billion, which are primarily included within Global
Banking and Global Markets, decreased 11 percent in 2018
compared to 2017 primarily due to declines in advisory fees and
debt underwriting, the latter of which was driven by lower fee pools.
Bank of America 2018 51
Global Markets
(Dollars in millions)
Net interest income
Noninterest income:
Investment and brokerage services
Investment banking fees
Trading account profits
All other income
Total noninterest income
Total revenue, net of interest expense
Provision for credit losses
Noninterest expense
Income before income taxes
Income tax expense
Net income
Effective tax rate
Return on average allocated capital
Efficiency ratio
Balance Sheet
Average
Trading-related assets:
Trading account securities
Reverse repurchases
Securities borrowed
Derivative assets
Total trading-related assets
Total loans and leases
Total earning assets
Total assets
Total deposits
Allocated capital
Year end
Total trading-related assets
Total loans and leases
Total earning assets
Total assets
Total deposits
2018
2017
% Change
$
3,171
$
3,744
(15)%
1,780
2,296
7,932
884
12,892
16,063
—
10,686
5,377
1,398
3,979
$
2,049
2,476
6,710
972
12,207
15,951
164
10,731
5,056
1,763
3,293
26.0%
34.9%
11
66.53
9
67.27
$
$
215,112
125,084
78,889
46,047
465,132
72,651
473,383
666,003
31,209
35,000
447,998
73,928
457,224
641,922
37,841
216,996
101,795
82,210
40,811
441,812
71,413
449,441
638,673
32,864
35,000
419,375
76,778
449,314
629,013
34,029
$
$
$
(13)
(7)
18
(9)
6
1
(100)
—
6
(21)
21
(1)%
23
(4)
13
5
2
5
4
(5)
—
7 %
(4)
2
2
11
Global Markets offers sales and trading services and research
services 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
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 51.
internal
Net income for Global Markets increased $686 million to $4.0
billion in 2018 compared to 2017. Net DVA losses were $162
million compared to losses of $428 million in 2017. Excluding net
DVA, net income increased $544 million to $4.1 billion. These
increases were primarily driven by lower income tax expense from
the reduction in the federal income tax rate, a decrease in the
provision for credit losses and modestly higher revenue.
Sales and trading revenue, excluding net DVA, increased $19
million due to higher Equities revenue, largely offset by lower FICC
revenue. The provision for credit losses decreased $164 million
driven by Global Markets’ portion of a single-name non-U.S.
commercial charge-off in 2017. Noninterest expense decreased
$45 million to $10.7 billion primarily due to lower operating costs.
52 Bank of America 2018
Average total assets increased $27.3 billion to $666.0 billion
in 2018 primarily driven by increased levels of inventory in FICC
to facilitate client demand and growth in Equities derivative client
financing activities. Total year-end assets increased $12.9 billion
to $641.9 billion at December 31, 2018 due to increased levels
of inventory in FICC.
The return on average allocated capital was 11 percent, up
from 9 percent, reflecting higher net income. For more information
on capital allocated to the business segments, see Business
Segment Operations on page 45.
Sales and Trading Revenue
Sales and trading revenue includes unrealized and realized gains
and losses on trading and other assets, net interest income, and
fees primarily from commissions on equity securities. Sales and
trading revenue is segregated into fixed-income (government debt
obligations, investment and non-investment grade corporate debt
residential mortgage-backed
obligations, commercial MBS,
securities, 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 net DVA, which is a non-GAAP financial
measure. For more information on net DVA, see Supplemental
Financial Data on page 39.
All Other
(Dollars in millions)
Net interest income
Noninterest income (loss)
Total revenue, net of interest expense
Provision for credit losses
Noninterest expense
Loss before income taxes
Income tax benefit
Net loss
Balance Sheet
Average
Total loans and leases
Total assets (1)
Total deposits
Year end
Total loans and leases
Total assets (1)
Total deposits
(1)
Sales and Trading Revenue (1, 2)
(Dollars in millions)
Sales and trading revenue
2018
2017
Fixed-income, currencies and commodities
Equities
Total sales and trading revenue
$
8,186
4,876
$ 13,062
$
8,657
4,120
$ 12,777
Sales and trading revenue, excluding net DVA (3)
Fixed-income, currencies and commodities
Equities
8,328
4,896
Total sales and trading revenue, excluding net DVA $ 13,224
$
$
9,051
4,154
$ 13,205
(1)
(2)
Includes FTE adjustments of $249 million and $236 million for 2018 and 2017. For more
information on sales and trading revenue, see Note 3 – Derivatives to the Consolidated Financial
Statements.
Includes Global Banking sales and trading revenue of $430 million and $236 million for 2018
and 2017.
(3) FICC and Equities sales and trading revenue, excluding net DVA, is a non-GAAP financial measure.
FICC net DVA losses were $142 million and $394 million for 2018 and 2017. Equities net DVA
losses were $20 million and $34 million for 2018 and 2017.
The following explanations for year-over-year changes in sales
and trading, FICC and Equities revenue exclude net DVA, but would
be the same whether net DVA was included or excluded. FICC
revenue decreased $723 million in 2018 primarily due to lower
activity and a less favorable market in credit-related products. The
decline in FICC revenue was also impacted by higher funding costs,
which were driven by increases in market interest rates. Equities
revenue increased $742 million in 2018 driven by strength in client
financing and derivatives.
2018
2017
% Change
$
$
$
$
$
573
(1,284)
(711)
(476)
2,614
(2,849)
(2,736)
(113) $
864
(1,648)
(784)
(561)
4,065
(4,288)
(979)
(3,309)
$
$
61,013
201,298
21,966
48,061
196,325
18,541
82,489
206,999
25,194
69,452
194,042
22,719
(34)%
(22)
(9)
(15)
(36)
(34)
n/m
(97)
(26)%
(3)
(13)
(31)%
1
(18)
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. Average allocated assets were $517.0 billion and $515.6 billion for 2018 and 2017, and year-end allocated assets were $540.8 billion and $520.4
billion at December 31, 2018 and 2017.
n/m = not meaningful
All Other consists of ALM activities, equity investments, non-core
mortgage loans and servicing activities, the net impact of periodic
revisions to the MSR valuation model for core and non-core MSRs
and the related economic hedge results, 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 hedge ineffectiveness. The results
of certain ALM activities are allocated to our business segments.
For more information on our ALM activities, see Note 23 – Business
Segment Information to the Consolidated Financial Statements.
Equity investments include our merchant services joint venture as
well as a portfolio of equity, real estate and other alternative
investments. For more information on our merchant services joint
Bank of America 2018 53
venture, see Note 12 – Commitments and Contingencies to the
Consolidated Financial Statements.
The Corporation classifies consumer real estate loans as core
or non-core based on loan and customer characteristics. For more
information on the core and non-core portfolios, see Consumer
Portfolio Credit Risk Management on page 66. Residential
mortgage loans that are held for ALM purposes, including interest
rate or liquidity risk management, are classified as core and are
presented on the balance sheet of All Other. During 2018,
residential mortgage loans held for ALM activities decreased $3.6
billion to $24.9 billion at December 31, 2018 primarily as a result
of payoffs and paydowns. Non-core residential mortgage and home
equity loans, which are principally runoff portfolios, are also held
in All Other. During 2018, total non-core loans decreased $17.8
billion to $23.5 billion at December 31, 2018 due primarily to loan
sales of $10.8 billion, as well as payoffs and paydowns.
The net loss for All Other improved $3.2 billion to a loss of
$113 million, driven by a charge of $2.9 billion in 2017 due to
enactment of the Tax Act. The pretax loss for 2018 compared to
2017 decreased $1.4 billion primarily due to lower noninterest
expense.
Revenue increased $73 million to a loss of $711 million
primarily due to gains of $731 million from the sale of consumer
real estate loans, primarily non-core, offset by a $729 million
charge related to the redemption of certain trust preferred
securities in 2018. Results for 2017 included a downward
valuation adjustment of $946 million on tax-advantaged energy
investments in connection with the Tax Act and a pretax gain of
$793 million recognized in connection with the sale of the non-
U.S. consumer credit card business in 2017.
Noninterest expense decreased $1.5 billion to $2.6 billion
primarily due to lower non-core mortgage costs and reduced
operational costs from the sale of the non-U.S. consumer credit
card business. Also, the prior-year period included a $316 million
impairment charge related to certain data centers.
The income tax benefit was $2.7 billion in 2018 compared to
a benefit of $1.0 billion in 2017. The increase in the tax benefit
was primarily driven by a charge of $1.9 billion in 2017 related to
impacts of the Tax Act for the lower valuation of certain deferred
tax assets and liabilities. Both periods included income tax benefit
adjustments to eliminate the FTE treatment of certain tax credits
recorded in Global Banking.
Table 12 Contractual Obligations
Off-Balance Sheet Arrangements and
Contractual Obligations
We have contractual obligations to make future payments on debt
and lease agreements. Additionally, in the normal course of
business, we enter into contractual arrangements whereby we
commit to future purchases of products or services from
unaffiliated parties. Purchase obligations are defined as
obligations that are legally binding agreements whereby we agree
to purchase products or services with a specific minimum quantity
at a fixed, minimum or variable price over a specified period of
time. Included in purchase obligations are vendor contracts, the
most significant of which include communication services,
processing services and software contracts. Debt, lease and other
obligations are more fully discussed in Note 11 – Long-term Debt
and Note 12 – Commitments and Contingencies to the Consolidated
Financial Statements.
Other long-term liabilities include our contractual funding
obligations related to the Non-U.S. Pension Plans and Nonqualified
and Other Pension Plans (together, the Plans). Obligations to the
Plans are based on the current and projected obligations of the
Plans, performance of the Plans’ assets, and any participant
contributions, if applicable. During 2018 and 2017, we contributed
$156 million and $514 million to the Plans, and we expect to make
$127 million of contributions during 2019. The Plans are more
fully discussed in Note 17 – Employee Benefit Plans to the
Consolidated Financial Statements.
We enter into commitments to extend credit such as loan
commitments, standby letters of credit (SBLCs) and commercial
letters of credit to meet the financing needs of our customers. For
a summary of the total unfunded, or off-balance sheet, credit
extension commitment amounts by expiration date, see Credit
Extension Commitments in Note 12 – Commitments and
Contingencies to the Consolidated Financial Statements.
We also utilize variable interest entities (VIEs) in the ordinary
course of business to support our financing and investing needs
as well as those of our customers. For more information on our
involvement with unconsolidated VIEs, see Note 7 – Securitizations
and Other Variable Interest Entities to the Consolidated Financial
Statements.
Table 12 includes certain contractual obligations at December
31, 2018 and 2017.
(Dollars in millions)
December 31, 2018
Due in One
Year or Less
Due After
One Year
Through
Three Years
Due After
Three Years
Through
Five Years
December 31
2017
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
$
$
37,975
2,370
1,288
53,482
1,611
6,795
103,521
$
$
43,685
4,197
1,162
5,477
1,049
10,778
66,348
$
$
41,603
3,043
507
1,473
729
8,407
55,762
$
$
106,077
6,160
1,091
607
544
30,872
145,351
$
$
229,340
15,770
4,048
61,039
3,933
56,852
370,982
$
$
227,402
14,520
4,219
67,844
4,972
49,123
368,080
(1) Represents forecasted net interest expense on long-term debt and time deposits based on interest rates at December 31, 2018 and 2017. Forecasts are based on the contractual maturity dates
of each liability, and are net of derivative hedges, where applicable.
54 Bank of America 2018
Representations and Warranties Obligations
information on representations and warranties
For more
obligations in connection with the sale of mortgage loans, see
Note 12 – Commitments and Contingencies to the Consolidated
Financial Statements. For more information related to the
sensitivity of the assumptions used to estimate our reserve for
representations and warranties, see Complex Accounting
Estimates – Representations and Warranties Liability on page 94.
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.
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 and regulations
and our internal policies and procedures.
Operational risk is the risk of loss resulting from inadequate
or failed 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 fulfilling our purpose and our values and
delivering responsible growth. 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 45.
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.
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 align
with the Corporation’s risk appetite. 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.
For a more detailed discussion of our risk management
activities, see the discussion below and pages 58 through 92.
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 2018 55
The chart below illustrates the inter-relationship among the Board, Board committees and management committees that have the
The chart below illustrates the inter-relationship among the Board, Board committees and management committees that have the
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.
majority of risk oversight responsibilities for the Corporation.
majority of risk oversight responsibilities for the Corporation.
Board of Directors (1)
Board of Directors (1)
Board of Directors (1)
Board
Board
Board
Committees
Committees
Committees
Audit
Audit
Audit
Committee
Committee
Committee
Enterprise
Enterprise
Enterprise
Risk
Risk
Risk
Committee
Committee
Committee
Corporate
Corporate
Corporate
Governance
Governance
Governance
Committee
Committee
Committee
Compensation
Compensation
Compensation
and Benefits
and Benefits
and Benefits
Committee
Committee
Committee
Management
Management
Management
Committees
Committees
Committees
Disclosure
Disclosure
Disclosure
Committee (2)
Committee (2)
Committee (2)
Management
Management
Management
Risk
Risk
Risk
Committee
Committee
Committee
Reg O
Reg O
Reg O
Committee
Committee
Committee
Corporate
Corporate
Corporate
Benefits
Benefits
Benefits
Committee
Committee
Committee
Management
Management
Management
Compensation
Compensation
Compensation
Committee
Committee
Committee
(1) This presentation does not include committees for other legal entities.
(1) This presentation does not include committees for other legal entities.
(1) This presentation does not include committees for other legal entities.
(2) Reports to the CEO and CFO with oversight by the Audit Committee.
(2) Reports to the CEO and CFO with oversight by the Audit Committee.
(2) Reports to the CEO and CFO with oversight by the Audit Committee.
Board of Directors and Board Committees
Board of Directors and Board Committees
Board of Directors and Board Committees
The Board is composed of 16 directors, all but one of whom are
The Board is composed of 16 directors, all but one of whom are
The Board is composed of 16 directors, all but one of whom are
independent. The Board authorizes management to maintain an
independent. The Board authorizes management to maintain an
independent. The Board authorizes management to maintain an
effective Risk Framework, and oversees compliance with safe and
effective Risk Framework, and oversees compliance with safe and
effective Risk Framework, and oversees compliance with safe and
sound banking practices. In addition, the Board or its committees
sound banking practices. In addition, the Board or its committees
sound banking practices. In addition, the Board or its committees
conduct inquiries of, and receive reports from management on
conduct inquiries of, and receive reports from management on
conduct inquiries of, and receive reports from management on
risk-related matters to assess scope or resource limitations that
risk-related matters to assess scope or resource limitations that
risk-related matters to assess scope or resource limitations that
could impede the ability of Independent Risk Management (IRM)
could impede the ability of Independent Risk Management (IRM)
could impede the ability of Independent Risk Management (IRM)
and/or Corporate Audit to execute its responsibilities. The Board
and/or Corporate Audit to execute its responsibilities. The Board
and/or Corporate Audit to execute its responsibilities. The Board
committees discussed below have the principal responsibility for
committees discussed below have the principal responsibility for
committees discussed below have the principal responsibility for
enterprise-wide oversight of our risk management activities.
enterprise-wide oversight of our risk management activities.
enterprise-wide oversight of our risk management activities.
Through these activities, the Board and applicable committees are
Through these activities, the Board and applicable committees are
Through these activities, the Board and applicable committees are
provided with information on our risk profile and oversee executive
provided with information on our risk profile and oversee executive
provided with information on our risk profile and oversee executive
management addressing key risks we face. Other Board
management addressing key risks we face. Other Board
management addressing key risks we face. Other Board
committees, as described below, provide additional oversight of
committees, as described below, provide additional oversight of
committees, as described below, provide additional oversight of
specific risks.
specific risks.
specific risks.
Each of the committees shown on the above chart regularly
Each of the committees shown on the above chart regularly
Each of the committees shown on the above chart regularly
reports to the Board on risk-related matters within the committee’s
reports to the Board on risk-related matters within the committee’s
reports to the Board on risk-related matters within the committee’s
responsibilities, which is intended to collectively provide the Board
responsibilities, which is intended to collectively provide the Board
responsibilities, which is intended to collectively provide the Board
with integrated insight about our management of enterprise-wide
with integrated insight about our management of enterprise-wide
with integrated insight about our management of enterprise-wide
risks.
risks.
risks.
Audit Committee
Audit Committee
Audit Committee
The Audit Committee oversees the qualifications, performance and
The Audit Committee oversees the qualifications, performance and
The Audit Committee oversees the qualifications, performance and
independence of the Independent Registered Public Accounting
independence of the Independent Registered Public Accounting
independence of the Independent Registered Public Accounting
Firm, the performance of our corporate audit function, the integrity
Firm, the performance of our corporate audit function, the integrity
Firm, the performance of our corporate audit function, the integrity
of our consolidated financial statements, our compliance with legal
of our consolidated financial statements, our compliance with legal
of our consolidated financial statements, our compliance with legal
and regulatory requirements, and makes inquiries of management
and regulatory requirements, and makes inquiries of management
and regulatory requirements, and makes inquiries of management
or the Corporate General Auditor (CGA) to determine whether there
or the Corporate General Auditor (CGA) to determine whether there
or the Corporate General Auditor (CGA) to determine whether there
are scope or resource limitations that impede the ability of
are scope or resource limitations that impede the ability of
are scope or resource limitations that impede the ability of
Corporate Audit to execute its responsibilities. The Audit
Corporate Audit to execute its responsibilities. The Audit
Corporate Audit to execute its responsibilities. The Audit
Committee is also responsible for overseeing compliance risk
Committee is also responsible for overseeing compliance risk
Committee is also responsible for overseeing compliance risk
pursuant to the New York Stock Exchange listing standards.
pursuant to the New York Stock Exchange listing standards.
pursuant to the New York Stock Exchange listing standards.
Enterprise Risk Committee
Enterprise Risk Committee
Enterprise Risk Committee
The ERC has primary responsibility for oversight of the Risk
The ERC has primary responsibility for oversight of the Risk
The ERC has primary responsibility for oversight of the Risk
Framework and key risks we face and of the Corporation’s overall
Framework and key risks we face and of the Corporation’s overall
Framework and key risks we face and of the Corporation’s overall
risk appetite. It approves the Risk Framework and the Risk Appetite
risk appetite. It approves the Risk Framework and the Risk Appetite
risk appetite. It approves the Risk Framework and the Risk Appetite
Statement and further recommends these documents to the Board
Statement and further recommends these documents to the Board
Statement and further recommends these documents to the Board
for approval. The ERC oversees senior management’s
for approval. The ERC oversees senior management’s
for approval. The ERC oversees senior management’s
56 Bank of America 2018
56 Bank of America 2018
56 Bank of America 2018
responsibilities for the identification, measurement, monitoring
responsibilities for the identification, measurement, monitoring
responsibilities for the identification, measurement, monitoring
and control of key risks we face. The ERC may consult with other
and control of key risks we face. The ERC may consult with other
and control of key risks we face. The ERC may consult with other
Board committees on risk-related matters.
Board committees on risk-related matters.
Board committees on risk-related matters.
Other Board Committees
Other Board Committees
Other Board Committees
Our Corporate Governance Committee oversees our Board’s
Our Corporate Governance Committee oversees our Board’s
Our Corporate Governance Committee oversees our Board’s
governance processes, identifies and reviews the qualifications of
governance processes, identifies and reviews the qualifications of
governance processes, identifies and reviews the qualifications of
potential Board members, recommends nominees for election to
potential Board members, recommends nominees for election to
potential Board members, recommends nominees for election to
our Board, recommends committee appointments for Board
our Board, recommends committee appointments for Board
our Board, recommends committee appointments for Board
approval and reviews our Environmental, Social and Governance
approval and reviews our Environmental, Social and Governance
approval and reviews our Environmental, Social and Governance
and stockholder engagement activities.
and stockholder engagement activities.
and stockholder engagement activities.
Our Compensation and Benefits Committee oversees
Our Compensation and Benefits Committee oversees
Our Compensation and Benefits Committee oversees
establishing, maintaining and administering our compensation
establishing, maintaining and administering our compensation
establishing, maintaining and administering our compensation
programs and employee benefit plans, including approving and
programs and employee benefit plans, including approving and
programs and employee benefit plans, including approving and
recommending our Chief Executive Officer’s (CEO) compensation
recommending our Chief Executive Officer’s (CEO) compensation
recommending our Chief Executive Officer’s (CEO) compensation
to our Board for further approval by all independent directors, and
to our Board for further approval by all independent directors, and
to our Board for further approval by all independent directors, and
reviewing and approving all of our executive officers’
reviewing and approving all of our executive officers’
reviewing and approving all of our executive officers’
compensation, as well as compensation for non-management
compensation, as well as compensation for non-management
compensation, as well as compensation for non-management
directors.
directors.
directors.
Management Committees
Management Committees
Management Committees
Management committees may receive their authority from the
Management committees may receive their authority from the
Management committees may receive their authority from the
Board, a Board committee, another management committee or
Board, a Board committee, another management committee or
Board, a Board committee, another management committee or
from one or more executive officers. Our primary management-
from one or more executive officers. Our primary management-
from one or more executive officers. Our primary management-
level risk committee is the Management Risk Committee (MRC).
level risk committee is the Management Risk Committee (MRC).
level risk committee is the Management Risk Committee (MRC).
Subject to Board oversight, the MRC is responsible for
Subject to Board oversight, the MRC is responsible for
Subject to Board oversight, the MRC is responsible for
management oversight of key risks facing the Corporation. This
management oversight of key risks facing the Corporation. This
management oversight of key risks facing the Corporation. This
includes providing management oversight of our compliance and
includes providing management oversight of our compliance and
includes providing management oversight of our compliance and
risk programs, balance sheet and capital
operational
risk programs, balance sheet and capital
operational
risk programs, balance sheet and capital
operational
management, funding activities and other liquidity activities, stress
management, funding activities and other liquidity activities, stress
management, funding activities and other liquidity activities, stress
testing, trading activities, recovery and resolution planning, model
testing, trading activities, recovery and resolution planning, model
testing, trading activities, recovery and resolution planning, model
risk, subsidiary governance and activities between member banks
risk, subsidiary governance and activities between member banks
risk, subsidiary governance and activities between member banks
and their nonbank affiliates pursuant to Federal Reserve rules and
and their nonbank affiliates pursuant to Federal Reserve rules and
and their nonbank affiliates pursuant to Federal Reserve rules and
regulations, among other things.
regulations, among other things.
regulations, among other things.
Lines of Defense
Lines of Defense
Lines of Defense
We have clear ownership and accountability across three lines of
We have clear ownership and accountability across three lines of
We have clear ownership and accountability across three lines of
defense: Front Line Units (FLUs), IRM and Corporate Audit. We
defense: Front Line Units (FLUs), IRM and Corporate Audit. We
defense: Front Line Units (FLUs), IRM and Corporate Audit. We
also have control functions outside of FLUs and IRM (e.g., Legal
also have control functions outside of FLUs and IRM (e.g., Legal
also have control functions outside of FLUs and IRM (e.g., Legal
and Global Human Resources). The three lines of defense are
and Global Human Resources). The three lines of defense are
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.
the Corporation, with a goal of ensuring risks are appropriately
considered, evaluated and responded to in a timely manner.
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, which include the lines of business as well as the Global
Technology and Operations Group, are
for
appropriately assessing and effectively managing all of the risks
associated with their activities.
responsible
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 and Operational Risk. 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, front line unit risk teams and
control function risk teams that work collaboratively in executing
their respective duties.
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
We employ our 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.
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.
Bank of America 2018 57
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 and
Financial Contingency 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
58 Bank of America 2018
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.
Capital Management
The Corporation manages its capital position so that its capital is
more than adequate to support its business activities and aligns
with risk, risk appetite and strategic planning. Additionally, we seek
to maintain safety and soundness at all times, even under adverse
scenarios, take advantage of organic growth opportunities, meet
obligations to creditors and counterparties, maintain ready access
to financial markets, continue to serve as a credit intermediary,
remain a source of strength for our subsidiaries, and satisfy current
and future regulatory capital requirements. Capital management
is integrated into our risk and governance processes, as capital
is a key consideration in the development of our strategic plan,
risk appetite and risk limits.
We conduct an Internal Capital Adequacy Assessment Process
(ICAAP) on a periodic basis. The ICAAP is a forward-looking
assessment of our projected capital needs and resources,
incorporating earnings, balance sheet and risk forecasts under
baseline and adverse economic and market conditions. We utilize
periodic stress tests to assess the potential impacts to our
balance sheet, earnings, regulatory capital and liquidity under a
variety of stress scenarios. We perform qualitative risk
assessments to identify and assess material risks not fully
captured in our forecasts or stress tests. We assess the potential
capital impacts of proposed changes to regulatory capital
requirements. Management assesses ICAAP results and provides
documented quarterly assessments of the adequacy of our capital
guidelines and capital position to the Board or its committees.
We periodically review capital allocated to our businesses and
allocate capital annually during the strategic and capital planning
processes. For additional information, see Business Segment
Operations on page 45.
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, 2018, following the Federal Reserve’s non-
objection to our 2018 CCAR capital plan, the Board authorized the
repurchase of approximately $20.6 billion in common stock from
July 1, 2018 through June 30, 2019, which includes approximately
$600 million in repurchases to offset shares awarded under equity-
based compensation plans during the same period. In addition to
the previously announced repurchases associated with the 2018
CCAR capital plan, on February 7, 2019, we announced a plan to
repurchase an additional $2.5 billion of common stock through
June 30, 2019, which was approved by the Federal Reserve.
During 2018, pursuant to the Board’s authorizations, including
those related to our 2017 CCAR capital plan that expired June 30,
2018, we repurchased $20.1 billion of common stock, which
includes common stock repurchases to offset equity-based
compensation awards. At December 31, 2018, our remaining stock
repurchase authorization was $10.3 billion.
Our stock repurchases are 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
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 amended. 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, including Basel 3, issued by U.S. banking
regulators. Basel 3 established minimum capital ratios and buffer
requirements and outlined 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.
The Corporation and its primary affiliated banking entity, BANA,
are Advanced approaches institutions under Basel 3 and are
required to report regulatory risk-based capital ratios and risk-
weighted assets under both the Standardized and Advanced
approaches. The approach that yields the lower ratio is used to
assess capital adequacy including under the Prompt Corrective
Action (PCA) framework. As of December 31, 2018, Common equity
tier 1 (CET1) and Tier 1 capital ratios for the Corporation were
lower under the Standardized approach whereas the Advanced
approaches yielded a lower Total capital ratio.
Minimum Capital Requirements
Minimum capital requirements and related buffers were fully
phased in as of January 1, 2019. The PCA framework established
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.
ratio
requirements
In order to avoid restrictions on capital distributions and
discretionary bonus payments, the Corporation must meet risk-
based capital
include a capital
conservation buffer greater than 2.5 percent, plus any applicable
countercyclical capital buffer and a global systemically important
bank (G-SIB) surcharge. The buffers and surcharge must be
comprised solely of CET1 capital and were phased in over a three-
year period that ended January 1, 2019.
that
The Corporation is also required to maintain a minimum
supplementary leverage ratio (SLR) of 3.0 percent plus a leverage
buffer of 2.0 percent in order to avoid certain restrictions on capital
distributions and discretionary bonus payments. Our insured
depository institution subsidiaries are required to maintain a
minimum 6.0 percent SLR to be considered well capitalized under
the PCA framework. 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.
Capital Composition and Ratios
Table 13 presents Bank of America Corporation’s capital ratios
and related information in accordance with Basel 3 Standardized
and Advanced approaches as measured at December 31, 2018
and 2017. As of the periods presented, the Corporation met the
definition of well capitalized under current regulatory requirements.
Bank of America 2018 59
Table 13 Bank of America Corporation Regulatory Capital under Basel 3 (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)
Common equity tier 1 capital ratio
Tier 1 capital ratio
Total capital ratio
Leverage-based metrics:
Adjusted quarterly average assets (in billions) (5)
Tier 1 leverage ratio
SLR leverage exposure (in billions)
SLR
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) (5)
Tier 1 leverage ratio
Standardized
Approach
Advanced
Approaches
Current
Regulatory
Minimum (2)
2019
Regulatory
Minimum (3)
December 31, 2018
$
$
$
$
$
167,272
189,038
221,304
1,437
11.6%
13.2
15.4
$
2,258
8.4%
$
168,461
190,189
224,209
1,443
11.7%
13.2
15.5
167,272
189,038
212,878
1,409
11.9%
13.4
15.1
2,258
8.4%
2,791
6.8%
8.25%
9.75
11.75
4.0
5.0
9.5%
11.0
13.0
4.0
5.0
December 31, 2017
168,461
190,189
215,311
1,459
11.5%
13.0
14.8
7.25%
8.75
10.75
9.5%
11.0
13.0
$
2,223
$
2,223
8.6%
8.6%
4.0
4.0
(1) Basel 3 transition provisions for regulatory capital adjustments and deductions were fully phased in as of January 1, 2018. Prior periods are presented on a fully phased-in basis.
(2) The December 31, 2018 and 2017 amounts include a transition capital conservation buffer of 1.875 percent and 1.25 percent and a transition G-SIB surcharge of 1.875 percent and 1.5 percent.
The countercyclical capital buffer for both periods is zero.
(3) The 2019 regulatory minimums include a capital conservation buffer of 2.5 percent and G-SIB surcharge of 2.5 percent. The countercyclical capital buffer is zero. We became subject to these
regulatory minimums on January 1, 2019. The SLR minimum includes a leverage buffer of 2.0 percent and was applicable beginning on January 1, 2018.
(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) Reflects adjusted average total assets for the three months ended December 31, 2018 and 2017.
CET1 capital was $167.3 billion at December 31, 2018, a
decrease of $1.2 billion from December 31, 2017, driven by
common stock repurchases, dividends and market value declines
on AFS debt securities included in accumulated OCI, partially offset
by earnings. During 2018, Total capital under the Advanced
approaches decreased $2.4 billion driven by the same factors as
CET1 capital and a decrease in subordinated debt included in Tier
2 capital. Standardized risk-weighted assets, which yielded the
lower CET1 capital ratio for December 31, 2018, decreased $5.5
billion during 2018 to $1,437 billion primarily due to sales of non-
core mortgage loans and a decrease in market risk, partially offset
by an increase in commercial loans.
Table 14 shows the capital composition at December 31, 2018
and 2017.
Table 14 Capital Composition under Basel 3 (1)
(Dollars in millions)
Total common shareholders’ equity
Goodwill, net of related deferred tax liabilities
Deferred tax assets arising from net operating loss and tax credit carryforwards
Intangibles, other than mortgage servicing rights and goodwill, net of related deferred tax liabilities
Other
$
Common equity tier 1 capital
Qualifying preferred stock, net of issuance cost
Other
Tier 1 capital
Tier 2 capital instruments
Eligible credit reserves included in Tier 2 capital
Other
December 31
2018
2017
$
242,999
(68,572)
(5,981)
(1,294)
120
167,272
22,326
(560)
189,038
21,887
1,972
(19)
212,878
244,823
(68,576)
(6,555)
(1,743)
512
168,461
22,323
(595)
190,189
22,938
2,272
(88)
215,311
Total capital under the Advanced approaches
$
(1) Basel 3 transition provisions for regulatory capital adjustments and deductions were fully phased in as of January 1, 2018. Prior periods are presented on a fully phased-in basis.
$
60 Bank of America 2018
Table 15 shows the components of risk-weighted assets as measured under Basel 3 at December 31, 2018 and 2017.
Table 15 Risk-weighted Assets under Basel 3 (1)
Standardized
Approach
Advanced
Approaches
Standardized
Approach
Advanced
Approaches
December 31
(Dollars in billions)
Credit risk
Market risk
Operational risk
Risks related to credit valuation adjustments
$
2018
$
1,384
53
n/a
n/a
1,437
$
827
52
500
30
1,409
2017
$
1,384
59
n/a
n/a
1,443
867
58
500
34
1,459
Total risk-weighted assets
$
(1) Basel 3 transition provisions for regulatory capital adjustments and deductions were fully phased in as of January 1, 2018. Prior periods are presented on a fully phased-in basis.
n/a = not applicable
$
$
$
Bank of America, N.A. Regulatory Capital
Table 16 presents regulatory capital information for BANA in accordance with Basel 3 Standardized and Advanced approaches as
measured at December 31, 2018 and 2017. BANA met the definition of well capitalized under the PCA framework for both periods.
Table 16 Bank of America, N.A. Regulatory Capital under Basel 3
(Dollars in millions)
Common equity tier 1 capital
Tier 1 capital
Total capital
Tier 1 leverage
SLR
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.
Regulatory Developments
Minimum Total Loss-Absorbing Capacity
The Federal Reserve’s final rule, which was effective January 1,
2019, includes minimum external total loss-absorbing capacity
(TLAC) and long-term debt requirements to improve the resolvability
and resiliency of large, interconnected BHCs. As of December 31,
2018, the Corporation’s TLAC and long-term debt exceeded our
estimated 2019 minimum requirements.
Stress Buffer Requirements
On April 10, 2018, the Federal Reserve announced a proposal to
integrate the annual quantitative assessment of the CCAR program
with the buffer requirements in the Basel 3 capital rule by
introducing stress buffer requirements as a replacement of the
CCAR quantitative objection. Under the Standardized approach,
the proposal replaces the existing static 2.5 percent capital
conservation buffer with a stress capital buffer, calculated as the
decrease in the CET1 capital ratio in the supervisory severely
adverse scenario of the modified CCAR stress test plus four
quarters of planned common stock dividend payments, floored at
2.5 percent. The static 2.5 percent capital conservation buffer
would be retained under the Advanced approaches. The proposal
also introduces a stress leverage buffer requirement which would
be calculated as the decrease in the Tier 1 leverage ratio in the
supervisory severely adverse scenario of the modified CCAR stress
test plus four quarters of planned common stock dividends, with
Standardized Approach
Advanced Approaches
Ratio
Amount
Ratio
Amount
December 31, 2018
Minimum
Required (1)
12.5% $
12.5
13.5
8.7
149,824
149,824
161,760
149,824
15.6% $
15.6
16.0
8.7
7.1
149,824
149,824
153,627
149,824
149,824
December 31, 2017
12.5% $
12.5
13.6
9.0
150,552
150,552
163,243
150,552
14.9% $
14.9
15.4
9.0
150,552
150,552
154,675
150,552
6.5%
8.0
10.0
5.0
6.0
6.5%
8.0
10.0
5.0
no floor. The SLR would not incorporate a stress buffer
requirement. The proposal also updates the capital distribution
assumptions used in the CCAR stress test to better align with a
firm’s expected actions in stress, notably removing the assumption
that a BHC will carry out all of its planned capital actions under
stress.
Enhanced Supplementary Leverage Ratio and TLAC
Requirements
On April 11, 2018, the Federal Reserve and Office of the
Comptroller of the Currency announced a proposal to modify the
enhanced SLR standards applicable to U.S. G-SIBs and their
insured depository institution subsidiaries. The proposal replaces
the existing 2.0 percent leverage buffer with a leverage buffer
tailored to each G-SIB, set at 50 percent of the applicable G-SIB
surcharge. This proposal also replaces the current 6.0 percent
threshold at which a G-SIB’s insured depository institution
subsidiaries are considered well capitalized under the PCA
framework with a threshold set at 3.0 percent plus 50 percent of
the G-SIB surcharge applicable to the subsidiary’s G-SIB holding
company. Correspondingly, the proposal updates the external TLAC
leverage buffer for each G-SIB to 50 percent of the applicable G-
SIB surcharge and revises the leverage component of the minimum
external long-term debt requirement from 4.5 percent to 2.5
percent plus 50 percent of the applicable G-SIB surcharge.
Bank of America 2018 61
Revisions to Basel 3 to Address Current Expected Credit
Loss Accounting
On December 18, 2018, the U.S. banking regulators issued a final
rule to address the regulatory capital impact of using the current
expected credit loss methodology to measure credit reserves
under a new accounting standard that is effective on January 1,
2020. For more information on this standard, see Note 1 –
Summary of Significant Accounting Principles to the Consolidated
Financial Statements. The final rule provides an option to phase
in the impact to regulatory capital over a three-year period on a
straight-line basis. It also updates the existing regulatory capital
framework by creating a new defined term, adjusted allowance for
credit losses, which would include credit losses on all financial
instruments measured at amortized cost with the exception of
purchased credit-deteriorated assets. The final rule continues to
allow a limited amount of credit losses to be recognized in Tier 2
capital and maintains the existing limits under the Standardized
and Advanced approaches.
Single-Counterparty Credit Limits
On June 14, 2018, the Federal Reserve published a final rule
establishing single-counterparty credit limits (SCCL) for BHCs with
total consolidated assets of $250 billion or more. The SCCL rule
is designed to ensure that the maximum possible loss that a BHC
could incur due to the default of a single counterparty or a group
of connected counterparties would not endanger the BHC’s
survival, thereby reducing the probability of future financial crises.
Beginning January 1, 2020, G-SIBs must calculate SCCL on a daily
basis by dividing the aggregate net credit exposure to a given
counterparty by the G-SIB’s Tier 1 capital, ensuring that exposures
to other G-SIBs and nonbank financial institutions regulated by the
Federal Reserve do not breach 15 percent of Tier 1 capital and
exposures to most other counterparties do not breach 25 percent
of Tier 1 capital. Certain exposures, including exposures to the
U.S. government, U.S. government-sponsored entities and
qualifying central counterparties, are exempt from the credit limits.
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,
2018, MLPF&S’ regulatory net capital as defined by Rule 15c3-1
was $13.4 billion and exceeded the minimum requirement of $2.0
billion by $11.4 billion. MLPCC’s net capital of $4.4 billion
exceeded the minimum requirement of $617 million by $3.8
billion.
In accordance with the Alternative Net Capital Requirements,
MLPF&S is required to maintain tentative net capital in excess of
$1.0 billion, net capital in excess of $500 million and notify the
SEC in the event its tentative net capital is less than $5.0 billion.
At December 31, 2018, MLPF&S had tentative net capital and net
capital in excess of the minimum and notification requirements.
As a result of resolution planning, the current business of
MLPF&S is expected to be reorganized into two affiliated broker-
62 Bank of America 2018
dealers: MLPF&S and BofA Securities, Inc., a newly formed broker-
dealer. Under the contemplated reorganization, which is expected
to occur during 2019, BofA Securities, Inc. would become the legal
entity for the institutional services that are now provided by
MLPF&S. MLPF&S’ retail services would remain with MLPF&S. The
contemplated reorganization is subject to regulatory approval. For
more information on resolution planning, see Item 1. Business –
Resolution Planning of our 2018 Annual Report on Form 10-K.
Merrill Lynch International (MLI), a U.K. investment firm, is
regulated by the Prudential Regulation Authority and the FCA, and
is subject to certain regulatory capital requirements. At December
31, 2018, MLI’s capital resources were $35.0 billion, which
exceeded the minimum Pillar 1 requirement of $12.7 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 risk policy and the Financial
Contingency and Recovery Plan. The ERC establishes our liquidity
risk tolerance levels. 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 and stress testing results, approves
certain liquidity risk limits and reviews the impact of strategic
decisions on our liquidity. For more information, see Managing Risk
on page 55. Under this governance framework, we have developed
certain funding and liquidity risk management practices which
include: maintaining liquidity at the parent company and selected
subsidiaries, including our bank subsidiaries and other regulated
entities; determining what amounts of liquidity are appropriate for
these entities based on analysis of debt maturities and other
potential cash outflows, including those that we may experience
during stressed market conditions; diversifying funding sources,
considering our asset profile and legal entity structure; and
performing contingency planning.
NB Holdings Corporation
We have intercompany arrangements with certain key subsidiaries
under which we transferred certain assets of Bank of America
Corporation, as the parent company, which is a separate and
distinct legal entity from our banking and nonbank subsidiaries,
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 Bank 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.
Table 17 presents average GLS for the three months ended
December 31, 2018 and 2017.
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
2018
2017
$
$
76
420
48
544
$
$
79
394
49
522
Typically, parent company and NB Holdings liquidity is in the
form of cash deposited with BANA.
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 $344 billion and $308 billion at December 31,
2018 and 2017. 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.
Liquidity held in other regulated entities, comprised primarily
of broker-dealer subsidiaries, 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. Our
other regulated entities also hold unencumbered investment-grade
securities and equities that we believe could be used to generate
additional liquidity.
Table 18 presents the composition of average GLS for the three
months ended December 31, 2018 and 2017.
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
2018
2017
$
$
113
81
340
10
544
$
$
118
62
330
12
522
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. Our average consolidated HQLA, on
a net basis, was $446 billion and $439 billion for the three months
ended December 31, 2018 and 2017. For the same periods, the
average consolidated LCR was 118 percent and 125 percent. Our
LCR will fluctuate due to normal business flows from customer
activity.
Liquidity Stress Analysis
We utilize liquidity stress analysis to assist us in determining the
appropriate amounts of liquidity to maintain at the parent company
and our subsidiaries to meet contractual and contingent cash
outflows under a range of scenarios. 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
Bank of America 2018 63
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.
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
through a centralized, globally
and unsecured
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 $1.38 trillion and $1.31 trillion at
December 31, 2018 and 2017. 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 (GSE), the Federal Housing Administration (FHA) and
private-label investors, as well as FHLB loans.
Our trading activities in other regulated entities are primarily
funded on a secured basis through securities lending and
repurchase agreements, and these amounts will vary based on
customer activity and market conditions. We believe funding these
activities in the secured financing markets is more cost-efficient
and less sensitive to changes in our credit ratings than unsecured
financing. Repurchase agreements are generally short-term and
64 Bank of America 2018
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, Short-term Borrowings and Restricted Cash 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.
Table 19 presents our long-term debt by major currency at
December 31, 2018 and 2017.
Table 19 Long-term Debt by Major Currency
(Dollars in millions)
U.S. dollar
Euro
British pound
Japanese yen
Canadian dollar
Australian dollar
Other
Total long-term debt
December 31
2018
2017
180,709
34,296
5,450
3,036
2,935
1,722
1,192
229,340
$ 175,623
35,481
7,016
2,993
1,966
3,046
1,277
$ 227,402
$
$
Total long-term debt increased $1.9 billion during 2018,
primarily due to issuances outpacing maturities and redemptions.
We may, from time to time, purchase outstanding debt instruments
in various transactions, depending on market conditions, liquidity
and other factors. Our other regulated entities may also make
markets in our debt instruments to provide liquidity for investors.
For more information on long-term debt funding, see Note 11 –
Long-term Debt to the Consolidated Financial Statements.
During 2018, we issued $64.4 billion of long-term debt
consisting of $30.7 billion for Bank of America Corporation,
substantially all of which was TLAC compliant, $18.7 billion for
Bank of America, N.A. and $15.0 billion of other debt. 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.
During 2018, we had total long-term debt maturities and
redemptions in the aggregate of $53.3 billion consisting of $29.8
billion for Bank of America Corporation, $11.2 billion for Bank of
America, N.A. and $12.3 billion of other debt. During 2017, we
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 2018, we redeemed trust preferred securities of 11
trusts with a carrying value of $3.1 billion and recorded a charge
of $729 million in other income. We also collapsed two trusts,
with no financial statement impact, that held fixed-rate junior
subordinated notes with a carrying value of $741 million that were
outstanding at December 31, 2018. At December 31, 2018, we
had one remaining floating-rate junior subordinated note held in
trust.
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 89.
We may also issue unsecured debt in the form of structured
notes for client purposes, certain of which qualify as TLAC eligible
debt. During 2018, we issued $6.9 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.
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 5, 2018, Moody’s Investors Service (Moody’s)
placed the long-term and short-term ratings of the Corporation as
well as the long-term ratings of its rated subsidiaries, including
BANA, on review for upgrade. The agency cited the Corporation’s
strengthening profitability, continued adherence to a conservative
risk profile, and stable capital ratios as drivers of the review. A
rating review indicates that those ratings are under consideration
for a change in the near term, which typically concludes within 90
days. Moody’s concurrently affirmed the short-term ratings of the
Corporation’s rated subsidiaries, including BANA.
The ratings from Standard & Poor’s Global Ratings (S&P) for
the Corporation and its subsidiaries did not change during 2018.
The last change to the ratings from S&P was a one-notch upgrade
of the Corporation’s long-term ratings in November 2017.
On June 21, 2018, Fitch Ratings (Fitch) upgraded the
Corporation’s long-term senior debt rating to A+ from A as part of
the agency’s latest review of 12 Global Trading & Investment Banks,
citing our sustained and improved risk-adjusted earnings, lower
risk appetite relative to peers, overall franchise strength and solid
liquidity position. The Corporation’s short-term debt rating of F1
was affirmed. Additionally, Fitch upgraded the long- and short-term
debt ratings of the Corporation’s rated U.S. subsidiaries, including
BANA and MLPF&S, and upgraded the long-term debt ratings of
our rated international subsidiaries, including MLI. The outlook at
Fitch remains stable for all long-term debt ratings.
Table 20 presents the Corporation’s current long-term/short-
term senior debt ratings and outlooks expressed by the rating
agencies.
Bank of America 2018 65
Table 20 Senior Debt Ratings
Moody’s Investors Service
Short-term
Long-term
Outlook
Review for
upgrade
Review for
upgrade (1)
Standard & Poor’s Global Ratings
Short-term
Outlook
Long-term
Long-term
Fitch Ratings
Short-term
Outlook
A-
A-2
Stable
A+
F1
Stable
A+
A-1
Stable
AA-
F1+
Stable
NR
NR
A+
A+
A-1
A-1
Stable
Stable
AA-
A+
F1+
Stable
F1
Stable
Bank of America Corporation
A3
P-2
Bank of America, N.A.
Aa3
P-1
Merrill Lynch, Pierce, Fenner &
Smith Incorporated
NR
NR
Merrill Lynch International
(1) Review for upgrade only applies to BANA’s long-term rating.
NR = not rated
NR
NR
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 – Liquidity Stress Analysis on page 63.
For more information on 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 3 – Derivatives to the
Consolidated Financial Statements and Item 1A. Risk Factors of
our 2018 Annual Report on Form 10-K.
Common Stock Dividends
For a summary of our declared quarterly cash dividends on
common stock during 2018 and through February 26, 2019, see
Note 13 – Shareholders’ Equity to the Consolidated Financial
Statements.
Credit Risk Management
Credit risk is the risk of loss arising from the inability or failure of
a borrower or counterparty to meet its obligations. Credit risk can
also arise from operational failures that result in an erroneous
advance, commitment or investment of funds. We define the credit
exposure to a borrower or counterparty as the loss potential arising
from all product classifications including loans and leases, deposit
overdrafts, derivatives, assets held-for-sale and unfunded lending
commitments which include loan commitments, letters of credit
and financial guarantees. Derivative positions are recorded at fair
value and assets held-for-sale are recorded at either fair value or
the lower of cost or fair value. Certain loans and unfunded
66 Bank of America 2018
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 3 –
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 74, Non-
U.S. Portfolio on page 80, Provision for Credit Losses on page 82,
Allowance for Credit Losses on page 82, and Note 5 – Outstanding
Loans and Leases and Note 6 – Allowance for Credit Losses to the
Consolidated Financial Statements.
Consumer Portfolio Credit Risk Management
Credit risk management for the consumer portfolio begins with
initial underwriting and continues throughout a borrower’s credit
cycle. Statistical techniques in conjunction with experiential
judgment are used in all aspects of portfolio management
including underwriting, product pricing, risk appetite, setting credit
limits, and establishing operating processes and metrics to
quantify and balance risks and returns. Statistical models are built
using detailed behavioral information from external sources such
as credit bureaus and/or internal historical experience 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 home prices continued during 2018 resulting in
improved credit quality and lower credit losses in the home equity
portfolio, partially offset by seasoning and loan growth in the U.S.
credit card portfolio compared to 2017.
Improved credit quality, continued loan balance runoff and
sales primarily in the non-core consumer real estate portfolio,
partially offset by seasoning within the U.S. credit card portfolio,
drove a $581 million decrease in the consumer allowance for loan
and lease losses in 2018 to $4.8 billion at December 31, 2018.
For additional information, see Allowance for Credit Losses on
page 82.
For more information on our accounting policies regarding
delinquencies, nonperforming status, charge-offs, troubled debt
restructurings (TDRs) for the consumer portfolio and PCI loans,
see Note 1 – Summary of Significant Accounting Principles and
Note 5 – Outstanding Loans and Leases 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 and Freddie Mac (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 the Government
Additionally,
Association
National Mortgage
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.
(GNMA).
Table 21 Consumer Credit Quality
(Dollars in millions)
Residential mortgage (1)
Home equity
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
Percentage of outstanding consumer loans and leases (5)
Percentage of outstanding consumer loans and leases, excluding PCI and fully-
Outstandings
Nonperforming
December 31
Accruing Past Due
90 Days or More
2018
$ 208,557
48,286
98,338
91,166
202
$ 446,549
682
$ 447,231
n/a
2017
$ 203,811
57,744
96,285
96,342
166
$ 454,348
928
$ 455,276
n/a
2018
2017
2018
2017
$
$
1,893
1,893
n/a
56
—
3,842
$
$
2,476
2,644
n/a
46
—
5,166
$
$
1,884
—
994
38
—
2,916
$
$
3,230
—
900
40
—
4,170
0.86%
1.14%
0.65%
0.92%
insured loan portfolios (5)
n/a
n/a
0.91
1.23
0.24
0.22
(1) Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At December 31, 2018 and 2017, residential mortgage includes $1.4 billion and $2.2 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 $498 million and $1.0 billion of loans on which interest was still
accruing.
(2) Outstandings include auto and specialty lending loans and leases of $50.1 billion and $52.4 billion, unsecured consumer lending loans of $383 million and $469 million, U.S. securities-based
lending loans of $37.0 billion and $39.8 billion, non-U.S. consumer loans of $2.9 billion and $3.0 billion and other consumer loans of $746 million and $684 million at December 31, 2018 and
2017.
(3) Substantially all of other consumer at December 31, 2018 and 2017 is consumer overdrafts.
(4) Consumer loans accounted for under the fair value option include residential mortgage loans of $336 million and $567 million and home equity loans of $346 million and $361 million at December
31, 2018 and 2017. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements.
(5) Excludes consumer loans accounted for under the fair value option. At December 31, 2018 and 2017, $12 million and $26 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 (3)
Direct/Indirect consumer
Other consumer
Total
Net Charge-offs (1)
Net Charge-off Ratios (1, 2)
2018
2017
2018
2017
$
$
28
(2)
2,837
—
195
182
3,240
$
$
(100)
213
2,513
75
214
163
3,078
0.01%
—
3.00
—
0.21
n/m
0.72
(0.05)%
0.34
2.76
1.91
0.22
n/m
0.68
(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 72.
(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.
(3) Represents net charge-offs related to the non-U.S. credit card loan portfolio, which was sold during the second quarter of 2017.
n/m = not meaningful
Bank of America 2018 67
Net charge-offs, as shown in Tables 22 and 23, exclude write-
offs in the PCI loan portfolio of $154 million and $131 million in
residential mortgage and $119 million and $76 million in home
equity for 2018 and 2017. Net charge-off ratios including the PCI
write-offs were 0.09 percent and 0.02 percent for residential
mortgage and 0.22 percent and 0.47 percent for home equity in
2018 and 2017.
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, loan-to-value
(LTV), Fair Isaac Corporation (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 GSE 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 runoff 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.
As shown in Table 23, outstanding core consumer real estate
loans increased $12.8 billion during 2018 driven by an increase
of $17.1 billion in residential mortgage, partially offset by a $4.2
billion decrease in home equity.
During 2018, we sold $11.6 billion of consumer real estate
loans compared to $4.0 billion in 2017. In addition to recurring
loan sales, the 2018 amount includes sales of loans, primarily
non-core, with a carrying value of $9.6 billion and related gains of
$731 million recorded in other income in the Consolidated
Statement of Income.
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
2018
2017
2018
2017
2018
2017
December 31
Net Charge-offs (2)
$
$
$
193,695
40,010
233,705
$
176,618
44,245
220,863
14,862
8,276
23,138
27,193
13,499
40,692
208,557
48,286
256,843
$
203,811
57,744
261,555
$
$
$
$
$
1,010
955
1,965
883
938
1,821
1,893
1,893
3,786
$
$
1,087
1,079
2,166
1,389
1,565
2,954
2,476
2,644
5,120
Allowance for Loan
and Lease Losses
December 31
2018
2017
$
214
228
442
208
278
486
218
367
585
483
652
1,135
11
78
89
17
(80)
(63)
28
(2)
26
$
$
(45)
100
55
(55)
113
58
(100)
213
113
Provision for Loan
and Lease Losses
2018
2017
$
7
(60)
(53)
(104)
(335)
(439)
(79)
(91)
(170)
(201)
(339)
(540)
Residential mortgage
Home equity
(280)
(430)
(710)
(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
$336 million and $567 million and home equity loans of $346 million and $361 million at December 31, 2018 and 2017. For additional information, see Note 21 – Fair Value Option to the Consolidated
Financial Statements.
Total consumer real estate portfolio
(97)
(395)
(492) $
701
1,019
1,720
422
506
928
$
$
$
(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 72.
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 tables and discussions
of the residential mortgage and home equity portfolios, we exclude
loans accounted for under the fair value option and provide
information that excludes the impact of the PCI loan portfolio and
the fully-insured loan portfolio in certain credit quality statistics.
We separately disclose information on the PCI loan portfolio on
page 72.
Residential Mortgage
The residential mortgage portfolio made up the largest percentage
of our consumer loan portfolio at 47 percent of consumer loans
and leases at December 31, 2018. Approximately 44 percent of
the residential mortgage portfolio was in Consumer Banking and
37 percent was in GWIM. The remaining portion was in All Other
and was 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.
68 Bank of America 2018
Outstanding balances in the residential mortgage portfolio
increased $4.7 billion in 2018 as retention of new originations
was partially offset by loan sales of $8.9 billion and runoff.
At December 31, 2018 and 2017, the residential mortgage
portfolio included $20.1 billion and $23.7 billion of outstanding
fully-insured loans, of which $14.0 billion and $17.4 billion had
FHA insurance with the remainder protected by long-term standby
agreements. At December 31, 2018 and 2017, $3.5 billion and
$5.2 billion of the FHA-insured loan population were repurchases
of delinquent FHA loans pursuant to our servicing agreements with
GNMA.
Table 24 Residential Mortgage – Key Credit Statistics
Table 24 presents certain residential mortgage key credit
statistics on both a reported basis and excluding the PCI loan
portfolio and the fully-insured loan portfolio. 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 and the fully-insured loan portfolio.
(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)
December 31
Excluding Purchased
Credit-impaired and
Fully-insured Loans (1)
$
2018
208,557
3,945
1,884
1,893
$
2017
203,811
5,987
3,230
2,476
$
2018
184,627
1,155
—
1,893
$
2017
172,069
1,521
—
2,476
2%
1
4
6
3 %
2
6
10
1%
1
2
5
2 %
1
3
8
2018
2017
2018
2017
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 $536 million, or 28 percent, and $825 million, or 33 percent, of nonperforming residential mortgage loans at December 31, 2018 and 2017.
(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.
(0.05)%
0.01%
0.02%
(0.06)%
Nonperforming residential mortgage loans decreased $583
million in 2018 primarily driven by sales. Of the nonperforming
residential mortgage loans at December 31, 2018, $716 million,
or 38 percent, were current on contractual payments. Loans
accruing past due 30 days or more decreased $366 million due
to continued improvement in credit quality as well as loan sales
in the non-core portfolio.
Net charge-offs increased $128 million to $28 million in 2018
compared to $100 million of net recoveries in 2017 primarily due
to net recoveries related to loan sales in 2017.
Loans with a refreshed LTV greater than 100 percent
represented one percent of the residential mortgage loan portfolio
at both December 31, 2018 and 2017. Of the loans with a
refreshed LTV greater than 100 percent, 99 percent and 98 percent
were performing at December 31, 2018 and 2017. 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.
Of the $184.6 billion in total residential mortgage loans
outstanding at December 31, 2018, as shown in Table 24, 30
percent were originated as interest-only loans. The outstanding
balance of interest-only residential mortgage loans that have
entered the amortization period was $8.6 billion, or 16 percent,
at December 31, 2018. 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, 2018, $177 million, or two percent, of outstanding
interest-only residential mortgages that had entered the
amortization period were accruing past due 30 days or more
compared to $1.2 billion, or one percent, for the entire residential
mortgage portfolio. In addition, at December 31, 2018, $365
million, or four percent, of outstanding interest-only residential
mortgage loans that had entered the amortization period were
nonperforming, of which $128 million were contractually current,
compared to $1.9 billion, or one percent, for the entire residential
mortgage portfolio. Loans that have yet to enter the amortization
period in our interest-only residential mortgage portfolio are
primarily well-collateralized loans to our wealth management
clients and have an interest-only period of three to ten years.
Approximately 90 percent of these loans that have yet to enter the
amortization period will not be required to make a fully-amortizing
payment until 2022 or later.
Bank of America 2018 69
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 of
outstandings at both December 31, 2018 and 2017. In the New York area, the New York-Northern New Jersey-Long Island MSA made
up 13 percent of outstandings at both December 31, 2018 and 2017.
Table 25 Residential Mortgage State Concentrations
(Dollars in millions)
California
New York (3)
Florida (3)
Texas
New Jersey (3)
Other
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)
2018
2017
2018
2017
2018
2017
December 31
Net Charge-offs (2)
$
$
$
74,463
19,085
11,296
7,747
6,959
65,077
184,627
20,130
3,800
208,557
$
$
$
$
$
68,455
17,239
10,880
7,237
6,099
62,159
172,069
23,741
8,001
203,811
314
222
221
102
98
936
1,893
$
$
433
227
280
126
130
1,280
2,476
$
$
(22) $
10
(6)
4
8
34
28
$
(103)
(2)
(13)
1
—
17
(100)
(1) Outstandings and nonperforming loans exclude loans accounted for under the fair value option.
(2) Net charge-offs exclude $154 million and $131 million of write-offs in the residential mortgage PCI loan portfolio in 2018 and 2017. For more information on PCI write-offs, see Consumer Portfolio
Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 72.
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, 2018 and 2017, 49 percent and 47 percent of PCI residential mortgage loans were in California. There were no other significant single state concentrations.
Home Equity
At December 31, 2018, the home equity portfolio made up 11
percent of the consumer portfolio and was comprised of home
equity lines of credit (HELOCs), home equity loans and reverse
mortgages.
At December 31, 2018, our HELOC portfolio had an outstanding
balance of $44.3 billion, or 92 percent of the total home equity
portfolio, compared to $51.2 billion, or 89 percent, at December
31, 2017. 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, 2018, our home equity loan portfolio had an
outstanding balance of $1.8 billion, or four percent of the total
home equity portfolio, compared to $4.4 billion, or seven percent,
at December 31, 2017. Home equity loans are almost all fixed-
rate loans with amortizing payment terms of 10 to 30 years, and
of the $1.8 billion at December 31, 2018, 68 percent have 25- to
30-year terms. At December 31, 2018, our reverse mortgage
portfolio had an outstanding balance of $2.2 billion, or four percent
of the total home equity portfolio, compared to $2.1 billion, or four
percent, at December 31, 2017. We no longer originate reverse
mortgages.
At December 31, 2018, 75 percent of the home equity portfolio
was in Consumer Banking, 17 percent was in All Other and the
remainder of the portfolio was primarily in GWIM. Outstanding
balances in the home equity portfolio decreased $9.5 billion in
2018 primarily due to paydowns and loan sales of $2.7 billion
outpacing new originations and draws on existing lines. Of the total
home equity portfolio at December 31, 2018 and 2017, $17.3
billion and $18.7 billion, or 36 percent and 32 percent, were in
first-lien positions. At December 31, 2018, 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
$7.9 billion, or 17 percent of our total home equity portfolio
excluding the PCI loan portfolio.
Unused HELOCs totaled $43.1 billion and $44.2 billion at
December 31, 2018 and 2017. 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 51
percent and 54 percent at December 31, 2018 and 2017.
Table 26 presents certain home equity portfolio key credit
statistics on both a reported basis and excluding the PCI loan
portfolio. 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.
70 Bank of America 2018
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 (1)
December 31
2018
2017
2018
2017
$
$
48,286
363
1,893
$
57,744
502
2,644
47,441
363
1,893
$
55,028
502
2,644
2%
3
5
22
3%
5
6
29
2%
3
5
21
3%
4
6
27
2018
2017
2018
2017
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 include $48 million and $67 million and nonperforming loans include $218 million and $344 million of loans where we serviced the underlying first lien at December
0.34%
0.36%
—%
—%
31, 2018 and 2017.
(3) These vintages of loans have higher refreshed combined loan-to-value (CLTV) ratios and accounted for 49 percent and 52 percent of nonperforming home equity loans at December 31, 2018 and
2017, and $11 million and $193 million of net charge-offs in 2018 and 2017.
(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 $751 million in 2018 as outflows, including
sales, outpaced new inflows. Of the nonperforming home equity
loans at December 31, 2018, $1.1 billion, or 59 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, $463 million, or 24 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 $139 million in 2018.
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. At December 31, 2018, we
estimate that $610 million of current and $83 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 $114 million of these
combined amounts, with the remaining $579 million serviced by
third parties. Of the $693 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 $221
million had first-lien loans that were 90 days or more past due.
Net charge-offs decreased $215 million to a net recovery of $2
million in 2018 compared to net charge-offs of $213 million in
2017 driven by favorable portfolio trends due in part to
improvement in home prices and the U.S. economy.
Outstanding balances with a refreshed CLTV greater than 100
percent comprised three percent and four percent of the home
equity portfolio at December 31, 2018 and 2017. 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, 96 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, 2018.
Of the $47.4 billion in total home equity portfolio outstandings
at December 31, 2018, as shown in Table 26, 20 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 $15.8 billion at December 31, 2018. 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, 2018, $267 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,
2018, $1.7 billion, or 11 percent, of outstanding HELOCs that had
entered the amortization period were nonperforming. Loans that
have yet to enter the amortization period in our interest-only
portfolio are primarily post-2008 vintages and generally have
better credit quality than the previous vintages that had entered
the amortization period. We communicate to contractually current
customers more than a year prior to the end of their draw period
to inform them of the potential change to the payment structure
before entering the amortization period, and provide payment
options to customers prior to the end of the draw period.
Although we do not actively track how many of our home equity
customers pay only the minimum amount due on their home equity
loans and lines, we can infer some of this information through a
review of our HELOC portfolio that we service and that is still in
its revolving period. During 2018, 14 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, 2018 and 2017. Loans
within this MSA contributed $35 million and $58 million of net
charge-offs in 2018 and 2017 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
Bank of America 2018 71
at both December 31, 2018 and 2017. Loans within this MSA contributed net recoveries of $23 million and $20 million within the
home equity portfolio in 2018 and 2017.
Table 27 Home Equity State Concentrations
(Dollars in millions)
California
Florida (3)
New Jersey (3)
New York (3)
Massachusetts
Other
Home equity loans (4)
Purchased credit-impaired home equity portfolio (5)
Total home equity loan portfolio
Outstandings (1)
Nonperforming (1)
2018
2017
2018
2017
2018
2017
December 31
Net Charge-offs (2)
$
$
$
13,228
5,363
3,833
3,549
2,376
19,092
47,441
845
48,286
$
$
$
$
$
15,145
6,308
4,546
4,195
2,751
22,083
55,028
2,716
57,744
536
315
150
194
65
633
1,893
$
$
766
411
191
252
92
932
2,644
$
$
(54) $
1
25
23
5
(2)
(2) $
(37)
38
44
35
9
124
213
(1) Outstandings and nonperforming loans exclude loans accounted for under the fair value option.
(2) Net charge-offs exclude $119 million and $76 million of write-offs in the home equity PCI loan portfolio in 2018 and 2017. 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, 2018 and 2017, 34 percent and 28 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.
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
$
$
$
$
3,872
896
4,768
8,117
2,787
10,904
$
$
$
$
December 31, 2018
3,800
845
4,645
$
$
30
61
91
December 31, 2017
8,001
2,716
10,717
$
$
117
172
289
$
$
$
$
3,770
784
4,554
7,884
2,544
10,428
97.37%
87.50
95.51
97.13%
91.28
95.63
(1) At December 31, 2018 and 2017, pay option loans had an unpaid principal balance of $757 million and $1.4 billion and a carrying value of $744 million and $1.4 billion. This includes $645 million
and $1.2 billion of loans that were credit-impaired upon acquisition and $67 million and $141 million of loans that were 90 days or more past due. The total unpaid principal balance of pay option
loans with accumulated negative amortization was $73 million and $160 million, including $4 million and $9 million of negative amortization at December 31, 2018 and 2017.
The total PCI unpaid principal balance decreased $6.1 billion,
or 56 percent, in 2018 primarily driven by loan sales with a carrying
value of $4.4 billion compared to sales of $803 million in 2017.
Of the unpaid principal balance of $4.8 billion at December 31,
2018, $4.3 billion, or 90 percent, was current based on the
contractual terms, $208 million, or four percent, was in early stage
delinquency and $205 million was 180 days or more past due,
including $172 million of first-lien mortgages and $33 million of
home equity loans.
The PCI residential mortgage loan and home equity portfolios
represented 82 percent and 18 percent of the total PCI loan
portfolio at December 31, 2018. Those loans to borrowers with a
refreshed FICO score below 620 represented 19 percent and 21
percent of the PCI residential mortgage loan and home equity
portfolios at December 31, 2018. 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 10 percent and 28
percent of their respective PCI loan portfolios and 11 percent and
32 percent based on the unpaid principal balance at December
31, 2018.
U.S. Credit Card
At December 31, 2018, 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 $2.1 billion
in 2018 to $98.3 billion due to higher retail volume partially offset
by payments as well as the sale of a small portfolio. In 2018, net
charge-offs increased $324 million to $2.8 billion, and U.S. credit
card loans 30 days or more past due and still accruing interest
increased $142 million and loans 90 days or more past due and
still accruing interest increased $94 million, each driven by
portfolio seasoning and loan growth.
Unused lines of credit for U.S. credit card totaled $334.8 billion
and $326.3 billion at December 31, 2018 and 2017. 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.
72 Bank of America 2018
Table 29 U.S. Credit Card State Concentrations
(Dollars in millions)
California
Florida
Texas
New York
Washington
Other
Total U.S. credit card portfolio
Outstandings
Accruing Past Due
90 Days or More
2018
2017
2018
2017
2018
2017
December 31
Net Charge-offs
$
$
16,062
8,840
7,730
6,066
4,558
55,082
98,338
$
$
15,254
8,359
7,451
5,977
4,350
54,894
96,285
$
$
163
119
84
81
24
523
994
$
$
136
94
76
91
20
483
900
$
$
479
332
224
268
63
1,471
2,837
$
$
412
259
194
218
56
1,374
2,513
Direct/Indirect Consumer
At December 31, 2018, 55 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 45 percent was included in
GWIM (principally securities-based lending loans).
Outstandings in the direct/indirect portfolio decreased $5.2
billion in 2018 to $91.2 billion primarily due to declines in
Table 30 Direct/Indirect State Concentrations
securities-based lending due to higher paydowns, and in our auto
portfolio as paydowns outpaced originations. Net charge-offs
decreased $19 million to $195 million in 2018 due largely to
to bankruptcy and
clarifying
repossession issued during 2017.
regulatory guidance
related
Table 30 presents certain state concentrations for the direct/
indirect consumer loan portfolio.
(Dollars in millions)
California
Florida
Texas
New York
New Jersey
Other
Total direct/indirect loan portfolio
Outstandings
Accruing Past Due
90 Days or More
2018
2017
2018
2017
2018
2017
December 31
Net Charge-offs
$
$
11,734
10,240
9,876
6,296
3,308
49,712
91,166
$
$
12,897
11,184
10,676
6,557
3,449
51,579
96,342
$
$
4
4
6
2
1
21
38
$
$
3
5
5
2
1
24
40
$
$
21
36
30
9
2
97
195
$
$
21
43
38
7
6
99
214
Nonperforming Consumer Loans, Leases and Foreclosed
Properties Activity
Table 31 presents nonperforming consumer loans, leases and
foreclosed properties activity during 2018 and 2017. During 2018,
nonperforming consumer loans declined $1.3 billion to $3.8 billion
primarily driven by loan sales of $969 million.
At December 31, 2018, $1.1 billion, or 29 percent, of
nonperforming loans were 180 days or more past due and had
been written down to their estimated property value less costs to
sell. In addition, at December 31, 2018, $1.9 billion, or 49 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 increased $8 million in 2018 to $244
million as additions outpaced liquidations. 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. Certain delinquent
government-guaranteed loans (principally FHA-insured loans) are
excluded 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, 2018 and 2017,
$221 million and $330 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.
Bank of America 2018 73
Table 31 Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity
(Dollars in millions)
Nonperforming loans and leases, January 1
Additions
Reductions:
Paydowns and payoffs
Sales
Returns to performing status (1)
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
Foreclosed properties, December 31 (2)
2018
2017
$
5,166
2,440
$
6,004
3,254
(1,052)
(511)
(1,438)
(676)
(217)
(198)
(838)
5,166
236
5,402
1.14%
1.19
(958)
(969)
(1,283)
(401)
(151)
(2)
(1,324)
3,842
244
4,086
0.86%
0.92
$
Nonperforming consumer loans, leases and foreclosed properties, December 31
$
Nonperforming consumer loans and leases as a percentage of outstanding consumer loans and leases (3)
Nonperforming consumer loans, leases and foreclosed properties as a percentage of outstanding consumer loans, leases and
foreclosed properties (3)
(1) 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.
(2) Foreclosed property balances do not include properties insured by certain government-guaranteed loans, principally FHA-insured, of $488 million and $801 million at December 31, 2018 and 2017.
(3) Outstanding consumer loans and leases exclude loans accounted for under the fair value option.
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
1,209
$
1,107
2,316
December 31, 2018
Performing
Total
$
$
4,988
1,252
6,240
$
$
6,197
2,359
8,556
Nonperforming
1,535
$
1,457
2,992
$
December 31, 2017
Performing
$
$
8,163
1,399
9,562
$
$
Total
9,698
2,856
12,554
(1) At December 31, 2018 and 2017, residential mortgage TDRs deemed collateral dependent totaled $1.6 billion and $2.8 billion, and included $960 million and $1.2 billion of loans classified as
nonperforming and $605 million and $1.6 billion of loans classified as performing.
(2) Residential mortgage performing TDRs included $2.8 billion and $3.7 billion of loans that were fully-insured at December 31, 2018 and 2017.
(3) At December 31, 2018 and 2017, home equity TDRs deemed collateral dependent totaled $1.3 billion and $1.6 billion, and included $961 million and $1.2 billion of loans classified as nonperforming
and $322 million and $388 million of loans classified as performing.
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, 2018 and 2017,
our renegotiated TDR portfolio was $566 million and $490 million,
of which $481 million and $426 million were current or less than
30 days past due under the modified terms. The increase in the
renegotiated TDR portfolio was primarily driven by new
renegotiated enrollments outpacing runoff of existing portfolios.
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,
74 Bank of America 2018
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 continue to be aligned with
our risk appetite. 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, 43 and 44
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, see Commercial Portfolio Credit Risk Management
– Industry Concentrations on page 78 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 additional information, see Note 12 – Commitments
and Contingencies to the Consolidated Financial Statements.
Commercial Credit Portfolio
During 2018, credit quality among large corporate borrowers was
strong, and there was continued improvement in the energy
portfolio. Credit quality of commercial real estate borrowers in
most sectors remained stable with conservative LTV ratios.
However, some of the commercial real estate markets experienced
slowing tenant demand and decelerating rental income.
Total commercial utilized credit exposure increased $20.2
billion in 2018 to $621.0 billion primarily driven by commercial
loan growth. The utilization rate for loans and leases, SBLCs and
financial guarantees, and commercial letters of credit, in the
aggregate, was 59 percent at both December 31, 2018 and 2017.
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
2018
2017
2018
2017
2018
2017
$
$
$
$
$
505,724
43,725
34,941
25,425
9,090
1,210
898
621,013
487,748
37,762
34,517
28,161
10,257
1,467
888
600,800
369,282
—
491
4,250
14,812
168
—
389,003
364,743
—
863
4,864
9,742
155
—
380,367
875,006
43,725
35,432
29,675
23,902
1,378
898
1,010,016
852,491
37,762
35,380
33,025
19,999
1,622
888
981,167
Total
$
(1) Commercial utilized exposure includes loans of $3.7 billion and $4.8 billion and issued letters of credit with a notional amount of $100 million and $232 million accounted for under the fair value
$
$
$
$
$
option at December 31, 2018 and 2017.
(2) Commercial unfunded exposure includes commitments accounted for under the fair value option with a notional amount of $3.0 billion and $4.6 billion at December 31, 2018 and 2017.
(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 (i.e., syndicated or participated) to other financial institutions. The distributed amounts
were $10.7 billion and $11.0 billion at December 31, 2018 and 2017.
Includes credit risk exposure associated with assets under operating lease arrangements of $6.1 billion and $6.3 billion at December 31, 2018 and 2017.
(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 $32.4 billion and $34.6 billion at December
31, 2018 and 2017. Not reflected in utilized and committed exposure is additional non-cash derivative collateral held of $33.0 billion and $26.2 billion at December 31, 2018 and 2017, which
consists primarily of other marketable securities.
Outstanding commercial loans and leases increased $18.2 billion during 2018 primarily in the U.S. commercial portfolio. The
allowance for loan and lease losses for the commercial portfolio decreased $211 million to $4.8 billion at December 31, 2018. For
additional information, see Allowance for Credit Losses on page 82. Table 34 presents our commercial loans and leases portfolio and
related credit quality information at December 31, 2018 and 2017.
Bank of America 2018 75
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
2018
2017
2018
2017
2018
2017
$
$
299,277
98,776
398,053
60,845
22,534
481,432
14,565
$
284,836
97,792
382,628
58,298
22,116
463,042
13,649
495,997
476,691
$
794
80
874
156
18
1,048
54
1,102
$
814
299
1,113
112
24
1,249
55
1,304
197
—
197
4
29
230
84
314
$
$
144
3
147
4
19
170
75
245
—
245
Total commercial loans and leases
Loans accounted for under the fair value option (3)
—
314
Includes U.S. commercial real estate of $56.6 billion and $54.8 billion and non-U.S. commercial real estate of $4.2 billion and $3.5 billion at December 31, 2018 and 2017.
Includes card-related products.
4,782
481,473
3,667
499,664
43
1,347
—
1,102
$
$
$
$
$
(1)
(2)
(3) Commercial loans accounted for under the fair value option include U.S. commercial of $2.5 billion and $2.6 billion and non-U.S. commercial of $1.1 billion and $2.2 billion at December 31, 2018
and 2017. For more information on the fair value option, see Note 21 – Fair Value Option to the Consolidated Financial Statements.
Table 35 presents net charge-offs and related ratios for our commercial loans and leases for 2018 and 2017. The decrease in net
charge-offs of $378 million for 2018 was primarily driven by a single-name non-U.S. commercial charge-off of $292 million in 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
2018
2017
Net Charge-off Ratios (1)
2018
2017
$
$
215
68
283
1
(1)
283
240
523
$
$
232
440
672
9
5
686
215
901
0.07%
0.07
0.07
—
(0.01)
0.06
1.70
0.11
0.08%
0.48
0.18
0.02
0.02
0.15
1.60
0.20
(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 reservable criticized utilized exposure by loan type. Criticized exposure corresponds to the Special
Mention, Substandard and Doubtful asset categories as defined by regulatory authorities. Total commercial reservable criticized utilized
exposure decreased $2.5 billion, or 18 percent, during 2018 driven by broad-based improvements including the energy sector. At
December 31, 2018 and 2017, 91 percent and 84 percent of commercial reservable criticized utilized exposure was secured.
Table 36 Commercial Reservable Criticized Utilized Exposure (1, 2)
(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 reservable criticized utilized exposure (1)
December 31
2018
2017
$
$
7,986
1,013
8,999
936
366
10,301
760
11,061
2.43% $
0.97
2.08
1.50
1.62
1.99
5.22
2.08
$
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
(1) Total commercial reservable criticized utilized exposure includes loans and leases of $10.3 billion and $12.5 billion and commercial letters of credit of $781 million and $1.1 billion at December
31, 2018 and 2017.
(2) Percentages are calculated as commercial reservable criticized utilized exposure divided by total commercial reservable utilized exposure for each exposure category.
76 Bank of America 2018
Commercial and Industrial
Commercial and industrial loans include U.S. commercial and non-
U.S. commercial portfolios.
U.S. Commercial
At December 31, 2018, 70 percent of the U.S. commercial loan
portfolio, excluding small business, was managed in Global
Banking, 16 percent in Global Markets, 12 percent in GWIM
(generally business-purpose loans for high net worth clients) and
the remainder primarily in Consumer Banking. U.S. commercial
loans increased $14.4 billion in 2018 primarily in Global Banking.
Reservable criticized utilized exposure decreased $1.9 billion, or
19 percent, driven by broad-based improvements including the
energy sector.
Non-U.S. Commercial
At December 31, 2018, 81 percent of the non-U.S. commercial
loan portfolio was managed in Global Banking and 19 percent in
Global Markets. Reservable criticized utilized exposure decreased
$753 million, or 43 percent, and nonperforming loans and leases
decreased $219 million, or 73 percent, due primarily to paydowns,
sales and charge-offs. Net charge-offs decreased $372 million in
2018 primarily due to a single-name non-U.S. commercial charge-
off of $292 million in 2017. For more information on the non-U.S.
commercial portfolio, see Non-U.S. Portfolio on page 80.
Commercial Real Estate
Commercial real estate primarily includes commercial loans and
leases secured by non-owner-occupied real estate and is
Table 37 Outstanding Commercial Real Estate Loans
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, 2018 and
2017. 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 $2.5 billion, or four percent, during
2018 to $60.8 billion due to new originations, including higher
hold levels on syndicated loans, outpacing paydowns.
During 2018, we continued to see low default rates and solid
credit quality in both the residential and non-residential portfolios.
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 $48 million, or 29 percent, during 2018 to
$212 million, primarily due to a single-name downgrade.
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
Florida
Illinois
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
Unsecured
Multi-use
Other
Total non-residential
Residential
Total outstanding commercial real estate loans
December 31
2018
2017
14,002
10,895
7,339
5,726
3,772
3,680
2,989
2,919
2,178
4,240
3,105
60,845
17,246
8,798
7,762
7,248
5,379
2,956
2,848
7,029
59,266
1,579
60,845
$
$
$
$
13,607
10,072
6,970
5,487
3,769
3,170
3,263
2,962
2,657
3,538
2,803
58,298
16,718
8,825
8,280
6,344
6,070
2,187
2,771
5,645
56,840
1,458
58,298
$
$
$
$
(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 51 percent and 50 percent of the U.S. small business commercial portfolio at
December 31, 2018 and 2017. Of the U.S. small business commercial net charge-offs, 95 percent and 90 percent were credit card-
related products in 2018 and 2017.
Bank of America 2018 77
Nonperforming Commercial Loans, Leases and Foreclosed
Properties Activity
Table 38 presents the nonperforming commercial loans, leases
and foreclosed properties activity during 2018 and 2017.
Nonperforming loans do not include loans accounted for under the
fair value option. During 2018, nonperforming commercial loans
and leases decreased $202 million to $1.1 billion. At December
31, 2018, 93 percent of commercial nonperforming loans, leases
and foreclosed properties were secured and 55 percent were
contractually current. Commercial nonperforming loans were
carried at 89 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
collateral value less costs to sell.
Table 38 Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity (1, 2)
2018
2017
$
1,304
1,415
$
1,703
1,616
(930)
(136)
(280)
(455)
(40)
(174)
(399)
1,304
52
1,356
0.27%
0.28
(771)
(210)
(246)
(361)
(12)
(17)
(202)
1,102
56
1,158
0.22%
0.23
$
(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
Total net reductions to nonperforming loans and leases
Total nonperforming loans and leases, December 31
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 loans held-for-sale of $292 million and $339 million at December 31, 2018 and 2017.
(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 5 – 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, 2018
Performing
Total
Nonperforming
December 31, 2017
Performing
Total
$
$
306
78
384
114
3
501
3
504
$
$
1,092
162
1,254
6
68
1,328
18
1,346
$
$
1,398
240
1,638
120
71
1,829
21
1,850
$
$
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
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 $28.8 billion, or three percent, during 2018
to $1.0 trillion. The increase in commercial committed exposure
the Asset Managers and Funds,
was concentrated
Pharmaceuticals and Biotechnology, and Capital Goods industry
sectors. Increases were partially offset by reduced exposure to
the Media, Food and Staples Retailing, and Energy industry
sectors.
in
Industry limits are used internally to manage industry
concentrations and are based on committed exposure that is
78 Bank of America 2018
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 $107.9 billion, increased $16.8
billion, or 18 percent, during 2018. The change reflects an increase
in exposure to several counterparties.
Real Estate, our second largest industry concentration with
committed exposure of $86.5 billion, increased $2.7 billion, or
three percent, during 2018. For more information on the
commercial real estate and related portfolios, see Commercial
Portfolio Credit Risk Management – Commercial Real Estate on
page 77.
Capital Goods, our third largest industry concentration with
committed exposure of $75.1 billion, increased $4.7 billion, or
seven percent, during 2018. The increase in committed exposure
occurred primarily as a result of increases in large conglomerates,
as well as trading companies, distributors and electrical equipment
companies, partially offset by a decrease in machinery companies.
Our energy-related committed exposure decreased $4.5 billion,
or 12 percent, during 2018 to $32.3 billion. Energy sector net
Table 40 Commercial Credit Exposure by Industry (1)
charge-offs were $31 million in 2018 compared to $156 million
in 2017. Energy sector reservable criticized exposure decreased
$833 million during 2018 to $787 million due to improvement in
credit quality coupled with exposure reductions. The energy
allowance for credit losses decreased $225 million during 2018
to $335 million.
Commercial
Utilized
Total Commercial
Committed (2)
December 31
2018
2017
2018
2017
$
$
$
$
(Dollars in millions)
Asset managers and funds
Real estate (3)
Capital goods
Finance companies
Healthcare equipment and services
Government and public education
Materials
Retailing
Consumer services
Food, beverage and tobacco
Commercial services and supplies
Energy
Transportation
Global commercial banks
Utilities
Technology hardware and equipment
Individuals and trusts
Media
Pharmaceuticals and biotechnology
Vehicle dealers
Consumer durables and apparel
Software and services
Insurance
Telecommunication services
Automobiles and components
Food and staples retailing
Religious and social organizations
Financial markets infrastructure (clearinghouses)
Other
71,756
65,328
39,192
36,662
35,763
43,675
27,347
25,333
25,702
23,586
22,623
13,727
22,814
26,269
12,035
13,014
18,643
12,132
7,430
17,603
9,904
8,809
8,674
8,686
7,131
4,787
3,757
2,382
6,249
621,013
59,190
61,940
36,705
34,050
37,780
48,684
24,001
26,117
27,191
23,252
22,100
16,345
21,704
29,491
11,342
10,728
18,549
19,155
5,653
16,896
8,859
8,562
6,411
6,389
5,988
4,955
4,454
688
3,621
600,800
107,888
86,514
75,080
56,659
56,489
54,749
51,865
47,507
43,298
42,745
39,349
32,279
31,523
28,321
27,623
26,228
25,019
24,502
23,634
20,446
20,199
19,172
15,807
14,166
13,893
9,093
5,620
4,107
6,241
1,010,016
91,092
83,773
70,417
53,107
57,256
58,067
47,386
48,796
43,605
42,815
35,496
36,765
29,946
31,764
27,935
22,071
25,097
33,955
18,623
20,361
17,296
18,202
12,990
13,108
13,318
15,589
6,318
2,403
3,616
981,167
(2,129)
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 (i.e., syndicated or participated) to other financial institutions. The distributed amounts
were $10.7 billion and $11.0 billion at December 31, 2018 and 2017.
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 primary business activity of the
borrowers or counterparties using operating cash flows and primary source of repayment as key factors.
$
(2,663) $
$
$
$
$
(1)
(2)
(3)
(4) Represents net notional credit protection purchased. For additional 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, 2018 and 2017, 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 $2.7
billion and $2.1 billion. We recorded net losses of $2 million for
2018 compared to net losses of $66 million in 2017 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 47. For additional information,
see Trading Risk Management on page 86.
Bank of America 2018 79
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. For more information on credit derivatives
and counterparty credit risk valuation adjustments, see Note 3 –
Derivatives to the Consolidated Financial Statements.
Non-U.S. Portfolio
Our non-U.S. credit and trading portfolios are subject to country
risk. We define country risk as the risk of loss from unfavorable
economic and political conditions, currency fluctuations, social
instability and changes in government policies. A risk management
framework is in place to measure, monitor and manage non-U.S.
risk and exposures. In addition to the direct risk of doing business
in a country, we also are exposed to indirect country risks (e.g.,
related to the collateral received on secured financing transactions
or related to client clearing activities). These indirect exposures
are managed in the normal course of business through credit,
market and operational risk governance, rather than through
country risk governance.
Table 43 presents our 20 largest non-U.S. country exposures
at December 31, 2018. These exposures accounted for 89 percent
and 86 percent of our total non-U.S. exposure at December 31,
2018 and 2017. Net country exposure for these 20 countries
increased $44.1 billion in 2018, primarily driven by increased
placements with central banks in the U.K., Japan and Germany.
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 credit
default swaps (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.
Tables 41 and 42 present the maturity profiles and the credit
exposure debt ratings of the net credit default protection portfolio
at December 31, 2018 and 2017.
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
2018
2017
20%
78
2
100%
42%
58
—
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
2018
2017
$
(700)
(501)
(804)
(422)
(205)
(31)
26.3% $
18.8
30.2
15.8
7.7
1.2
(280)
(459)
(893)
(403)
(84)
(10)
13.2%
21.6
41.9
18.9
3.9
0.5
(Dollars in millions)
Ratings (2, 3)
A
BBB
BB
B
CCC and below
NR (4)
Total net credit
default protection
$
(2,663)
100.0% $
(2,129)
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 order to properly reflect counterparty credit risk, we
record counterparty credit risk valuation adjustments on certain
including our purchased credit default
derivative assets,
protection.
80 Bank of America 2018
Table 43 Top 20 Non-U.S. Countries Exposure
(Dollars in millions)
United Kingdom
Germany
Japan
Canada
China
France
Netherlands
India
Brazil
Australia
South Korea
Switzerland
Hong Kong
Mexico
Belgium
Singapore
Spain
United Arab Emirates
Taiwan
Italy
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
2018
Hedges and
Credit Default
Protection
Net Country
Exposure at
December 31
2018
Increase
(Decrease) from
December 31
2017
$
$
28,833
24,856
17,762
7,388
12,774
7,137
8,405
7,147
6,651
5,173
5,634
5,494
5,287
3,506
4,684
3,330
3,769
3,371
2,311
2,372
$
20,410
6,823
1,316
7,234
681
5,849
2,992
451
544
3,132
463
2,580
442
1,275
1,016
125
1,138
135
13
1,065
$
6,419
1,835
1,023
1,641
975
1,331
389
312
209
571
897
335
321
140
103
362
290
138
288
491
$
2,639
443
1,341
3,773
495
1,214
973
3,379
3,172
1,507
2,456
201
1,224
1,444
147
1,770
792
55
623
597
$
58,301
33,957
21,442
20,036
14,925
15,531
12,759
11,289
10,576
10,383
9,450
8,610
7,274
6,365
5,950
5,587
5,989
3,699
3,235
4,525
(3,447) $
(5,300)
(1,419)
(521)
(284)
(2,880)
(1,182)
(177)
(327)
(453)
(280)
(846)
(38)
(129)
(372)
(70)
(1,339)
(50)
—
(1,444)
$
54,854
28,657
20,023
19,515
14,641
12,651
11,577
11,112
10,249
9,930
9,170
7,764
7,236
6,236
5,578
5,517
4,650
3,649
3,235
3,081
17,259
7,154
10,933
792
(1,284)
2,108
3,110
615
(467)
(659)
1,269
1,967
(1,442)
749
1,613
(746)
1,542
262
523
(1,165)
$
165,884
$
57,684
$
18,070
$
28,245
$
269,883
$
(20,558) $
249,325
$
44,133
A number of economic conditions and geopolitical events have
given rise to risk aversion in certain emerging markets. Our largest
emerging market country exposure at December 31, 2018 was
China, with net exposure of $14.6 billion, concentrated in large
of multinational
state-owned
corporations and commercial banks.
subsidiaries
companies,
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,
2018 was the U.K. with net exposure of $54.9 billion, a $17.3
billion increase from December 31, 2017. The increase was driven
by corporate loan growth and increased placements with the
central bank as part of liquidity management.
Markets have reacted negatively to the escalating tensions
between the U.S. and several key trading partners. We are closely
monitoring our exposures to tariff-sensitive industries and our
international exposure, particularly to countries that account for
a large percentage of U.S. trade.
Table 44 presents countries where total cross-border exposure
exceeded one percent of our total assets. At December 31, 2018,
the U.K. and France were the only countries where total cross-
border exposure exceeded one percent of our total assets. At
December 31, 2018, Germany and China had total cross-border
exposure of $20.4 billion and $19.5 billion representing 0.87
percent and 0.83 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, 2018.
Cross-border exposure includes the components of Country
Risk Exposure as detailed in Table 43 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 44 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
$
2018
2017
2016
2018
2017
2016
$
1,505
923
2,975
633
2,964
4,956
$
3,458
2,984
4,557
2,385
1,521
1,205
$
46,191
47,205
42,105
29,847
27,903
23,193
51,154
51,112
49,637
32,865
32,388
29,354
2.17%
2.24
2.27
1.40
1.42
1.34
Bank of America 2018 81
Provision for Credit Losses
The provision for credit losses decreased $114 million to $3.3
billion in 2018 compared to 2017 primarily due to improvement
in the commercial portfolio, partially offset by an increase in the
consumer portfolio. The provision for credit losses was $481
million lower than net charge-offs for 2018, resulting in a reduction
in the allowance for credit losses. This compared to a reduction
of $583 million in the allowance for credit losses in 2017.
The provision for credit losses for the consumer portfolio
increased $222 million to $2.9 billion in 2018 compared to 2017.
The increase was primarily driven by a slower pace of improvement
in the consumer real estate portfolio, and portfolio seasoning and
loan growth in the U.S. credit card portfolio, partially offset by the
impact of the sale of the non-U.S. consumer credit card business
in 2017.
The provision for credit losses for the commercial portfolio,
including unfunded lending commitments, decreased $336 million
to $333 million in 2018 compared to 2017. The decrease was
primarily driven by a 2017 single-name non-U.S. commercial
charge-off and improvement in the commercial portfolio.
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
loans held-for-sale (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 (including credit card and
other consumer loans) and certain homogeneous commercial loan
and lease products is based on aggregated portfolio evaluations,
which include both quantitative and qualitative components,
generally by product type. Loss forecast models are utilized that
consider a variety of factors including, but not limited to, historical
loss experience, estimated defaults or foreclosures based on
portfolio trends, delinquencies, economic trends and credit
scores. Our consumer real estate loss forecast model estimates
82 Bank of America 2018
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
the current economic
reflecting
environment. As of December 31, 2018, the loss forecast process
resulted in reductions in the allowance related to the residential
mortgage and home equity portfolios compared to December 31,
2017.
information
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, 2018, the allowance
for the U.S. commercial and non-U.S. commercial portfolios
decreased compared to December 31, 2017.
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. Further, we consider the inherent
uncertainty in mathematical models that are built upon historical
data.
During 2018, the factors that impacted the allowance for loan
and lease losses included improvement in the credit quality of the
consumer real estate portfolios driven by continuing improvements
in the U.S. economy and strong labor markets, proactive credit
risk management initiatives and the impact of high credit quality
originations. Evidencing the improvements in the U.S. economy
and strong labor markets are low levels of unemployment and
increases in home prices. In addition to these improvements, in
the consumer portfolio, nonperforming consumer loans decreased
$1.3 billion in 2018 as returns to performing status, loan sales,
paydowns and charge-offs continued to outpace new nonaccrual
loans. During 2018, the allowance for loan and lease losses in
the commercial portfolio reflected decreased energy reserves
primarily driven by improvement in energy exposures including
reservable criticized utilized 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 45, was $4.8 billion at December
31, 2018, a decrease of $581 million from December 31, 2017.
The decrease was primarily in the consumer real estate portfolio,
partially offset by an increase in the U.S. credit card portfolio. The
reduction in the allowance for 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 allowance for 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 45, was $4.8 billion at December
31, 2018, a decrease of $211 million from December 31, 2017
primarily driven by improvement in energy exposures. Commercial
reservable criticized utilized exposure decreased to $11.1 billion
at December 31, 2018 from $13.6 billion (to 2.08 percent from
2.65 percent of total commercial reservable utilized exposure) at
December 31, 2017, driven by broad-based improvements
including the energy sector. Nonperforming commercial loans
decreased to $1.1 billion at December 31, 2018 from $1.3 billion
(to 0.22 percent from 0.27 percent of outstanding commercial
loans excluding loans accounted for under the fair value option)
at December 31, 2017. 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 1.02 percent at December
31, 2018 compared to 1.12 percent at December 31, 2017.
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 $797
million at December 31, 2018 compared to $777 million at
December 31, 2017.
Table 45 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
Direct/Indirect consumer
Other consumer
Total consumer
U.S. commercial (2)
Non-U.S. commercial
Commercial real estate
Commercial lease financing
Total commercial
Allowance for loan and lease losses (3)
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, 2018
December 31, 2017
$
$
422
506
3,597
248
29
4,802
3,010
677
958
154
4,799
9,601
797
10,398
4.40%
5.27
37.47
2.58
0.30
50.02
31.35
7.05
9.98
1.60
49.98
100.00%
0.20% $
1.05
3.66
0.27
n/m
1.08
0.96
0.69
1.57
0.68
0.97
1.02
$
701
1,019
3,368
264
31
5,383
3,113
803
935
159
5,010
10,393
777
11,170
6.74%
9.80
32.41
2.54
0.30
51.79
29.95
7.73
9.00
1.53
48.21
100.00%
0.34%
1.76
3.50
0.27
n/m
1.18
1.04
0.82
1.60
0.72
1.05
1.12
(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 include residential mortgage loans of $336 million and $567 million and home equity loans of $346 million and $361 million at December 31, 2018 and 2017.
Commercial loans accounted for under the fair value option include U.S. commercial loans of $2.5 billion and $2.6 billion and non-U.S. commercial loans of $1.1 billion and $2.2 billion at December
31, 2018 and 2017.
Includes allowance for loan and lease losses for U.S. small business commercial loans of $474 million and $439 million at December 31, 2018 and 2017.
Includes $91 million and $289 million of valuation allowance presented with the allowance for loan and lease losses related to PCI loans at December 31, 2018 and 2017.
n/m = not meaningful
(2)
(3)
Bank of America 2018 83
Table 46 presents a rollforward of the allowance for credit losses, which includes the allowance for loan and lease losses and the
reserve for unfunded lending commitments, for 2018 and 2017.
Table 46 Allowance for Credit Losses
(Dollars in millions)
Allowance for loan and lease losses, January 1
Loans and leases charged off
Residential mortgage
Home equity
U.S. credit card
Non-U.S. credit card (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)
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
Loan and allowance ratios:
2018
$
10,393
$
2017
11,237
(207)
(483)
(3,345)
—
(495)
(197)
(4,727)
(575)
(82)
(10)
(8)
(675)
(5,402)
179
485
508
—
300
15
1,487
120
14
9
9
152
1,639
(3,763)
(273)
3,262
(18)
9,601
777
20
797
10,398
$
(188)
(582)
(2,968)
(103)
(491)
(212)
(4,544)
(589)
(446)
(24)
(16)
(1,075)
(5,619)
288
369
455
28
277
49
1,466
142
6
15
11
174
1,640
(3,979)
(207)
3,381
(39)
10,393
762
15
777
11,170
$
Loans and leases outstanding at December 31 (5)
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (5)
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (6)
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (7)
Average loans and leases outstanding (5)
Net charge-offs as a percentage of average loans and leases outstanding (5, 8)
Net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (5)
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (5)
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (8)
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs and PCI write-offs
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases
at December 31 (9)
$ 942,546
$ 931,039
1.02%
1.08
0.97
$ 927,531
1.12%
1.18
1.05
$ 911,988
0.41%
0.44
194
2.55
2.38
0.44%
0.46
161
2.61
2.48
$
4,031
$
3,971
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and
lease losses for loans and leases that are excluded from nonperforming loans and leases at December 31 (5, 9)
113%
99%
(1) Represents net charge-offs related to the non-U.S. credit card loan portfolio, which was sold in 2017.
(2)
Includes U.S. small business commercial charge-offs of $287 million and $258 million in 2018 and 2017.
Includes U.S. small business commercial recoveries of $47 million and $43 million in 2018 and 2017.
(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) Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $4.3 billion and $5.7 billion at December 31, 2018 and 2017. Average loans
accounted for under the fair value option were $5.5 billion and $6.7 billion in 2018 and 2017.
(6) Excludes consumer loans accounted for under the fair value option of $682 million and $928 million at December 31, 2018 and 2017.
(7) Excludes commercial loans accounted for under the fair value option of $3.7 billion and $4.8 billion at December 31, 2018 and 2017.
(8) Net charge-offs exclude $273 million and $207 million of write-offs in the PCI loan portfolio in 2018 and 2017. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management
– Purchased Credit-impaired Loan Portfolio on page 72.
(9) Primarily includes amounts allocated to U.S. credit card and unsecured consumer lending portfolios in Consumer Banking and PCI loans in All Other.
84 Bank of America 2018
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 89.
Our traditional banking loan and deposit products are non-
trading positions and are generally reported at amortized cost for
assets or the amount owed for liabilities (historical cost). However,
these positions are still subject to changes in economic value
based on varying market conditions, with one of the primary risks
being changes in the levels of interest rates. The risk of adverse
changes in the economic value of our non-trading positions arising
from changes in interest rates is managed through our ALM
activities. We have elected to account for certain assets and
liabilities under the fair value option.
Our trading positions are reported at fair value with changes
reflected in income. Trading positions are subject to various
changes in market-based risk factors. The majority of this risk is
generated by our activities in the interest rate, foreign exchange,
credit, equity and commodities markets. In addition, the values of
assets and liabilities could change due to market liquidity,
correlations across markets and expectations of market volatility.
We seek to manage these risk exposures by using a variety of
techniques
financial
instruments. The key risk management techniques are discussed
in more detail in the Trading Risk Management section.
that encompass a broad
range of
Global Risk Management is responsible for providing senior
management with a clear and comprehensive understanding of
the trading risks to which we are exposed. These responsibilities
include ownership of market risk policy, developing and maintaining
quantitative risk models, calculating aggregated risk measures,
establishing and monitoring position limits consistent with risk
appetite, conducting daily reviews and analysis of trading inventory,
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.
certificates,
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. For example, 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. In addition,
we originate a variety of MBS, which involves the accumulation of
mortgage-related loans in anticipation of eventual securitization,
and we may hold positions in mortgage securities and residential
mortgage loans as part of the ALM portfolio. We also record MSRs
as part of our mortgage origination activities. 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 91.
commercial mortgages
Equity Market Risk
Equity market risk represents exposures to securities that
represent an ownership interest in a corporation in the form of
domestic and foreign common stock or other equity-linked
instruments. Instruments that would lead to this exposure include,
but are not limited to, the following: common stock, exchange-
traded funds, American Depositary Receipts, convertible bonds,
listed equity options (puts and calls), OTC equity options, equity
total return swaps, equity index futures and other equity derivative
products. Hedging instruments used to mitigate this risk include
options, futures, swaps, convertible bonds and cash positions.
Commodity Risk
Commodity risk represents exposures to instruments traded in
the petroleum, natural gas, power and metals markets. These
instruments consist primarily of futures, forwards, swaps and
options. Hedging instruments used to mitigate this risk include
options, futures and swaps in the same or similar commodity
product, as well as cash positions.
Issuer Credit Risk
Issuer credit risk represents exposures to changes in the
creditworthiness of individual issuers or groups of issuers. Our
portfolio is exposed to issuer credit risk where the value of an
asset may be adversely impacted by changes in the levels of credit
spreads, by credit migration or by defaults. Hedging instruments
Bank of America 2018 85
used to mitigate this risk include bonds, CDS and other credit
fixed-income instruments.
Market Liquidity Risk
Market liquidity risk represents the risk that the level of expected
market activity changes dramatically and, in certain cases, may
even cease. This exposes us to the risk that we will not be able
to transact business and execute trades in an orderly manner
which may impact our results. This impact could be further
exacerbated if expected hedging or pricing correlations are
compromised by disproportionate demand or lack of demand for
certain instruments. We utilize various risk mitigating techniques
as discussed in more detail in Trading Risk Management.
Trading Risk Management
To evaluate risk in our trading activities, we focus on the actual
and potential volatility of revenues generated by individual
positions as well as portfolios of positions. Various techniques
and procedures are utilized to enable the most complete
understanding of these risks. Quantitative measures of market
risk are evaluated on a daily basis from a single position to the
portfolio of the Corporation. These measures include sensitivities
of positions to various market risk factors, such as the potential
impact on revenue from a one basis point change in interest rates,
and statistical measures utilizing both actual and hypothetical
market moves, such as VaR and stress testing. Periods of extreme
market stress influence the reliability of these techniques to
varying degrees. Qualitative evaluations of market risk utilize the
suite of quantitative risk measures while understanding each of
their
risk managers
limitations. Additionally,
independently evaluate the risk of the portfolios under the current
market environment and potential future environments.
respective
VaR is a common statistic used to measure market risk as it
allows the aggregation of market risk factors, including the effects
of portfolio diversification. A VaR model simulates the value of a
portfolio under a range of scenarios in order to generate a
distribution of potential gains and losses. VaR represents the loss
a portfolio is not expected to exceed more than a certain number
of times per period, based on a specified holding period,
confidence level and window of historical data. We use one VaR
model consistently across the trading portfolios and it uses a
historical simulation approach based on a three-year window of
historical data. Our primary VaR statistic is equivalent to a 99
percent confidence level. This means that for a VaR with a one-
day holding period, there should not be losses in excess of VaR,
on average, 99 out of 100 trading days.
Within any VaR model, there are significant and numerous
assumptions that will differ from company to company. The
accuracy of a VaR model depends on the availability and quality
of historical data for each of the risk factors in the portfolio. A VaR
model may require additional modeling assumptions for new
products that do not have the necessary historical market data or
for less liquid positions for which accurate daily prices are not
consistently available. For positions with insufficient historical
data for the VaR calculation, the process for establishing an
appropriate proxy is based on fundamental and statistical analysis
of the new product or less liquid position. This analysis identifies
reasonable alternatives that replicate both the expected volatility
and correlation to other market risk factors that the missing data
would be expected to experience.
VaR may not be indicative of realized revenue volatility as
changes in market conditions or in the composition of the portfolio
can have a material impact on the results. In particular, the
historical data used for the VaR calculation might indicate higher
86 Bank of America 2018
or lower levels of portfolio diversification than will be experienced.
In order for the VaR model to reflect current market conditions, we
update the historical data underlying our VaR model on a weekly
basis, or more frequently during periods of market stress, and
regularly review the assumptions underlying the model. A minor
portion of risks related to our trading positions is not included in
VaR. These risks are reviewed as part of our ICAAP. For more
information regarding ICAAP, see Capital Management on page 58.
Global Risk Management continually reviews, evaluates and
enhances our VaR model so that it reflects the material risks in
our trading portfolio. Changes to the VaR model are reviewed and
approved prior to implementation and any material changes are
reported to management through the appropriate management
committees.
Trading limits on quantitative risk measures, including VaR, are
independently set by Global Markets Risk Management and
reviewed on a regular basis so that trading limits remain relevant
and within our overall risk appetite for market risks. Trading limits
are reviewed in the context of market liquidity, volatility and
strategic business priorities. Trading limits are set at both a
granular level to allow for extensive coverage of risks as well as
at aggregated portfolios to account for correlations among risk
factors. All trading limits are approved at least annually. Approved
trading limits are stored and tracked in a centralized limits
management system. Trading limit excesses are communicated
to management for review. Certain quantitative market risk
measures and corresponding limits have been identified as critical
in the Corporation’s Risk Appetite Statement. These risk appetite
limits are reported on a daily basis and are approved at least
annually by the ERC and the Board.
In periods of market stress, Global Markets senior leadership
communicates daily to discuss losses, key risk positions and any
limit excesses. As a result of this process, the businesses may
selectively reduce risk.
Table 47 presents the total market-based portfolio VaR which
is the combination of the total covered positions (and less liquid
trading positions) portfolio and the fair value option portfolio.
Covered positions are defined by regulatory standards as trading
assets and liabilities, both on- and off-balance sheet, that meet a
defined set of specifications. These specifications identify the
most liquid trading positions which are intended to be held for a
short-term horizon and where we are able to hedge the material
risk elements in a two-way market. Positions in less liquid markets,
or where there are restrictions on the ability to trade the positions,
typically do not qualify as covered positions. Foreign exchange and
commodity positions are always considered covered positions,
except for structural foreign currency positions that are excluded
with prior regulatory approval. In addition, Table 47 presents our
fair value option portfolio, which includes substantially all of the
funded and unfunded exposures for which we elect the fair value
option, and their corresponding hedges. Additionally, market risk
VaR for trading activities as presented in Table 47 differs from VaR
used for regulatory capital calculations due to the holding period
being used. The holding period for VaR used for regulatory capital
calculations is 10 days, while for the market risk VaR presented
below, it is one day. Both measures utilize the same process and
methodology.
The total market-based portfolio VaR results in Table 47 include
market risk to which we are exposed from all business segments,
excluding credit valuation adjustment (CVA), DVA and related
hedges. The majority of this portfolio is within the Global Markets
segment.
Table 47 presents year-end, average, high and low daily trading
VaR for 2018 and 2017 using a 99 percent confidence level. The
amounts disclosed in Table 47 and Table 48 align to the view of
covered positions used in the Basel 3 capital calculations. Foreign
exchange and commodity positions are always considered covered
positions, regardless of trading or banking treatment for the trade,
except for structural foreign currency positions that are excluded
with prior regulatory approval.
The average total covered positions and less liquid trading
positions portfolio VaR decreased during 2018 primarily due to a
decrease in credit risk along with an increase in portfolio
diversification.
Table 47 Market Risk VaR for Trading Activities
(Dollars in millions)
Foreign exchange
Interest rate
Credit
Equity
Commodities
Portfolio diversification
Total covered positions portfolio
Impact from less liquid exposures
Total covered positions and less liquid trading positions portfolio
Fair value option loans
Fair value option hedges
Fair value option portfolio diversification
Total fair value option portfolio
Portfolio diversification
Total market-based portfolio
2018
2017
Year End
Average
High (1)
Low (1)
Year End
Average
High (1)
Low (1)
$
$
9
36
26
20
13
$
8
25
25
20
8
(59)
(55)
45
5
50
8
5
(7)
6
(3)
$
53
$
31
3
34
11
9
(11)
9
(5)
38
$
15
45
31
40
15
—
45
—
51
18
17
—
16
—
57
2
15
20
11
3
—
20
—
23
8
4
—
5
—
26
$
$
7
22
29
19
5
$
11
21
26
18
5
(49)
(47)
33
5
38
9
7
(7)
9
(4)
$
43
$
34
6
40
10
7
(8)
9
(4)
45
$
25
41
33
33
9
—
53
—
63
14
11
—
11
—
69
3
11
21
12
3
—
23
—
26
7
4
—
6
—
29
(1) The high and low for each portfolio may have occurred on different trading days than the high and low for the components. Therefore the impact from less liquid exposures and the amount of portfolio
diversification, which is the difference between the total portfolio and the sum of the individual components, is not relevant.
The graph below presents the daily covered positions and less liquid trading positions portfolio VaR for 2018, corresponding to the
data in Table 47.
Daily Total Covered Positions and Less Liquid Trading Portfolio VaR History
s
n
o
i
l
l
i
M
n
i
s
r
a
l
l
o
D
80
70
60
50
40
30
20
10
0
VaR
12/31/2017
3/31/2018
6/30/2018
9/30/2018
12/31/2018
Bank of America 2018 87
Additional VaR statistics produced within our single VaR model are provided in Table 48 at the same level of detail as in Table 47.
Evaluating VaR with additional statistics allows for an increased understanding of the risks in the portfolio as the historical market
data used in the VaR calculation does not necessarily follow a predefined statistical distribution. Table 48 presents average trading
VaR statistics at 99 percent and 95 percent confidence levels for 2018 and 2017.
Table 48 Average Market Risk VaR for Trading Activities – 99 percent and 95 percent VaR Statistics
(Dollars in millions)
Foreign exchange
Interest rate
Credit
Equity
Commodities
Portfolio diversification
Total covered positions portfolio
Impact from less liquid exposures
Total covered positions and less liquid trading positions portfolio
Fair value option loans
Fair value option hedges
Fair value option portfolio diversification
Total fair value option portfolio
Portfolio diversification
Total market-based portfolio
Backtesting
The accuracy of the VaR methodology is evaluated by backtesting,
which compares the daily VaR results, utilizing a one-day holding
period, against a comparable subset of trading revenue. A
backtesting excess occurs when a trading loss exceeds the VaR
for the corresponding day. These excesses are evaluated to
understand the positions and market moves that produced the
trading loss with a goal to ensure that the VaR methodology
accurately represents those losses. We expect the frequency of
trading losses in excess of VaR to be in line with the confidence
level of the VaR statistic being tested. For example, with a 99
percent confidence level, we expect one trading loss in excess of
VaR every 100 days or between two to three trading losses in
excess of VaR over the course of a year. The number of backtesting
excesses observed can differ from the statistically expected
number of excesses if the current level of market volatility is
materially different than the level of market volatility that existed
during the three years of historical data used in the VaR calculation.
The trading revenue used for backtesting is defined by
regulatory agencies in order to most closely align with the VaR
component of the regulatory capital calculation. This revenue
differs from total trading-related revenue in that it excludes revenue
from trading activities that either do not generate market risk or
the market risk cannot be included in VaR. Some examples of the
types of revenue excluded for backtesting are fees, commissions,
reserves, net interest income and intraday trading revenues.
We conduct daily backtesting on the VaR results used for
regulatory capital calculations as well as the VaR results for key
legal entities, regions and risk factors. These results are reported
to senior market risk management. Senior management regularly
reviews and evaluates the results of these tests.
During 2018, there were three days in which there was a
backtesting excess for our total covered portfolio VaR, utilizing a
one-day holding period.
88 Bank of America 2018
2018
2017
99 percent
95 percent
99 percent
95 percent
$
$
8
25
25
20
8
(55)
31
3
34
11
9
(11)
9
(5)
38
$
$
5
16
15
11
4
(33)
18
1
19
6
6
(7)
5
(3)
21
$
$
11
21
26
18
5
(47)
34
6
40
10
7
(8)
9
(4)
45
$
$
6
14
15
10
3
(30)
18
2
20
6
5
(6)
5
(3)
22
Total Trading-related Revenue
Total trading-related revenue, excluding brokerage fees, and CVA,
DVA and funding valuation adjustment gains (losses), represents
the total amount earned from trading positions, including market-
based net interest income, which are taken in a diverse range of
financial instruments and markets. Trading account assets and
liabilities are reported at fair value. For more information on fair
value, see Note 20 – Fair Value Measurements to the Consolidated
Financial Statements. Trading-related revenue can be volatile and
is largely driven by general market conditions and customer
demand. Also, trading-related revenue is dependent on the volume
and type of transactions, the level of risk assumed, and the
volatility of price and rate movements at any given time within the
ever-changing market environment. Significant daily revenue by
business is monitored and the primary drivers of these are
reviewed.
The following histogram is a graphic depiction of trading
volatility and illustrates the daily level of trading-related revenue
for 2018 and 2017. During 2018, positive trading-related revenue
was recorded for 98 percent of the trading days, of which 79
percent were daily trading gains of over $25 million. This compares
to 2017 where positive trading-related revenue was recorded for
100 percent of the trading days, of which 77 percent were daily
trading gains of over $25 million.
Histogram of Daily Trading-related Revenue
s
y
a
D
f
o
r
e
b
m
u
N
160
140
120
100
80
60
40
20
0
-25 to 0
0 to 25
25 to 50
50 to 75
75 to 100
greater than 100
Year Ended December 31, 2017
Year Ended December 31, 2018
Revenue (dollars in millions)
Trading Portfolio Stress Testing
Because the very nature of a VaR model suggests results can
exceed our estimates and it is dependent on a limited historical
window, we also stress test our portfolio using scenario analysis.
This analysis estimates the change in the value of our trading
portfolio that may result from abnormal market movements.
A set of scenarios, categorized as either historical or
hypothetical, are computed daily for the overall trading portfolio
and individual businesses. These scenarios include shocks to
underlying market risk factors that may be well beyond the shocks
found in the historical data used to calculate VaR. Historical
scenarios simulate the impact of the market moves that occurred
during a period of extended historical market stress. Generally, a
multi-week period representing the most severe point during a
crisis is selected for each historical scenario. Hypothetical
scenarios provide estimated portfolio impacts from potential
future market stress events. Scenarios are reviewed and updated
in response to changing positions and new economic or political
information. In addition, new or ad hoc scenarios are developed
to address specific potential market events or particular
vulnerabilities in the portfolio. The stress tests are reviewed on a
regular basis and the results are presented to senior management.
Stress testing for the trading portfolio is integrated with
enterprise-wide stress testing and incorporated into the limits
framework. The macroeconomic scenarios used for enterprise-
wide stress testing purposes differ from the typical trading portfolio
scenarios in that they have a longer time horizon and the results
are forecasted over multiple periods for use in consolidated capital
and liquidity planning. For more information, see Managing Risk
on page 55.
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 49 presents the spot and 12-month forward rates used
in our baseline forecasts at December 31, 2018 and 2017.
Table 49 Forward Rates
Federal
Funds
December 31, 2018
Three-month
LIBOR
10-Year
Swap
Spot rates
12-month forward rates
2.50%
2.50
2.81%
2.64
Spot rates
12-month forward rates
December 31, 2017
1.50%
2.00
1.69%
2.14
2.71%
2.75
2.40%
2.48
Table 50 shows the pretax impact to forecasted net interest
income over the next 12 months from December 31, 2018 and
2017, 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 2018, the asset sensitivity of our balance sheet to rising
rates declined primarily due to increases in long-end rates. We
continue to be asset sensitive to a parallel move in interest rates
with the majority of that impact coming from the short end of the
yield curve. Additionally, higher interest rates impact the fair value
of debt securities and, accordingly, for debt securities classified
as AFS, may adversely affect accumulated OCI and thus capital
levels under the Basel 3 capital rules. Under instantaneous upward
parallel shifts, the near-term adverse impact to Basel 3 capital is
reduced over time by offsetting positive impacts to net interest
income. For more information on Basel 3, see Capital Management
– Regulatory Capital on page 59.
Table 50 Estimated Banking Book Net Interest Income
Sensitivity to Curve Changes
(Dollars in millions)
Parallel Shifts
+100 bps
instantaneous shift
-100 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
2018
2017
+100
+100
$
2,651
$
3,317
-100
-100
(4,109)
(5,183)
+100
—
1,977
2,182
—
-100
(1,616)
(2,765)
-100
—
(2,478)
(2,394)
—
+100
673
1,135
The sensitivity analysis in Table 50 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 50 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
Bank of America 2018 89
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 3 – 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
2018 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.
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, on a pretax basis, at both December 31, 2018 and
2017. 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, 2018, the pretax net losses are expected to be reclassified
into earnings as follows: 25 percent within the next year, 56 percent
in years two through five and 11 percent in years six through 10,
with the remaining eight percent thereafter. For more information
on derivatives designated as cash flow hedges, see Note 3 –
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, 2018.
Table 51 presents derivatives utilized in our ALM activities 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, 2018 and
2017. These amounts do not include derivative hedges on our
MSRs.
Table 51 Asset and Liability Management Interest Rate and Foreign Exchange Contracts
December 31, 2018
Expected Maturity
(Dollars in millions, average estimated duration in
years)
Fair
Value
Receive-fixed interest rate swaps (1)
$
2,128
Total
2019
2020
2021
2022
2023
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
$ 198,914
$ 27,176
$ 16,347
$ 14,640
$ 19,866
$ 36,215
$ 84,670
2.66%
1.87%
2.68%
3.17%
2.56%
2.37%
2.97%
295
$ 49,275
$
1,210
$
4,344
$
1,616
$
2.50%
2.07%
2.16%
2.22%
— $ 10,801
—%
2.59%
$ 31,304
2.55%
21
$ 101,203
$
7,628
$ 15,097
$ 15,493
$
2,586
$
2,017
$ 58,382
Average
Estimated
Duration
5.17
6.30
Foreign exchange basis swaps (1, 3, 4)
(1,716)
Notional amount
Option products
Notional amount
Foreign exchange contracts (1, 4, 5)
Notional amount (6)
Net ALM contracts
For footnotes, see page 91.
2
82
$
812
106,742
13,946
21,448
19,241
10,239
6,260
35,608
587
572
(8,447)
(27,823)
—
13
—
—
15
—
4,196
2,741
2,448
9,978
90 Bank of America 2018
Table 51 Asset and Liability Management Interest Rate and Foreign Exchange Contracts (continued)
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
Average
Estimated
Duration
5.38
5.63
Foreign exchange basis swaps (1, 3, 4)
(1,616)
Notional amount
Option products
Notional amount
Foreign exchange contracts (1, 4, 5)
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
(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, 2018 and 2017, the notional amount of same-currency basis swaps included $101.2 billion and $38.6 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 foreign exchange contracts of $(8.4) billion at December 31, 2018 was comprised of $25.2 billion in foreign currency-denominated and cross-currency receive-fixed swaps,
$(32.7) billion in net foreign currency forward rate contracts, $(1.8) billion in foreign currency-denominated pay-fixed swaps and $814 million in net foreign currency futures contracts. Foreign exchange
contracts of $(11.8) billion at December 31, 2017 were 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 foreign currency futures contracts.
(6) Reflects the net of long and short positions. Amounts shown as negative reflect a net short position.
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 interest rate lock
commitments (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, when there is an increase in interest
rates, the value of the MSRs will increase driven by lower
prepayment expectations. 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 2018 and 2017, we recorded gains of $244 million and
$118 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.
Compliance and Operational 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 our internal
policies and procedures (collectively, applicable laws, rules and
regulations).
Operational risk is the risk of loss resulting from inadequate
or failed 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 58.
FLUs and control functions are first and foremost responsible
for managing all aspects of their businesses, including their
compliance and operational risk. FLUs and control functions are
required to understand their business processes and related risks
and controls, including the related regulatory requirements, and
monitor and report on the effectiveness of the control environment.
In order to actively monitor and assess the performance of their
processes and controls, they must conduct comprehensive quality
assurance activities and identify issues and risks to remediate
control gaps and weaknesses. FLUs and control functions must
also adhere to compliance and operational risk appetite limits to
meet strategic, capital and financial planning objectives. Finally,
FLUs and control functions are responsible for the proactive
identification, management and escalation of compliance and
operational risks across the Corporation.
Global Compliance and Operational Risk teams independently
assess compliance and operational risk, monitor business
activities and processes, evaluate FLUs and control functions for
adherence to applicable laws, rules and regulations, including
identifying issues and risks, determining and developing tests to
be conducted by the Enterprise Independent Testing unit, and
reporting on the state of the control environment. Enterprise
Independent Testing, an independent testing function within IRM,
works with Global Compliance and Operational Risk, the FLUs and
Bank of America 2018 91
control functions in the identification of testing needs and test
design, and is accountable for test execution, reporting and
analysis of results.
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 compliance risk
management 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 55.
The Corporation’s approach to operational risk management
is outlined in the Operational Risk Management - Enterprise Policy
which establishes the requirements of the Corporation’s
operational risk management program and specifies the
responsibilities and accountabilities of the first and second lines
of defense for managing operational risk so that our business
processes are designed and executed effectively.
The Global Compliance Enterprise Policy and Operational Risk
Management - Enterprise Policy also set the requirements for
reporting compliance and operational risk information to executive
management as well as the Board or appropriate Board-level
committees in support of Global Compliance and Operational
Risk’s responsibilities for conducting independent oversight of our
compliance and operational risk management activities. The Board
provides oversight of compliance risk through its Audit Committee
and the ERC, and operational risk through the ERC.
includes cybersecurity. Cybersecurity
A key operational risk facing the Corporation is information
security, which
risk
represents, among other things, exposure to failures or
interruptions of service or breaches of security, resulting from
malicious technological attacks or otherwise, that impact the
confidentiality, availability or integrity of our operations, systems
or data, including sensitive corporate and customer information.
The Corporation manages information security risk in accordance
with internal policies which govern our comprehensive information
security program designed to protect the Corporation by enabling
preventative and detective measures to combat information and
cybersecurity risks. The Board and the ERC provide cybersecurity
and information security risk oversight for the Corporation and our
Global Information Security Team manages the day-to-day
implementation of our information security program.
Reputational Risk Management
Reputational risk is the risk that negative perceptions of the
Corporation’s conduct or business practices may adversely impact
its profitability or operations. Reputational risk may result from
many of the Corporation’s activities, including those related to the
management of our strategic, operational, compliance and credit
risks.
risk
reputational
The Corporation manages
through
established policies and controls in its businesses and risk
management processes to mitigate reputational risks in a timely
manner and through proactive monitoring and identification of
potential reputational risk events. If reputational risk events occur,
we focus on remediating the underlying issue and taking action to
minimize damage to the Corporation’s reputation. The Corporation
has processes and procedures in place to respond to events that
give rise to reputational risk, including educating individuals and
organizations that influence public opinion, implementing external
communication strategies to mitigate the risk, and informing key
stakeholders of potential reputational risks.
92 Bank of America 2018
The Corporation’s organization and governance structure
provides oversight of reputational risks, and reputational risk
reporting is provided regularly and directly to management and the
ERC, which provides primary oversight of reputational risk. In
addition, each FLU has a committee, which
includes
representatives from Compliance, Legal and Risk, that is
responsible
for the oversight of reputational risk. Such
committees’ oversight includes providing approval for business
activities that present elevated levels of reputational risks.
Complex Accounting Estimates
Our significant accounting principles, as described in Note 1 –
Summary of Significant Accounting Principles to the Consolidated
Financial Statements, are essential in understanding the
Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A). Many of our significant accounting
principles require complex judgments to estimate the values of
assets and liabilities. We have procedures and processes in place
to facilitate making these judgments.
The more judgmental estimates are summarized in the following
discussion. We have identified and described the development of
the variables most important in the estimation processes that
involve mathematical models to derive the estimates. In many
cases, there are numerous alternative judgments that could be
used in the process of determining the inputs to the models. Where
alternatives exist, we have used the factors that we believe
represent the most reasonable value in developing the inputs.
Actual performance that differs from our estimates of the key
variables could materially impact our results of operations.
Separate from the possible future impact to our results of
operations from input and model variables, the value of our lending
portfolio and market-sensitive assets and liabilities may change
subsequent to the balance sheet date, often significantly, due to
the nature and magnitude of future credit and market conditions.
Such credit and market conditions may change quickly and in
unforeseen ways and the resulting volatility could have a
significant, negative effect on future operating results. These
fluctuations would not be indicative of deficiencies in our models
or inputs.
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
incurred credit losses in the Corporation’s loan and lease portfolio
excluding those loans accounted for under the fair value option.
The allowance for credit losses includes both quantitative and
qualitative components. The qualitative component has a higher
degree of management subjectivity, and includes factors such as
concentrations, economic conditions and other considerations.
Our process for determining the allowance for credit losses is
discussed in Note 1 – Summary of Significant Accounting Principles
to the Consolidated Financial Statements.
Our estimate for the allowance for loan and lease losses is
sensitive to the loss rates and expected cash flows from our
Consumer Real Estate and Credit Card and Other Consumer
portfolio segments, as well as our U.S. small business commercial
card portfolio within the Commercial portfolio segment. For each
one-percent increase in the loss rates on loans collectively
evaluated for impairment in our Consumer Real Estate portfolio
segment, excluding PCI loans, coupled with a one-percent
decrease in the discounted cash flows on those loans individually
evaluated for impairment within this portfolio segment, the
allowance for loan and lease losses at December 31, 2018 would
have increased $24 million. We subject our PCI portfolio to stress
scenarios to evaluate the potential impact given certain events.
A one-percent decrease in the expected cash flows would result
in a $41 million impairment of the portfolio. Within our Credit Card
and Other Consumer portfolio segment and U.S. small business
commercial card portfolio, for each one-percent increase in the
loss rates on loans collectively evaluated for impairment coupled
with a one-percent decrease in the expected cash flows on those
loans individually evaluated for impairment, the allowance for loan
and lease losses at December 31, 2018 would have increased
$44 million.
Our allowance for loan and lease losses is sensitive to the risk
ratings assigned to loans and leases within the Commercial
portfolio segment (excluding the U.S. small business commercial
card portfolio). Assuming a downgrade of one level in the internal
risk ratings for commercial loans and leases, except loans and
leases already classified as Substandard and Doubtful as defined
by regulatory authorities, the allowance for loan and lease losses
would have increased $2.5 billion at December 31, 2018.
The allowance for loan and lease losses as a percentage of
total loans and leases at December 31, 2018 was 1.02 percent
and these hypothetical increases in the allowance would raise the
ratio to 1.30 percent.
These sensitivity analyses do not represent management’s
expectations of the deterioration in risk ratings or the increases
in loss rates but are provided as hypothetical scenarios to assess
the sensitivity of the allowance for loan and lease losses to
changes in key inputs. We believe the risk ratings and loss
severities currently in use are appropriate and that the probability
of the alternative scenarios outlined above occurring within a short
period of time is remote.
The process of determining the level of the allowance for credit
losses requires a high degree of judgment. It is possible that
others, given the same information, may at any point in time reach
different reasonable conclusions.
Fair Value of Financial Instruments
Under applicable accounting standards, we are required to
maximize the use of observable inputs and minimize the use of
unobservable inputs in measuring fair value. We classify fair value
measurements of financial instruments and MSRs based on the
three-level fair value hierarchy in the accounting standards.
The fair values of assets and liabilities may include
adjustments, such as market liquidity and credit quality, where
appropriate. Valuations of products using models or other
techniques are sensitive to assumptions used for the significant
inputs. Where market data is available, the inputs used for
valuation reflect that information as of our valuation date. Inputs
to valuation models are considered unobservable if they are
supported by little or no market activity. In periods of extreme
volatility, lessened liquidity or in illiquid markets, there may be
more variability in market pricing or a lack of market data to use
in the valuation process. In keeping with the prudent application
of estimates and management judgment in determining the fair
value of assets and liabilities, we have in place various processes
and controls that include: a model validation policy that requires
review and approval of quantitative models used for deal pricing,
financial statement
risk
quantification; a trading product valuation policy that requires
verification of all traded product valuations; and a periodic review
and substantiation of daily profit and loss reporting for all traded
products. Primarily through validation controls, we utilize both
broker and pricing service inputs which can and do include both
market-observable and internally-modeled values and/or valuation
inputs. Our reliance on this information is affected by our
understanding of how the broker and/or pricing service develops
value determination and
fair
its data with a higher degree of reliance applied to those that are
more directly observable and lesser reliance applied to those
developed through their own internal modeling. For example, broker
quotes in less active markets may only be indicative and therefore
less reliable. These processes and controls are performed
independently of the business. For additional information, see Note
20 – Fair Value Measurements and Note 21 – Fair Value Option to
the Consolidated Financial Statements.
Level 3 Assets and Liabilities
Financial assets and liabilities, and MSRs, where values are based
on valuation techniques that require inputs that are both
unobservable and are significant to the overall fair value
measurement are classified as Level 3 under the fair value
hierarchy established in applicable accounting standards. The fair
value of these Level 3 financial assets and liabilities and MSRs
is determined using pricing models, discounted cash flow
methodologies or similar techniques for which the determination
of fair value requires significant management judgment or
estimation.
Level 3 financial instruments may be hedged with derivatives
classified as Level 1 or 2; therefore, gains or losses associated
with Level 3 financial instruments may be offset by gains or losses
associated with financial instruments classified in other levels of
the fair value hierarchy. The Level 3 gains and losses recorded in
earnings did not have a significant impact on our liquidity or capital.
We conduct a review of our fair value hierarchy classifications on
a quarterly basis. Transfers into or out of Level 3 are made if the
significant inputs used in the financial models measuring the fair
values of the assets and liabilities became unobservable or
observable, respectively, in the current marketplace. For more
information on transfers into and out of Level 3 during 2018, 2017
and 2016, see Note 20 – Fair Value Measurements to the
Consolidated Financial Statements.
Accrued Income Taxes and Deferred Tax Assets
Accrued income taxes, reported as a component of either other
assets or accrued expenses and other liabilities on the
Consolidated Balance Sheet, represent the net amount of current
income taxes we expect to pay to or receive from various taxing
jurisdictions attributable to our operations to date. We currently
file income tax returns in more than 100 jurisdictions and consider
many factors, including statutory, judicial and regulatory guidance,
in estimating the appropriate accrued income taxes for each
jurisdiction.
Net deferred tax assets, reported as a component of other
assets on the Consolidated Balance Sheet, represent the net
decrease in taxes expected to be paid in the future because of
net operating loss (NOL) and tax credit carryforwards and because
of future reversals of temporary differences in the bases of assets
and liabilities as measured by tax laws and their bases as reported
in the financial statements. NOL and tax credit carryforwards result
in reductions to future tax liabilities, and many of these attributes
can expire if not utilized within certain periods. We consider the
need for valuation allowances to reduce net deferred tax assets
to the amounts that we estimate are more likely than not to be
realized.
Consistent with the applicable accounting guidance, we monitor
relevant tax authorities and change our estimates of accrued
income taxes and/or net deferred tax assets due to changes in
income tax laws and their interpretation by the courts and
regulatory authorities. These revisions of our estimates, which
also may result from our income tax planning and from the
resolution of income tax audit matters, may be material to our
operating results for any given period.
Bank of America 2018 93
See Note 19 – Income Taxes to the Consolidated Financial
Statements for a table of significant tax attributes and additional
information. For more information, see Item 1A. Risk Factors of
our 2018 Annual Report on Form 10-K.
Goodwill and Intangible Assets
The nature of and accounting for goodwill and intangible assets
are discussed in Note 1 – Summary of Significant Accounting
Principles, and Note 8 – Goodwill and Intangible Assets. Beginning
with our annual goodwill impairment test as of June 30, 2018, we
conducted a qualitative assessment, rather than a quantitative
assessment as previously performed, that is more fully described
in Note 1 – Summary of Significant Accounting Principles to the
Consolidated Financial Statements.
We completed our annual goodwill impairment test as of June
30, 2018 for all of our reporting units that had goodwill. We
performed that test by assessing qualitative factors to determine
whether it is more likely than not that the fair value of each reporting
unit is less than its respective carrying value. Factors considered
in the qualitative assessments include, among other things,
macroeconomic conditions, industry and market considerations,
financial performance of the respective reporting unit and other
relevant entity- and reporting-unit specific considerations. If based
on the results of the qualitative assessment, it is more likely than
not that the fair value of a reporting unit is less than its carrying
value, a quantitative assessment is performed.
Based on our qualitative assessments, we determined that for
each reporting unit with goodwill, it was more likely than not that
its respective fair value exceeded its carrying value, indicating
there was no impairment. For more information regarding goodwill
balances at June 30, 2018, see Note 8 – Goodwill and Intangible
Assets to the Consolidated Financial Statements.
Representations and Warranties Liability
The methodology used to estimate the liability for obligations under
representations and warranties related to transfers of residential
mortgage loans is a function of the type of representations and
warranties provided in the sales contracts and considers a variety
of factors. These factors, which incorporate judgment, are subject
to change based on our specific experience. Our experience in
negotiating settlements with trustees and other counterparties is
an important input in determining our estimate of the liability. We
also consider actual defaults, estimated future defaults, historical
loss experience, estimated home prices and other economic
conditions. Changes to any one of these factors could impact the
estimate of our liability.
The representations and warranties provision may vary
significantly each period as the methodology used to estimate the
expense continues to be refined. The estimate of the liability for
representations and warranties is sensitive to future defaults, loss
severity and the net repurchase rate. An assumed simultaneous
increase or decrease of 10 percent in estimated future defaults,
loss severity and the net repurchase rate would result in an
increase or decrease of approximately $200 million in the
representations and warranties liability as of December 31, 2018.
These sensitivities are hypothetical and are intended to provide
an indication of the impact of a significant change in these key
assumptions on the representations and warranties liability. In
reality, changes in one assumption may result in changes in other
assumptions, which may or may not counteract the sensitivity.
For more information on representations and warranties
exposure, see Note 12 – Commitments and Contingencies to the
Consolidated Financial Statements.
94 Bank of America 2018
2017 Compared to 2016
The following discussion and analysis provide a comparison of our
results of operations for 2017 and 2016. This discussion should
be read in conjunction with the Consolidated Financial Statements
and related Notes.
Overview
Net Income
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 included a charge of $2.9 billion related to
the Tax Act. The pretax 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.
Net Interest Income
Net interest income increased $3.6 billion to $44.7 billion in 2017
compared to 2016. Net interest yield on an FTE basis increased
12 bps to 2.37 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.
Noninterest Income
Noninterest income increased $80 million to $42.7 billion in 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 $487
million primarily 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.
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.
Other income decreased $1.8 billion primarily due to lower
mortgage banking income, with declines in both MSR results
and production. Included in 2017 was a $793 million pretax
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.
Noninterest Expense
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 that were in the process of being sold and
$145 million for the shared success discretionary year-end bonus
awarded to certain employees.
Income Tax Expense
Tax expense for 2017 included a charge of $1.9 billion reflecting
the impact of the Tax Act. 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.
Business Segment Operations
Consumer Banking
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 which is included in other
noninterest 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 $131 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. These increases were partially offset by improved
operating efficiencies.
Global Wealth & Investment Management
Net income for GWIM increased $312 million to $3.1 billion in
2017 compared to 2016 due to higher revenue, partially offset by
an increase in noninterest expense. 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 $390 million to
$13.6 billion primarily driven by higher revenue-related incentive
costs.
Global Banking
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 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-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 2017
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.
Global Markets
Net income for Global Markets decreased $524 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 $405 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 in 2017, reflecting Global Markets’ portion of a single-name
non-U.S. commercial charge-off. Noninterest expense increased
$560 million to $10.7 billion primarily due to higher litigation
expense and continued investments in technology.
All Other
The net loss for All Other increased $1.6 billion to a net loss of
$3.3 billion, driven by a charge of $2.9 billion due to enactment
of the Tax Act. The pretax loss for 2017 compared to 2016
decreased $523 million reflecting lower noninterest expense and
a larger benefit in the provision for credit losses, partially offset
by a decline in revenue. Revenue declined $1.5 billion primarily
due to lower mortgage banking income. All other noninterest loss
decreased marginally and included a pretax 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 connection with the Tax Act.
The benefit in the provision for credit losses increased $461
million to a benefit of $561 million primarily driven by continued
runoff of the non-core portfolio, loan sale recoveries and the sale
of the non-U.S. consumer credit card business.
Noninterest expense decreased $1.5 billion to $4.1 billion
driven by lower litigation expense, lower personnel expense and a
decline in non-core mortgage servicing costs.
The income tax benefit was $1.0 billion in 2017 compared to
a benefit of $3.1 billion in 2016. The decrease in the tax benefit
was driven by the impacts of the Tax Act. Both periods include
income tax benefit adjustments to eliminate the FTE treatment of
certain tax credits recorded in Global Banking.
Bank of America 2018 95
Statistical Tables
Table of Contents
Table I – Outstanding Loans and Leases
Table II – Nonperforming Loans, Leases and Foreclosed Properties
Table III – Accruing Loans and Leases Past Due 90 Days or More
Table IV – Selected Loan Maturity Data
Table V – Allowance for Credit Losses
Table VI – Allocation of the Allowance for Credit Losses by Product Type
Table I Outstanding Loans and Leases
Page
96
97
97
98
98
99
(Dollars in millions)
Consumer
Residential mortgage
Home equity
U.S. credit card
Non-U.S. credit card
Direct/Indirect consumer (1)
Other consumer (2)
Total consumer loans excluding loans accounted for under the fair value option
Consumer loans accounted for under the fair value option (3)
Total consumer
Commercial
U.S. commercial
Non-U.S. commercial
Commercial real estate (4)
Commercial lease financing
U.S. small business commercial (5)
Total commercial loans excluding loans accounted for under the fair value option
Commercial loans accounted for under the fair value option (3)
Total commercial
Less: Loans of business held for sale (6)
Total loans and leases
2018
2017
208,557
48,286
98,338
—
91,166
202
446,549
682
447,231
299,277
98,776
60,845
22,534
481,432
14,565
495,997
3,667
499,664
—
946,895
$ 203,811
57,744
96,285
—
96,342
166
454,348
928
455,276
284,836
97,792
58,298
22,116
463,042
13,649
476,691
4,782
481,473
—
$ 936,749
$
$
December 31
2016
$ 191,797
66,443
92,278
9,214
95,962
626
456,320
1,051
457,371
270,372
89,397
57,355
22,375
439,499
12,993
452,492
6,034
458,526
(9,214)
$ 906,683
2015
2014
$ 187,911
75,948
89,602
9,975
90,149
713
454,298
1,871
456,169
252,771
91,549
57,199
21,352
422,871
12,876
435,747
5,067
440,814
—
$ 896,983
$ 216,197
85,725
91,879
10,465
81,386
841
486,493
2,077
488,570
220,293
80,083
47,682
19,579
367,637
13,293
380,930
6,604
387,534
—
$ 876,104
(1)
Includes auto and specialty lending loans and leases of $50.1 billion, $52.4 billion, $50.7 billion, $43.9 billion and $38.7 billion, unsecured consumer lending loans of $383 million, $469 million,
$585 million, $886 million and $1.5 billion, U.S. securities-based lending loans of $37.0 billion, $39.8 billion, $40.1 billion, $39.8 billion and $35.8 billion, non-U.S. consumer loans of $2.9 billion,
$3.0 billion, $3.0 billion, $3.9 billion and $4.0 billion, student loans of $0, $0, $497 million, $564 million and $632 million, and other consumer loans of $746 million, $684 million, $1.1 billion,
$1.0 billion and $761 million at December 31, 2018, 2017, 2016, 2015 and 2014, respectively.
(2) Substantially all of other consumer at December 31, 2018 and 2017 is consumer overdrafts. Other consumer at December 31, 2016, 2015 and 2014 also includes consumer finance loans of $465
million, $564 million and $676 million, respectively.
(3) Consumer loans accounted for under the fair value option were residential mortgage loans of $336 million, $567 million, $710 million, $1.6 billion and $1.9 billion, and home equity loans of $346
million, $361 million, $341 million, $250 million and $196 million at December 31, 2018, 2017, 2016, 2015 and 2014, respectively. Commercial loans accounted for under the fair value option
were U.S. commercial loans of $2.5 billion, $2.6 billion, $2.9 billion, $2.3 billion and $1.9 billion, and non-U.S. commercial loans of $1.1 billion, $2.2 billion, $3.1 billion, $2.8 billion and $4.7 billion
at December 31, 2018, 2017, 2016, 2015 and 2014, respectively.
Includes U.S. commercial real estate loans of $56.6 billion, $54.8 billion, $54.3 billion, $53.6 billion and $45.2 billion, and non-U.S. commercial real estate loans of $4.2 billion, $3.5 billion, $3.1
billion, $3.5 billion and $2.5 billion at December 31, 2018, 2017, 2016, 2015 and 2014, respectively.
Includes card-related products.
(5)
(4)
(6) Represents non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet.
96 Bank of America 2018
Table II Nonperforming Loans, Leases and Foreclosed Properties (1)
(Dollars in millions)
Consumer
Residential mortgage
Home equity
Direct/Indirect consumer
Other consumer
Total consumer (2)
Commercial
U.S. commercial
Non-U.S. commercial
Commercial real estate
Commercial lease financing
U.S. small business commercial
Total commercial (3)
Total nonperforming loans and leases
Foreclosed properties
2018
2017
December 31
2016
2015
2014
$
$
1,893
1,893
56
—
3,842
$
2,476
2,644
46
—
5,166
$
3,056
2,918
28
2
6,004
$
4,803
3,337
24
1
8,165
6,889
3,901
28
1
10,819
794
80
156
18
1,048
54
1,102
4,944
300
5,244
814
299
112
24
1,249
55
1,304
6,470
288
6,758
1,256
279
72
36
1,643
60
1,703
7,707
377
8,084
867
158
93
12
1,130
82
1,212
9,377
459
9,836
701
1
321
3
1,026
87
1,113
11,932
697
12,629
(2)
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 were recorded at fair value upon acquisition and accrete interest income over the remaining
life of the loan. In addition, balances do not include foreclosed properties insured by certain government-guaranteed loans, principally FHA-insured loans, that entered foreclosure of $488 million,
$801 million, $1.2 billion, $1.4 billion and $1.1 billion at December 31, 2018, 2017, 2016, 2015 and 2014, respectively.
In 2018, $625 million in interest income was estimated to be contractually due on $3.8 billion of consumer loans and leases classified as nonperforming at December 31, 2018, as presented in
the table above, plus $6.8 billion of TDRs classified as performing at December 31, 2018. Approximately $388 million of the estimated $625 million in contractual interest was received and included
in interest income for 2018.
In 2018, $119 million in interest income was estimated to be contractually due on $1.1 billion of commercial loans and leases classified as nonperforming at December 31, 2018, as presented in
the table above, plus $1.3 billion of TDRs classified as performing at December 31, 2018. Approximately $84 million of the estimated $119 million in contractual interest was received and included
in interest income for 2018.
$
$
$
$
(3)
Table III Accruing Loans and Leases Past Due 90 Days or More (1)
(Dollars in millions)
Consumer
Residential mortgage (2)
U.S. credit card
Non-U.S. credit card
Direct/Indirect consumer
Other consumer
Total consumer
Commercial
U.S. commercial
Non-U.S. commercial
Commercial real estate
Commercial lease financing
U.S. small business commercial
Total commercial
Total accruing loans and leases past due 90 days or more
2018
2017
December 31
2016
2015
2014
$
$
1,884
994
—
38
—
2,916
197
—
4
29
230
84
314
3,230
$
$
3,230
900
—
40
—
4,170
144
3
4
19
170
75
245
4,415
$
$
4,793
782
66
34
4
5,679
106
5
7
19
137
71
208
5,887
$
$
7,150
789
76
39
3
8,057
113
1
3
15
132
61
193
8,250
$
$
11,407
866
95
64
1
12,433
110
—
3
40
153
67
220
12,653
(1) Our policy is to classify consumer real estate-secured loans as nonperforming at 90 days past due, except the PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the
fair value option.
(2) Balances are fully-insured loans.
Bank of America 2018 97
Table IV Selected Loan Maturity Data (1, 2)
(Dollars in millions)
U.S. commercial
U.S. commercial real estate
Non-U.S. and other (3)
Total selected loans
Percent of total
Sensitivity of selected loans to changes in interest rates for loans due after one year:
Fixed interest rates
Floating or adjustable interest rates
Total
(1) Loan maturities are based on the remaining maturities under contractual terms.
(2)
Includes loans accounted for under the fair value option.
(3) Loan maturities include non-U.S. commercial and commercial real estate loans.
Table V Allowance for Credit Losses
(Dollars in millions)
Allowance for loan and lease losses, January 1
Loans and leases charged off
Residential mortgage
Home equity
U.S. credit card
Non-U.S. credit card (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
Due in One
Year or Less
December 31, 2018
Due After One
Year Through
Five Years
Due After
Five Years
$
$
74,365
11,622
42,217
128,204
$
$
194,116
40,393
55,360
289,869
27%
61%
$
$
17,109
272,760
289,869
$
$
$
$
47,888
4,590
6,579
59,057
$
$
Total
316,369
56,605
104,156
477,130
12%
100%
27,664
31,393
59,057
2018
2017
2016
2015
2014
$
10,393
$
11,237
$
12,234
$
14,419
$
17,428
(207)
(483)
(3,345)
—
(495)
(197)
(4,727)
(575)
(82)
(10)
(8)
(675)
(5,402)
179
485
508
—
300
15
1,487
120
14
9
9
152
1,639
(3,763)
(273)
3,262
(18)
9,601
—
9,601
777
20
—
797
10,398
$
(188)
(582)
(2,968)
(103)
(491)
(212)
(4,544)
(589)
(446)
(24)
(16)
(1,075)
(5,619)
288
369
455
28
277
49
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
$
(866)
(975)
(2,738)
(275)
(383)
(224)
(5,461)
(536)
(59)
(30)
(19)
(644)
(6,105)
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
$
(855)
(1,364)
(3,068)
(357)
(456)
(268)
(6,368)
(584)
(35)
(29)
(10)
(658)
(7,026)
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
$
(1) Represents net charge-offs related to the non-U.S. credit card loan portfolio, which was sold in 2017.
(2)
Includes U.S. small business commercial charge-offs of $287 million, $258 million, $253 million, $282 million and $345 million in 2018, 2017, 2016, 2015 and 2014, respectively.
Includes U.S. small business commercial recoveries of $47 million, $43 million, $45 million, $57 million and $63 million in 2018, 2017, 2016, 2015 and 2014, respectively.
(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.
98 Bank of America 2018
Table V Allowance for Credit Losses (continued)
(Dollars in millions)
Loan and allowance ratios (6):
2018
2017
2016
2015
2014
Loans and leases outstanding at December 31 (7)
Allowance for loan and lease losses as a percentage of total loans and leases outstanding
$ 942,546
$ 931,039
$ 908,812
$ 890,045
$ 867,422
at December 31 (7)
1.02%
1.12%
1.26%
1.37%
1.66%
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)
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
1.08
0.97
1.18
1.05
1.36
1.16
1.63
1.11
2.05
1.16
$ 927,531
$ 911,988
$ 892,255
$ 869,065
$ 888,804
0.41%
0.44%
0.43%
0.50%
0.49%
0.44
194
2.55
2.38
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
excluded from nonperforming loans and leases at December 31 (11)
$
4,031
$
3,971
$
3,951
$
4,518
$
5,944
Allowance for loan and lease losses as a percentage of total nonperforming loans and
leases, excluding the allowance for loan and lease losses for loans and leases that are
excluded from nonperforming loans and leases at December 31 (7, 11)
113%
99%
98%
82%
71%
(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 sold in 2017.
(7) Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $4.3 billion, $5.7 billion, $7.1 billion, $6.9 billion and $8.7 billion at December 31,
2018, 2017, 2016, 2015 and 2014, respectively. Average loans accounted for under the fair value option were $5.5 billion, $6.7 billion, $8.2 billion, $7.7 billion and $9.9 billion in 2018, 2017,
2016, 2015 and 2014, respectively.
(8) Excludes consumer loans accounted for under the fair value option of $682 million, $928 million, $1.1 billion, $1.9 billion and $2.1 billion at December 31, 2018, 2017, 2016, 2015 and 2014,
respectively.
(9) Excludes commercial loans accounted for under the fair value option of $3.7 billion, $4.8 billion, $6.0 billion, $5.1 billion and $6.6 billion at December 31, 2018, 2017, 2016, 2015 and 2014,
respectively.
(10) Net charge-offs exclude $273 million, $207 million, $340 million, $808 million and $810 million of write-offs in the PCI loan portfolio in 2018, 2017, 2016, 2015 and 2014 respectively. For more
information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 72.
(11) Primarily includes amounts allocated to U.S. credit card and unsecured consumer lending portfolios in Consumer Banking and PCI loans and the non-U.S. credit card portfolio in All Other.
Table VI Allocation of the Allowance for Credit Losses by Product Type
(Dollars in millions)
Allowance for loan and lease losses
Residential mortgage
Home equity
U.S. credit card
Non-U.S. credit card
Direct/Indirect consumer
Other consumer
Total consumer
U.S. commercial (1)
Non-U.S. commercial
Commercial real estate
Commercial lease financing
Total commercial
Total allowance for loan and lease
losses (2)
2018
2017
December 31
2016
2015
2014
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
of Total
$
422
506
3,597
—
248
29
4,802
3,010
677
958
154
4,799
4.40% $
5.27
37.47
—
2.58
0.30
50.02
31.35
7.05
9.98
1.60
49.98
701
1,019
3,368
—
264
31
5,383
3,113
803
935
159
5,010
6.74% $ 1,012
1,738
9.80
2,934
32.41
243
—
244
2.54
0.30
51
6,222
51.79
3,326
29.95
874
7.73
920
9.00
138
1.53
5,258
48.21
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%
21.05
23.03
2.56
2.07
0.41
69.23
18.16
4.50
7.05
1.06
30.77
9,601
100.00%
10,393
100.00%
11,480
100.00%
12,234
100.00%
14,419
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
—
9,601
797
$ 10,398
—
10,393
777
$ 11,170
(243)
11,237
762
$ 11,999
—
12,234
646
$ 12,880
—
14,419
528
$ 14,947
(1)
(2)
Includes allowance for loan and lease losses for U.S. small business commercial loans of $474 million, $439 million, $416 million, $507 million and $536 million at December 31, 2018, 2017,
2016, 2015 and 2014, respectively.
Includes $91 million, $289 million, $419 million, $804 million and $1.7 billion of valuation allowance presented with the allowance for loan and lease losses related to PCI loans at December 31,
2018, 2017, 2016, 2015 and 2014, respectively.
(3) Represents allowance for loan and lease losses related to the non-U.S. credit card loan portfolio, which was sold in 2017.
Bank of America 2018 99
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 – Noninterest Income
Note 3 – Derivatives
Note 4 – Securities
Note 5 – Outstanding Loans and Leases
Note 6 – Allowance for Credit Losses
Note 7 – Securitizations and Other Variable Interest Entities
Note 8 – Goodwill and Intangible Assets
Note 9 – Deposits
Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings
and Restricted Cash
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
103
103
104
105
106
107
115
116
123
126
137
138
142
143
143
146
147
153
155
156
156
158
163
163
165
175
177
178
181
182
183
184
100 Bank of America 2018
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, 2018
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, 2018, the
Corporation’s internal control over financial reporting is effective.
The Corporation’s internal control over financial reporting
as of December 31, 2018 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, 2018.
Brian T. Moynihan
Chairman, Chief Executive Officer and President
Paul M. Donofrio
Chief Financial Officer
Bank of America 2018 101
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, 2018 and December 31, 2017, 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, 2018, 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, 2018, 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, 2018 and
December 31, 2017, and the results of its operations and its cash
flows for each of the three years in the period ended December
31, 2018 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, 2018, based
on criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.
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.
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
internal control over financial reporting was maintained in all
material respects.
financial statements are
Charlotte, North Carolina
February 26, 2019
We have served as the Corporation’s auditor since 1958.
Our audits of the consolidated financial statements included
risks of material
performing procedures
to assess
the
102 Bank of America 2018
Bank of America Corporation and Subsidiaries
Consolidated Statement of Income
(In millions, except per share information)
Interest income
Loans and leases
Debt securities
Federal funds sold and securities borrowed or purchased under agreements to resell
Trading account assets
Other interest income
Total interest income
Interest expense
Deposits
Short-term borrowings
Trading account liabilities
Long-term debt
Total interest expense
Net interest income
Noninterest income
Card income
Service charges
Investment and brokerage services
Investment banking income
Trading account profits
Other income
Total noninterest income
Total revenue, net of interest expense
Provision for credit losses
Noninterest expense
Personnel
Occupancy
Equipment
Marketing
Professional fees
Data processing
Telecommunications
Other general operating
Total noninterest expense
Income before income taxes
Income tax expense
Net income
Preferred stock dividends
Net income applicable to common shareholders
Per common share information
Earnings
Diluted earnings
Average common shares issued and outstanding
Average diluted common shares issued and outstanding
Consolidated Statement of Comprehensive Income
(Dollars in millions)
Net income
Other comprehensive income (loss), net-of-tax:
Net change in debt and equity securities
Net change in debit valuation adjustments
Net change in derivatives
Employee benefit plan adjustments
Net change in foreign currency translation adjustments
Other comprehensive income (loss)
Comprehensive income
$
$
$
$
2018
2017
2016
$
$
$
$
40,811
11,724
3,176
4,811
6,247
66,769
4,495
5,839
1,358
7,645
19,337
47,432
6,051
7,767
14,160
5,327
8,540
1,970
43,815
91,247
3,282
31,880
4,066
1,705
1,674
1,699
3,222
699
8,436
53,381
34,584
6,437
28,147
1,451
26,696
2.64
2.61
10,096.5
10,236.9
$
$
$
$
36,221
10,471
2,390
4,474
4,023
57,579
1,931
3,538
1,204
6,239
12,912
44,667
5,902
7,818
13,836
6,011
7,277
1,841
42,685
87,352
3,396
31,931
4,009
1,692
1,746
1,888
3,139
699
9,639
54,743
29,213
10,981
18,232
1,614
16,618
1.63
1.56
10,195.6
10,778.4
33,228
9,167
1,118
4,423
3,121
51,057
1,015
2,350
1,018
5,578
9,961
41,096
5,851
7,638
13,349
5,241
6,902
3,624
42,605
83,701
3,597
32,018
4,038
1,804
1,703
1,971
3,007
746
9,796
55,083
25,021
7,199
17,822
1,682
16,140
1.57
1.49
10,284.1
11,046.8
2018
2017
2016
$
28,147
$
18,232
$
17,822
(3,953)
749
(53)
(405)
(254)
(3,916)
24,231
$
61
(293)
64
288
86
206
18,438
$
(1,345)
(156)
182
(524)
(87)
(1,930)
15,892
$
See accompanying Notes to Consolidated Financial Statements.
Bank of America 2018 103
Bank of America Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in millions)
Assets
Cash and due from banks
Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks
Cash and cash equivalents
Time deposits placed and other short-term investments
Federal funds sold and securities borrowed or purchased under agreements to resell
(includes $56,399 and $52,906 measured at fair value)
Trading account assets (includes $119,363 and $106,274 pledged as collateral)
Derivative assets
Debt securities:
Carried at fair value
Held-to-maturity, at cost (fair value – $200,435 and $123,299)
Total debt securities
Loans and leases (includes $4,349 and $5,710 measured at fair value)
Allowance for loan and lease losses
Loans and leases, net of allowance
Premises and equipment, net
Goodwill
Loans held-for-sale (includes $2,942 and $2,156 measured at fair value)
Customer and other receivables
Other assets (includes $19,739 and $22,581 measured at fair value)
Total assets
Liabilities
Deposits in U.S. offices:
Noninterest-bearing
Interest-bearing (includes $492 and $449 measured at fair value)
Deposits in non-U.S. offices:
Noninterest-bearing
Interest-bearing
Total deposits
Federal funds purchased and securities loaned or sold under agreements to repurchase
(includes $28,875 and $36,182 measured at fair value)
Trading account liabilities
Derivative liabilities
Short-term borrowings (includes $1,648 and $1,494 measured at fair value)
Accrued expenses and other liabilities (includes $20,075 and $22,840 measured at fair value
and $797 and $777 of reserve for unfunded lending commitments)
Long-term debt (includes $27,637 and $31,786 measured at fair value)
Total liabilities
Commitments and contingencies (Note 7 – Securitizations and Other Variable Interest Entities
and Note 12 – Commitments and Contingencies)
Shareholders’ equity
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding – 3,843,140 and 3,837,683 shares
Common stock and additional paid-in capital, $0.01 par value; authorized – 12,800,000,000 shares;
issued and outstanding – 9,669,286,370 and 10,287,302,431 shares
Retained earnings
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
Assets of consolidated variable interest entities included in total assets above (isolated to settle the liabilities of the variable interest entities)
Trading account assets
Loans and leases
Allowance for loan and lease losses
Loans and leases, net of allowance
All other assets
Total assets of consolidated variable interest entities
Liabilities of consolidated variable interest entities included in total liabilities above
Short-term borrowings
Long-term debt (includes $10,943 and $9,872 of non-recourse debt)
All other liabilities (includes $27 and $34 of non-recourse liabilities)
Total liabilities of consolidated variable interest entities
104 Bank of America 2018
See accompanying Notes to Consolidated Financial Statements.
December 31
2018
2017
$
$
$
29,063
148,341
177,404
7,494
261,131
214,348
43,725
238,101
203,652
441,753
946,895
(9,601)
937,294
9,906
68,951
10,367
65,814
116,320
2,354,507
412,587
891,636
14,060
63,193
1,381,476
29,480
127,954
157,434
11,153
212,747
209,358
37,762
315,117
125,013
440,130
936,749
(10,393)
926,356
9,247
68,951
11,430
61,623
135,043
2,281,234
430,650
796,576
14,024
68,295
1,309,545
186,988
176,865
68,220
37,891
20,189
165,078
229,340
2,089,182
81,187
34,300
32,666
152,123
227,402
2,014,088
22,326
22,323
118,896
136,314
(12,211)
265,325
2,354,507
5,798
43,850
(912)
42,938
337
49,073
742
10,944
30
$
$
$
$
138,089
113,816
(7,082)
267,146
2,281,234
6,521
48,929
(1,016)
47,913
1,721
56,155
312
9,873
37
11,716
$
10,222
$
$
$
$
$
$
$
$
Bank of America Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders’ Equity
(In millions)
Balance, December 31, 2015
Net income
Net change in debt and equity securities
Net change in debit valuation adjustments
Net change in derivatives
Employee benefit plan adjustments
Net change in foreign currency translation adjustments
Dividends declared:
Common
Preferred
Preferred
Stock
$
22,273
Common Stock and
Additional Paid-in Capital
Shares
10,380.3
Amount
$
151,042
$
Retained
Earnings
87,658
17,822
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
$
(5,358) $
(1,345)
(156)
182
(524)
(87)
Issuance of preferred stock
Common stock issued under employee plans, net, and related
2,947
$
25,220
5.1
1,108
(332.8)
10,052.6
$
(5,112)
147,038
$
tax effects
Common stock repurchased
Balance, December 31, 2016
Net income
Net change in debt and equity securities
Net change in debit valuation adjustments
Net change in derivatives
Employee benefit plan adjustments
Net change in foreign currency translation adjustments
Dividends declared:
Common
Preferred
700.0
43.3
(508.6)
10,287.3
$
2,933
932
(12,814)
138,089
Common stock issued in connection with exercise of warrants
and exchange of preferred stock
(2,897)
$
22,323
Common stock issued under employee plans, net, and other
Common stock repurchased
Balance, December 31, 2017
Cumulative adjustment for adoption of hedge accounting
standard
Adoption of accounting standard related to certain tax effects
stranded in accumulated other comprehensive income (loss)
Net income
Net change in debt and equity securities
Net change in debit valuation adjustments
Net change in derivatives
Employee benefit plan adjustments
Net change in foreign currency translation adjustments
Dividends declared:
Common
Preferred
Issuance of preferred stock
Redemption of preferred stock
Common stock issued under employee plans, net, and other
Common stock repurchased
Balance, December 31, 2018
4,515
(4,512)
$
22,326
58.2
(676.2)
9,669.3
$
901
(20,094)
118,896
(2,573)
(1,682)
101,225
18,232
$
(7,288) $
61
(293)
64
288
86
(4,027)
(1,578)
(36)
$
113,816
$
(7,082) $
(32)
57
(1,270)
(3,953)
749
(53)
(405)
(254)
1,270
28,147
(5,424)
(1,451)
(12)
$
136,314
$
(12,211) $
255,615
17,822
(1,345)
(156)
182
(524)
(87)
(2,573)
(1,682)
2,947
1,108
(5,112)
266,195
18,232
61
(293)
64
288
86
(4,027)
(1,578)
—
932
(12,814)
267,146
25
—
28,147
(3,953)
749
(53)
(405)
(254)
(5,424)
(1,451)
4,515
(4,512)
889
(20,094)
265,325
See accompanying Notes to Consolidated Financial Statements.
Bank of America 2018 105
Bank of America Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in millions)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Gains on sales of debt securities
Depreciation and premises improvements amortization
Amortization of intangibles
Net amortization of premium/discount on debt securities
Deferred income taxes
Stock-based compensation
Loans held-for-sale:
Originations and purchases
Proceeds from sales and paydowns of loans originally classified as held for sale and instruments
from related securitization activities
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 of loans originally classified as held for investment and instruments
from related securitization activities
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
Preferred stock:
Proceeds from issuance
Redemption
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, net
2018
2017
2016
$
28,147
$
18,232
$
17,822
3,282
(154)
1,525
538
1,824
3,041
1,729
3,396
(255)
1,482
621
2,251
8,175
1,649
3,597
(490)
1,511
730
3,134
5,793
1,367
(28,071)
(43,506)
(33,107)
28,972
40,548
32,588
(23,673)
11,920
13,010
(2,570)
39,520
3,659
(48,384)
5,117
78,513
(76,640)
18,789
(35,980)
21,365
(4,629)
(31,292)
(1,986)
(71,468)
71,931
10,070
(12,478)
64,278
(53,046)
4,515
(4,512)
(20,094)
(6,895)
(651)
53,118
(1,200)
19,970
157,434
177,404
19,087
2,470
$
$
(14,663)
(20,090)
4,673
7,351
9,864
(1,292)
(14,523)
73,353
93,874
(166,975)
16,653
(25,088)
11,996
(6,846)
(41,104)
8,411
(51,541)
48,611
7,024
8,538
53,486
(49,480)
—
—
(12,814)
(5,700)
(397)
49,268
2,105
9,696
147,738
157,434
12,852
3,235
$
$
(2,635)
(14,103)
(35)
1,105
17,277
(2,117)
(5,742)
71,547
108,592
(189,061)
18,677
(39,899)
18,787
(12,283)
(31,194)
408
(62,285)
63,675
(4,000)
(4,014)
35,537
(51,623)
2,947
—
(5,112)
(4,194)
(63)
33,153
240
(11,615)
159,353
147,738
10,510
1,043
$
$
106 Bank of America 2018
See accompanying Notes to Consolidated Financial Statements.
Bank of America Corporation and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 Summary of Significant Accounting
Principles
Bank of America Corporation, a bank holding company 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.
New Accounting Standards
Effective January 1, 2018, the Corporation adopted the following
new accounting standards on a prospective basis.
Revenue Recognition – The new accounting standard
addresses the recognition of revenue from contracts with
customers. For additional
information, see Revenue
Recognition Accounting Policies in this Note, Note 2 –
Noninterest Income and Note 23 – Business Segment
Information.
Hedge Accounting – The new accounting standard simplifies
and expands the ability to apply hedge accounting to certain
risk management activities. For additional information, see
Note 3 – Derivatives.
Recognition and Measurement of Financial Assets and
Liabilities – The new accounting standard relates to the
recognition and measurement of financial instruments,
including equity investments. For additional information, see
Note 4 – Securities and Note 22 – Fair Value of Financial
Instruments.
Tax Effects in Accumulated Other Comprehensive Income – The
new accounting standard addresses certain tax effects
stranded in accumulated other comprehensive income (OCI)
related to the 2017 Tax Cuts and Job Act (the Tax Act). For
additional information, see Note 14 – Accumulated Other
Comprehensive Income (Loss).
Effective January 1, 2018, the Corporation adopted the
following new accounting standards on a retrospective basis,
resulting in restatement of all prior periods presented in the
Consolidated Statement of Income and the Consolidated
Statement of Cash Flows. The changes in presentation are not
material to the individual line items affected.
Presentation of Pension Costs – The new accounting standard
requires separate presentation of the service cost component
of pension expense from all other components of net pension
benefit/cost in the Consolidated Statement of Income. As a
result, the service cost component continues to be presented
in personnel expense while other components of net pension
benefit/cost (e.g., interest cost, actual return on plan assets,
amortization of prior service cost) are now presented in other
general operating expense. For additional information, see Note
17 – Employee Benefit Plans.
Classification of Cash Flows and Restricted Cash – The new
accounting standards address the classification of certain
cash receipts and cash payments in the statement of cash
flows as well as the presentation and disclosure of restricted
cash. For more information on restricted cash, see Note 10 –
Federal Funds Sold or Purchased, Securities Financing
Agreements, Short-term Borrowings and Restricted Cash.
Lease Accounting
On January 1, 2019, the Corporation adopted the new accounting
standards that require lessees to recognize operating leases on
the Consolidated Balance Sheet as right-of-use assets and lease
liabilities based on the value of the discounted future lease
payments. Lessor accounting is largely unchanged. Expanded
disclosures about the nature and terms of lease agreements will
be required prospectively. The Corporation elected to apply certain
transition elections which allow for the continued application of
the previous determination of whether a contract that existed at
transition is or contains a lease, the associated lease
classification, and the recognition of leases on January 1, 2019
through a cumulative-effect adjustment to retained earnings, with
no adjustment to comparative prior periods presented. Upon
adoption, the Corporation recognized right-of-use assets and lease
liabilities of $9.7 billion. Adoption of the standard did not have a
significant effect on the Corporation’s regulatory capital measures.
Accounting Standards Issued and Not Yet Adopted
Accounting for Financial Instruments -- Credit Losses
The Financial Accounting Standards Board issued a new
accounting standard that will be effective for the Corporation on
January 1, 2020. The standard replaces the existing measurement
of the allowance for credit losses that is based on management’s
best estimate of probable credit losses inherent in the
Corporation’s lending activities with management’s best estimate
of lifetime expected credit losses inherent in the Corporation’s
financial assets that are recognized at amortized cost. The
standard will also expand credit quality disclosures. While the
standard changes the measurement of the allowance for credit
losses, it does not change the Corporation’s credit risk of its
lending portfolios. The credit loss estimation models and
processes to be used in implementing the new standard have
largely been designed and developed. The validation of the models
and testing of controls are in process and expected to be
completed during 2019. Currently, the impact of this new
accounting standard may be an increase in the Corporation’s
allowance for credit losses at the date of adoption which would
have a resulting negative adjustment to retained earnings. The
ultimate impact will be dependent on the characteristics of the
Bank of America 2018 107
Corporation’s portfolio at adoption date as well as the
macroeconomic conditions and forecasts as of that date.
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. Certain cash balances are restricted as to withdrawal or
usage by legal binding contractual agreements or regulatory
requirements.
Securities Financing Agreements
Securities borrowed or purchased under agreements to resell and
securities loaned or sold under agreements to repurchase
(securities financing agreements) are treated as collateralized
financing transactions except in instances where the transaction
is required to be accounted for as individual sale and purchase
transactions. Generally, these agreements are recorded at
acquisition or sale price plus accrued interest, except for certain
securities financing agreements that the Corporation accounts for
under the fair value option. Changes in the fair value of securities
financing agreements that are accounted for under the fair value
option are recorded in trading account profits in the Consolidated
Statement of Income.
The Corporation’s policy is to monitor the market value of the
principal amount loaned under resale agreements and obtain
collateral from or return collateral pledged to counterparties when
appropriate. Securities financing agreements do not create
material credit risk due to these collateral provisions; therefore,
an allowance for loan losses is not necessary.
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, 2018 and 2017, the fair value of this collateral was $599.0
billion and $561.9 billion, of which $508.6 billion and $476.1
billion were 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
108 Bank of America 2018
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
for the same or 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.
include derivatives
Derivatives and Hedging Activities
Derivatives are entered into on behalf of customers, for trading or
to support risk management activities. Derivatives used in risk
management activities
that are both
designated in qualifying accounting hedge relationships and
derivatives used to hedge market risks in relationships that are
not designated in qualifying accounting hedge relationships
(referred to as other risk management activities). 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-lien mortgage loans held-for-
sale (LHFS) that are originated by the Corporation are recorded in
other 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.
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. Components
of a derivative that are excluded in assessing hedge effectiveness
are recorded in the same income statement line item as the
hedged 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 spot prices of derivatives that are
designated as net investment hedges of foreign operations are
recorded as a component of accumulated OCI. The remaining
components of these derivatives are excluded in assessing hedge
effectiveness and are recorded in other income.
Securities
Debt securities are reported on the Consolidated Balance Sheet
at their trade date. Their classification is dependent on the purpose
for which the securities 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 held-to-maturity (HTM) debt securities. 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. HTM debt securities, 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.
Equity securities with readily determinable fair values that are
not held for trading purposes are carried at fair value with
unrealized gains and losses included in other income. Equity
securities that do not have readily determinable fair values are
held at cost and evaluated for impairment. These securities are
reported in other assets or time deposits placed and other short-
term investments.
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
Bank of America 2018 109
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, 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.
Purchased Credit-impaired Loans
At acquisition, purchased credit-impaired (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. 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 contractual principal
and interest over the expected cash flows of the PCI loans is
referred to as the nonaccretable difference. If, upon subsequent
valuation, the Corporation determines it is probable that the
present value of the expected cash flows has decreased, a charge
to the provision for credit losses is recorded. If it is probable that
there is a significant increase in the present value of expected
cash flows, the allowance for credit losses is reduced or, if there
is no remaining allowance for credit losses related to these PCI
loans, the accretable yield is increased through a reclassification
from nonaccretable difference, resulting in a prospective increase
in interest income. Reclassifications to or from nonaccretable
difference can also occur for changes in the estimated lives of the
PCI loans. 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 its carrying value, the difference
is first applied against the PCI pool’s nonaccretable difference and
then against the allowance for credit losses.
Leases
The Corporation provides equipment financing to its customers
through a variety of lease arrangements. Direct financing leases
are carried at the aggregate of lease payments receivable plus
estimated residual value of the leased property less unearned
income. Leveraged leases, which are a form of financing leases,
are reported net of non-recourse debt. Unearned income on
leveraged and direct financing leases is accreted to interest
income over the lease terms using methods that approximate the
interest method.
Allowance for Credit Losses
The allowance for credit losses, which includes the allowance for
loan and lease losses and the reserve for unfunded lending
commitments, represents management’s estimate of probable
incurred credit losses in the Corporation’s loan and lease portfolio
excluding loans and unfunded lending commitments accounted
for under the fair value option. The allowance for credit losses
includes both quantitative and qualitative components. The
qualitative component has a higher degree of management
subjectivity, and includes factors such as concentrations,
economic conditions and other considerations. The allowance for
loan and lease losses represents the estimated probable credit
losses on funded consumer and commercial loans and leases
while the reserve for unfunded lending commitments, including
standby letters of credit (SBLCs) and binding unfunded loan
commitments, represents estimated probable credit losses on
110 Bank of America 2018
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.
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 loan-to-value (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-lien 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 qualitative
estimates 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 individually impaired loans, which include nonperforming
commercial loans as well as consumer and commercial loans and
(TDR),
leases modified
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
in a troubled debt restructuring
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 part of the allowance for loan and
lease losses unless these are secured consumer loans that are
solely dependent on 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, within 60 days after
receipt of notification of death or bankruptcy, or upon confirmation
of 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 in the same manner as
consumer credit card loans. These loans are not placed on
nonaccrual status prior to charge-off and, therefore, are not
reported as nonperforming loans. Other commercial loans and
leases are generally charged off when all or a portion of the
principal amount is determined to be uncollectible.
The entire balance of a consumer loan or commercial loan or
lease is contractually delinquent if the minimum payment is not
received by the specified due date on the customer’s billing
statement. Interest and fees continue to accrue on past due loans
and leases until the date the loan is placed on nonaccrual status,
if applicable. Accrued interest receivable is reversed when loans
and leases are placed on nonaccrual status. Interest collections
on nonaccruing loans and leases for which the ultimate
collectability of principal is uncertain are applied as principal
reductions; otherwise, such collections are credited to income
when received. Loans and leases may be restored to accrual status
when all principal and interest is current and full repayment of the
remaining contractual principal and interest is expected.
PCI loans are recorded at fair value at the acquisition date.
Although the PCI loans may be contractually delinquent, the
Corporation does not classify these loans as nonperforming as
the loans were written down to fair value at the acquisition date
and the accretable yield is recognized in interest income over the
remaining life of the loan. In addition, reported net charge-offs
exclude write-offs on PCI loans as the fair value already considers
the estimated credit losses.
Troubled Debt Restructurings
Consumer and commercial loans and leases whose contractual
terms have been restructured in a manner that grants a concession
to a borrower experiencing financial difficulties are classified as
TDRs. Concessions could include a reduction in the interest rate
to a rate that is below market on the loan, payment extensions,
forgiveness of principal, forbearance or other actions designed to
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
Bank of America 2018 111
is expected. Otherwise, the loans are placed on nonaccrual status
and reported as nonperforming, except for fully-insured consumer
real estate loans, until there is sustained repayment performance
for a reasonable period, generally six months. If accruing TDRs
cease to perform in accordance with their modified contractual
terms, they are placed on nonaccrual status and reported as
nonperforming TDRs.
Secured consumer loans that have been discharged in Chapter
7 bankruptcy and have not been reaffirmed by the borrower are
classified as TDRs at the time of discharge. Such loans are placed
on nonaccrual status and written down to the estimated collateral
value less costs to sell no later than at the time of discharge. If
these loans are contractually current, interest collections are
generally recorded in interest income on a cash basis. Consumer
real estate-secured loans for which a binding offer to restructure
has been extended are also classified as TDRs. Credit card and
other unsecured consumer loans that have been renegotiated in
a TDR generally remain on accrual status until the loan is either
paid in full or charged off, which occurs no later than the end of
the month in which the loan becomes 180 days past due or, for
loans that have been placed on a fixed payment plan, 120 days
past due.
A loan that had previously been modified in a TDR and is
subsequently refinanced under current underwriting standards at
a market rate with no concessionary terms is accounted for as a
new loan and is no longer reported as a TDR.
Loans Held-for-sale
Loans that are intended to be sold in the foreseeable future,
including residential mortgages, loan syndications, and to a lesser
degree, commercial real estate, consumer finance and other loans,
are reported as LHFS and are carried at the lower of aggregate
cost or fair value. The Corporation accounts for certain LHFS,
including residential mortgage LHFS, under the fair value option.
Loan origination costs related to LHFS that the Corporation
accounts for under the fair value option are recognized in
noninterest expense when incurred. Loan origination costs for
LHFS carried at the lower of cost or fair value are capitalized as
part of the carrying value of the loans and recognized as a reduction
of noninterest income upon the sale of such loans. LHFS that are
on nonaccrual status and are reported as nonperforming, as
defined in the policy herein, are reported separately from
nonperforming loans and leases.
Premises and Equipment
Premises and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation and amortization are
recognized using the straight-line method over the estimated
useful lives of the assets. Estimated lives range up to 40 years
for buildings, up to 12 years for furniture and equipment, and the
shorter of lease term or estimated useful life for leasehold
improvements.
Goodwill and Intangible Assets
Goodwill is the purchase premium after adjusting for the fair value
of net assets acquired. Goodwill is not amortized but is reviewed
for potential impairment on an annual basis, or when events or
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 assesses the fair value of each reporting unit
against 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
112 Bank of America 2018
is comprised of allocated capital plus capital for the portion of
goodwill and intangibles specifically assigned to the reporting unit.
In performing its goodwill impairment testing, the Corporation
first assesses qualitative factors to determine whether it is more
likely than not that the fair value of a reporting unit is less than
its carrying value. Qualitative factors include, among other things,
macroeconomic conditions, industry and market considerations,
financial performance of the respective reporting unit and other
relevant entity- and reporting-unit specific considerations.
If the Corporation concludes it is more likely than not that the
fair value of a reporting unit is less than its carrying value, a
quantitative assessment is performed. 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 is
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
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.
Bank of America 2018 113
Revenue Recognition
The following summarizes the Corporation’s revenue recognition
accounting policies for certain noninterest income activities.
the corresponding payment network’s
Card Income
Card income includes annual, late and over-limit fees as well as
fees earned from interchange, cash advances and other
miscellaneous transactions and is presented net of direct costs.
Interchange fees are recognized upon settlement of the credit and
debit card payment transactions and are generally determined on
a percentage basis for credit cards and fixed rates for debit cards
based on
rates.
Substantially all card fees are recognized at the transaction date,
except for certain time-based fees such as annual fees, which are
recognized over 12 months. Fees charged to cardholders that are
estimated to be uncollectible are reserved in the allowance for
loan and lease losses. Included in direct cost are rewards and
credit card partner payments. Rewards paid to cardholders are
related to points earned by the cardholder that can be redeemed
for a broad range of rewards including cash, travel and gift cards.
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 Corporation also makes
payments to credit card partners. The payments are based on
revenue-sharing agreements that are generally driven by
cardholder transactions and partner sales volumes. As part of the
revenue-sharing agreements, the credit card partner provides the
Corporation exclusive rights to market to the credit card partner’s
members or customers on behalf of the Corporation.
Service Charges
Service charges include deposit and lending-related fees. Deposit-
related fees consist of fees earned on consumer and commercial
deposit activities and are generally recognized when the
transactions occur or as the service is performed. Consumer fees
are earned on consumer deposit accounts
for account
maintenance and various transaction-based services, such as ATM
transactions, wire transfer activities, check and money order
processing and
transactions.
Commercial deposit-related fees are from the Corporation’s Global
Transaction Services business and consist of commercial deposit
and
including account
maintenance and other services, such as payroll, sweep account
and other cash management services. Lending-related fees
generally represent transactional fees earned from certain loan
commitments, financial guarantees and SBLCs.
treasury management services,
funds/overdraft
insufficient
Investment and Brokerage Services
Investment and brokerage services consist of asset management
and brokerage fees. Asset management fees are earned from the
management of client assets under advisory agreements or the
full discretion of the Corporation’s financial advisors (collectively
referred to as assets under management (AUM)). Asset
management fees are earned as a percentage of the client’s AUM
and generally range from 50 basis points (bps) to 150 bps of the
AUM. In cases where a third party is used to obtain a client’s
investment allocation, the fee remitted to the third party is recorded
net and is not reflected in the transaction price, as the Corporation
is an agent for those services.
Brokerage fees include income earned from transaction-based
services that are performed as part of investment management
services and are based on a fixed price per unit or as a percentage
of the total transaction amount. Brokerage fees also include
distribution fees and sales commissions that are primarily in the
114 Bank of America 2018
Global Wealth & Investment Management (GWIM) segment and are
earned over time. In addition, primarily in the Global Markets
segment, brokerage fees are earned when the Corporation fills
customer orders to buy or sell various financial products or when
it acknowledges, affirms, settles and clears transactions and/or
submits trade information to the appropriate clearing broker.
Certain customers pay brokerage, clearing and/or exchange fees
imposed by relevant regulatory bodies or exchanges in order to
execute or clear trades. These fees are recorded net and are not
reflected in the transaction price, as the Corporation is an agent
for those services.
Investment Banking Income
Investment banking income includes underwriting income and
financial advisory services income. Underwriting consists of fees
earned for the placement of a customer’s debt or equity securities.
The revenue is generally earned based on a percentage of the
fixed number of shares or principal placed. Once the number of
shares or notes is determined and the service is completed, the
underwriting fees are recognized. The Corporation incurs certain
out-of-pocket expenses, such as legal costs, in performing these
services. These expenses are recovered through the revenue the
Corporation earns from the customer and are included in operating
expenses. Syndication fees represent fees earned as the agent
or lead lender responsible for structuring, arranging and
administering a loan syndication.
Financial advisory services consist of fees earned for assisting
customers with transactions related to mergers and acquisitions
and financial restructurings. Revenue varies depending on the size
and number of services performed for each contract and is
generally contingent on successful execution of the transaction.
Revenue is typically recognized once the transaction is completed
and all services have been rendered. Additionally, the Corporation
may earn a fixed fee in merger and acquisition transactions to
provide a fairness opinion, with the fees recognized when the
opinion is delivered to the customer.
Other Revenue Measurement and Recognition Policies
The Corporation did not disclose the value of any open performance
obligations at December 31, 2018, as its contracts with customers
generally have a fixed term that is less than one year, an open
term with a cancellation period that is less than one year, or
provisions that allow the Corporation to recognize revenue at the
amount it has the right to invoice.
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.
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.
NOTE 2 Noninterest Income
The table below presents the Corporation’s noninterest income disaggregated by revenue source for 2018, 2017 and 2016. For more
information, see Note 1 – Summary of Significant Accounting Principles. For a disaggregation of noninterest income by business segment
and All Other, see Note 23 – Business Segment Information.
(Dollars in millions)
Card income
Interchange fees (1)
Other card income
Total card income
Service charges
Deposit-related fees
Lending-related fees
Total service charges
Investment and brokerage services
Asset management fees
Brokerage fees
Total investment and brokerage services
Investment banking income
Underwriting income
Syndication fees
Financial advisory services
Total investment banking income
Trading account profits
Other income
Total noninterest income
2018
2017
2016
$
$
4,093
1,958
6,051
6,667
1,100
7,767
10,189
3,971
14,160
2,722
1,347
1,258
5,327
8,540
1,970
43,815
$
$
3,942
1,960
5,902
6,708
1,110
7,818
9,310
4,526
13,836
2,821
1,499
1,691
6,011
7,277
1,841
42,685
$
$
3,960
1,891
5,851
6,545
1,093
7,638
8,328
5,021
13,349
2,585
1,388
1,268
5,241
6,902
3,624
42,605
(1) During 2018, 2017 and 2016, gross interchange fees were $9.5 billion, $8.8 billion and $8.2 billion and are presented net of $5.4 billion, $4.8 billion and $4.2 billion, respectively, of expenses for
rewards and partner payments.
Bank of America 2018 115
NOTE 3 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, 2018 and 2017. 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 cash collateral received or paid.
Gross Derivative Assets
Gross Derivative Liabilities
December 31, 2018
Trading and
Other Risk
Management
Derivatives
Qualifying
Accounting
Hedges
Contract/
Notional (1)
Total
Trading and
Other Risk
Management
Derivatives
Qualifying
Accounting
Hedges
(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, 3)
Purchased credit derivatives:
Credit default swaps
Total return swaps/options
Written credit derivatives:
Credit default swaps
Total return swaps/options
Gross derivative assets/liabilities
Less: Legally enforceable master netting agreements
Less: Cash collateral received/paid
Total derivative assets/liabilities
$
$ 15,977.9
3,656.6
1,584.9
1,614.0
$
141.0
4.7
—
30.8
38.8
39.8
—
4.6
7.7
2.1
—
36.0
2.7
3.2
—
1.7
5.3
0.4
1,704.8
4,276.0
256.7
240.4
253.6
100.0
597.1
549.4
43.1
51.7
27.5
23.4
408.1
84.5
371.9
87.3
3.2
—
—
—
1.4
0.4
—
—
—
—
—
—
—
—
—
—
—
—
$
$
144.2
4.7
—
30.8
$
138.9
5.0
28.6
—
40.2
40.2
—
4.6
7.7
2.1
—
36.0
2.7
3.2
—
1.7
5.3
0.4
42.2
39.3
5.0
—
8.4
0.3
27.5
—
4.5
0.5
2.2
—
4.9
1.0
2.0
—
—
—
2.3
0.3
—
—
—
—
—
—
—
—
—
—
—
—
Total
$
140.9
5.0
28.6
—
44.5
39.6
5.0
—
8.4
0.3
27.5
—
4.5
0.5
2.2
—
4.9
1.0
4.4
0.6
323.8
$
$
—
—
5.0
$
$
$
4.4
0.6
328.8
(252.7)
(32.4)
43.7
4.3
0.6
313.2
$
—
—
4.6
$
$
4.3
0.6
317.8
(252.7)
(27.2)
37.9
(1) Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2) The net derivative liability and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $185 million
and $342.8 billion at December 31, 2018.
(3) Derivative assets and liabilities for credit default swaps (CDS) reflect a central clearing counterparty’s amendments to legally re-characterize daily cash variation margin from collateral, which secures
an outstanding exposure, to settlement, which discharges an outstanding exposure, effective in 2018.
116 Bank of America 2018
(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, 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
—
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
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
$
Gross derivative assets/liabilities
$
Less: Legally enforceable master netting agreements
Less: Cash collateral received/paid
Total derivative assets/liabilities
10.6
0.8
345.8
$
—
—
5.8
$
$
10.6
0.8
351.6
(279.2)
(34.6)
37.8
$
(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 $6.4 billion and
$435.1 billion at December 31, 2017.
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, 2018 and 2017 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
include 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, Short-term Borrowings and
Restricted Cash.
Bank of America 2018 117
Offsetting of Derivatives (1)
(Dollars in billions)
Interest rate contracts
Over-the-counter
Over-the-counter cleared
Foreign exchange contracts
Over-the-counter
Over-the-counter cleared
Equity contracts
Over-the-counter
Exchange-traded
Commodity contracts
Over-the-counter
Exchange-traded
Credit derivatives
Over-the-counter
Over-the-counter cleared
Total gross derivative assets/liabilities, before netting
Over-the-counter
Exchange-traded
Over-the-counter cleared
Less: Legally enforceable master netting agreements and cash collateral received/paid
Over-the-counter
Exchange-traded
Over-the-counter cleared
Derivative assets/liabilities, after netting
Other gross derivative assets/liabilities (2)
Total derivative assets/liabilities
Less: Financial instruments collateral (3)
Derivative
Assets
Derivative
Liabilities
Derivative
Assets
Derivative
Liabilities
December 31, 2018
December 31, 2017
$
$
174.2
4.8
$
169.4
4.0
$
211.7
1.9
206.0
1.8
82.5
0.9
24.6
16.1
3.5
1.0
7.7
2.5
292.5
17.1
8.2
86.3
0.9
14.6
15.1
4.5
0.9
8.2
2.3
283.0
16.0
7.2
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
(264.4)
(13.5)
(7.2)
32.7
11.0
43.7
(16.3)
27.4
(259.2)
(13.5)
(7.2)
26.3
11.6
37.9
(8.6)
29.3
(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
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. Exchange-traded derivatives include listed options transacted on an exchange.
(2) 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.
(3) 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
118 Bank of America 2018
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.
The Corporation purchases credit derivatives to manage credit
risk related to certain funded and unfunded credit exposures.
Credit derivatives include CDS, total return swaps and swaptions.
These derivatives are recorded on the Consolidated Balance Sheet
at fair value with changes in fair value recorded in other income.
Derivatives Designated as Accounting Hedges
The Corporation uses various types of interest rate and foreign
exchange derivative contracts to protect against changes in the
fair value of its assets and liabilities due to fluctuations in interest
rates and exchange rates (fair value hedges). The Corporation also
uses these types of contracts to protect against changes in the
cash flows of its assets and liabilities, and other forecasted
transactions (cash flow hedges). The Corporation hedges its net
investment in consolidated non-U.S. operations determined to
have functional currencies other than the U.S. dollar using forward
exchange contracts and cross-currency basis swaps, and by
issuing foreign currency-denominated debt (net investment
hedges).
Fair Value Hedges
The table below summarizes information related to fair value
hedges for 2018, 2017 and 2016.
Gains and Losses on Derivatives Designated as Fair Value Hedges
(Dollars in millions)
2018
Derivative
2017
2016
2018
Hedged Item
2017
2016
Interest rate risk on long-term debt (1)
Interest rate and foreign currency risk on long-term debt (2)
Interest rate risk on available-for-sale securities (3)
646
944
(286)
1,304
(1) Amounts are recorded in interest expense in the Consolidated Statement of Income. In 2017 and 2016, amounts representing hedge ineffectiveness were losses of $492 million and $842 million.
In 2018, 2017 and 2016, the derivative amount includes losses of $992 million, gains of $2.2 billion and losses of $910 million, respectively, in other income and losses of $116 million, $365
(2)
million and $30 million, respectively, in interest expense. Line item totals are in the Consolidated Statement of Income.
(1,537) $
1,811
(67)
207
(1,488) $
(941)
227
(2,202) $
(1,538) $
(1,187)
(52)
(2,777) $
1,429
1,079
50
2,558
1,045
(1,767)
35
(687) $
Total
$
$
$
$
$
$
(3) Amounts are recorded in interest income in the Consolidated Statement of Income.
The table below summarizes the carrying value of hedged assets and liabilities that are designated and qualifying in fair value
hedging relationships along with the cumulative amount of fair value hedging adjustments included in the carrying value that have been
recorded in the current hedging relationships. These fair value hedging adjustments are open basis adjustments that are not subject
to amortization as long as the hedging relationship remains designated.
Designated Fair Value Hedged Assets (Liabilities)
(Dollars in millions)
Long-term debt
Available-for-sale debt securities
(1) For assets, increase (decrease) to carrying value and for liabilities, (increase) decrease to carrying value.
December 31, 2018
Carrying Value
Cumulative Fair Value
Adjustments (1)
$
(138,682) $
981
(2,117)
(29)
At December 31, 2018, the cumulative fair value adjustments
remaining on long-term debt and AFS debt securities from
discontinued hedging relationships were a decrease to the related
liability and related asset of $1.6 billion and $29 million, which
are being amortized over the remaining contractual life of the de-
designated hedged items.
Cash Flow and Net Investment Hedges
The following table summarizes certain information related to cash
flow hedges and net investment hedges for 2018, 2017 and 2016.
Of the $1.0 billion after-tax net loss ($1.3 billion pretax) on
derivatives in accumulated OCI at December 31, 2018, $253
million after-tax ($332 million pretax) 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. For terminated cash flow
hedges, the time period over which the majority of the forecasted
transactions are hedged is approximately 4 years, with a maximum
length of time for certain forecasted transactions of 17 years.
Gains and Losses on Derivatives Designated as Cash Flow and Net Investment Hedges
(Dollars in millions, amounts pretax)
Cash flow hedges
Interest rate risk on variable-rate assets (1)
Price risk on certain restricted stock awards (2)
Total
Net investment hedges
Gains (Losses) Recognized in
Accumulated OCI on Derivatives
Gains (Losses) in Income
Reclassified from Accumulated OCI
2018
2017
2016
2018
2017
2016
$
$
(159) $
4
(155) $
(109) $
59
(50) $
(340) $
41
(299) $
(165) $
27
(138) $
(327) $
148
(179) $
(553)
(32)
(585)
Foreign exchange risk (3)
(1,588) $
(1) Amounts reclassified from accumulated OCI are recorded in interest income in the Consolidated Statement of Income.
(2) Amounts reclassified from accumulated OCI are recorded in personnel expense in the Consolidated Statement of Income.
(3) Amounts reclassified from accumulated OCI are recorded in other income in the Consolidated Statement of Income. Amounts excluded from effectiveness testing and recognized in other income
1,782
1,636
$
$
$
3
989
411
$
$
were gains of $47 million, $120 million and $325 million in 2018, 2017 and 2016, respectively.
Bank of America 2018 119
Other Risk Management Derivatives
Other risk management derivatives are used by the Corporation
to reduce certain risk exposures by economically hedging various
assets and liabilities. The gains and losses on these derivatives
are recognized in other income. The table below presents gains
(losses) on these derivatives for 2018, 2017 and 2016. These
gains (losses) are largely offset by the income or expense that is
recorded on the hedged item.
Gains and Losses on Other Risk Management Derivatives
(Dollars in millions)
2018
2017
2016
Interest rate risk on mortgage
activities (1)
Credit risk on loans
Interest rate and foreign currency
risk on ALM activities (2)
$
(107) $
8
$
9
1,010
(6)
(36)
461
(107)
(754)
(1) Primarily related to hedges of interest rate risk on MSRs and IRLCs to originate mortgage loans
that will be held for sale. The net gains on IRLCs, which are not included in the table but are
considered derivative instruments, were $47 million, $220 million and $533 million for 2018,
2017 and 2016, respectively.
(2) Primarily related to hedges of debt securities carried at fair value and hedges of foreign currency-
denominated debt.
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. As of December 31, 2018 and 2017, the
Corporation had transferred $5.8 billion and $6.0 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 $5.8 billion and $6.0
billion at the transfer dates. At December 31, 2018 and 2017,
the fair value of the transferred securities was $5.5 billion and
$6.1 billion.
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
120 Bank of America 2018
the instrument rather than being charged through separate fee
arrangements. Therefore, this revenue is recorded in trading
account profits as part of the initial mark to fair value. For
derivatives, the majority of revenue is included in trading account
profits. In transactions where the Corporation acts as agent, which
include exchange-traded futures and options, fees are recorded in
other income.
The table below, which includes both derivatives and non-
derivative cash instruments, identifies the amounts in the
respective income statement line items attributable to the
Corporation’s sales and trading revenue in Global Markets,
categorized by primary risk, for 2018, 2017 and 2016. The
difference between total trading account profits in the following
table and in the Consolidated Statement of Income represents
trading activities in business segments other than Global Markets.
This table includes debit valuation adjustment (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 table below 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
$
$
$
$
$
$
1,180
1,503
3,994
1,063
189
2018
$
1,292
(7)
(781)
1,853
64
$
220
6
1,619
552
66
2,692
1,502
4,832
3,468
319
7,929
$
2,421
$
2,463
$
12,813
$
712
1,417
2,689
1,685
203
2017
$
1,560
(1)
(517)
1,937
45
$
249
7
1,903
576
76
2,521
1,423
4,075
4,198
324
6,706
$
3,024
$
2,811
$ 12,541
$
1,189
1,360
1,917
1,674
407
2016
$
2,002
(10)
28
1,956
(7)
$
145
5
2,074
424
39
3,336
1,355
4,019
4,054
439
$
6,547
$
3,969
$
2,687
$ 13,203
(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 $1.7 billion, $2.0 billion and $2.1 billion for 2018, 2017
and 2016, 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 predefined
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 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.
Credit derivative instruments where the Corporation is the
seller of credit protection and their expiration at December 31,
2018 and 2017 are summarized in the following table.
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
December 31, 2018
Carrying Value
Over Five
Years
Total
2
132
134
105
472
577
711
$
$
— $
1
1
$
53,758
24,297
78,055
60,042
24,524
84,566
162,621
4
203
207
30
150
180
387
$
$
$
$
— $
12
12
$
44
636
680
—
21
21
701
$
$
436
914
1,350
—
—
—
1,350
$
$
$
— $
1
1
$
Maximum Payout/Notional
4
1
5
$
95,699
33,881
129,580
822
1,649
2,471
132,051
$
$
95,274
34,530
129,804
59
39
98
129,902
December 31, 2017
Carrying Value
3
453
456
—
—
—
456
$
$
61
484
545
—
—
—
545
$
$
$
$
$
— $
4
4
$
Maximum Payout/Notional
7
34
41
$
61,388
39,312
100,700
37,394
13,751
51,145
151,845
$
$
115,480
49,843
165,323
2,581
514
3,095
168,418
$
$
107,081
39,098
146,179
—
143
143
146,322
$
$
488
1,691
2,179
—
—
—
2,179
532
1,500
2,032
20,054
14,426
34,480
72
70
142
34,622
245
2,133
2,378
—
3
3
2,381
689
1,548
2,237
21,579
14,420
35,999
143
697
840
36,839
$
$
$
$
$
$
$
$
$
$
$
$
970
3,373
4,343
105
493
598
4,941
536
1,503
2,039
264,785
107,134
371,919
60,995
26,282
87,277
459,196
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
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.
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 117, 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.
Bank of America 2018 121
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, 2018 and 2017, the Corporation held cash and
securities collateral of $81.6 billion and $77.2 billion, and posted
cash and securities collateral of $56.5 billion and $59.2 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, 2018, the amount of collateral, calculated
based on the terms of the contracts, that the Corporation and
certain subsidiaries could be required to post to counterparties
but had not yet posted to counterparties was $1.8 billion, including
$1.0 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,
2018 and 2017, the liability recorded for these derivative contracts
was not significant.
The table below presents the amount of additional collateral
that would have been contractually required by derivative contracts
and other trading agreements at December 31, 2018 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, 2018
(Dollars in millions)
One
incremental
notch
Second
incremental
notch
Bank of America Corporation
Bank of America, N.A. and subsidiaries (1)
$
$
619
209
347
268
(1)
Included in Bank of America Corporation collateral requirements in this table.
The following table 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, 2018 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.
122 Bank of America 2018
Derivative Liabilities Subject to Unilateral Termination
Upon Downgrade at December 31, 2018
(Dollars in millions)
Derivative liabilities
Collateral posted
One
incremental
notch
Second
incremental
notch
$
$
13
1
581
305
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 2018, 2017 and 2016. 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
2018
77 $ 187
2017
$ 330 $ 98
$
2016
$ 374
$ 214
(15)
14
160
178
186
102
(141)
Derivative liabilities (DVA)
(1) At December 31, 2018, 2017 and 2016, cumulative CVA reduced the derivative assets balance
by $600 million, $677 million and $1.0 billion, cumulative FVA reduced the net derivatives
balance by $151 million, $136 million and $296 million, and cumulative DVA reduced the
derivative liabilities balance by $432 million, $450 million and $774 million, respectively.
(281)
(324)
24
(19)
(55)
NOTE 4 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 and HTM debt securities at December 31, 2018 and 2017.
Debt 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 (2)
Total debt securities (3, 4)
Available-for-sale debt securities
Mortgage-backed securities:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
December 31, 2018
Fair
Value
$ 125,116
5,621
14,469
1,792
146,998
56,239
9,307
4,387
216,931
17,349
234,280
8,595
242,875
203,652
$ 446,527
$
$
138
19
11
136
304
62
5
29
400
99
499
172
671
747
1,418
$
$
(3,428) $ 121,826
(110)
5,530
(402)
14,078
1,917
(11)
(3,951)
143,351
(1,378)
54,923
(6)
9,306
(6)
4,410
(5,341)
211,990
17,376
(72)
(5,413)
229,366
8,735
(32)
(5,445)
238,101
(3,964)
200,435
(9,409) $ 438,536
December 31, 2017
$
$
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
(1,696) $ 192,929
6,804
(81)
13,684
(208)
2,669
(8)
216,086
(1,993)
53,523
(1,018)
6,677
(1)
5,770
(2)
282,056
(3,014)
20,575
(104)
302,631
(3,118)
12,486
(39)
315,117
(3,157)
(1,825)
123,299
(4,982) $ 438,416
Available-for-sale marketable equity securities (5)
25
(1) At December 31, 2018 and 2017, the underlying collateral type included approximately 68 percent and 62 percent prime, 4 percent and 13 percent Alt-A, and 28 percent and 25 percent subprime.
(2) During 2018, the Corporation transferred AFS debt securities with an amortized cost of $64.5 billion to held to maturity.
(3)
$ 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
Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
Other debt securities carried at fair value
Total debt securities carried at fair value
Total available-for-sale debt securities
Includes securities pledged as collateral of $40.6 billion and $35.8 billion at December 31, 2018 and 2017.
Total debt securities (3, 4)
Tax-exempt securities
$
— $
(2) $
$
$
(4) The Corporation had debt securities from FNMA and FHLMC that each exceeded 10 percent of shareholders’ equity, with an amortized cost of $161.2 billion and $52.2 billion, and a fair value of
$158.5 billion and $51.4 billion at December 31, 2018, and 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.
(5) Classified in other assets on the Consolidated Balance Sheet.
At December 31, 2018, the accumulated net unrealized loss
on AFS debt securities included in accumulated OCI was $3.7
billion, net of the related income tax benefit of $1.2 billion. The
Corporation had nonperforming AFS debt securities of $11 million
and $99 million at December 31, 2018 and 2017.
Effective January 1, 2018, the Corporation adopted an
accounting standard applicable to equity securities. For additional
information, see Note 1 – Summary of Significant Accounting
Principles. At December 31, 2018, the Corporation held equity
securities at an aggregate fair value of $893 million and other
equity securities, as valued under the measurement alternative,
at cost of $219 million, both of which are included in other assets.
At December 31, 2018, the Corporation also held equity securities
at fair value of $1.2 billion included in time deposits placed and
other short-term investments.
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 2018, the Corporation recorded
unrealized mark-to-market net losses of $73 million and realized
net gains of $140 million, and unrealized mark-to-market net gains
of $243 million and realized net losses of $49 million in 2017.
These amounts exclude hedge results.
Bank of America 2018 123
Other Debt Securities Carried at Fair Value
(Dollars in millions)
Mortgage-backed securities
U.S. Treasury and agency securities
Non-U.S. securities (1)
Other taxable securities, substantially all
asset-backed securities
$
December 31
2018
2017
$
1,606
1,282
5,844
3
2,769
—
9,488
229
(Dollars in millions)
Gross gains
Gross losses
Total
$
8,735
$
12,486
(1) These securities are primarily used to satisfy certain international regulatory liquidity
requirements.
Net gains on sales of AFS debt securities
Income tax expense attributable to realized
net gains on sales of AFS debt securities
The gross realized gains and losses on sales of AFS debt
securities for 2018, 2017 and 2016 are presented in the table
below.
Gains and Losses on Sales of AFS Debt Securities
2018
2017
2016
$
$
$
169
(15)
154
37
$
$
$
352
(97)
255
97
$
$
$
520
(30)
490
186
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, 2018 and 2017.
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, 2018
$
$
14,771
3
1,344
106
16,224
288
773
183
17,468
232
17,700
$
(49) $
—
(8)
(8)
(65)
(1)
(5)
(1)
(72)
(2)
(74)
99,211
4,452
11,991
49
115,703
51,374
21
185
167,283
2,148
169,431
$
(3,379) $
(110)
(394)
(3)
(3,886)
(1,377)
(1)
(5)
(5,269)
(70)
(5,339)
113,982
4,455
13,335
155
131,927
51,662
794
368
184,751
2,380
187,131
(3,428)
(110)
(402)
(11)
(3,951)
(1,378)
(6)
(6)
(5,341)
(72)
(5,413)
131
—
3
—
134
—
AFS debt securities
$
17,831
$
(74) $
169,434
$
(5,339) $
187,265
$
(5,413)
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, 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)
(1)
Includes other than temporarily impaired AFS debt securities on which an OTTI loss, primarily related to changes in interest rates, remains in accumulated OCI.
124 Bank of America 2018
In 2018, 2017 and 2016, the Corporation had $33 million,
$41 million and $19 million, respectively, of credit-related OTTI
losses on AFS debt securities which were recognized in other
income. The amount of noncredit-related OTTI losses recognized
in OCI was not significant for all periods presented.
The cumulative OTTI credit losses recognized in income on AFS
debt securities that the Corporation does not intend to sell were
$120 million, $274 million and $253 million at December 31,
2018, 2017 and 2016, respectively.
The Corporation estimates the portion of a loss on a security
that is attributable to credit using a discounted cash flow model
and estimates the expected cash flows of the underlying collateral
using internal credit, interest rate and prepayment risk models
that incorporate management’s best estimate of current key
assumptions such as default rates, loss severity and prepayment
rates. Assumptions used for the underlying loans that support the
MBS can vary widely from loan to loan and are influenced by such
factors as loan interest rate, geographic location of the borrower,
borrower characteristics and collateral type. Based on these
assumptions, the Corporation then determines how the underlying
collateral cash flows will be distributed to each MBS issued from
the applicable special purpose entity. Expected principal and
interest cash flows on an impaired AFS debt security are
discounted using the effective yield of each individual impaired
AFS debt security.
Significant assumptions used in estimating the expected cash
flows for measuring credit losses on non-agency residential
mortgage-backed securities (RMBS) were as follows at December
31, 2018.
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.
12.9%
19.8
16.9
3.3%
8.5
1.4
21.5%
36.4
64.4
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 16.0 percent for
prime, 16.6 percent for Alt-A and 25.6 percent for subprime at
December 31, 2018. 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 14.7 percent for prime, 16.6 percent for
Alt-A and 19.1 percent for subprime at December 31, 2018.
The remaining contractual maturity distribution and yields of
the Corporation’s debt securities carried at fair value and HTM
debt securities at December 31, 2018 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
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)
—% $
2.42% $
1,245
2.39% $123,757
3.34% $125,116
3.33%
—
2.36
—
2.36
1.48
1.88
3.54
1.66
2.59
1.81
3.93
30
10,976
14
12,265
23,159
21
688
36,133
6,162
$ 42,295
$
1,475
2.50
2.53
—
2.51
2.36
4.43
3.48
2.43
2.44
2.43
2.89
(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)
$
—
—
198
—
198
670
14,318
1,591
16,777
938
$ 17,715
$
657
$
—
—
198
—
198
669
14,315
1,585
16,767
936
$ 17,703
$
657
—
1.78
—
1.78
0.78
1.30
3.34
1.48
2.59
1.54
5.78
114
—
2,467
—
2,581
33,659
682
2,022
38,944
7,526
$ 46,470
$
18
—
2,425
—
2,539
32,694
692
2,043
37,968
7,537
$ 45,505
$
18
$
114
$
1,219
29
10,656
24
11,928
22,821
19
698
35,466
6,184
$ 41,650
$
1,429
3.17
2.52
9.84
3.39
1.83
1.37
3.49
2.85
2.53
2.83
3.24
5,591
828
3,268
133,444
21
121
86
133,672
2,723
$ 136,395
$ 201,502
$120,493
5,501
799
3,499
130,292
21
124
87
130,524
2,719
$ 133,243
$ 198,331
3.17
2.96
9.88
3.49
2.57
6.57
5.59
3.49
2.55
3.47
3.23
5,621
14,469
3,282
148,488
57,509
15,142
4,387
225,526
17,349
$ 242,875
$ 203,652
$121,826
5,530
14,078
3,523
144,957
56,205
15,150
4,413
220,725
17,376
$ 238,101
$ 200,435
(1) The weighted 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 2018 125
NOTE 5 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, 2018 and 2017.
Total
Outstandings
$ 193,695
40,010
14,862
8,276
98,338
91,166
202
446,549
682
447,231
299,277
98,776
60,845
22,534
14,565
495,997
(Dollars in millions)
Consumer real estate
Core portfolio
Residential mortgage
Home equity
Non-core portfolio
Residential mortgage
Home equity
Credit card and other consumer
U.S. credit card
Direct/Indirect consumer (5)
Other consumer (6)
Total consumer
Consumer loans accounted for under the
fair value option (7)
30-59 Days
Past Due (1)
60-89 Days
Past Due (1)
$
1,188
200
$
624
119
577
317
—
3,025
249
85
268
60
418
90
—
1,170
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)
December 31, 2018
$
$
793
387
2,230
672
$ 191,465
39,338
2,012
287
994
40
—
4,513
2,904
466
1,989
447
—
8,708
8,158
6,965
$
3,800
845
96,349
90,719
202
433,196
4,645
$
682
682
Total consumer loans and leases
3,025
1,170
4,513
8,708
433,196
4,645
Commercial
U.S. commercial
Non-U.S. commercial
Commercial real estate (8)
Commercial lease financing
U.S. small business commercial
Total commercial
Commercial loans accounted for under
the fair value option (7)
594
1
29
124
83
831
232
49
16
114
54
465
573
—
14
37
96
720
1,399
50
59
275
233
2,016
297,878
98,726
60,786
22,259
14,332
493,981
Total commercial loans and leases
Total loans and leases (9)
831
3,856
$
465
1,635
$
720
5,233
2,016
10,724
$
493,981
$ 927,177
$
$
4,645
$
3,667
3,667
4,349
3,667
499,664
$ 946,895
100.00%
Percentage of outstandings
(1) Consumer real estate loans 30-59 days past due includes fully-insured loans of $637 million and nonperforming loans of $217 million. Consumer real estate loans 60-89 days past due includes
97.92%
0.41%
0.55%
0.17%
1.13%
0.46%
0.49%
fully-insured loans of $269 million and nonperforming loans of $146 million.
(2) Consumer real estate includes fully-insured loans of $1.9 billion.
(3) Consumer real estate includes $1.8 billion and direct/indirect consumer includes $53 million of nonperforming loans.
(4) PCI loan amounts are shown gross of the valuation allowance.
(5) Total outstandings includes auto and specialty lending loans and leases of $50.1 billion, unsecured consumer lending loans of $383 million, U.S. securities-based lending loans of $37.0 billion,
non-U.S. consumer loans of $2.9 billion and other consumer loans of $746 million.
(6) Substantially all of other consumer is consumer overdrafts.
(7) Consumer loans accounted for under the fair value option includes residential mortgage loans of $336 million and home equity loans of $346 million. Commercial loans accounted for under the fair
value option includes U.S. commercial loans of $2.5 billion and non-U.S. commercial loans of $1.1 billion. For additional information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value
Option.
(8) Total outstandings includes U.S. commercial real estate loans of $56.6 billion and non-U.S. commercial real estate loans of $4.2 billion.
(9) Total outstandings includes loans and leases pledged as collateral of $36.7 billion. The Corporation also pledged $166.1 billion of loans with no related outstanding borrowings to secure potential
borrowing capacity with the Federal Reserve Bank and Federal Home Loan Bank (FHLB).
126 Bank of America 2018
$
928
928
27,193
13,499
96,285
96,342
166
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
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, 2017
$
2,603
796
$ 174,015
43,449
$ 176,618
44,245
$
$
$
1,242
215
1,028
224
542
330
—
3,581
321
108
468
121
405
104
—
1,527
1,040
473
3,535
572
900
44
—
6,564
5,031
917
1,847
478
—
11,672
14,161
9,866
$
8,001
2,716
94,438
95,864
166
431,959
10,717
(Dollars in millions)
Consumer real estate
Core portfolio
Residential mortgage
Home equity
Non-core portfolio
Residential mortgage
Home equity
Credit card and other consumer
U.S. credit card
Direct/Indirect consumer (5)
Other consumer (6)
Total consumer
Consumer loans accounted for under the
fair value option (7)
Total consumer loans and leases
3,581
1,527
6,564
11,672
431,959
10,717
Commercial
U.S. commercial
Non-U.S. commercial
Commercial real estate (8)
Commercial lease financing
U.S. small business commercial
Total commercial
Commercial loans accounted for under
the fair value option (7)
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 (9)
852
4,433
$
368
1,895
$
571
7,135
1,791
13,463
$
474,900
$ 906,859
$
$
10,717
$
Percentage of outstandings
100.00%
(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%
0.48%
0.76%
1.14%
0.61%
1.44%
0.20%
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 auto and specialty lending loans and leases of $52.4 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.
(6) Substantially all of other consumer is consumer overdrafts.
(7) 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 additional information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value
Option.
(8) 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.
(9) Total outstandings includes loans and leases pledged as collateral of $40.1 billion. The Corporation also pledged $160.3 billion of loans with no related outstanding borrowings to secure potential
borrowing capacity with the Federal Reserve Bank and FHLB.
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 (GSE) 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 runoff portfolios.
The Corporation has entered into long-term credit protection
agreements with FNMA and FHLMC on loans totaling $6.1 billion
and $6.3 billion at December 31, 2018 and 2017, 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.
During 2018, the Corporation sold $11.6 billion of consumer
real estate loans compared to $4.0 billion in 2017. In addition to
recurring loan sales, the 2018 amount includes sales of loans,
primarily non-core, with a carrying value of $9.6 billion and related
gains of $731 million recorded in other income in the Consolidated
Statement of Income.
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, 2018
and 2017, $221 million and $330 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, 2018,
nonperforming loans discharged in Chapter 7 bankruptcy with no
change in repayment terms were $185 million of which $98 million
were current on their contractual payments, while $70 million were
90 days or more past due. Of the contractually current
nonperforming loans, 63 percent were discharged in Chapter 7
bankruptcy over 12 months ago, and 55 percent were discharged
24 months or more ago.
Bank of America 2018 127
During 2018, the Corporation sold nonperforming and PCI
consumer real estate loans with a carrying value of $5.3 billion,
including $4.4 billion of PCI loans, compared to $1.3 billion,
including $803 million of PCI loans, in 2017.
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, 2018 and
2017. 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
Direct/Indirect consumer
Total consumer
Commercial
Nonperforming Loans
and Leases
Accruing Past Due
90 Days or More
2018
2017
2018
2017
December 31
$
$
1,010
955
$
1,087
1,079
$
274
—
883
938
n/a
56
3,842
1,389
1,565
n/a
46
5,166
1,610
—
994
38
2,916
417
—
2,813
—
900
40
4,170
U.S. commercial
Non-U.S. commercial
Commercial real estate
Commercial lease financing
U.S. small business commercial
144
3
4
19
75
245
4,415
(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, 2018 and 2017, residential mortgage includes $1.4 billion
and $2.2 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 $498 million and $1.0 billion of loans
on which interest is still accruing.
814
299
112
24
55
1,304
6,470
Total commercial
Total loans and leases
197
—
4
29
84
314
3,230
794
80
156
18
54
1,102
4,944
$
$
$
$
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.
128 Bank of America 2018
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, 2018 and 2017.
Consumer Real Estate – Credit Quality Indicators (1)
(Dollars in millions)
Refreshed LTV (3)
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 (4)
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 (4)
Total consumer real estate
Core
Residential
Mortgage (2)
Non-core
Residential
Mortgage (2)
Residential
Mortgage
PCI
Core Home
Equity (2)
Non-core
Home
Equity (2)
Home
Equity PCI
December 31, 2018
$
$
$
$
173,911
2,349
817
16,618
193,695
2,125
4,538
23,841
146,573
16,618
193,695
$
$
$
$
6,861
340
349
3,512
11,062
1,264
1,068
1,841
3,377
3,512
11,062
$
$
$
$
$
$
3,411
193
196
3,800
710
651
1,201
1,238
$
$
$
39,246
354
410
40,010
1,064
2,008
7,008
29,930
$
$
$
5,870
603
958
7,431
1,325
1,575
1,968
2,563
$
3,800
$
40,010
$
7,431
$
608
112
125
845
178
145
220
302
845
(1) Excludes $682 million of loans accounted for under the fair value option.
(2) Excludes PCI loans.
(3) Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance.
(4) 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, 2018
$
$
5,016
12,415
35,781
45,126
$
98,338
$
1,719
3,124
8,921
36,709
40,693
91,166
$
$
202
202
(1) Other internal credit metrics may include delinquency status, geography or other factors.
(2) Direct/indirect consumer includes $39.9 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, 2018
Commercial
Lease
Financing
U.S. Small
Business
Commercial (2)
$
291,918
7,359
$
97,916
860
$
59,910
935
$
22,168
366
$
$
299,277
$
98,776
$
60,845
$
22,534
$
389
29
264
684
2,072
4,254
6,873
14,565
(1) Excludes $3.7 billion of loans accounted for under the fair value option.
(2) U.S. small business commercial includes $731 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, 2018, 99 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 2018 129
Consumer Real Estate – Credit Quality Indicators (1)
(Dollars in millions)
Refreshed LTV (3)
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 (4)
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 (4)
Total consumer real estate
Core
Residential
Mortgage (2)
Non-core
Residential
Mortgage (2)
Residential
Mortgage
PCI
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
176,618
$
$
$
$
12,135
850
1,011
5,196
19,192
2,390
2,086
3,519
6,001
5,196
19,192
$
$
$
$
$
$
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
1,781
412
523
2,716
452
466
786
1,012
$
8,001
$
44,245
$
10,783
$
2,716
(1) Excludes $928 million of loans accounted for under the fair value option.
(2) Excludes PCI loans.
(3) Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance.
(4) 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
$
96,285
$
2,005
4,064
10,371
36,445
43,457
96,342
$
$
166
166
(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.
130 Bank of America 2018
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. 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 $858 million were included in TDRs
at December 31, 2018, of which $185 million were classified as
nonperforming and $344 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, 2018 and 2017, remaining commitments to
lend additional funds to debtors whose terms have been modified
in a consumer real estate TDR were not significant. Consumer real
estate foreclosed properties totaled $244 million and $236 million
at December 31, 2018 and 2017. 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,
2018 was $2.5 billion. During 2018 and 2017, the Corporation
reclassified $670 million and $815 million 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, 2018 and
2017, and the average carrying value and interest income
recognized in 2018, 2017 and 2016 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 2018 131
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 (1)
Residential mortgage
Home equity
With no recorded allowance
Residential mortgage
Home equity
With an allowance recorded
Residential mortgage
Home equity
Total (1)
Residential mortgage
Home equity
Unpaid
Principal
Balance
Carrying
Value
Related
Allowance
Unpaid
Principal
Balance
Carrying
Value
Related
Allowance
December 31, 2018
December 31, 2017
$
$
$
$
$
$
$
$
$
5,396
2,948
1,977
812
7,373
3,760
4,268
1,599
1,929
760
6,197
2,359
Average
Carrying
Value
Interest
Income
Recognized (2)
2018
$
$
$
5,424
1,894
2,409
861
7,833
2,755
207
105
91
25
298
130
$
$
$
$
$
$
— $
—
$
$
114
144
114
144
8,856
3,622
2,908
972
11,764
4,594
Average
Carrying
Value
Interest
Income
Recognized (2)
2017
7,737
1,997
3,414
858
11,151
2,855
$
$
$
311
109
123
24
434
133
$
$
$
$
$
$
$
$
$
6,870
1,956
2,828
900
9,698
2,856
—
—
174
174
174
174
Average
Carrying
Value
Interest
Income
Recognized (2)
2016
10,178
1,906
5,067
852
15,245
2,758
$
$
$
360
90
167
24
527
114
(1) During 2018, previously impaired consumer real estate loans with a carrying value of $2.3 billion were sold.
(2)
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.
The table below presents the December 31, 2018, 2017 and 2016 unpaid principal balance, carrying value, and average pre- and
post-modification interest rates on consumer real estate loans that were modified in TDRs during 2018, 2017 and 2016. 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 2018, 2017 and 2016
(Dollars in millions)
Residential mortgage
Home equity
Total
Residential mortgage
Home equity
Total
Residential mortgage
Home equity
Total
Unpaid
Principal
Balance
Carrying
Value
Pre-
Modification
Interest Rate
Post-
Modification
Interest Rate (1)
774
489
1,263
824
764
1,588
1,130
849
1,979
$
$
$
$
$
$
December 31, 2018
641
358
999
December 31, 2017
712
590
1,302
December 31, 2016
1,017
649
1,666
4.33%
4.46
4.38
4.43%
4.22
4.33
4.73%
3.95
4.40
$
$
$
$
$
$
4.21%
3.74
4.03
4.16%
3.49
3.83
4.16%
2.72
3.54
(1) 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.
132 Bank of America 2018
The table below presents the December 31, 2018, 2017 and 2016 carrying value for consumer real estate loans that were modified
in a TDR during 2018, 2017 and 2016, 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
2017
2018
2016
$
$
19
—
42
61
209
96
51
167
523
285
130
999
$
$
$
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
(1)
(2)
Includes other modifications such as term or payment extensions and repayment plans. During 2018, this included $198 million of modifications that met the definition of a TDR related to the 2017
hurricanes. These modifications had been written down to their net realizable value less costs to sell or were fully insured as of December 31, 2018.
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 2018, 2017
and 2016 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)
2018
2017
2016
39
158
64
107
368
$
$
81
138
116
391
726
$
$
262
196
158
824
1,440
$
$
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 and local laws and guidelines. Credit card and other
consumer loan modifications generally involve reducing the
interest rate on the account, placing the customer on a fixed
payment plan not exceeding 60 months and canceling the
customer’s available line of credit, all of which are considered
TDRs. The Corporation makes loan modifications directly with
borrowers for debt held only by the Corporation (internal programs).
Additionally, the Corporation makes loan modifications for
borrowers working with third-party renegotiation agencies that
provide solutions to customers’ entire unsecured debt structures
(external programs). The Corporation classifies other secured
consumer loans that have been discharged in Chapter 7
bankruptcy as TDRs which are written down to collateral value and
placed on nonaccrual status no later than the time of discharge.
For more information on the regulatory guidance on loans
discharged in Chapter 7 bankruptcy, see Nonperforming Loans and
Leases in this Note.
The table below provides the unpaid principal balance, carrying
value and related allowance at December 31, 2018 and 2017,
and the average carrying value for 2018, 2017 and 2016 on TDRs
within the Credit Card and Other Consumer portfolio segment.
Bank of America 2018 133
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 (3)
Direct/Indirect consumer
Total
U.S. credit card
Non-U.S. credit card (3)
Direct/Indirect consumer
Includes accrued interest and fees.
(1)
Unpaid
Principal
Balance
Carrying
Value (1)
Related
Allowance
Unpaid
Principal
Balance
Carrying
Value (1)
Related
Allowance
Average Carrying Value (2)
December 31, 2018
December 31, 2017
2018
2017
2016
$
$
$
$
$
$
72
522
n/a
—
522
n/a
72
$
$
$
33
533
n/a
—
533
n/a
33
— $
58
$
$
154
n/a
—
154
n/a
—
454
n/a
1
454
n/a
59
$
$
$
$
$
$
28
461
n/a
1
461
n/a
29
— $
30
$
$
125
n/a
—
125
n/a
—
491
n/a
1
491
n/a
31
$
$
$
$
$
$
21
464
47
2
464
47
23
20
556
111
10
556
111
30
(2) The related interest income recognized, which included 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 was considered collectible, was not significant in 2018, 2017 and 2016.
In 2017, the Corporation sold its non-U.S. consumer credit card business.
(3)
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, 2018 and 2017.
Credit Card and Other Consumer – TDRs by Program Type at December 31
(Dollars in millions)
Internal programs
External programs
Other
Total
Percent of balances current or less than 30 days past due
U.S. Credit Card
2018
2017
Direct/Indirect Consumer
2018
2017
Total TDRs by Program Type
2018
2017
$
$
$
$
259
273
1
533
85%
$
$
203
257
1
461
87%
— $
—
33
33
81%
$
$
$
1
—
28
29
88%
$
$
259
273
34
566
85%
204
257
29
490
87%
The table below provides information on the Corporation’s Credit Card and Other Consumer TDR portfolio including the December
31, 2018, 2017 and 2016 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of loans that
were modified in TDRs during 2018, 2017 and 2016.
Credit Card and Other Consumer – TDRs Entered into During 2018, 2017 and 2016
Unpaid
Principal
Balance
Carrying
Value (1)
Pre-
Modification
Interest Rate
Post-
Modification
Interest Rate
$
$
$
$
$
$
278
42
320
203
37
240
163
66
21
250
$
$
$
$
$
$
December 31, 2018
292
23
315
19.49%
5.10
18.45
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
5.24%
4.95
5.22
5.32%
4.30
5.22
5.47%
0.52
3.29
3.93
(Dollars in millions)
U.S. credit card
Direct/Indirect consumer
Total
U.S. credit card
Direct/Indirect consumer
Total
U.S. credit card
Non-U.S. credit card
Direct/Indirect consumer
Total
Includes accrued interest and fees.
(1)
134 Bank of America 2018
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 14 percent of new direct/indirect consumer
TDRs may be in payment default within 12 months after
modification.
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, 2018 and 2017, remaining commitments to
lend additional funds to debtors whose terms have been modified
in a commercial loan TDR were $297 million and $205 million.
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,
2018 and 2017, and the average carrying value for 2018, 2017
and 2016. Certain impaired commercial loans do not have a
related allowance because 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
Commercial lease financing
With an allowance recorded
U.S. commercial
Non-U.S. commercial
Commercial real estate
Commercial lease financing
U.S. small business commercial (2)
Total
U.S. commercial
Non-U.S. commercial
Commercial real estate
Commercial lease financing
U.S. small business commercial (2)
Unpaid
Principal
Balance
Carrying
Value
Related
Allowance
Unpaid
Principal
Balance
Carrying
Value
Related
Allowance
Average Carrying Value (1)
December 31, 2018
December 31, 2017
2018
2017
2016
$
$
$
$
$
$
638
93
—
—
1,437
155
247
71
83
2,075
248
247
71
83
$
$
$
616
93
—
—
1,270
149
162
71
72
1,886
242
162
71
72
— $
—
—
—
$
$
121
30
16
—
29
121
30
16
—
29
$
$
$
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
— $
—
—
—
$
$
98
58
4
3
27
98
58
4
3
27
$
$
$
655
43
44
3
1,162
327
46
42
73
1,817
370
90
45
73
$
$
$
772
46
69
—
1,260
463
73
8
73
2,032
509
142
8
73
787
34
67
—
1,569
409
92
2
87
2,356
443
159
2
87
(1) The related interest income recognized, which included 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 was considered collectible, was not significant in 2018, 2017 and 2016.
Includes U.S. small business commercial renegotiated TDR loans and related allowance.
(2)
Bank of America 2018 135
million for U.S. commercial and $3 million, $19 million and $34
million for commercial real estate at December 31, 2018, 2017
and 2016, respectively.
includes
the Countrywide
Purchased Credit-impaired Loans
The table below shows activity for the accretable yield on PCI loans,
which
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 2018 and 2017 were primarily due to an increase
in the expected principal and interest cash flows due to lower
default estimates and the rising interest rate environment.
Rollforward of Accretable Yield
(Dollars in millions)
Accretable yield, January 1, 2017
Accretion
Disposals/transfers
Reclassifications from nonaccretable difference
Accretable yield, December 31, 2017
Accretion
Disposals/transfers
Reclassifications from nonaccretable difference
Accretable yield, December 31, 2018
$
$
3,805
(601)
(634)
219
2,789
(457)
(1,456)
368
1,244
During 2018 and 2017, the Corporation sold PCI loans with a
carrying value of $4.4 billion and $803 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 6 – Allowance for Credit Losses.
Loans Held-for-sale
The Corporation had LHFS of $10.4 billion and $11.4 billion at
December 31, 2018 and 2017. Cash and non-cash proceeds from
sales and paydowns of loans originally classified as LHFS were
$29.2 billion, $41.3 billion and $32.6 billion for 2018, 2017 and
2016, respectively. Cash used for originations and purchases of
LHFS totaled $28.1 billion, $43.5 billion and $33.1 billion for
2018, 2017 and 2016, respectively.
The table below presents the December 31, 2018, 2017 and
2016 unpaid principal balance and carrying value of commercial
loans that were modified as TDRs during 2018, 2017 and 2016.
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 2018, 2017 and
2016
(Dollars in millions)
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)
Total
Unpaid
Principal
Balance
Carrying
Value
December 31, 2018
1,154
166
115
68
9
1,512
$
$
1,098
165
115
68
8
1,454
December 31, 2017
1,033
105
35
20
13
1,206
$
$
922
105
24
17
13
1,081
December 31, 2016
$
$
$
$
$
U.S. commercial
Non-U.S. commercial
Commercial real estate
Commercial lease financing
U.S. small business commercial (1)
1,482
253
77
4
1
1,817
(1) U.S. small business commercial TDRs are comprised of renegotiated small business card loans.
1,556
255
77
6
1
1,895
Total
$
$
$
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 $150 million, $64 million and $140
136 Bank of America 2018
NOTE 6 Allowance for Credit Losses
The table below summarizes the changes in the allowance for credit losses by portfolio segment for 2018, 2017 and 2016.
Consumer
Real Estate (1)
Credit Card and
Other Consumer
Commercial
Total
(Dollars in millions)
Allowance for loan and lease losses, January 1
Loans and leases charged off
Recoveries of loans and leases previously charged off
Net charge-offs
Write-offs of PCI loans (2)
Provision for loan and lease losses
Other (3)
Allowance for loan and lease losses, December 31
Reserve for unfunded lending commitments, January 1
Provision for unfunded lending commitments
Reserve for unfunded lending commitments, December 31
Allowance for credit losses, December 31
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 (2)
Provision for loan and lease losses
Other (3)
Allowance for loan and lease losses, December 31
Reserve for unfunded lending commitments, January 1
Provision for unfunded lending commitments
Reserve for unfunded lending commitments, December 31
Allowance for credit losses, December 31
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 (2)
Provision for loan and lease losses
Other (3)
Total allowance for loan and lease losses, December 31
Less: Allowance included in assets of business held for sale (4)
Allowance for loan and lease losses, December 31
Reserve for unfunded lending commitments, January 1
Provision for unfunded lending commitments
Other (3)
Reserve for unfunded lending commitments, December 31
Allowance for credit losses, December 31
$
$
$
$
$
$
1,720
(690)
664
(26)
(273)
(492)
(1)
928
—
—
—
928
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
$
$
$
$
$
$
2018
$
$
2017
$
$
2016
$
3,663
(4,037)
823
(3,214)
—
3,441
(16)
3,874
—
—
—
3,874
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
$
5,010
(675)
152
(523)
—
313
(1)
4,799
777
20
797
5,596
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
$
$
$
$
$
$
10,393
(5,402)
1,639
(3,763)
(273)
3,262
(18)
9,601
777
20
797
10,398
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
(1)
(2)
Includes valuation allowance associated with the PCI loan portfolio.
Includes write-offs associated with the sale of PCI loans of $167 million, $87 million and $60 million in 2018, 2017 and 2016, respectively.
(3) Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, foreign currency translation adjustments, transfers to held for sale and certain other reclassifications.
(4) Represents allowance for loan and lease losses related to the non-U.S. consumer credit card loan portfolio, which was sold in 2017.
Bank of America 2018 137
The table below presents the allowance and the carrying value of outstanding loans and leases by portfolio segment at December
31, 2018 and 2017.
Allowance and Carrying Value by Portfolio Segment
(Dollars in millions)
Impaired loans and troubled debt restructurings (1)
Allowance for loan and lease losses
Carrying value (2)
Allowance as a percentage of carrying value
Loans collectively evaluated for impairment
Allowance for loan and lease losses
Carrying value (2, 3)
Allowance as a percentage of carrying value (3)
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 (2, 3)
Allowance as a percentage of carrying value (3)
Impaired loans and troubled debt restructurings (1)
Allowance for loan and lease losses
Carrying value (2)
Allowance as a percentage of carrying value
Loans collectively evaluated for impairment
Allowance for loan and lease losses
Carrying value (2, 3)
Allowance as a percentage of carrying value (3)
Purchased credit-impaired loans
Valuation allowance
Carrying value gross of valuation allowance
Valuation allowance as a percentage of carrying value
Total
Consumer
Real Estate
Credit Card and
Other Consumer
Commercial
Total
December 31, 2018
$
$
$
$
$
$
$
$
$
$
$
$
258
8,556
3.02%
579
243,642
0.24%
91
4,645
1.96%
928
256,843
0.36%
348
12,554
2.77%
1,083
238,284
0.45%
289
10,717
2.70%
$
$
154
566
27.21%
3,720
189,140
1.97%
n/a
n/a
n/a
196
2,433
8.06%
4,603
493,564
0.93%
n/a
n/a
n/a
3,874
189,706
$
2.04%
4,799
495,997
0.97%
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
$
$
$
$
$
$
$
608
11,555
5.26%
8,902
926,346
0.96%
91
4,645
1.96%
9,601
942,546
1.02%
663
15,451
4.29%
9,441
904,871
1.04%
289
10,717
2.70%
Allowance for loan and lease losses
Carrying value (2, 3)
Allowance as a percentage of carrying value (3)
1.12%
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.
5,010
476,691
1,720
261,555
10,393
931,039
3,663
192,793
1.05%
1.90%
0.66%
$
$
$
$
(1)
(2) Amounts are presented gross of the allowance for loan and lease losses.
(3) Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of $4.3 billion and $5.7 billion at December 31, 2018 and 2017.
n/a = not applicable
NOTE 7 Securitizations and Other Variable
Interest Entities
The Corporation utilizes VIEs in the ordinary course of business
to support its own and its customers’ financing and investing
needs. The Corporation routinely securitizes loans and debt
securities using VIEs as a source of funding for the Corporation
and as a means of transferring the economic risk of the loans or
debt securities to third parties. The assets are transferred into a
trust or other securitization vehicle such that the assets are legally
isolated from the creditors of the Corporation and are not available
to satisfy its obligations. These assets can only be used to settle
obligations of the trust or other securitization vehicle. The
Corporation also administers, structures or invests in other VIEs
including CDOs, investment vehicles and other entities. For more
information on the Corporation’s use of VIEs, see Note 1 –
Summary of Significant Accounting Principles.
The tables in this Note present the assets and liabilities of
consolidated and unconsolidated VIEs at December 31, 2018 and
2017 in situations where the Corporation has continuing
involvement with transferred assets or if the Corporation
otherwise has a variable interest in the VIE. The tables also
present the Corporation’s maximum loss exposure at December
31, 2018 and 2017 resulting from its involvement with
consolidated VIEs and unconsolidated VIEs in which the
Corporation holds a variable interest. The Corporation’s maximum
loss exposure is based on the unlikely event that all of the assets
in the VIEs become worthless and incorporates not only potential
losses associated with assets recorded on the Consolidated
Balance Sheet but also potential losses associated with off-
balance sheet commitments, such as unfunded liquidity
commitments and other contractual arrangements. The
Corporation’s maximum loss exposure does not include losses
previously recognized through write-downs of assets.
138 Bank of America 2018
The Corporation invests in ABS issued by third-party VIEs with
which it has no other form of involvement and enters into certain
commercial lending arrangements that may also incorporate the
use of VIEs, for example to hold collateral. These securities and
loans are included in Note 4 – Securities or Note 5 – Outstanding
Loans and Leases. In addition, the Corporation has used VIEs such
as trust preferred securities trusts in connection with its funding
activities. In 2018, the Corporation redeemed trust preferred
securities with a total carrying value of $3.1 billion resulting in
the extinguishment of the related junior subordinated notes
issued by the Corporation. In connection therewith, the
Corporation recorded a charge to other income of $729 million
primarily due to the difference between the carrying and
redemption values of the trust preferred securities, the majority
of which relates to the discount on the junior subordinated notes
resulting from prior acquisitions. For more information on trust
preferred securities, see Note 11 – Long-term Debt. These VIEs,
which are generally not consolidated by the Corporation, as
applicable, are not included in the tables herein.
The Corporation did not provide financial support to
consolidated or unconsolidated VIEs during 2018, 2017 and
2016 that it was not previously contractually required to provide,
nor does it intend to do so.
The Corporation had liquidity commitments, including written
put options and collateral value guarantees, with certain
unconsolidated VIEs of $218 million and $442 million at
December 31, 2018 and 2017.
First-lien Mortgage Securitizations
As part of its mortgage banking activities, the Corporation
securitizes a portion of the first-lien residential mortgage loans it
originates or purchases from third parties, generally in the form
of RMBS guaranteed by government-sponsored enterprises, FNMA
and FHLMC (collectively the GSEs), or the Government National
Mortgage Association (GNMA) primarily in the case of FHA-insured
and U.S. Department of Veterans Affairs (VA)-guaranteed
mortgage loans. Securitization usually occurs in conjunction with
or shortly after origination or purchase, and the Corporation may
also securitize loans held in its residential mortgage portfolio. In
addition, the Corporation may, from time to time, securitize
commercial mortgages it originates or purchases from other
entities. The Corporation typically services the loans it securitizes.
Further, the Corporation may retain beneficial interests in the
securitization trusts including senior and subordinate securities
and equity tranches issued by the trusts. Except as described in
Note 12 – Commitments and Contingencies, the Corporation does
not provide guarantees or recourse to the securitization trusts
other than standard representations and warranties.
The table below summarizes select information related to first-
lien mortgage securitizations for 2018, 2017 and 2016.
First-lien Mortgage Securitizations
(Dollars in millions)
Residential Mortgage - Agency
2017
2018
2016
2018
Commercial Mortgage
2017
2016
Cash proceeds from new securitizations (1)
Gains on securitizations (2)
Repurchases from securitization trusts (3)
(1) The Corporation transfers residential mortgage loans to securitizations sponsored by the GSEs or GNMA in the normal course of business and receives RMBS in exchange which may then be sold
14,467
158
2,713
24,201
370
3,611
5,641
91
—
3,887
38
—
6,713
101
—
5,369
62
1,485
$
$
$
$
$
$
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,
which totaled $71 million, $243 million and $487 million, net of hedges, during 2018, 2017 and 2016, respectively, are not included in the table above.
(3) The Corporation may have the option to repurchase delinquent loans out of securitization trusts, which reduces the amount of servicing advances it is required to make. The Corporation may also
repurchase loans from securitization trusts to perform modifications. 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
$711 million, $1.9 billion and $4.2 billion in connection with first-
in 2018, 2017 and 2016,
lien mortgage securitizations
respectively. Substantially all of these securities are classified as
Level 2 assets within the fair value hierarchy.
The Corporation recognizes consumer MSRs from the sale or
securitization of consumer real estate loans. The unpaid principal
balance of loans serviced for investors, including residential
mortgage and home equity loans, totaled $226.6 billion and
$277.6 billion at December 31, 2018 and 2017. Servicing fee
and ancillary fee income on serviced loans was $710 million,
$893 million and $1.2 billion in 2018, 2017 and 2016,
respectively. Servicing advances on serviced loans, including
loans serviced for others and loans held for investment, were
$3.3 billion and $4.5 billion at December 31, 2018 and 2017.
For more information on MSRs, see Note 20 – Fair Value
Measurements.
There were no significant deconsolidations of agency
residential mortgage securitizations in 2018 or 2017. During
2016, the Corporation deconsolidated agency residential
mortgage securitization vehicles with total assets of $3.8 billion
and total liabilities of $628 million following the sale of retained
interests to third parties, after which the Corporation no longer
had the unilateral ability to liquidate the vehicles. Of the balances
deconsolidated in 2016, $706 million of assets and $628 million
of liabilities represent non-cash investing and financing activities
and, accordingly, are not reflected on the Consolidated Statement
of Cash Flows. A gain on sale of $125 million in 2016 related to
the deconsolidation was recorded in other income in the
Consolidated Statement of Income.
The following table summarizes select information related to
first-lien mortgage securitization trusts in which the Corporation
held a variable interest at December 31, 2018 and 2017.
Bank of America 2018 139
First-lien Mortgage VIEs
(Dollars in millions)
Unconsolidated VIEs
Maximum loss exposure (1)
On-balance sheet assets
Senior securities:
Trading account assets
Debt securities carried at fair
value
Residential Mortgage
Agency
Prime
Non-agency
Subprime
December 31
Alt-A
Commercial Mortgage
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
$ 16,011 $ 19,110
$
448 $
689
$
1,897 $
2,643
$
217 $
403
$
767 $
585
$
460 $
716
$
30 $
6
$
36 $
10
$
90 $
50
$
97 $
108
9,381
15,036
246
477
1,470
2,221
125
351
—
—
Held-to-maturity securities
All other assets
Total retained positions
Principal balance outstanding (2)
6,170
—
3,348
10
$ 16,011 $ 19,110
$ 187,512 $ 232,761
$
$
—
3
279 $
—
5
488
8,954 $ 10,549
$
$
—
—
37
38
1,543 $
2,269
8,719 $ 10,254
—
2
217 $
—
2
$
403
$ 23,467 $ 28,129
528
40
665 $
274
88
$
470
$ 43,593 $ 26,504
Consolidated VIEs
Maximum loss exposure (1)
On-balance sheet assets
Trading account assets
Loans and leases, net
All other assets
Total assets
Total liabilities
$ 13,296 $ 14,502
$
7 $
571
$
— $
— $
— $
— $
76 $
—
$
1,318 $
—
—
—
—
—
(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 additional information,
see Note 12 – Commitments and Contingencies and Note 20 – Fair Value Measurements.
232
14,030
240
$ 13,319 $ 14,502
26 $
$
3
150 $
—
—
150 $
143 $
— $
—
—
— $
— $
— $
—
—
— $
— $
76 $
—
—
76 $
— $
— $
—
—
— $
— $
— $
—
—
— $
— $
571
—
—
571
11,858
143
$
— $
$
$
$
$
(2) Principal balance outstanding includes loans where the Corporation was the transferor to securitization VIEs with which it has continuing involvement, which may include servicing the loans.
Other Asset-backed Securitizations
The table below summarizes select information related to home equity, credit card and other asset-backed VIEs in which the Corporation
held a variable interest at December 31, 2018 and 2017.
Home Equity Loan, Credit Card and Other Asset-backed VIEs
(Dollars in millions)
Unconsolidated VIEs
Maximum loss exposure
On-balance sheet assets
Senior securities (4):
Trading account assets
Debt securities carried at fair value
Held-to-maturity securities
All other assets (4)
Total retained positions
Total assets of VIEs (5)
Consolidated VIEs
Maximum loss exposure
On-balance sheet assets
Trading account assets
Loans and leases
Allowance for loan and lease losses
All other assets
Total assets
On-balance sheet liabilities
Short-term borrowings
Long-term debt
All other liabilities
Total liabilities
$
$
$
$
$
$
$
$
$
Home Equity (1)
Credit Card (2, 3)
Resecuritization Trusts
Municipal Bond Trusts
December 31
2018
2017
2018
2017
2018
2017
2018
2017
908 $
1,522
$
— $
— $
7,647 $
8,204
$
2,150 $
1,631
— $
27
—
—
27 $
1,813 $
— $
36
—
—
36
2,432
$
$
— $
—
—
—
— $
— $
— $
—
—
—
— $
— $
1,419 $
1,337
4,891
—
7,647 $
16,949 $
869
1,661
5,644
30
8,204
19,281
85 $
112
$
18,800 $
24,337
$
128 $
628
— $
133
(5)
4
132 $
— $
55
—
55 $
— $
177
(9)
6
174
$
— $
76
—
76
$
— $
29,906
(901)
136
29,141 $
— $
10,321
20
10,341 $
— $
32,554
(988)
1,385
32,951
$
— $
8,598
16
8,614
$
366 $
—
—
—
366 $
— $
238
—
238 $
1,557
—
—
—
1,557
— $
929
—
929
$
$
$
$
$
$
$
26 $
—
—
—
26 $
2,829 $
33
—
—
—
33
2,287
1,540 $
1,453
1,553 $
—
—
1
1,554 $
742 $
12
—
754 $
1,452
—
—
1
1,453
312
—
—
312
(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 additional information,
see Note 12 – Commitments and Contingencies.
(2) At December 31, 2018 and 2017, loans and leases in the consolidated credit card trust included $11.0 billion and $15.6 billion of seller’s interest.
(3) At December 31, 2018 and 2017, all other assets in the consolidated credit card trust included certain short-term investments and unbilled accrued interest and fees.
(4) All other assets includes subordinate securities. 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 of VIEs includes loans the Corporation transferred with which it has continuing involvement, which may include servicing the loan.
140 Bank of America 2018
Home Equity Loans
The Corporation retains interests in home equity securitization
trusts, primarily senior securities, to which it transferred home
equity loans. In addition, the Corporation may be obligated to
provide subordinate funding to the trusts during a rapid
amortization event. This obligation is included in the maximum
loss exposure in the table above. The charges that will ultimately
be recorded as a result of the rapid amortization events depend
on the undrawn portion of the home equity lines of credit (HELOCs),
performance of the loans, the amount of subsequent draws and
the timing of related cash flows.
Credit Card Securitizations
The Corporation securitizes originated and purchased credit card
loans. The Corporation’s continuing involvement with the
securitization trust includes servicing the receivables, retaining
an undivided interest (seller’s interest) in the receivables, and
holding certain retained interests including subordinate interests
in accrued interest and fees on the securitized receivables and
cash reserve accounts.
During 2018, 2017 and 2016, new senior debt securities
issued to third-party investors from the credit card securitization
trust were $4.0 billion, $3.1 billion and $750 million, respectively.
At December 31, 2018 and 2017, the Corporation held
subordinate securities issued by the credit card securitization
trust with a notional principal amount of $7.7 billion and $7.4
billion. These securities serve as a form of credit enhancement
to the senior debt securities and have a stated interest rate of
zero percent. During 2018, 2017 and 2016, the credit card
securitization trust issued $650 million, $500 million and $121
million, respectively, of these subordinate securities.
Resecuritization Trusts
The Corporation transfers securities, typically MBS,
into
resecuritization VIEs at the request of customers seeking
securities with specific characteristics. Generally, there are no
significant ongoing activities performed in a resecuritization trust,
and no single investor has the unilateral ability to liquidate the
trust.
The Corporation resecuritized $22.8 billion, $25.1 billion and
$23.4 billion of securities in 2018, 2017 and 2016, respectively.
Securities transferred into resecuritization VIEs were measured
at fair value with changes in fair value recorded in trading account
profits prior to the resecuritization and no gain or loss on sale
was recorded. During 2018, 2017 and 2016, resecuritization
proceeds included securities with an initial fair value of $4.1
billion, $3.3 billion and $3.3 billion, respectively. Substantially all
of the other securities received as resecuritization proceeds were
classified as trading securities and were categorized as Level 2
within the fair value hierarchy.
Municipal Bond Trusts
The Corporation administers municipal bond trusts that hold
highly-rated, long-term, fixed-rate municipal bonds. The trusts
obtain financing by issuing floating-rate trust certificates that
reprice on a weekly or other short-term basis to third-party
investors.
The Corporation’s liquidity commitments to unconsolidated
municipal bond trusts, including those for which the Corporation
was transferor, totaled $2.1 billion and $1.6 billion at December
31, 2018 and 2017. The weighted-average remaining life of bonds
held in the trusts at December 31, 2018 was 7.3 years. There
were no material write-downs or downgrades of assets or issuers
during 2018, 2017 and 2016.
Other Variable Interest Entities
The table below summarizes select information related to other
VIEs in which the Corporation held a variable interest at December
31, 2018 and 2017.
Other VIEs
(Dollars in millions)
Maximum loss exposure
On-balance sheet assets
Trading account assets
Debt securities carried at fair value
Loans and leases
Allowance for loan and lease losses
All other assets
Total
On-balance sheet liabilities
Long-term debt
All other liabilities
Total
Total assets of VIEs
Consolidated
Unconsolidated
Total
Consolidated
Unconsolidated
Total
$
$
$
$
$
$
4,177
2,335
—
1,949
(2)
53
4,335
152
7
159
4,335
$
$
$
$
$
$
2018
24,498
860
84
3,940
(30)
18,885
23,739
$
$
$
— $
4,231
4,231
94,746
$
$
December 31
28,675
3,195
84
5,889
(32)
18,938
28,074
152
4,238
4,390
99,081
$
$
$
$
$
$
4,660
2,709
—
2,152
(3)
89
4,947
270
18
288
4,947
$
$
$
$
$
$
2017
19,785
346
160
3,596
(32)
15,216
19,286
$
$
$
— $
3,417
3,417
69,746
$
$
24,445
3,055
160
5,748
(35)
15,305
24,233
270
3,435
3,705
74,693
Customer VIEs
Customer VIEs include credit-linked, equity-linked and commodity-
linked note VIEs, repackaging VIEs and asset acquisition VIEs,
which are typically created on behalf of customers who wish to
obtain market or credit exposure to a specific company, index,
commodity or financial instrument.
The Corporation’s maximum loss exposure to consolidated
and unconsolidated customer VIEs totaled $2.1 billion and $2.3
billion at December 31, 2018 and 2017, including the notional
amount of derivatives to which the Corporation is a counterparty,
net of losses previously recorded, and the Corporation’s
investment, if any, in securities issued by the VIEs.
Collateralized Debt Obligation VIEs
The Corporation receives fees for structuring CDO VIEs, which
hold diversified pools of fixed-income securities, typically
corporate debt or ABS, which the CDO VIEs fund by issuing multiple
tranches of debt and equity securities. CDOs are generally
managed by third-party portfolio managers. The Corporation
typically transfers assets to these CDOs, holds securities issued
by the CDOs and may be a derivative counterparty to the CDOs.
The Corporation’s maximum loss exposure to consolidated and
Bank of America 2018 141
unconsolidated CDOs totaled $421 million and $358 million at
December 31, 2018 and 2017.
Investment VIEs
The Corporation sponsors, invests in or provides financing, which
may be in connection with the sale of assets, to a variety of
investment VIEs that hold loans, real estate, debt securities or
other financial instruments and are designed to provide the
desired investment profile to investors or the Corporation. At
December 31, 2018 and 2017, the Corporation’s consolidated
investment VIEs had total assets of $270 million and $249
million. The Corporation also held investments in unconsolidated
VIEs with total assets of $37.7 billion and $20.3 billion at
December 31, 2018 and 2017. The Corporation’s maximum loss
exposure associated with both consolidated and unconsolidated
investment VIEs totaled $7.2 billion and $5.7 billion at December
31, 2018 and 2017 comprised primarily of on-balance sheet
assets less non-recourse liabilities.
Leveraged Lease Trusts
The Corporation’s net investment in consolidated leveraged lease
trusts totaled $1.8 billion and $2.0 billion at December 31, 2018
and 2017. 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.
NOTE 8 Goodwill and Intangible Assets
The Corporation’s
Tax Credit VIEs
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 VIE. 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 $17.0 billion and $13.8
billion at December 31, 2018 and 2017. 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 $8.9 billion and $8.0 billion,
including unfunded commitments to provide capital contributions
of $3.8 billion and $3.1 billion at December 31, 2018 and 2017.
The unfunded commitments are expected to be paid over the next
five years. During 2018, 2017 and 2016, the Corporation
recognized tax credits and other tax benefits from investments in
affordable housing partnerships of $981 million, $1.0 billion and
$1.1 billion and reported pretax losses in other income of $798
million, $766 million and $789 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
troubled affordable housing project. Such additional
a
investments have not been and are not expected to be significant.
Goodwill
The table below presents goodwill balances by reporting unit and All Other at December 31, 2018 and 2017. The reporting units
utilized for goodwill impairment testing are the operating segments or one level below.
Goodwill
(Dollars in millions)
Deposits
Consumer Lending
Consumer Banking
U.S. Trust
Merrill Lynch Global Wealth Management
Global Wealth & Investment Management
Global Commercial Banking
Global Corporate and Investment Banking
Business Banking
Global Banking
Global Markets
All Other
Total goodwill
December 31
2018
2017
18,414
11,709
30,123
2,917
6,760
9,677
16,146
6,231
1,546
23,923
5,182
46
68,951
$
$
18,414
11,709
30,123
2,917
6,760
9,677
16,146
6,231
1,546
23,923
5,182
46
68,951
$
$
During 2018, the Corporation completed its annual goodwill impairment test as of June 30, 2018 using qualitative assessments
for all applicable reporting units. Based on the results of the annual goodwill impairment test, the Corporation determined there was
no impairment. For more information on the use of qualitative assessments, see Note 1 – Summary of Significant Accounting Principles.
142 Bank of America 2018
Intangible Assets
The table below presents the gross and net carrying values and accumulated amortization for intangible assets at December 31,
2018 and 2017.
Intangible Assets (1, 2)
(Dollars in millions)
Purchased credit card and affinity relationships
Core deposit and other intangibles (3)
Customer relationships
Total intangible assets
Gross
Carrying Value
Accumulated
Amortization
Net
Carrying Value
Gross
Carrying Value
Accumulated
Amortization
Net
Carrying Value
December 31, 2018
5,919
3,835
—
9,754
$
$
5,759
2,221
—
7,980
$
$
$
$
160
1,614
—
1,774
$
$
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
(1) Excludes fully amortized intangible assets.
(2) At December 31, 2018 and 2017, none of the intangible assets were impaired.
(3)
Includes $1.6 billion at both December 31, 2018 and 2017 of intangible assets associated with trade names that have an indefinite life and, accordingly, are not amortized.
Amortization of intangibles expense was $538 million, $621 million and $730 million for 2018, 2017 and 2016, respectively. The
Corporation estimates aggregate amortization expense will be $105 million for 2019, $55 million for 2020 and none for the years
thereafter.
NOTE 9 Deposits
The table below presents information about the Corporation’s time deposits of $100 thousand or more at December 31, 2018 and
2017. The Corporation also had aggregate time deposits of $16.4 billion and $17.0 billion in denominations that met or exceeded
the Federal Deposit Insurance Corporation (FDIC) insurance limit at December 31, 2018 and 2017.
Time Deposits of $100 Thousand or More
(Dollars in millions)
December 31, 2018
December 31
2017
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
$
14,441
7,317
$
11,855
2,655
$
$
3,209
820
29,505
10,792
$
25,192
15,472
The scheduled contractual maturities for total time deposits at December 31, 2018 are presented in the table below.
Contractual Maturities of Total Time Deposits
(Dollars in millions)
Due in 2019
Due in 2020
Due in 2021
Due in 2022
Due in 2023
Thereafter
Total time deposits
U.S.
Non-U.S.
Total
$
$
43,452
4,580
725
560
270
570
50,157
$
$
10,030
164
8
11
632
37
10,882
$
$
53,482
4,744
733
571
902
607
61,039
NOTE 10 Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings
and Restricted Cash
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 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
2018
2017
$
$
251,328
279,350
193,681
201,089
36,021
52,480
1.26% $
n/a
222,818
237,064
1.80% $
n/a
199,501
218,017
2.69
n/a
37,337
46,202
0.81%
n/a
1.30%
n/a
2.48
n/a
Bank of America 2018 143
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 $12.1 billion and $14.2 billion at
December 31, 2018 and 2017. 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.
Offsetting of Securities Financing Agreements
The Corporation enters into securities financing agreements to
accommodate customers (also referred to as “matched-book
transactions”), obtain securities to cover short positions, and to
finance inventory positions. Substantially all of the Corporation’s
securities financing activities are transacted under legally
enforceable master repurchase agreements or legally enforceable
master securities lending agreements that give the Corporation,
in the event of default by the counterparty, the right to liquidate
securities held and to offset receivables and payables with the
same counterparty. The Corporation offsets securities financing
transactions with the same counterparty on the Consolidated
Balance Sheet where it has such a legally enforceable master
netting agreement and the transactions have the same maturity
date.
The Securities Financing Agreements table presents securities
financing agreements included on the Consolidated Balance Sheet
in federal funds sold and securities borrowed or purchased under
agreements to resell, and in federal funds purchased and
securities loaned or sold under agreements to repurchase at
December 31, 2018 and 2017. 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 3 – Derivatives.
Securities Financing Agreements
(Dollars in millions)
December 31, 2018
Securities borrowed or purchased under agreements to resell (3)
Securities loaned or sold under agreements to repurchase
Other (4)
Total
$
$
$
366,274
293,853
19,906
313,759
$
$
$
(106,865) $
(106,865) $
—
(106,865) $
259,409
186,988
19,906
206,894
$
$
$
(240,790) $
(176,740) $
(19,906)
(196,646) $
18,619
10,248
—
10,248
Gross Assets/
Liabilities (1)
Amounts Offset
Net Balance
Sheet Amount
Financial
Instruments (2)
Net Assets/
Liabilities
December 31, 2017
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.
212,747
176,857
22,711
199,568
348,472
312,582
22,711
335,293
47,027
30,652
—
30,652
(165,720) $
(146,205) $
(135,725) $
(135,725) $
(168,916) $
(135,725) $
(22,711)
$
$
$
$
$
$
—
$
$
$
(1)
(2)
(3) Excludes repurchase activity of $11.5 billion and $10.2 billion reported in loans and leases on the Consolidated Balance Sheet at December 31, 2018 and 2017.
(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.
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.
144 Bank of America 2018
Overnight and
Continuous
30 Days or Less
After 30 Days
Through 90 Days
Greater than
90 Days (1)
Total
$
$
$
$
139,017
7,753
19,906
166,676
125,956
9,853
22,711
158,520
$
$
$
$
81,917
4,197
—
86,114
79,913
5,658
—
85,571
December 31, 2018
34,204
$
1,783
—
35,987
$
December 31, 2017
46,091
$
2,043
—
48,134
$
$
$
$
$
21,476
3,506
—
24,982
38,935
4,133
—
43,068
$
$
$
$
276,614
17,239
19,906
313,759
290,895
21,687
22,711
335,293
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
$
$
$
$
164,664
11,400
14,090
81,329
5,131
276,614
158,299
12,787
23,975
90,857
4,977
290,895
$
$
$
$
December 31, 2018
— $
— $
2,163
10,869
4,207
—
17,239
$
December 31, 2017
— $
2,669
13,523
5,495
—
21,687
$
287
19,572
47
—
19,906
409
624
21,628
50
—
22,711
$
$
$
164,664
13,850
44,531
85,583
5,131
313,759
158,708
16,080
59,126
96,402
4,977
335,293
Under repurchase agreements, the Corporation is required to
post collateral with a market value equal to or in excess of the
principal amount borrowed. 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.
Restricted Cash
At December 31, 2018 and 2017, the Corporation held restricted
cash included within cash and cash equivalents on the
Consolidated Balance Sheet of $22.6 billion and $18.8 billion,
predominantly related to cash held on deposit with the Federal
Reserve Bank and non-U.S. central banks to meet reserve
requirements and cash segregated in compliance with securities
regulations.
Bank of America 2018 145
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, 2018 and 2017, and the related contractual rates and maturity dates as of December 31, 2018.
(Dollars in millions)
Notes issued by Bank of America Corporation
Senior notes:
Fixed
Floating
Senior structured notes (1)
Subordinated notes:
Fixed
Floating
Junior subordinated notes (2):
Fixed
Floating
Total notes issued by Bank of America Corporation
Notes issued by Bank of America, N.A.
Senior notes:
Fixed
Floating
Subordinated notes
Advances from Federal Home Loan Banks:
Fixed
Floating
Securitizations and other BANA VIEs (3)
Other
Total notes issued by Bank of America, N.A.
Other debt
Structured liabilities
Nonbank VIEs (3)
Other
Total other debt
Total long-term debt
Weighted-
average Rate
Interest Rates
Maturity Dates
2018
2017
December 31
3.39 %
2.09
0.39 - 8.40 %
0.06 - 7.26
2019 - 2049
2019 - 2044
$
$
120,548
25,574
13,768
4.91
2.16
6.71
3.54
2.96
6.00
5.10
2.49
2.94 - 8.57
1.14 - 3.55
6.45 - 8.05
3.54
2019 - 2045
2019 - 2026
2027 - 2066
2056
2.90 - 2.96
6.00
0.01 - 7.72
2.24 - 2.80
2020 - 2041
2036
2019 - 2034
2019 - 2020
20,843
1,742
732
1
183,208
—
1,770
1,617
130
14,751
10,326
442
29,036
16,478
618
—
17,096
229,340
$
$
119,548
21,048
15,460
22,004
4,058
3,282
553
185,953
4,686
1,033
1,679
146
5,000
8,641
433
21,618
18,574
1,232
25
19,831
227,402
(1)
(2)
Includes total loss-absorbing capacity compliant debt.
Includes amounts related to trust preferred securities. For additional information, see Trust Preferred Securities in this Note.
(3) 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, 2018 and
2017, the amount of foreign currency-denominated debt translated
into U.S. dollars included in total long-term debt was $48.6 billion
and $51.8 billion. Foreign currency contracts may be used to
convert certain foreign currency-denominated debt into U.S.
dollars.
At December 31, 2018, long-term debt of consolidated VIEs in
the table above included debt from credit card and all other VIEs
of $10.3 billion and $623 million. Long-term debt of VIEs is
collateralized by the assets of the VIEs. For additional information,
see Note 7 – 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 3.29 percent, 3.66 percent and 2.26
percent, respectively, at December 31, 2018, and 3.44 percent,
3.87 percent and 1.49 percent, respectively, at December 31,
2017. 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.
146 Bank of America 2018
Debt outstanding of $3.8 billion at December 31, 2018 was
issued by BofA Finance LLC, a 100 percent owned finance
subsidiary of Bank of America Corporation, the parent company,
and is fully and unconditionally guaranteed by the parent company.
During 2018, the Corporation had total long-term debt
maturities and redemptions in the aggregate of $53.3 billion
consisting of $29.8 billion for Bank of America Corporation, $11.2
billion for Bank of America, N.A. and $12.3 billion of other debt.
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.
The following table shows the carrying value for aggregate
annual contractual maturities of long-term debt as of December
31, 2018. 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.
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)
Total other debt
Total long-term debt
2019
2020
2021
2022
2023
Thereafter
Total
$
$
14,831
1,337
1,501
—
17,669
—
—
11,762
3,200
224
15,186
5,085
35
5,120
37,975
$
$
10,308
875
—
—
11,183
1,750
—
3,010
3,100
83
7,943
15,883
482
346
—
16,711
—
—
2
4,022
—
4,024
$
$
14,882
1,914
364
—
17,160
$
22,570
323
—
—
22,893
—
—
3
—
2
5
—
—
1
—
133
134
$
67,648
8,837
20,374
733
97,592
20
1,617
103
4
—
1,744
146,122
13,768
22,585
733
183,208
1,770
1,617
14,881
10,326
442
29,036
2,712
—
2,712
21,838
$
1,112
—
1,112
21,847
$
558
—
558
17,723
$
830
23
853
23,880
$
6,181
560
6,741
106,077
$
16,478
618
17,096
229,340
$
(1) Represents the total long-term debt included in the liabilities of consolidated VIEs on the Consolidated Balance Sheet.
Trust Preferred 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.
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.
During 2018, the Corporation redeemed Trust Securities of 11
Trusts with a carrying value of $3.1 billion. At December 31, 2018,
the Corporation had one
junior
subordinated note held in trust.
floating-rate
remaining
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 (i.e., syndicated or
participated) to other financial institutions. The distributed
amounts were $10.7 billion and $11.0 billion at December 31,
2018 and 2017. At December 31, 2018, the carrying value of
these commitments, excluding commitments accounted for under
the fair value option, was $813 million, including deferred revenue
of $16 million and a reserve for unfunded lending commitments
of $797 million. At December 31, 2017, the comparable amounts
were $793 million, $16 million and $777 million, respectively. The
carrying value of these commitments is classified in accrued
expenses and other liabilities on the Consolidated Balance Sheet.
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.
The table below also includes the notional amount of
commitments of $3.1 billion and $4.8 billion at December 31,
2018 and 2017 that are accounted for under the fair value option.
However, the following table excludes cumulative net fair value of
$169 million and $120 million at December 31, 2018 and 2017
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.
Bank of America 2018 147
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 (2)
Legally binding commitments
Credit card lines (3)
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 (3)
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, 2018
Expire After
Five Years
Total
84,910
2,578
22,571
1,168
111,227
371,658
482,885
85,804
6,172
19,976
1,291
113,243
362,030
475,273
$
$
$
$
142,271
2,249
9,702
84
154,306
—
154,306
$
$
155,298
3,530
2,457
69
161,354
—
161,354
December 31, 2017
140,942
4,457
11,261
117
156,777
—
156,777
$
$
147,043
2,288
3,420
129
152,880
—
152,880
$
$
$
$
22,683
34,702
1,074
57
58,516
—
58,516
21,342
31,250
1,144
87
53,823
—
53,823
$
$
$
$
405,162
43,059
35,804
1,378
485,403
371,658
857,061
395,131
44,167
35,801
1,624
476,723
362,030
838,753
(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 $28.3 billion and $7.1 billion at December 31, 2018, and $27.3 billion and $8.1 billion at December 31, 2017. Amounts in the table include consumer SBLCs of $372 million and $421 million
at December 31, 2018 and 2017.
(2) At December 31, 2018, included letters of credit of $422 million related to certain liquidity commitments of VIEs. For additional information, see Note 7 – Securitizations and Other Variable Interest
Entities.
(3) Includes business card unused lines of credit.
Other Commitments
At December 31, 2018 and 2017, the Corporation had
commitments to purchase loans (e.g., residential mortgage and
commercial real estate) of $329 million and $344 million, which
upon settlement will be included in loans or LHFS, and
commitments to purchase commercial loans of $463 million and
$994 million, which upon settlement will be included in trading
account assets.
At December 31, 2018 and 2017, the Corporation had
commitments to purchase commodities, primarily liquefied natural
gas, of $1.3 billion and $1.5 billion, which upon settlement will
be included in trading account assets.
At December 31, 2018 and 2017, the Corporation had
commitments to enter into resale and forward-dated resale and
securities borrowing agreements of $59.7 billion and $56.8 billion,
and commitments to enter into forward-dated repurchase and
securities lending agreements of $21.2 billion and $34.3 billion.
These commitments expire primarily within the next 12 months.
At both December 31, 2018 and 2017, the Corporation had a
commitment to originate or purchase up to $3.0 billion, on a rolling
12-month basis, of auto loans and leases from a strategic partner.
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 $2.4 billion, $2.2 billion, $2.0 billion, $1.7 billion
and $1.3 billion for 2019 and the years through 2023, respectively,
and $6.2 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, 2018 and 2017,
the notional amount of these guarantees totaled $9.8 billion and
148 Bank of America 2018
$10.4 billion. At December 31, 2018 and 2017, the Corporation’s
maximum exposure related to these guarantees totaled $1.5
billion and $1.6 billion, with estimated maturity dates between
2033 and 2039.
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
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.
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 2018
and 2017, the sponsored entities processed and settled $874.3
billion and $812.2 billion of transactions and recorded losses of
$31 million and $28 million. A significant portion of this activity
was processed by a joint venture in which the Corporation holds
a 49 percent ownership. The carrying value of the Corporation’s
investment in the merchant services joint venture was $2.8 billion
and $2.9 billion at December 31, 2018 and 2017, and is recorded
in other assets on the Consolidated Balance Sheet and in All Other.
At December 31, 2018 and 2017, the maximum potential
exposure for sponsored transactions totaled $348.1 billion and
$346.4 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 Corporation has assessed the probability of making
any such payments as 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 at both
December 31, 2018 and 2017. The estimated maturity dates of
these obligations extend up to 2040. The Corporation has made
no material payments under these guarantees. For more
information on maximum potential future payments under VIE-
related liquidity commitments at December 31, 2018, see Note 7
– Securitizations and Other Variable Interest Entities.
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
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 payment protection insurance exposure above
reserves assumed by the purchaser.
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 indemnification or other remedies
to sponsors, investors, securitization trusts, guarantors, insurers
or other parties (collectively, repurchases).
and warranties. Breaches
of
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
the applicable statute of
limitations has expired, or
representations and warranties claims with respect to the
applicable trust are settled, and fully and finally released.
from a counterparty
received
The notional amount of unresolved repurchase claims at
December 31, 2018 and 2017 was $14.4 billion and $17.6 billion.
This balance included $6.2 billion and $6.9 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 balance also includes $1.5 billion of repurchase
claims related to a single monoline insurer and is the subject of
litigation.
During 2018, the Corporation received $283 million in new
repurchase claims, including $201 million in claims that were
deemed time-barred. During 2018, $3.5 billion in claims were
resolved, including $2.2 billion of claims that were deemed time-
barred and $1.1 billion related to settlements. Although the pace
of new claims has declined, it is possible the Corporation will
receive additional claims or file requests in the future.
Reserve and Related Provision
The reserve for representations and warranties obligations and
corporate guarantees at December 31, 2018 and 2017 was $2.0
billion and $1.9 billion and is included in accrued expenses and
other liabilities on the Consolidated Balance Sheet and the related
provision is included in other income in the Consolidated
Statement of Income. The representations and warranties reserve
represents the Corporation’s best estimate of probable incurred
losses. This reserve considers a number of provisional
settlements with sponsors, investors and trustees, some of which
Bank of America 2018 149
are subject to trustee approval processes, which may include court
proceedings. Future representations and warranties losses may
occur in excess of the amounts recorded for these exposures;
however, the Corporation does not expect such amounts to be
material. Future provisions for representations and warranties may
be significantly impacted if actual experiences are different from
the Corporation’s assumptions in predictive models. The
Corporation has combined the range of reasonably possible losses
that are in excess of the representations and warranties reserve
with the litigation range of possible loss in excess of litigation
reserves, as discussed in Litigation and Regulatory Matters in this
Note. This is consistent with the reduction in outstanding
representations and warranties exposure in comparison to prior
periods resulting from the resolution of prior matters along with
changes in the Corporation’s business model.
The reserve for representations and warranties exposures
does 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.
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 the eventual outcome of the
pending matters, timing of the ultimate resolution of these matters,
or eventual loss, fines or penalties related to each pending matter.
In accordance with applicable accounting guidance, the
Corporation establishes an accrued liability when those matters
present loss contingencies that are both probable and estimable.
In such cases, there may be an exposure to loss in excess of any
amounts accrued. As a matter develops, the Corporation, in
conjunction with any outside counsel handling the matter,
evaluates on an ongoing basis whether such matter presents a
loss contingency that is probable and estimable. Once the loss
contingency is deemed to be both probable and estimable, the
Corporation will establish an accrued liability and record a
litigation-related expense. The
corresponding amount of
Corporation continues to monitor the matter
further
developments that could affect the amount of the accrued liability
that has been previously established. Excluding expenses of
internal and external legal service providers, litigation-related
expense of $469 million and $753 million was recognized in 2018
and 2017.
for
For a limited number of the matters disclosed in this Note for
which a loss, whether in excess of a related accrued liability or
where there is no accrued liability, is reasonably possible in future
periods, the Corporation is able to estimate a range of possible
loss. In determining whether it is possible to estimate a range of
possible loss, the Corporation reviews and evaluates its matters
on an ongoing basis, in conjunction with any outside counsel
handling the matter, in light of potentially relevant factual and legal
developments. With respect to the matters disclosed in this Note,
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
150 Bank of America 2018
such an estimate of the range of possible loss may not be possible.
For such matters disclosed in this Note, where an estimate of the
range of possible loss is possible, as well as for representations
and warranties exposures, management currently estimates the
aggregate range of reasonably possible loss for these exposures
is $0 to $1.9 billion in excess of the accrued liability, if any. 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 the
litigation 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 four
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 asserts 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 28, 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 punitive damages.
judgment
rulings. Ambac appealed
On May 16, 2017, the First Department issued its decisions
on the parties’ cross-appeals of the trial court’s October 22, 2015
summary
the First
Department’s rulings requiring Ambac to prove all of the elements
of its fraudulent inducement claim, including justifiable reliance
and loss causation; restricting Ambac’s sole remedy for its breach
of contract claims to the repurchase protocol of cure, repurchase
or substitution of any materially defective loan; and dismissing
Ambac’s claim for reimbursements of attorneys’ fees. On June 27,
2018, the New York Court of Appeals affirmed the First Department
rulings that Ambac appealed.
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 seeks 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 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 the now-dismissed
Ambac v. Countrywide III. The complaint seeks damages in excess
of $350 million, plus punitive damages.
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. Ambac seeks as
damages hundreds of millions of dollars that Ambac alleges it has
paid or will pay in claims.
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.
On March 27, 2018, the U.S. District Court for the District of
Columbia denied BANA’s partial motion to dismiss certain of the
FDIC’s claims.
Interchange and Related Litigation
In 2005, a group of merchants filed a series of putative class
actions and individual actions directed at interchange fees
associated with Visa and MasterCard payment card transactions.
These actions, which were consolidated in the U.S. District Court
for the Eastern District of New York under the caption In re Payment
Card Interchange Fee and Merchant Discount Anti-Trust Litigation
(Interchange), named Visa, MasterCard and several banks and
bank holding companies, including the Corporation, as defendants.
Plaintiffs alleged that defendants conspired to fix the level of
default interchange rates and that certain rules of Visa and
MasterCard were unreasonable restraints of trade. Plaintiffs
sought compensatory and treble damages and injunctive relief.
On October 19, 2012, defendants reached a settlement with
respect to the putative class actions that the U.S. Court of Appeals
for the Second Circuit rejected. In 2018, defendants reached a
settlement with the representatives of the putative Rule 23(b)(3)
damages class to contribute an additional $900 million to the
approximately $5.3 billion held in escrow from the prior settlement.
The Corporation’s additional contribution is not material to the
Corporation. The District Court granted preliminary approval of the
settlement with the putative Rule 23(b)(3) damages class in
January 2019.
In addition, the putative Rule 23(b)(2) class action seeking
injunctive relief is pending, and a number of individual merchant
actions continue against the defendants, including one against
the Corporation. As a result of various loss-sharing agreements,
however, the Corporation remains liable for a portion of any
settlement or judgment in individual suits where it is not named
as a defendant.
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, the Corporation and its
subsidiaries regarding FX and other reference rates as well as
government, sovereign, supranational and agency bonds in
connection with conduct and systems and controls. The
Corporation is cooperating with these inquiries and investigations
and responding to the proceedings.
Foreign Exchange (FX)
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
OTC FX transactions and FX transactions on an exchange. Plaintiffs
assert antitrust claims and claims for violations of the Commodity
Exchange Act (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 participating class
members $187.5 million to settle the litigation. In 2018, the
District Court granted final approval to the settlement.
LIBOR
The Corporation, BANA and certain Merrill Lynch entities have been
named as defendants along with most of the other London
InterBank Offered Rate (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, CEA, Racketeer Influenced and Corrupt
Organizations (RICO), Securities Exchange Act of 1934, 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 are
pending in the U.S. District Court for the Southern District of New
York.
The District Court has dismissed all RICO claims, and
dismissed all manipulation claims based on alleged trader conduct
against Bank of America entities. The District Court has also
substantially limited the scope of antitrust, CEA and various other
claims, including by dismissing in their entirety certain individual
and putative class plaintiffs’ antitrust claims for lack of standing
and/or personal jurisdiction. Plaintiffs whose antitrust claims were
dismissed by the District Court are pursuing appeals in the Second
Circuit. Certain individual and putative class actions remain
Bank of America 2018 151
pending in the District Court against the Corporation, BANA and
certain Merrill Lynch entities.
On February 28, 2018, the District Court denied certification
of proposed classes of lending institutions and persons that
transacted in eurodollar futures, and the U.S. Court of Appeals for
the Second Circuit subsequently denied petitions filed by those
plaintiffs for interlocutory appeals of those rulings. Also on
February 28, 2018, the District Court granted certification of a
class of persons that purchased OTC swaps and notes that
referenced U.S. dollar LIBOR from one of the U.S. dollar LIBOR
panel banks, limited to claims under Section 1 of the Sherman
Act. The U.S. Court of Appeals for the Second Circuit subsequently
denied a petition filed by the defendants for interlocutory appeal
of that ruling.
Mortgage Appraisal Litigation
The Corporation and certain subsidiaries are named as defendants
in two putative class action lawsuits filed in U.S. District Court for
the Central District of California (Waldrup and Williams, et al.). In
November 2016, the actions were consolidated for pre-trial
purposes. Plaintiffs allege that in fulfilling orders made by
Countrywide for residential mortgage appraisal services, a former
Countrywide subsidiary, LandSafe Appraisal Services, Inc.,
arranged for and completed appraisals that were not in compliance
with applicable laws and appraisal standards. Plaintiffs seek,
among other forms of relief, compensatory and treble damages.
On February 8, 2018, the District Court granted plaintiffs’
motion for class certification. On May 22, 2018, the U.S. Court of
Appeals for the Ninth Circuit denied Defendants’ petition for
permission to file an interlocutory appeal of the District Court’s
ruling granting class certification.
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.
these cases generally sought unspecified
Plaintiffs
in
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.
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 against the Corporation and various subsidiaries 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 - SURF/OWNIT Repurchase Litigation
On August 29, 2014 and September 2, 2014, U.S. Bank, as trustee
for seven securitization trusts (the Trusts), served seven
summonses with notice commencing actions against various
subsidiaries of the Corporation in New York Supreme Court. The
summonses advance breach of contract claims alleging that
defendants breached representations and warranties related to
loans securitized in the Trusts. The summonses allege that
defendants failed to repurchase breaching mortgage loans from
the Trusts, and seek specific performance of defendants’ alleged
obligation to repurchase breaching loans, declaratory judgment,
compensatory, rescissory and other damages, and indemnity.
U.S. Bank has served complaints regarding six of the seven
Trusts. In 2018, for those six Trusts, the defendants and certain
certificate-holders agreed to settle the respective litigations in
amounts not material to the Corporation, subject to acceptance
by U.S. Bank.
152 Bank of America 2018
NOTE 13 Shareholders’ Equity
Common Stock
Declared Quarterly Cash Dividends on Common Stock (1)
Declaration Date
Record Date
Payment Date
Dividend
Per Share
January 30, 2019
October 24, 2018
July 26, 2018
April 25, 2018
January 31, 2018
(1)
March 1, 2019
December 7, 2018
September 7, 2018
June 1, 2018
March 2, 2018
In 2018, and through February 26, 2019.
$
March 29, 2019
December 28, 2018
September 28, 2018
June 29, 2018
March 30, 2018
0.15
0.15
0.15
0.12
0.12
The cash dividends paid per share of common stock were
$0.54, $0.39 and $0.25 for 2018, 2017 and 2016, respectively.
The following table summarizes common stock repurchases
during 2018, 2017 and 2016.
Common Stock Repurchase Summary
(in millions)
Total share repurchases, including CCAR
capital plan repurchases
2018
2017
2016
676
509
333
Purchase price of shares repurchased and
retired (1)
CCAR capital plan repurchases
Other authorized repurchases
Total shares repurchased
$ 16,754
3,340
$ 20,094
$ 9,347
3,467
$12,814
$ 4,312
800
$ 5,112
(1) Represents reductions to shareholders’ equity due to common stock repurchases.
On June 28, 2018, following the non-objection of the Board of
Governors of the Federal Reserve System (Federal Reserve) to the
Corporation’s 2018 Comprehensive Capital Analysis and Review
(CCAR) capital plan, the Board of Directors (Board) authorized the
repurchase of approximately $20.6 billion in common stock from
July 1, 2018 through June 30, 2019, which includes approximately
$600 million in repurchases to offset shares awarded under equity-
based compensation plans during the same period. The common
stock repurchase authorization includes both common stock and
warrants.
During 2018, the Corporation repurchased $20.1 billion of
common stock in connection with the 2018 and 2017 CCAR capital
plans and pursuant to a December 5, 2017 authorization to
repurchase an additional $5.0 billion in common stock.
At December 31, 2018, the Corporation had warrants
outstanding and exercisable to purchase 121 million shares of
common stock. These warrants, substantially all of which were
exercised on or before the expiration date of January 16, 2019,
were originally issued in connection with a preferred stock
issuance to the U.S. Department of the Treasury in 2009 and were
listed on the New York Stock Exchange.
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 2018, the
Corporation issued 75 million shares of its common stock and, to
satisfy tax withholding obligations, repurchased 29 million shares
of its common stock. At December 31, 2018, the Corporation had
reserved 781 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 $1.5 billion,
$1.6 billion and $1.7 billion for 2018, 2017 and 2016,
respectively.
On March 15, 2018, the Corporation issued 94,000 shares of
5.875% Fixed-to-Floating Rate Non-Cumulative Preferred Stock,
Series FF for $2.35 billion. On May 16, 2018, the Corporation
issued 54,000 shares of 6.000% Fixed Rate Non-Cumulative
Preferred Stock, Series GG for $1.35 billion. On July 24, 2018,
the Corporation issued 34,160 shares of 5.875% Non-Cumulative
Preferred Stock, Series HH for $854 million.
In 2018, the Corporation fully redeemed Series D, Series I,
Series K, Series M and Series 3 preferred stock for a total of $4.5
billion.
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.
The table on the following page presents a summary of
perpetual preferred stock outstanding at December 31, 2018.
Bank of America 2018 153
Preferred Stock Summary
(Dollars in millions, except as noted)
Series
Description
Initial
Issuance
Date
Total
Shares
Outstanding
Liquidation
Preference
per Share
(in dollars)
Carrying
Value
Per Annum
Dividend Rate
Dividend per
Share
(in dollars)
Annual
Dividend
Redemption Period (1)
Series B
Series E (2)
Series F
Series G
Series L
7% Cumulative
Redeemable
June
1997
Floating Rate Non-
Cumulative
November
2006
Floating Rate Non-
Cumulative
Adjustable Rate Non-
Cumulative
7.25% Non-
Cumulative Perpetual
Convertible
Series T
6% Non-cumulative
Series U (4)
Fixed-to-Floating Rate
Non-Cumulative
March
2012
March
2012
January
2008
September
2011
May
2013
June
2014
Series V (4)
Series W (2)
Series X (4)
Series Y (2)
Fixed-to-Floating Rate
Non-Cumulative
6.625% Non-
Cumulative
September
2014
Fixed-to-Floating Rate
Non-Cumulative
September
2014
6.500% Non-
Cumulative
January
2015
7,110
$
100
$
1
7.00% $
7.00
$
12,691
25,000
317
3-mo. LIBOR + 35 bps (3)
1.01
1,409
100,000
141
3-mo. LIBOR + 40 bps (3)
4,055.56
4,926
100,000
493
3-mo. LIBOR + 40 bps (3)
4,055.56
—
13
6
20
n/a
On or after
November 15, 2011
On or after
March 15, 2012
On or after
March 15, 2012
3,080,182
1,000
3,080
7.25%
72.50
223
n/a
354
100,000
35
6.00%
6,000.00
2
After May 7, 2019
40,000
25,000
1,000
60,000
25,000
1,500
5.2% to, but excluding,
6/1/23; 3-mo. LIBOR +
313.5 bps thereafter
5.125% to, but excluding,
6/17/19; 3-mo. LIBOR +
338.7 bps thereafter
52.00
51.25
44,000
25,000
1,100
6.625%
1.66
52
77
73
80,000
25,000
2,000
6.250% to, but excluding,
9/5/24; 3-mo. LIBOR +
370.5 bps thereafter
62.50
125
44,000
25,000
1,100
6.500%
1.63
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
Series Z (4)
Fixed-to-Floating Rate
Non-Cumulative
October
2014
56,000
25,000
1,400
65.00
Series AA (4)
Series CC (2)
Series DD (4)
Series EE (2)
Series FF (4)
Series GG (2)
Series HH (2)
Series 1 (5)
Series 2 (5)
Series 4 (5)
Series 5 (5)
Fixed-to-Floating Rate
Non-Cumulative
6.200% Non-
Cumulative
March
2015
January
2016
Fixed-to-Floating Rate
Non-Cumulative
6.000% Non-
Cumulative
March
2016
April
2016
76,000
25,000
1,900
61.00
116
44,000
25,000
1,100
6.200%
1.55
40,000
25,000
1,000
6.300% to, but excluding,
3/10/26; 3-mo. LIBOR +
455.3 bps thereafter
63.00
36,000
25,000
900
6.000%
1.50
Fixed-to-Floating Rate
Non-Cumulative
March
2018
94,000
25,000
2,350
5.875% to, but excluding,
3/15/28; 3-mo. LIBOR +
293.1 bps thereafter
6.000% Non-
Cumulative
5.875% Non-
Cumulative
May
2018
July
2018
Floating Rate Non-
Cumulative
November
2004
Floating Rate Non-
Cumulative
March
2005
Floating Rate Non-
Cumulative
November
2005
Floating Rate Non-
Cumulative
March
2007
54,000
25,000
1,350
34,160
25,000
854
6.000%
5.875%
3,275
30,000
98
3-mo. LIBOR + 75 bps (6)
9,967
30,000
299
3-mo. LIBOR + 65 bps (6)
7,010
30,000
210
3-mo. LIBOR + 75 bps (3)
14,056
30,000
3-mo. LIBOR + 50 bps (3)
422
(324)
29.38
0.75
0.73
0.76
0.76
1.01
1.01
Issuance costs and certain adjustments
Total
3,843,140
$
22,326
(1) 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.
(2) 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.
(3) Subject to 4.00% minimum rate per annum.
(4) 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.
(5) 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.
(6) Subject to 3.00% minimum rate per annum.
n/a = not applicable
154 Bank of America 2018
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
March 15, 2028
On or after
May 16, 2023
On or after
July 24, 2023
On or after
November 28, 2009
On or after
November 28, 2009
On or after
November 28, 2010
On or after
May 21, 2012
72
91
68
63
54
69
41
25
3
9
9
17
NOTE 14 Accumulated Other Comprehensive Income (Loss)
The table below presents the changes in accumulated OCI after-tax for 2016, 2017 and 2018.
(Dollars in millions)
Debt and
Equity Securities
Debit Valuation
Adjustments
Derivatives
Employee
Benefit Plans
Foreign
Currency
Total
$
$
Net change
Net change
Balance, December 31, 2015
Balance, December 31, 2017
Balance, December 31, 2016
(5,358)
(1,930)
(7,288)
206
(7,082)
(1,270)
57
(3,916)
(12,211)
Balance, December 31, 2018
(1) Effective January 1, 2018, the Corporation adopted the accounting standard on tax effects in accumulated OCI related to the Tax Act. Accordingly, certain tax effects were reclassified from accumulated
Accounting change related to certain tax effects (1)
Cumulative adjustment for hedge accounting change (2)
Net change
78
(1,345)
(1,267) $
61
(1,206) $
(393)
—
(3,953)
(5,552) $
(2,956) $
(524)
(3,480) $
288
(3,192) $
(707)
—
(405)
(4,304) $
(611) $
(156)
(767) $
(293)
(1,060) $
(220)
—
749
(531) $
(831) $
(189)
57
(53)
(1,016) $
(793) $
239
—
(254)
(808) $
(1,077) $
182
(895) $
(792) $
(87)
(879) $
64
86
$
$
$
OCI to retained earnings. For additional information, see Note 1 – Summary of Significant Accounting Principles.
(2) Reflects the Corporation’s adoption of the new hedge accounting standard. For additional information, see Note 1 – Summary of Significant Accounting Principles.
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 pre- and after-tax for 2018, 2017 and 2016.
Changes in OCI Components Pre- and After-tax
(Dollars in millions)
Debt and equity securities:
Net increase (decrease) in fair value
Net realized (gains) reclassified into earnings (1)
Net change
Debit valuation adjustments:
Net increase (decrease) in fair value
Net realized losses reclassified into earnings (1)
Net change
Derivatives:
Net (decrease) in fair value
Reclassifications into earnings:
Net interest income
Personnel expense
Net realized losses reclassified into earnings
Net change
Employee benefit plans:
Net increase (decrease) in fair value
Net actuarial losses and other reclassified into earnings (2)
Settlements, curtailments and other
Net change
Foreign currency:
Net (decrease) in fair value
Net realized (gains) losses reclassified into earnings (1)
Pretax
Tax
effect
2018
After-
tax
Pretax
Tax
effect
2017
After-
tax
Pretax
Tax
effect
2016
After-
tax
$ (5,189) $ 1,329
30
1,359
(123)
(5,312)
$ (3,860) $
(93)
(3,953)
952
26
978
(224)
(5)
(229)
728
21
749
$
240
(304)
(64)
(490)
42
(448)
14
111
125
171
(16)
155
$
254
(193)
61
$ (1,694) $
(471)
(2,165)
641
179
820
$ (1,053)
(292)
(1,345)
(319)
26
(293)
(271)
17
(254)
104
(6)
98
(167)
11
(156)
(232)
74
(158)
(50)
1
(49)
(299)
113
(186)
165
(27)
138
(94)
(703)
171
11
(521)
(40)
7
(33)
41
164
(46)
(2)
116
125
(20)
105
(53)
(539)
125
9
(405)
327
(148)
179
129
223
179
3
405
(122)
56
(66)
(65)
(55)
(61)
(1)
(117)
205
(92)
113
64
168
118
2
288
553
32
585
286
(921)
97
15
(809)
(205)
(12)
(217)
(104)
329
(36)
(8)
285
348
20
368
182
(592)
61
7
(524)
(195)
98
(97)
$ (5,106) $ 1,190
(1) Reclassifications of pretax debt and equity securities, DVA and foreign currency (gains) losses are recorded in other income in the Consolidated Statement of Income.
(2) Reclassifications of pretax employee benefit plan costs are recorded in other general operating expense in the Consolidated Statement of Income.
430
701
1,131
$ (3,916) $ (1,023) $ 1,229
514
—
514
$ (2,428) $
Total other comprehensive income (loss)
(439)
(606)
(1,045)
(9)
95
86
206
(203)
(51)
(254)
(8)
(149)
(157)
Net change
$
(601)
—
(601)
498
(87)
—
(87)
$ (1,930)
Bank of America 2018 155
NOTE 15 Earnings Per Common Share
The calculation of EPS and diluted EPS for 2018, 2017 and 2016 is presented below. For more information on the calculation of EPS,
see Note 1 – Summary of Significant Accounting Principles.
(In millions, except per share information)
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.
The Corporation previously issued warrants to purchase 700
million shares of the Corporation’s common stock to the holders
of the Series T 6% Non-cumulative preferred stock (Series T) 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 was included in the
Corporation’s diluted earnings per share calculation under the
applicable accounting guidance. For 2016, the average dilutive
impact of the 700 million potential common shares was included
in the diluted share count under the “if-converted” method.
For 2018, 2017 and 2016, 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 2018,
2017 and 2016, average options to purchase 4 million, 21 million
and 45 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 and 2016, 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. These warrants
expired on October 29, 2018. For 2018, 2017 and 2016, average
warrants to purchase 136 million, 143 million and 150 million
shares of common stock, respectively, were included in the diluted
EPS calculation under the treasury stock method. Substantially all
of the outstanding warrants were exercised on or before the
expiration date of January 16, 2019.
2018
2017
2016
$
$
$
$
$
$
28,147
(1,451)
26,696
10,096.5
2.64
26,696
—
26,696
10,096.5
140.4
10,236.9
2.61
$
$
$
$
$
$
18,232
(1,614)
16,618
10,195.6
1.63
16,618
186
16,804
10,195.6
582.8
10,778.4
1.56
$
$
$
$
$
$
17,822
(1,682)
16,140
10,284.1
1.57
16,140
300
16,440
10,284.1
762.7
11,046.8
1.49
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, including Basel
3, 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.
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 Prompt
Corrective Action (PCA) framework. At December 31, 2018,
Common equity tier 1 and Tier 1 capital ratios were lower under
the Standardized approach whereas the Advanced approaches
yielded a lower result for the Total capital ratio. All three ratios
were lower under the Advanced approaches method at December
31, 2017.
Effective January 1, 2018, the Corporation is required to
maintain a minimum supplementary leverage ratio (SLR) of 3.0
percent plus a leverage buffer of 2.0 percent in order to avoid
certain restrictions on capital distributions and discretionary
bonus payments. The Corporation’s insured depository institution
subsidiaries are required to maintain a minimum 6.0 percent SLR
to be considered well capitalized under the PCA framework.
The following table presents capital ratios and related
information in accordance with Basel 3 Standardized and
Advanced approaches as measured at December 31, 2018 and
2017 for the Corporation and BANA.
156 Bank of America 2018
Regulatory Capital under Basel 3 (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)
Common equity tier 1 capital ratio
Tier 1 capital ratio
Total capital ratio
Leverage-based metrics:
Adjusted quarterly average assets (in billions) (5)
Tier 1 leverage ratio
SLR leverage exposure (in billions)
SLR
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) (5)
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)
$ 167,272
189,038
221,304
1,437
$ 167,272
189,038
212,878
1,409
11.6%
13.2
15.4
$
2,258
8.4%
$
$
11.9%
13.4
15.1
2,258
8.4%
2,791
6.8%
December 31, 2018
$ 149,824
149,824
161,760
1,195
8.25%
9.75
11.75
12.5%
12.5
13.5
$
1,719
8.7%
4.0
5.0
December 31, 2017
$ 149,824
149,824
153,627
959
15.6%
15.6
16.0
$
$
1,719
8.7%
2,112
7.1%
6.5%
8.0
10.0
5.0
6.0
$ 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
(1) Regulatory capital metrics at December 31, 2017 reflect Basel 3 transition provisions for regulatory capital adjustments and deductions, which were fully phased-in as of January 1, 2018.
(2) The December 31, 2018 and 2017 amounts include a transition capital conservation buffer of 1.875 percent and 1.25 percent and a transition global systemically important bank surcharge of
1.875 percent and 1.5 percent. The countercyclical capital buffer for both periods is zero.
(3) Percent 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) Reflects adjusted average total assets for the three months ended December 31, 2018 and 2017.
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, 2018 and
2017, 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 Bank were $11.4 billion and $8.9 billion for 2018
and 2017. At December 31, 2018 and 2017, the Corporation had
cash and cash equivalents in the amount of $5.8 billion and $4.1
billion, and securities with a fair value of $16.6 billion and $17.3
billion that were segregated in compliance with securities
regulations. Cash held on deposit with the Federal Reserve Bank
to meet reserve requirements and cash and cash equivalents
segregated in compliance with securities regulations are
components of restricted cash. For additional information, see
Note 10 – Federal Funds Sold or Purchased, Securities Financing
Agreements, Short-term Borrowings and Restricted Cash. In
addition, at December 31, 2018 and 2017, the Corporation had
cash deposited with clearing organizations of $8.1 billion and
$11.9 billion primarily recorded in other assets on the
Consolidated Balance Sheet.
Bank Subsidiary Distributions
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 2018, the Corporation received dividends of $26.1 billion
from BANA and $320 million from Bank of America California, N.A.
In addition, Bank of America California, N.A. returned capital of
$1.4 billion to the Corporation in 2018.
The amount of dividends that a subsidiary bank may declare
in a calendar year without OCC approval 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 2019, BANA can declare and pay dividends of
approximately $3.1 billion to the Corporation plus an additional
amount equal to its retained net profits for 2019 up to the date
of any such dividend declaration. Bank of America California, N.A.
can pay dividends of $40 million in 2019 plus an additional amount
equal to its retained net profits for 2019 up to the date of any
such dividend declaration.
Bank of America 2018 157
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
2018 or 2017. 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.
Pension and Postretirement Plans (1)
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, 2018 and 2017. 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 increases in the
weighted-average discount rates in 2018 resulted in decreases to
the PBO of approximately $1.3 billion at December 31, 2018. The
decreases in the weighted-average discount rates in 2017 resulted
in increases to the PBO of approximately $1.1 billion at December
31, 2017. Significant gains and losses related to changes in the
PBO for 2018 and 2017 primarily resulted from changes in the
discount rate.
(Dollars in millions)
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
Interest-crediting rate
Qualified
Pension Plan
Non-U.S.
Pension Plans
Nonqualified and Other
Pension Plans
Postretirement
Health and Life Plans
2018
2017
2018
2017
2018
2017
2018
2017
$
$
$
$
$
$
$
19,708
(550)
—
—
—
(980)
n/a
n/a
18,178
15,706
—
563
—
—
—
(1,145)
(980)
n/a
n/a
14,144
4,034
—
4,034
14,144
4,034
—
14,144
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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
$
$
$
$
$
$
$
2,943
(181)
22
1
(107)
(52)
n/a
(165)
2,461
2,814
19
65
1
13
(107)
(29)
(52)
n/a
(135)
2,589
316
(444)
(128)
2,542
(81)
47
2,589
$
$
$
$
$
$
$
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
$
$
$
$
$
$
$
2,724
8
91
—
—
(239)
n/a
n/a
2,584
3,047
1
105
—
—
—
(135)
(239)
n/a
n/a
2,779
754
(949)
(195)
2,778
(194)
1
2,779
4.32%
n/a
5.18
3.68%
n/a
5.08
2.60%
4.49
1.47
2.39%
4.31
1.49
4.26%
4.00
4.50
$
$
$
$
$
$
$
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
3.58%
4.00
4.53
300
5
43
115
—
(214)
3
n/a
252
1,056
6
36
115
—
—
(73)
(214)
3
(1)
928
$
$
$
$
— $
$
$
(676)
(676)
n/a
n/a
n/a
928
4.25%
n/a
n/a
—
—
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
3.58%
n/a
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
158 Bank of America 2018
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 2019 is $21 million,
$91 million and $15 million, respectively. The Corporation does
not expect to make a contribution to the Qualified Pension Plan in
2019. 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, 2018 and 2017 are presented in the table below.
For these plans, funding strategies vary due to legal requirements
and local practices.
Plans with ABO and PBO 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
2018
2017
2018
2017
$
$
615
605
173
$
671
644
191
$
950
949
1
1,054
1,053
1
Qualified Pension Plan
2017
2016
2018
Non-U.S. Pension Plans
2017
2016
2018
$
— $
— $
— $
563
(1,136)
147
—
(426)
$
606
(1,068)
154
—
(308)
$
634
(1,038)
139
—
(265)
$
$
3.68%
6.00
n/a
4.16%
6.00
n/a
4.51%
6.00
n/a
$
$
19
65
(126)
10
12
(20)
2.39%
4.37
4.31
$
$
24
72
(136)
8
(7)
(39)
2.56%
4.73
4.51
25
86
(123)
6
2
(4)
3.59%
4.84
4.67
Nonqualified and
Other Pension Plans
Postretirement Health
and Life Plans
2018
2017
2016
2018
2017
2016
$
$
$
$
1
105
(84)
43
—
65
3.58%
3.19
4.00
1
117
(95)
34
—
57
4.01%
3.50
4.00
$
— $
$
127
(101)
25
3
54
4.34%
3.66
4.00
$
6
36
(6)
(27)
(3)
6
$
$
6
43
—
(21)
4
32
$
$
7
47
—
(81)
4
(23)
3.58%
2.00
n/a
3.99%
n/a
n/a
4.32%
n/a
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 6.50 percent for 2019,
reducing in steps to 5.00 percent in 2023 and later years.
The Corporation’s net periodic benefit cost (income) recognized
for the plans is sensitive to the discount rate and expected return
on plan assets. For the Qualified Pension Plan, 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 2018.
Bank of America 2018 159
Pretax Amounts included in Accumulated OCI
(Dollars in millions)
Net actuarial loss (gain)
Prior service cost (credits)
Amounts recognized in accumulated OCI
Pretax Amounts Recognized in OCI
(Dollars in millions)
Current year actuarial loss (gain)
Amortization of actuarial gain (loss) and
prior service cost
Current year prior service cost (credit)
Amounts recognized in OCI
Qualified
Pension Plan
Non-U.S.
Pension Plans
Nonqualified
and Other
Pension Plans
Postretirement
Health and
Life Plans
Total
2018
$ 4,386
—
$ 4,386
2017
$ 3,992
—
$ 3,992
2018
$
$
454
18
472
2017
$ 196
4
$ 200
2018
$
$
912
—
912
2017
$ 1,014
—
$ 1,014
2018
2017
2018
$
$
(75) $
(9)
(84) $
(30) $ 5,677
9
(11)
(41) $ 5,686
2017
$ 5,172
(7)
$ 5,165
Qualified
Pension Plan
Non-U.S.
Pension Plans
Nonqualified
and Other
Pension Plans
Postretirement
Health and
Life Plans
Total
2018
$
541
2017
$ (283) $
2018
2017
2018
2017
2018
2017
2018
270
$
(12) $
(59) $
95
$
(73) $
(7) $
679
2017
$ (207)
(147)
(154)
—
394
—
$ (437) $
$
(11)
13
272
(8)
(43)
—
(20) $ (102) $
—
$
(34)
—
61
$
30
—
(43) $
21
(23)
(9) $
(171)
(175)
13
521
(23)
$ (405)
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.
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 2019 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 $221 million (1.22
percent of total plan assets) and $261 million (1.33 percent of
total plan assets) at December 31, 2018 and 2017.
2019 Target Allocation
Asset Category
Equity securities
Debt securities
Real estate
Other
160 Bank of America 2018
Percentage
Qualified
Pension Plan
Non-U.S.
Pension Plans
Nonqualified
and Other
Pension Plans
20-50
45-75
0-10
0-5
5-35
40-80
0-15
5-30
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, 2018 and 2017 are summarized in the
Fair Value Measurements table.
Fair Value Measurements
(Dollars in millions)
Cash and short-term investments
Money market and interest-bearing cash
Cash and cash equivalent commingled/mutual funds
Fixed income
U.S. government and agency securities
Corporate debt securities
Asset-backed securities
Non-U.S. debt securities
Fixed income commingled/mutual funds
Equity
Common and preferred equity securities
Equity commingled/mutual funds
Public real estate investment trusts
Real estate
Private real estate
Real estate commingled/mutual funds
Limited partnerships
Other investments (1)
Total plan investment assets, at fair value
Cash and short-term investments
Money market and interest-bearing cash
Cash and cash equivalent commingled/mutual funds
Fixed income
U.S. government and agency securities
Corporate debt securities
Asset-backed securities
Non-U.S. debt securities
Fixed income commingled/mutual funds
Equity
Common and preferred equity securities
Equity commingled/mutual funds
Public real estate investment trusts
Real estate
Private real estate
Real estate commingled/mutual funds
Limited partnerships
Other investments (1)
Total plan investment assets, at fair value
Level 1
Level 2
Level 3
Total
December 31, 2018
$
$
1,530
—
— $
644
— $
—
3,637
—
—
539
933
4,414
288
104
—
—
—
93
11,538
2,190
—
3,331
—
—
693
775
5,833
271
138
$
$
805
2,852
2,119
961
1,177
—
1,275
—
9
—
—
—
—
—
—
—
—
13
158
364
10,368
$
5
885
82
588
1,569
$
December 31, 2017
— $
1,004
854
2,417
1,832
898
1,676
—
1,753
—
— $
—
9
—
—
—
—
—
—
—
—
—
—
101
13,332
$
—
13
155
649
11,251
$
93
831
85
74
1,092
$
$
$
$
1,530
644
4,451
2,852
2,119
1,500
2,110
4,414
1,563
104
5
898
240
1,045
23,475
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
(1) Other investments include commodity and balanced funds of $305 million and $451 million, insurance annuity contracts of $562 million and $50 million and other various investments of $178
million and $323 million at December 31, 2018 and 2017.
Bank of America 2018 161
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 2018, 2017 and 2016.
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
$
$
$
$
$
$
9
$
93
831
85
74
1,092
$
10
$
150
748
38
83
1,029
$
11
$
144
731
49
102
1,037
$
2018
— $
(7)
52
(12)
—
33
$
2017
— $
8
63
14
5
90
$
2016
— $
1
21
(2)
4
24
$
— $
(81)
2
9
514
444
$
(1) $
(65)
20
33
(14)
(27) $
(1) $
5
(4)
(9)
(23)
(32) $
9
5
885
82
588
1,569
9
93
831
85
74
1,092
10
150
748
38
83
1,029
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)
2019
2020
2021
2022
2023
2024 - 2028
(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.
905
932
920
925
915
4,451
$
$
$
98
103
110
119
125
671
$
241
244
239
234
228
1,046
85
82
79
77
74
323
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 2018, 2017, and 2016 related to the
qualified defined contribution plans. At December 31, 2018 and
2017, 212 million and 218 million shares of the Corporation’s
common stock were held by these plans. Payments to the plans
for dividends on common stock were $115 million, $86 million
and $60 million in 2018, 2017 and 2016, respectively.
Certain non-U.S. employees are covered under defined
contribution pension plans that are separately administered in
accordance with local laws.
162 Bank of America 2018
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 2018 and 2017, the Corporation granted 71 million and
85 million RSU awards to certain employees under the KEEP. The
RSUs were authorized to settle predominantly in shares of common
stock of the Corporation. Certain RSUs will be settled in cash or
contain settlement provisions that subject these awards to variable
accounting whereby compensation expense is adjusted to fair
value based on changes in the share price of the Corporation’s
common stock up to the settlement date. Of the RSUs granted in
2018 and 2017, 63 million and 85 million will vest in one-third
increments on each of the first three anniversaries of the grant
date provided that the employee remains continuously employed
with the Corporation during that time, and will be 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. Additionally, eight million of the RSUs granted in
2018 will vest in one-fourth increments on each of the first four
anniversaries of the grant date provided that the employee remains
continuously employed with the Corporation during that time, and
will be expensed ratably over the vesting period, net of estimated
forfeitures, based on the grant-date fair value of the shares. Awards
granted in years prior to 2016 were predominantly cash settled.
Effective October 1, 2017, the Corporation changed its
accounting method
for determining when 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 expensed ratably over the year preceding the grant
date. The compensation cost for all periods prior to this change
presented herein has been restated.
The compensation cost for the stock-based plans was $1.8
billion, $2.2 billion and $2.2 billion and the related income tax
benefit was $433 million, $829 million and $835 million for 2018,
2017 and 2016, respectively.
Restricted Stock/Units
The table below presents the status at December 31, 2018 of the
share-settled restricted stock/units and changes during 2018.
Stock-settled Restricted Stock/Units
Outstanding at January 1, 2018
Granted
Vested
Canceled
Outstanding at December 31, 2018
Shares/Units
179,273,243
68,899,627
(74,357,624)
(8,194,000)
165,621,246
Weighted-
average Grant
Date Fair Value
$
17.53
30.53
16.31
22.84
23.22
The table below presents the status at December 31, 2018 of
the cash-settled RSUs granted under the KEEP and changes during
2018.
Cash-settled Restricted Units
Outstanding at January 1, 2018
Granted
Vested
Canceled
Outstanding at December 31, 2018
Units
42,209,626
2,195,025
(41,434,793)
(360,736)
2,609,122
At December 31, 2018, 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 1.9 years. The total fair value of restricted stock vested in 2018,
2017 and 2016 was $2.3 billion, $1.3 billion and $358 million,
respectively. In 2018, 2017 and 2016, the amount of cash paid
to settle equity-based awards for all equity compensation plans
was $1.3 billion, $1.9 billion and $1.7 billion, respectively.
Stock Options
Of the 16.6 million stock options with a weighted-average exercise
price of $43.44 outstanding at January 1, 2018, 2.1 million and
14.5 million were exercised and forfeited during 2018 at weighted-
average exercise prices of $30.71 and $45.29. There were no
outstanding stock options at December 31, 2018.
NOTE 19 Income Taxes
The components of income tax expense for 2018, 2017 and 2016 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
2018
2017
2016
$
$
816
1,377
1,203
3,396
2,579
240
222
3,041
6,437
$
$
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
Bank of America 2018 163
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, $1.2 billion and $498 million in 2018, 2017 and
2016, respectively. In addition, prior to 2017, total income tax
expense did not reflect tax effects associated with the
Corporation’s employee stock plans which decreased common
stock and additional paid-in capital $41 million in 2016.
Income tax expense for 2018, 2017 and 2016 varied from the
amount computed by applying the statutory income tax rate to
income before income taxes. The Corporation’s federal statutory
tax rate was 21 percent for 2018 and 35 percent for 2017 and
2016. A reconciliation of the expected U.S. federal income tax
expense, calculated by applying the federal statutory tax rate, to
the Corporation’s actual income tax expense, and the effective tax
rates for 2018, 2017 and 2016 are presented in the table below.
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
impact on net income in 2017 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. The Corporation has completed its analysis and accounting
under Staff Accounting Bulletin No. 118 for the effects of the Tax
Act.
Reconciliation of Income Tax Expense
(Dollars in millions)
Expected U.S. federal income tax expense
Increase (decrease) in taxes resulting from:
State tax expense, net of federal benefit
Affordable housing/energy/other credits
Tax-exempt income, including dividends
Share-based compensation
Nondeductible expenses
Changes in prior-period UTBs, including interest
Rate differential on non-US earnings
Tax law changes (1)
Other
Total income tax expense
(1) Amounts for 2016 are for non-U.S. tax law changes.
Amount
Percent
Amount
Percent
Amount
Percent
2018
2017
2016
$
7,263
21.0% $ 10,225
35.0% $
8,757
35.0%
1,367
(1,888)
(413)
(257)
302
144
98
—
(179)
6,437
$
4.0
881
(5.5)
(1,406)
(1.2)
(672)
(0.7)
(236)
0.9
97
0.4
133
0.3
(272)
—
2,281
(0.6)
(50)
18.6% $ 10,981
3.0
(4.8)
(2.3)
(0.8)
0.3
0.5
(0.9)
7.8
(0.2)
37.6% $
420
(1,203)
(562)
—
180
(328)
(307)
348
(106)
7,199
1.7
(4.8)
(2.2)
—
0.7
(1.3)
(1.2)
1.4
(0.5)
28.8%
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
At December 31, 2018, 2017 and 2016, the balance of the
Corporation’s UTBs which would, if recognized, affect the
Corporation’s effective tax rate was $1.6 billion, $1.2 billion and
$0.6 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
table
(continuously
jurisdictions). The
in some
following
164 Bank of America 2018
2018
2017
2016
$
$
1,773
395
406
(371)
(6)
—
2,197
$
$
875
292
750
(122)
(17)
(5)
1,773
$
$
1,095
104
1,318
(1,091)
(503)
(48)
875
summarizes the status of examinations by major jurisdiction for
the Corporation and various subsidiaries at December 31, 2018.
Tax Examination Status
Years under
Examination (1)
Status at
December 31
2018
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
2017
IRS Appeals
Field examination
Field examination
To begin in 2019
It is reasonably possible that the UTB balance may decrease
by as much as $1.2 billion during the next 12 months, since
resolved items will be removed from the balance whether their
resolution results in payment or recognition.
The Corporation recognized interest expense of $43 million, $1
million and $56 million in 2018, 2017 and 2016, respectively. At
December 31, 2018 and 2017, the Corporation’s accrual for
interest and penalties that related to income taxes, net of taxes
and remittances, was $218 million and $185 million.
Significant components of the Corporation’s net deferred tax
assets and liabilities at December 31, 2018 and 2017 are
presented in the following table.
Deferred Tax Assets and Liabilities
(Dollars in millions)
Deferred tax assets
Net operating loss carryforwards
Allowance for credit losses
Accrued expenses
Available-for-sale securities
Security, loan and debt valuations
Employee compensation and retirement benefits
Credit carryforwards
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation
allowance
Deferred tax liabilities
Equipment lease financing
Fixed assets
Tax credit investments
Other
Gross deferred tax liabilities
Net deferred tax assets, net of valuation
allowance
December 31
2018
2017
$
$
7,993
2,400
1,875
1,854
1,818
1,564
623
1,037
19,164
(1,569)
8,506
2,598
2,021
510
2,939
1,705
1,793
1,034
21,106
(1,644)
17,595
19,462
2,684
1,104
940
2,126
6,854
2,492
840
734
2,771
6,837
$
10,741
$ 12,625
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, 2018.
Net Operating Loss and Tax Credit Carryforward Deferred
Tax Assets
(Dollars in millions)
Net operating losses -
U.S.
Net operating losses -
U.K. (1)
Net operating losses -
other non-U.S.
Net operating losses -
U.S. states (2)
Deferred
Tax Asset
Valuation
Allowance
Net
Deferred
Tax Asset
First Year
Expiring
$
592
$
— $
592
After 2027
5,294
—
5,294
None
633
(517)
116
Various
1,474
(517)
957
Various
After 2038
General business credits
n/a
Foreign tax credits
(1) Represents U.K. broker-dealer net operating losses that may be carried forward indefinitely.
(2) The net operating losses and related valuation allowances for U.S. states before considering
612
11
—
(11)
612
—
the benefit of federal deductions were $1.9 billion and $654 million.
n/a = not applicable
Management concluded that no valuation allowance was
necessary to reduce the deferred tax assets related to the U.K.
NOL carryforwards 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 to reassess such valuation allowance conclusions.
At December 31, 2018, 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. For more information
regarding the fair value hierarchy and how the Corporation
measures fair value, see Note 1 – Summary of Significant
Accounting Principles. The Corporation accounts for certain
financial instruments under the fair value option. For additional
information, see Note 21 – Fair Value Option.
Valuation Techniques
The following sections outline the valuation methodologies for the
Corporation’s assets and liabilities. 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 2018, 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
Bank of America 2018 165
Loans Held-for-sale
The fair values of LHFS are based on quoted market prices, where
available, or are determined by discounting estimated cash flows
using interest rates approximating the Corporation’s current
origination rates for similar loans adjusted to reflect the inherent
credit risk. The borrower-specific credit risk is embedded within
the quoted market prices or is implied by considering loan
performance when selecting comparables.
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
Recurring Fair Value
Assets and liabilities carried at fair value on a recurring basis at
December 31, 2018 and 2017, including financial instruments
which the Corporation accounts for under the fair value option, are
summarized in the following tables.
rates. Principal and interest cash flows are discounted using an
observable discount rate for similar instruments with adjustments
that management believes a market participant would consider in
determining fair value for the specific security. Other instruments
are valued using a net asset value approach which considers the
value of the underlying securities. Underlying assets are valued
using external pricing services, where available, or matrix pricing
based on the vintages and ratings. Situations of illiquidity generally
are triggered by the market’s perception of credit uncertainty
regarding a single company or a specific market sector. In these
instances, fair value is determined based on limited available
market information and other factors, principally from reviewing
the issuer’s financial statements and changes in credit ratings
made by one or more rating agencies.
Derivative Assets and Liabilities
The fair values of derivative assets and liabilities traded in the
OTC market are determined using quantitative models that utilize
multiple market inputs including interest rates, prices and indices
to generate continuous yield or pricing curves and volatility factors
to value the position. The majority of market inputs are actively
quoted and can be validated through external sources, including
brokers, market transactions and third-party pricing services.
When third-party pricing services are used, the methods and
assumptions are reviewed by the Corporation. Estimation risk is
greater for derivative asset and liability positions that are either
option-based or have longer maturity dates where observable
market inputs are less readily available, or are unobservable, in
which case, quantitative-based extrapolations of rate, price or
index scenarios are used in determining fair values. The fair values
of derivative assets and liabilities include adjustments for market
liquidity, counterparty credit quality and other instrument-specific
the Corporation
factors, where appropriate.
incorporates within its fair value measurements of OTC derivatives
a valuation adjustment to reflect the credit risk associated with
the net position. Positions are netted by counterparty, and fair
value for net long exposures is adjusted for counterparty credit
risk while the fair value for net short exposures is adjusted for the
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.
166 Bank of America 2018
(Dollars in millions)
Assets
Time deposits placed and other short-term investments
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
Mortgage trading loans, ABS and other MBS
Total trading account assets (3)
Derivative assets
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:
U.S. Treasury and agency securities
Mortgage-backed securities:
Non-agency residential
Non-U.S. securities
Other taxable securities
Total other debt securities carried at fair value
Loans and leases
Loans held-for-sale
Other assets (4)
Total assets (5)
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
Short-term borrowings
Accrued expenses and other liabilities
Long-term debt
Fair Value Measurements
December 31, 2018
Level 1
Level 2
Level 3
Netting
Adjustments (1)
Assets/Liabilities
at Fair Value
1,214
$
— $
— $
— $
1,214
—
56,399
53,131
—
53,840
5,818
—
—
112,789
9,967
53,663
—
—
—
—
—
—
—
53,663
1,282
—
490
—
1,772
—
—
15,032
194,437
$
1,593
24,630
23,163
19,210
19,586
9,443
97,625
315,413
1,260
121,826
5,530
1,320
14,078
9,304
4,403
17,376
175,097
—
1,434
5,354
3
6,791
4,011
2,400
1,775
659,511
— $
492
$
$
—
—
1,558
276
465
—
1,635
3,934
3,466
—
—
—
597
—
2
7
—
606
—
—
—
—
—
—
—
—
—
(285,121)
—
—
—
—
—
—
—
—
—
—
172
—
—
172
338
542
2,932
11,990
$
—
—
—
—
—
—
—
(285,121)
$
56,399
54,724
26,188
77,279
25,493
19,586
11,078
214,348
43,725
54,923
121,826
5,530
1,917
14,078
9,306
4,410
17,376
229,366
1,282
1,606
5,844
3
8,735
4,349
2,942
19,739
580,817
— $
— $
492
—
28,875
—
—
28,875
7,894
33,739
7,452
—
49,085
9,931
—
18,096
—
77,112
761
4,070
9,182
5,104
19,117
303,441
1,648
1,979
26,820
382,372
—
—
—
18
18
4,401
—
—
817
5,236
—
—
—
—
—
(279,882)
—
—
—
(279,882)
$
8,655
37,809
16,634
5,122
68,220
37,891
1,648
20,075
27,637
184,838
Total liabilities (5)
$
(1) Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2)
$
$
$
Includes $20.2 billion of GSE obligations.
Includes securities with a fair value of $16.6 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.
Includes MSRs of $2.0 billion which are classified as Level 3 assets.
(3)
(4)
(5) Total recurring Level 3 assets were 0.51 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.25 percent of total consolidated liabilities.
Bank of America 2018 167
(Dollars in millions)
Assets
Time deposits placed and other short-term investments
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
Mortgage trading loans, ABS and other MBS
Total trading account assets (3)
Derivative assets
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:
Non-agency residential
Non-U.S. securities
Other taxable securities
Total other debt securities carried at fair value
Loans and leases
Loans held-for-sale
Other assets (4)
Total assets (5)
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
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
2,234
$
— $
— $
— $
2,234
—
52,906
38,720
—
60,747
6,545
—
—
106,012
6,305
51,915
—
—
—
—
772
—
—
52,687
—
8,191
—
8,191
—
—
19,367
194,796
$
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
2,769
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
690
2,425
12,909
—
—
—
—
—
—
—
—
(313,788)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
(313,788) $
52,906
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
2,769
9,488
229
12,486
5,710
2,156
22,581
647,824
— $
— $
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 (5)
$
(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.
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.
Includes MSRs of $2.3 billion which are classified as Level 3 assets.
(3)
(4)
(5) Total recurring Level 3 assets were 0.57 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.38 percent of total consolidated liabilities.
168 Bank of America 2018
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 2018, 2017 and 2016, including net realized and unrealized gains (losses) included in earnings
and accumulated OCI.
Level 3 – Fair Value Measurements in 2018 (1)
Total
Realized/
Unrealized
Gains
(Losses) in
Net
Income (2)
Gains
(Losses)
in OCI (3)
Balance
January 1
2018
Gross
Purchases
Sales
Issuances
Settlements
Gross
Transfers
into
Level 3
Gross
Transfers
out of
Level 3
Balance
December 31
2018
Change in
Unrealized
Gains
(Losses) in
Net Income
Related to
Financial
Instruments
Still Held (2)
(Dollars in millions)
Trading account assets:
Corporate securities, trading loans and other $ 1,864 $
Equity securities
Non-U.S. sovereign debt
Mortgage trading loans, ABS and other MBS
235
556
1,498
4,153
(1,714)
(32) $
(17)
47
148
146
106
(1) $
—
(44)
3
(42)
—
436 $ (403) $
44
13
585
(11)
(57)
(910)
1,078 (1,381)
531 (1,179)
5 $
—
—
—
5
—
(568) $
(4)
(30)
(158)
(760)
778
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 (5)
Other debt securities carried at fair value –
Non-agency residential MBS
Loans and leases (6, 7)
Loans held-for-sale (6)
Other assets (5, 7, 8)
Trading account liabilities – Corporate
securities and other
—
25
509
469
1,003
—
571
690
2,425
27
—
1
—
28
(18)
(16)
44
414
(33)
(1)
(3)
—
(37)
—
—
(26)
(38)
(71)
—
(10)
—
(23)
—
—
—
— (104)
—
(8)
— (134)
—
71
(69)
2
(24)
11
—
9
(12)
—
—
—
—
—
—
—
1
96
(2)
—
(141)
(25)
(15)
(11)
(1)
(52)
(34)
(83)
(201)
(792)
—
8
486
804 $ (547) $
78
117
705
1,704
39
774
3
60
1
838
365
—
23
929
—
—
(262)
(49)
(137)
(236)
(969)
504
(75)
—
(526)
(469)
(1,070)
(133)
—
(60)
(35)
—
—
847
1,558 $
276
465
1,635
3,934
(935)
597
2
7
—
606
172
338
542
2,932
(18)
—
(817)
(117)
(22)
48
97
6
(116)
—
—
—
—
—
(18)
(9)
31
149
(7)
—
95
Accrued expenses and other liabilities (6)
Long-term debt (6)
(1) Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2)
(8)
(1,863)
—
103
—
4
—
9
—
—
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily
trading account profits and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other
income related to MSRs; 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 debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted
for under the fair value option. Total gains (losses) in OCI include net unrealized losses of $105 million related to financial instruments still held at December 31, 2018. For additional information,
see Note 1 – Summary of Significant Accounting Principles.
(3)
(4) Net derivative assets include derivative assets of $3.5 billion and derivative liabilities of $4.4 billion.
(5) Transfers out of AFS debt securities and into other assets primarily relate to the reclassification of certain securities.
(6) Amounts represent instruments that are accounted for under the fair value option.
(7)
Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales.
(8) Settlements primarily represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.
Transfers into Level 3, primarily due to decreased price
observability, during 2018 included $1.7 billion of trading account
assets, $838 million of AFS debt securities, $365 million of other
debt securities carried at fair value and $262 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.
Transfers out of Level 3, primarily due to increased price
observability, during 2018 included $969 million of trading account
assets, $504 million of net derivatives assets, $1.1 billion of AFS
debt securities and $847 million of long-term debt.
Bank of America 2018 169
Level 3 – Fair Value Measurements in 2017 (1)
Total
Realized/
Unrealized
Gains
(Losses) in
Net
Income (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) in
Net Income
Related to
Financial
Instruments
Still Held (2)
(Dollars in millions)
Trading account assets:
Corporate securities, trading loans and other $ 2,777 $
Equity securities
Non-U.S. sovereign debt
Mortgage trading loans, ABS and other MBS
229 $ — $
547 $ (702) $
(70)
55
(59)
53
1,210
(990)
1,865 (1,821)
(979)
664
5 $
—
—
—
5
—
(666) $
(10)
(73)
(233)
(982)
949
728 $(1,054) $
146
72
218
1,164
48
(185)
(13)
(81)
(1,333)
(99)
1,864 $
235
556
1,498
4,153
(1,714)
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)
Loans held-for-sale (5, 6)
Other assets (6, 7)
Federal funds purchased and securities loaned
or sold under agreements to repurchase (5)
Trading account liabilities – Corporate
securities and other
281
510
1,211
4,779
(1,313)
229
594
542
1,365
25
720
656
2,986
(359)
(27)
18
74
165
486
(984)
2
4
1
7
(1)
15
100
144
(5)
14
—
(8)
(2)
(10)
—
16
8
3
27
—
—
(3)
(57)
—
—
49
5
14
68
—
3
3
2
—
8
—
—
(70)
(70)
(21)
(34)
(189)
(214)
—
—
—
—
—
—
—
258
(271)
(42)
(11)
(324)
(3)
(126)
(346)
(758)
—
34
35
69
—
—
501
64
—
(94)
(45)
(139)
—
(7)
(32)
—
25
509
469
1,003
—
571
690
2,425
—
(12)
171
(58)
263
—
(17)
(2)
—
(288)
—
1
514
—
—
(711)
—
—
218
(24)
(8)
(1,863)
2
(1)
70
72
143
(409)
—
—
—
—
—
11
14
(226)
—
2
—
(196)
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
—
—
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily
trading account profits and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other
income related to MSRs; Long-term debt - 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 debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted
for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principles.
(3)
(4) Net derivative assets 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 primarily represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.
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.
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.
170 Bank of America 2018
Level 3 – Fair Value Measurements in 2016 (1)
Total
Realized/
Unrealized
Gains/
(Losses) in
Net
Income (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) in
Net Income
Related to
Financial
Instruments
Still Held (2)
(Dollars in millions)
Trading account assets:
(82)
(59)
120
64
43
(376)
—
—
—
—
—
—
17
70
(143)
4
4
—
—
(184)
Corporate securities, trading loans and other $ 2,838 $
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)
Loans held-for-sale (5)
Other assets (6, 7)
Federal funds purchased and securities loaned
or sold under agreements to repurchase (5)
Trading account liabilities – Corporate
securities and other
407
521
1,868
5,634
(441)
106
—
757
569
1,432
30
1,620
787
3,461
78 $
74
122
188
462
285
—
—
4
—
4
(5)
(44)
79
136
73
12
2 $ 1,508 $ (847) $
—
91
(2)
91
—
(169)
(146)
988 (1,491)
2,581 (2,653)
470 (1,155)
—
(6)
(2)
(1)
(9)
—
—
50
—
—
—
— (106)
(92)
—
—
(198)
584
—
1
585
—
69
22
38
—
—
—
(553)
(256)
(191)
(11)
(335)
(11)
(21)
5
— $
—
—
—
—
—
(725) $
(82)
(90)
(344)
(1,241)
76
728 $ (805) $
70
—
158
956
(186)
(92)
—
(154)
(1,051)
(362)
2,777 $
281
510
1,211
4,779
(1,313)
—
—
—
—
—
—
50
—
411
—
(263)
(83)
(2)
(348)
—
(194)
(93)
(872)
—
6
—
10
16
—
6
173
3
—
—
(82)
(35)
(117)
—
(234)
(106)
—
—
229
594
542
1,365
25
720
656
2,986
—
(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)
—
—
(20)
—
—
140
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 other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related
to MSRs; Long-term debt - predominantly 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 debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted
for under the fair value option. 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.
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.
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.
Bank of America 2018 171
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, 2018 and 2017.
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2018
(Dollars in millions)
Inputs
Loans and Securities (2)
Financial Instrument
Fair
Value
Valuation
Technique
Significant Unobservable
Inputs
Ranges of
Inputs
Weighted
Average (1)
Instruments backed by residential real estate assets
$
1,536
Trading account assets – Mortgage trading loans, ABS and other MBS
Loans and leases
Loans held-for-sale
AFS debt securities, primarily non-agency residential
Other debt securities carried at fair value - Non-agency residential
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
419
338
1
606
172
291
200
91
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
Loans held-for-sale
Other assets, primarily auction rate securities
$
3,489
1,358
465
1,125
541
890
$
Yield
Prepayment speed
Discounted cash
flow, Market
comparables
Default rate
Loss severity
Discounted cash
flow
Price
Yield
Price
Yield
Discounted cash
flow, Market
comparables
Prepayment speed
Default rate
Loss severity
Price
Price
Discounted cash
flow, Market
comparables
MSRs
$
2,042
Weighted-average life, fixed rate (5)
Discounted cash
flow
Weighted-average life, variable rate (5)
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
$
(817)
Discounted cash
flow, Market
comparables,
Industry standard
derivative pricing (3)
$
(565)
Discounted cash
flow, Stochastic
recovery correlation
model
$
$
(348)
10
$
(32)
Industry standard
derivative pricing (3)
Discounted cash
flow, Industry
standard derivative
pricing (3)
Industry standard
derivative pricing (4)
Total net derivative assets
$
(935)
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
0% to 25%
0% to 21% CPR
0% to 3% CDR
0% to 51%
$0 to $128
0% to 25%
$0 to $100
1% to 18%
10% to 20%
3% to 4%
35% to 40%
$0 to $141
$10 to $100
0 to 14 years
0 to 10 years
7% to 14%
9% to 15%
11% to 100%
4% to 84%
7% to 18%
$0 to $100
8%
12%
1%
17%
$72
7%
$79
13%
15%
4%
38%
$68
$95
5 years
3 years
9%
12%
67%
32%
16%
$72
0% to 5%
4%
0 points to 100 points
70 points
70%
15% to 20% CPR
1% to 4% CDR
35%
$0 to $138
11% to 100%
4% to 84%
n/a
15%
2%
n/a
$93
67%
32%
Natural gas forward price
$1/MMBtu to $12/MMBtu
$3/MMBtu
Correlation
Volatilities
Correlation (IR/IR)
Correlation (FX/IR)
Long-dated inflation rates
Long-dated inflation volatilities
38% to 87%
15% to 132%
15% to 70%
0% to 46%
-20% to 38%
0% to 1%
71%
38%
61%
1%
2%
1%
(1) For loans and securities, structured liabilities and net derivative assets, the weighted average is calculated based upon the absolute fair value of the instruments.
(2) 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 167: Trading
account assets – Corporate securities, trading loans and other of $1.6 billion, Trading account assets – Non-U.S. sovereign debt of $465 million, Trading account assets – Mortgage trading loans,
ABS and other MBS of $1.6 billion, AFS debt securities of $606 million, Other debt securities carried at fair value - Non-agency residential of $172 million, Other assets, including MSRs, of $2.9
billion, Loans and leases of $338 million and LHFS of $542 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.
(4)
(3)
(5) 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
172 Bank of America 2018
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2017
(Dollars in millions)
Inputs
Financial Instrument
Loans and Securities (2)
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 (1)
$
$
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%
$0 to $100
0% to 12%
10% to 20%
3% to 4%
35% to 40%
$0 to $145
6%
12%
1%
17%
9%
$67
5%
16%
4%
37%
$63
Price
$10 to $100
$94
Discounted cash
flow, Market
comparables
MSRs
$
2,302
Weighted-average life, fixed rate (5)
Discounted cash
flow
Weighted-average life, variable rate (5)
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 (3)
$
(282)
Discounted cash
flow, Stochastic
recovery correlation
model
$ (2,059)
$
(3)
$
630
Industry standard
derivative pricing (3)
Discounted cash
flow, Industry
standard derivative
pricing (3)
Industry standard
derivative pricing (4)
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) For loans and securities, structured liabilities and net derivative assets, the weighted average is calculated based upon the absolute fair value of the instruments.
(2) 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 168: 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.
(3)
(4)
(5) 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
Bank of America 2018 173
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.
Uncertainty of Fair Value Measurements from
Unobservable Inputs
Loans and Securities
A significant increase in market yields, default rates, loss
severities or duration would have resulted in a significantly lower
fair value for long positions. Short positions would have been
impacted in a directionally opposite way. The impact of changes
in prepayment speeds would have resulted in 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 have resulted in a significantly higher fair
value for long positions, and short positions would have been
impacted in a directionally opposite way.
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
have resulted 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 resulted in 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 have resulted in a significantly higher fair value.
Net short protection positions would have been 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 have
resulted 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 have
resulted in a significantly lower fair value. A significant decrease
in duration would have resulted in a significantly higher fair value.
Sensitivity of Fair Value Measurements for 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 $64 million or $133 million, while a 10 percent or
20 percent increase in prepayment rates could result in a decrease
in fair value of $59 million or $115 million. A 100 bp or 200 bp
decrease in OAS levels could result in an increase in fair value of
$63 million or $131 million, while a 100 bp or 200 bp increase
in OAS levels could result in a decrease in fair value of $59 million
or $115 million. These sensitivities are hypothetical and actual
amounts may vary materially.
174 Bank of America 2018
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 2018, 2017 and 2016.
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, 2018
December 31, 2017
Level 2
Level 3
Level 2
Level 3
$
274
—
—
331
$
— $
474
42
14
— $
—
—
425
2
894
83
—
2018
Gains (Losses)
2017
2016
Loans held-for-sale
Loans and leases (1)
Foreclosed properties
Other assets
Includes $83 million, $135 million and $150 million of losses on loans that were written down to a collateral value of zero during 2018, 2017 and 2016, respectively.
(202)
(24)
(64)
(18) $
$
(1)
(6) $
(336)
(41)
(124)
(54)
(458)
(41)
(74)
(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 $488 million and $801 million of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) at December 31, 2018 and 2017.
The table below presents information about significant unobservable inputs related to the Corporation’s nonrecurring Level 3 financial
assets and liabilities at December 31, 2018 and 2017. 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
Financial Instrument
(Dollars in millions)
Fair
Value
Valuation
Technique
Loans and leases backed by residential real estate assets $
474
Market comparables
Loans and leases backed by residential real estate assets $
894
Market comparables
Significant
Unobservable
Inputs
December 31, 2018
OREO discount
Costs to sell
December 31, 2017
OREO discount
Costs to sell
Inputs
Ranges of
Inputs
13% to 59%
8% to 26%
15% to 58%
5% to 49%
Weighted
Average (1)
25%
9%
23%
7%
(1) The weighted average is calculated based upon the fair value of the loans.
NOTE 21 Fair Value Option
Loans and Loan Commitments
The Corporation elects to account for certain loans and loan
commitments that exceed the Corporation’s single-name credit
risk concentration guidelines under the fair value option. Lending
commitments are actively managed 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. 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, 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.
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. 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 2018 175
Loans Reported as Trading Account Assets
The Corporation elects to account for certain loans that are held
for the purpose of trading and are risk-managed on a fair value
basis under the fair value option.
Other Assets
The Corporation elects to account for certain long-term fixed-rate
margin loans that are hedged with derivatives under the fair value
option. Election of the fair value option allows the Corporation to
reduce the accounting volatility that would otherwise result from
the asymmetry created by accounting for the financial instruments
at historical cost and the derivatives at fair value.
Securities Financing Agreements
The Corporation elects to account for certain securities financing
agreements, including resale and repurchase agreements, under
the fair value option based on the tenor of the agreements, which
reflects the magnitude of the interest rate risk. The majority of
securities financing agreements collateralized by U.S. government
securities are not accounted for under the fair value option as
these contracts are generally short-dated and therefore the
interest rate risk is not significant.
Long-term Deposits
The Corporation elects to account for certain long-term fixed-rate
and rate-linked deposits that are hedged with derivatives that do
not qualify for hedge accounting under the fair value option.
Election of the fair value option allows the Corporation to reduce
the accounting volatility that would otherwise result from the
asymmetry created by accounting for the financial instruments at
historical cost and the derivatives at fair value. The Corporation
has not elected to carry other long-term deposits at fair value
because they are not hedged using derivatives.
Short-term Borrowings
The Corporation elects to account for certain short-term
borrowings, primarily short-term structured liabilities, under the
fair value option because this debt is risk-managed on a fair value
basis.
The Corporation elects to account for certain asset-backed
secured financings, which are also classified in short-term
borrowings, under the fair value option. Election of the fair value
option allows the Corporation to reduce the accounting volatility
that would otherwise result from the asymmetry created by
accounting for the asset-backed secured financings at historical
cost and the corresponding mortgage LHFS securing these
financings at fair value.
Long-term Debt
The Corporation elects to account for certain long-term debt,
primarily structured liabilities, under the fair value option. This long-
term debt is either risk-managed on a fair value basis or the related
hedges do not qualify for hedge accounting.
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, 2018 and 2017.
Fair Value Option Elections
(Dollars in millions)
Federal funds sold and securities borrowed or
December 31, 2018
December 31, 2017
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
purchased under agreements to resell
$
56,399
$
56,376
$
23
$
52,906
$
52,907
$
Loans reported as trading account assets (1)
Trading inventory – other
Consumer and commercial loans
Loans held-for-sale (1)
Other assets
Long-term deposits
Federal funds purchased and securities loaned or
sold under agreements to repurchase
6,195
13,778
4,349
2,942
3
492
13,088
n/a
4,399
4,749
n/a
454
(6,893)
n/a
(50)
(1,807)
n/a
38
5,735
12,027
5,710
2,156
3
449
11,804
n/a
5,744
3,717
n/a
421
28,875
28,881
(6)
36,182
36,187
(1)
(6,069)
n/a
(34)
(1,561)
n/a
28
(5)
Short-term borrowings
Unfunded loan commitments
Long-term debt (2)
(1) A significant portion of the loans reported as trading account assets and LHFS are distressed loans that were purchased at a deep discount to par, and the remainder are loans with a fair value near
1,494
n/a
31,512
1,494
120
31,786
—
n/a
(1,510)
1,648
169
27,637
1,648
n/a
29,147
—
n/a
274
contractual principal outstanding.
Includes structured liabilities with a fair value of $27.3 billion and $31.4 billion, and contractual principal outstanding of $28.8 billion and $31.1 billion at December 31, 2018 and 2017.
(2)
n/a = not applicable
176 Bank of America 2018
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 2018, 2017 and 2016.
Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option
(Dollars in millions)
Loans reported as trading account assets (1)
Trading inventory – other (2)
Consumer and commercial loans (1)
Loans held-for-sale (1, 3)
Unfunded loan commitments
Long-term debt (4, 5)
Other (6)
Total
Loans reported as trading account assets (1)
Trading inventory – other (2)
Consumer and commercial loans (1)
Loans held-for-sale (1, 3)
Unfunded loan commitments
Long-term debt (4, 5)
Other (6)
Total
Loans reported as trading account assets (1)
Trading inventory – other (2)
Consumer and commercial loans (1)
Loans held-for-sale (1, 3)
Unfunded loan commitments
Long-term debt (4, 5)
Other (6)
Total
Trading Account
Profits
Other
Income
2018
Total
$
$
$
$
$
$
$
$
$
$
8
1,750
(422)
1
—
2,157
8
3,502
318
3,821
(9)
—
—
(1,044)
(93)
2,993
301
57
49
11
—
(489)
(85)
$
(156) $
— $
—
(53)
24
(49)
(93)
18
(153) $
— $
—
35
298
36
(146)
13
236
$
— $
—
(37)
524
487
(97)
53
930
$
2017
2016
8
1,750
(475)
25
(49)
2,064
26
3,349
318
3,821
26
298
36
(1,190)
(80)
3,229
301
57
12
535
487
(586)
(32)
774
(1) Gains (losses) related to borrower-specific credit risk were not significant.
(2) The gains in trading account profits are primarily offset by losses on trading liabilities that hedge these assets.
(3) Includes the value of IRLCs on funded loans, including those sold during the period.
(4) The majority of the net gains (losses) in trading account profits relate to the embedded derivatives in structured liabilities and are offset by gains (losses) on derivatives and securities that hedge
these liabilities.
(5) For the cumulative impact of changes in the Corporation’s own credit spreads and the amount recognized in accumulated 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.
(6) Includes gains (losses) on federal funds sold and securities borrowed or purchased under agreements to resell, other assets, long-term deposits, federal funds purchased and securities loaned or
sold under agreements to repurchase and short-term borrowings.
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. Certain loans, deposits, long-term debt and
unfunded lending commitments are accounted for under the fair
value option. For additional information, see Note 21 – Fair Value
Option. 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, certain time deposits placed and other
short-term investments, federal funds sold and purchased, certain
resale and repurchase agreements 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. Short-term
borrowings are classified as Level 2.
Bank of America 2018 177
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, 2018 and 2017 are
presented in the following table.
Fair Value of Financial Instruments
Fair Value
Carrying
Value
Level 2
Level 3
Total
December 31, 2018
(Dollars in millions)
Financial assets
Loans
Loans held-for-sale
$ 911,520
10,367
$
58,228
9,592
$ 859,160
775
$ 917,388
10,367
Financial liabilities
Deposits (1)
Long-term debt
Commercial
unfunded lending
commitments (2)
Financial assets
1,381,476
229,340
1,381,239
229,967
— 1,381,239
230,784
817
966
169
5,558
5,727
December 31, 2017
Loans
Loans held-for-sale
$ 904,399
11,430
$
68,586
10,521
$ 849,576
909
$ 918,162
11,430
Financial liabilities
Deposits (1)
Long-term debt
Commercial
unfunded lending
commitments (2)
1,309,545
227,402
1,309,398
235,126
— 1,309,398
236,989
1,863
897
120
3,908
4,028
(1) Includes demand deposits of $531.9 billion and $519.6 billion with no stated maturities at
December 31, 2018 and 2017.
(2) The carrying value of commercial unfunded lending commitments is included in accrued
expenses and other liabilities on the Consolidated Balance Sheet. The Corporation does not
estimate the fair value 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.
NOTE 23 Business Segment Information
The Corporation reports its results of operations through the
following four business segments: Consumer Banking, GWIM,
Global Banking and Global Markets, with the remaining operations
recorded in All Other.
Consumer Banking
Consumer Banking offers a diversified range of credit, banking and
investment products and services to consumers and small
businesses. Consumer Banking product offerings
include
traditional savings accounts, money market savings accounts, CDs
and IRAs, checking accounts, and investment accounts and
products, as well as credit and debit cards, residential mortgages
and home equity loans, and direct and indirect loans to consumers
and small businesses in the U.S. Consumer Banking includes the
impact of servicing residential mortgages and home equity loans
in the core portfolio.
Global Wealth & Investment Management
GWIM provides a high-touch client experience through a network
of financial advisors focused on clients with over $250,000 in
total investable assets, including tailored solutions to meet
clients’ needs through a full set of investment management,
brokerage, banking and retirement products. GWIM also provides
comprehensive wealth management solutions targeted to high net
worth and ultra high net worth clients, as well as customized
solutions to meet clients’ wealth structuring, investment
178 Bank of America 2018
management, trust and banking needs, including specialty asset
management services.
Global Banking
Global Banking provides a wide range of lending-related products
and services, integrated working capital management and treasury
solutions, and underwriting and advisory services through the
Corporation’s network of offices and client relationship teams.
Global Banking also provides investment banking products to
clients. The economics of certain investment banking and
underwriting activities are shared primarily between Global Banking
and Global Markets under an
revenue-sharing
arrangement. Global Banking clients generally include middle-
market companies, commercial real estate firms, not-for-profit
companies, large global corporations, financial institutions,
leasing clients, and mid-sized U.S.-based businesses requiring
customized and integrated financial advice and solutions.
internal
Global Markets
Global Markets offers sales and trading services and research
services to institutional clients across fixed-income, credit,
currency, commodity and equity businesses. Global Markets
provides market-making, financing, securities clearing, settlement
and custody services globally to institutional investor clients in
support of their investing and trading activities. Global Markets
product coverage includes securities and derivative products in
both the primary and secondary markets. Global Markets also
works with commercial and corporate clients to provide risk
management products. As a result of market-making activities,
Global Markets may be required to manage risk in a broad range
of financial products. In addition, the economics of certain
investment banking and underwriting activities are shared primarily
between Global Markets and Global Banking under an internal
revenue-sharing arrangement.
All Other
All Other consists of ALM activities, equity investments, non-core
mortgage loans and servicing activities, the net impact of periodic
revisions to the MSR valuation model for core and non-core MSRs
and the related economic hedge results, 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 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.
Basis of Presentation
The management accounting and reporting process derives
segment and business
results by utilizing allocation
methodologies for revenue and expense. The net income derived
for the businesses is dependent upon revenue and cost allocations
using an activity-based costing model, funds transfer pricing, and
other methodologies and assumptions management believes are
appropriate to reflect the results of the business.
Total revenue, net of interest expense, includes net interest
income on an FTE basis and noninterest income. The adjustment
of net interest income to an FTE basis results in a corresponding
increase in income tax expense. The segment results also reflect
certain revenue and expense methodologies that are utilized to
determine net income. The net interest income of the businesses
includes the results of a funds transfer pricing process that
matches assets and liabilities with similar interest rate sensitivity
and maturity characteristics. In segments where the total of
liabilities and equity exceeds assets, which are generally deposit-
taking segments, the Corporation allocates assets to match
liabilities. Net interest income of the business segments also
includes an allocation of net interest income generated by certain
of the Corporation’s ALM activities.
The Corporation’s ALM activities include an overall interest rate
risk management strategy that incorporates the use of various
derivatives and cash instruments to manage fluctuations in
earnings and capital that are caused by interest rate volatility. The
Corporation’s goal is to manage interest rate sensitivity so that
movements in interest rates do not significantly adversely affect
earnings and capital. The results of a majority of the Corporation’s
ALM activities are allocated to the business segments and
fluctuate based on the performance of the ALM activities. ALM
activities include external product pricing decisions including
deposit pricing strategies, the effects of the Corporation’s internal
funds transfer pricing process and the net effects of other ALM
activities.
Certain expenses not directly attributable to a specific
business segment are allocated to the segments. The costs of
certain centralized or shared functions are allocated based on
methodologies that reflect utilization.
The following table presents net income (loss) and the
components thereto (with net interest income on an FTE basis for
the business segments, All Other and the total Corporation) for
2018, 2017 and 2016, and total assets at December 31, 2018
and 2017 for each business segment, as well as All Other.
Results of Business Segments and All Other
At and for the year ended December 31
(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
Year-end total assets
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
Year-end total assets
Net interest income
Noninterest income
Total revenue, net of interest expense
Provision for credit losses
Noninterest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Year-end total assets
(1) There were no material intersegment revenues.
$
6,294
13,044
19,338
86
13,777
5,475
1,396
$
4,079
$ 305,906
2018
$
3,171
12,892
16,063
—
10,686
5,377
1,398
$
3,979
$ 641,922
$
6,173
12,417
18,590
56
13,556
4,978
1,885
$
3,093
$ 284,321
Global Markets
2017
$
3,744
12,207
15,951
164
10,731
5,056
1,763
$
3,293
$ 629,013
$
$
$
$
Total Corporation (1)
2017
2018
2016
2018
Consumer Banking
2017
2016
$
48,042
43,815
91,857
3,282
53,381
35,194
7,047
28,147
$
$ 2,354,507
$
45,592
42,685
88,277
3,396
54,743
30,138
11,906
18,232
$
$ 2,281,234
$
$
41,996
42,605
84,601
3,597
55,083
25,921
8,099
17,822
$
27,123
10,400
37,523
3,664
17,713
16,146
4,117
12,029
$
$ 768,877
$
24,307
10,214
34,521
3,525
17,795
13,201
4,999
8,202
$
$ 749,325
Global Wealth &
Investment Management
Global Banking
2018
2017
2016
2018
2017
$
$
$
$
21,290
10,441
31,731
2,715
17,664
11,352
4,186
7,166
2016
9,471
8,974
18,445
883
8,486
9,076
3,347
5,729
5,759
11,891
17,650
68
13,166
4,416
1,635
2,781
$
10,881
8,763
19,644
8
8,591
11,045
2,872
8,173
$ 441,477
$
$
10,504
9,495
19,999
212
8,596
11,191
4,238
$
6,953
$ 424,533
2016
2018
All Other
2017
2016
4,557
11,533
16,090
31
10,171
5,888
2,071
3,817
$
$
573
(1,284)
(711)
(476)
2,614
(2,849)
(2,736)
(113) $
$
$ 196,325
$
864
(1,648)
(784)
(561)
4,065
(4,288)
(979)
(3,309) $
919
(234)
685
(100)
5,596
(4,811)
(3,140)
(1,671)
$ 194,042
Bank of America 2018 179
The table below presents noninterest income and the components thereto for 2018, 2017 and 2016 for each business segment,
as well as All Other. For more information, see Note 1 – Summary of Significant Accounting Principles and Note 2 – Noninterest Income.
Noninterest Income by Business Segment and All Other
$
$
$
(Dollars in millions)
Card income
Interchange fees
Other card income
Total card income
Service charges
Deposit-related fees
Lending-related fees
Total service charges
Investment and brokerage services
Asset management fees
Brokerage fees
Total investment and brokerage
services
Investment banking income
Underwriting income
Syndication fees
Financial advisory services
Total investment banking income
Trading account profits
Other income
Total noninterest income
Card income
Interchange fees
Other card income
Total card income
Service charges
Deposit-related fees
Lending-related fees
Total service charges
Investment and brokerage services
Asset management fees
Brokerage fees
Total investment and brokerage
services
Investment banking income
Total investment banking income
Underwriting income
Syndication fees
Financial advisory services
502
1,237
1,152
2,891
260
1,950
8,763
(1) All Other includes eliminations of intercompany transactions.
Trading account profits
Other income
Total noninterest income
$
Total Corporation
Consumer Banking
2018
2017
2016
2018
2017
2016
Global Wealth &
Investment Management
2017
2016
2018
$
$
4,093
1,958
6,051
6,667
1,100
7,767
10,189
3,971
3,942
1,960
5,902
6,708
1,110
7,818
9,310
4,526
3,960
1,891
5,851
6,545
1,093
7,638
8,328
5,021
14,160
13,836
13,349
2,722
1,347
1,258
5,327
8,540
1,970
43,815
2,821
1,499
1,691
6,011
7,277
1,841
$ 42,685
2,585
1,388
1,268
5,241
6,902
3,624
$ 42,605
Global Banking
2017
2016
2018
$
$
3,383
1,906
5,289
4,300
—
4,300
147
172
319
3,224
1,846
5,070
4,266
—
4,266
133
184
317
3,271
1,664
4,935
4,142
—
4,142
120
200
320
$
$
82
46
128
73
—
73
$
109
44
153
76
—
76
106
44
150
74
—
74
10,042
1,917
9,177
2,217
8,208
2,666
11,959
11,394
10,874
(1)
—
—
(1)
8
485
10,400
—
—
—
—
3
558
$ 10,214
2
—
—
2
—
1,042
$ 10,441
335
—
2
337
112
435
$ 13,044
Global Markets
2017
2018
2016
2018
316
—
2
318
144
332
$ 12,417
All Other (1)
2017
225
1
1
227
175
391
$ 11,891
2016
$
533
8
541
$
506
12
518
$
95
(2)
93
$
94
(2)
92
$
79
(5)
74
— $
—
—
483
20
503
2,170
924
3,094
—
74
74
426
1,302
1,156
2,884
133
2,286
8,974
161
184
345
—
1,780
1,780
2,084
109
103
2,296
7,932
446
12,892
2,111
916
3,027
—
94
94
2,197
928
3,125
—
97
97
511
1,403
1,557
3,471
134
2,150
9,495
$
$
147
182
329
—
2,049
143
169
312
—
2,102
2,049
2,102
22
—
22
—
8
8
2,249
95
132
2,476
6,710
551
$ 12,207
2,100
85
111
2,296
6,550
199
$ 11,533
$
(198)
1
1
(196)
228
(1,346)
(1,284) $
(255)
1
—
(254)
286
(1,750)
(1,648) $
$
9
60
69
22
—
22
—
(21)
(21)
21
168
189
16
—
16
—
(21)
(21)
(168)
—
—
(168)
44
(294)
(234)
$
$
$
$
The tables below present a reconciliation of the four business segments’ total revenue, net of interest expense, on an FTE basis,
and net income to the Consolidated Statement of Income, and total assets to the Consolidated Balance Sheet.
(Dollars in millions)
Segments’ total revenue, net of interest expense
Adjustments (1):
ALM activities
Liquidating businesses, eliminations and other
FTE basis adjustment
Consolidated revenue, net of interest expense
Segments’ total net income
Adjustments, net-of-tax (1):
ALM activities
Liquidating businesses, eliminations and other
Consolidated net income
(1) Adjustments include consolidated income, expense and asset amounts not specifically allocated to individual business segments.
180 Bank of America 2018
2018
2017
2016
$
92,568
$
89,061
$
83,916
588
(1,299)
(610)
91,247
28,260
(46)
(67)
28,147
$
$
312
(1,096)
(925)
87,352
21,541
(355)
(2,954)
18,232
$
$
(299)
984
(900)
83,701
19,493
(651)
(1,020)
17,822
$
$
(Dollars in millions)
Segments’ total assets
Adjustments (1):
ALM activities, including securities portfolio
Elimination of segment asset allocations to match liabilities
Other
Consolidated total assets
December 31
2018
2,158,182
670,057
(540,801)
67,069
2,354,507
$
$
2017
2,087,192
625,483
(520,448)
89,007
2,281,234
$
$
(1) Adjustments include consolidated income, expense and asset amounts not specifically allocated to individual business segments.
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 of subsidiaries
Net income
Condensed Balance Sheet
(Dollars in millions)
Assets
Cash held at bank subsidiaries (1)
Securities
Receivables from subsidiaries:
Bank holding companies and related subsidiaries
Banks and related subsidiaries
Nonbank companies and related subsidiaries
Investments in subsidiaries:
Bank holding companies and related subsidiaries
Nonbank companies and related subsidiaries
Other assets
Total assets
Liabilities and shareholders’ equity
Accrued expenses and other liabilities
Payables to subsidiaries:
Banks and related subsidiaries
Nonbank companies and related subsidiaries
Long-term debt
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
(1) Balance includes third-party cash held of $389 million and $193 million at December 31, 2018 and 2017.
2018
2017
2016
$
$
28,575
91
8,425
(1,025)
36,066
235
6,425
1,600
8,260
27,806
(281)
28,087
306
(246)
60
28,147
$
$
$
$
$
$
$
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
December 31
2018
2017
$
5,141
628
4,747
596
152,905
195
969
293,045
3,432
14,696
471,011
8,828
349
13,301
183,208
205,686
265,325
471,011
$
$
$
146,566
146
4,745
296,506
5,225
14,554
473,085
10,286
359
9,341
185,953
205,939
267,146
473,085
Bank of America 2018 181
Condensed Statement of Cash Flows
(Dollars in millions)
Operating activities
Net income
Reconciliation of net income to net cash used in operating activities:
Equity in undistributed earnings 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 increase (decrease) in other advances
Proceeds from issuance of long-term debt
Retirement of long-term debt
Proceeds from issuance of preferred stock
Redemption of preferred stock
Common stock repurchased
Cash dividends paid
Net cash used in financing activities
Net increase (decrease) in cash held at bank subsidiaries
Cash held at bank subsidiaries at January 1
Cash held at bank subsidiaries at December 31
2018
2017
2016
$
28,147
$
18,232
$
17,822
(60)
(3,706)
24,381
51
(2,262)
48
(2,163)
—
3,867
30,708
(29,413)
4,515
(4,512)
(20,094)
(6,895)
(21,824)
394
4,747
5,141
$
(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
$
NOTE 25 Performance by Geographical Area
The Corporation’s operations are highly integrated with operations in both U.S. and non-U.S. markets. The non-U.S. business activities
are largely conducted in Europe, the Middle East and Africa and in Asia. 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. Certain asset, liability, income and expense amounts have been allocated to arrive at total assets, total revenue, net of
interest expense, income before income taxes and net income by geographic area as presented below.
(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
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
$
2,051,182
1,965,490
$
94,865
103,255
185,285
189,661
23,175
22,828
303,325
315,744
$
2,354,507
2,281,234
$
$
$
81,004
74,830
72,418
3,507
3,405
3,365
5,632
7,907
6,608
1,104
1,210
1,310
10,243
12,522
11,283
91,247
87,352
83,701
$
$
31,904
25,108
22,282
865
676
674
1,543
2,990
1,705
272
439
360
2,680
4,105
2,739
34,584
29,213
25,021
26,407
15,550
16,183
520
464
488
1,126
1,926
925
94
292
226
1,740
2,682
1,639
28,147
18,232
17,822
(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.
182 Bank of America 2018
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 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.
Brokerage and Other Assets – Non-discretionary client assets
which are held in brokerage accounts or held for safekeeping.
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 2018 183
Acronyms
ABS
AFS
ALM
AUM
AVM
BANA
BHC
bps
CCAR
CDO
CDS
CET1
CGA
CLO
CLTV
CVA
DVA
EAD
EPS
ERC
EU
FCA
FDIC
FHA
FHLB
FHLMC
FICC
FICO
FLUs
FNMA
FTE
FVA
GAAP
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
Common equity tier 1
Corporate General Auditor
Collateralized loan obligation
Combined loan-to-value
Credit valuation adjustment
Debit valuation adjustment
Exposure at default
Earnings per common share
Enterprise Risk Committee
European Union
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
GLS
GM&CA
GNMA
GSE
G-SIB
GWIM
HELOC
HQLA
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
HTM
ICAAP
IRM
IRLC
ISDA
LCR
LGD
LHFS
LIBOR
LTV
MBS
MD&A
Held-to-maturity
Internal Capital Adequacy Assessment Process
Independent Risk Management
Interest rate lock commitment
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
RMBS
RSU
SBLC
SCCL
SEC
SLR
TDR
TLAC
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
Residential mortgage-backed securities
Restricted stock unit
Standby letter of credit
Single-counterparty credit limits
Securities and Exchange Commission
Supplementary leverage ratio
Troubled debt restructurings
Total loss-absorbing capacity
U.S. Department of Veterans Affairs
Value-at-Risk
Variable interest entity
184 Bank of America 2018
Disclosure Controls and Procedures
Disclosure Controls and Procedures
Bank of America Corporation and Subsidiaries
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, as amended
As of the end of the period covered by this report and pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended
(Exchange Act), Bank of America’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation
(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
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
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.
disclosure controls and procedures were effective, as of the end of the period covered by this report.
Bank of America 2018 185
Bank of America 2018 185
Executive Management Team and Management Committee
Bank of America Corporation
Executive Management Team and Management Committee
Bank of America Corporation
Executive Management Team and Management Committee
Bank of America Corporation
Paul M. Donofrio*
Chief Financial Officer
Executive Management Team
Brian T. Moynihan*
Executive Management Team
Executive Management Team
Chairman of the Board and
Brian T. Moynihan*
Brian T. Moynihan*
Chief Executive Officer
Chairman of the Board and
Chairman of the Board and
Dean C. Athanasia*
Chief Executive Officer
Chief Executive Officer
President, Retail and Preferred
Dean C. Athanasia*
Dean C. Athanasia*
& Small Business Banking
President, Retail and Preferred
President, Retail and Preferred
Catherine P. Bessant*
& Small Business Banking
& Small Business Banking
Chief Operations and
Catherine P. Bessant*
Catherine P. Bessant*
Technology Officer
Chief Operations and
Chief Operations and
Sheri B. Bronstein*
Technology Officer
Technology Officer
Chief Human Resources Officer
Sheri B. Bronstein*
Sheri B. Bronstein*
Paul M. Donofrio*
Chief Human Resources Officer
Chief Human Resources Officer
Chief Financial Officer
Paul M. Donofrio*
Anne M. Finucane
Chief Financial Officer
Vice Chairman,
Anne M. Finucane
Anne M. Finucane
Bank of America
Vice Chairman,
Vice Chairman,
Geoffrey S. Greener*
Bank of America
Bank of America
Chief Risk Officer
Geoffrey S. Greener*
Geoffrey S. Greener*
Christine P. Katziff
Chief Risk Officer
Chief Risk Officer
Chief Audit Executive
Christine P. Katziff
Kathleen A. Knox*
Chief Audit Executive
President, U.S. Trust
Kathleen A. Knox*
David G. Leitch*
President, U.S. Trust
Global General Counsel
David G. Leitch*
David G. Leitch*
Thomas K. Montag*
Global General Counsel
Global General Counsel
Chief Operating Officer
Thomas K. Montag*
Thomas K. Montag*
Thong M. Nguyen*
Chief Operating Officer
Chief Operating Officer
Vice Chairman,
Thong M. Nguyen*
Thong M. Nguyen*
Bank of America
Vice Chairman,
Vice Chairman,
Andrew M. Sieg*
Bank of America
Bank of America
President, Merrill Lynch
Andrew M. Sieg*
Andrew M. Sieg*
Wealth Management
President, Merrill Lynch
President, Merrill Lynch
Andrea B. Smith*
Wealth Management
Wealth Management
Chief Administrative Officer
Andrea B. Smith*
Andrea B. Smith*
Bruce R. Thompson
Chief Administrative Officer
Chief Administrative Officer
Vice Chairman
Bruce R. Thompson
Bruce R. Thompson
Vice Chairman
Vice Chairman
Christine P. Katziff
Chief Audit Executive
Kathleen A. Knox*
President, U.S. Trust
Rudolf A. Bless
Chief Accounting Officer
Management Committee**
Michael C. Ankrom Jr.
Management Committee**
Management Committee**
Global Banking Chief Risk Officer
Michael C. Ankrom Jr.
Michael C. Ankrom Jr.
and Enterprise Credit Risk Executive
Global Banking Chief Risk Officer
Global Banking Chief Risk Officer
Keith T. Banks
and Enterprise Credit Risk Executive
and Enterprise Credit Risk Executive
Vice Chairman, Wealth
Keith T. Banks
Keith T. Banks
Management and Head
Vice Chairman, Wealth
Vice Chairman, Wealth
of Investment Solutions Group
Management and Head
Management and Head
Alexandre Bettamio
of Investment Solutions Group
of Investment Solutions Group
President, Latin America
Alexandre Bettamio
Alexandre Bettamio
Rudolf A. Bless
President, Latin America
President, Latin America
Chief Accounting Officer
Rudolf A. Bless
D. Steve Boland
Chief Accounting Officer
Head of Consumer Lending
D. Steve Boland
D. Steve Boland
Alastair M. Borthwick
Head of Consumer Lending
Head of Consumer Lending
Head of Global Commercial Banking
Alastair M. Borthwick
Alastair M. Borthwick
Candace E. Browning-Platt
Head of Global Commercial Banking
Head of Global Commercial Banking
Head of Global Research
Candace E. Browning-Platt
Candace E. Browning-Platt
James P. DeMare
Head of Global Research
Head of Global Research
Co-Head of Global Fixed Income,
James P. DeMare
James P. DeMare
Currencies & Commodities Trading
Co-Head of Global Fixed Income,
Co-Head of Global Fixed Income,
Fabrizio Gallo
Currencies & Commodities Trading
Currencies & Commodities Trading
Head of Global Equities
Fabrizio Gallo
Fabrizio Gallo
Matthew M. Koder
Head of Global Equities
Head of Global Equities
Head of Global Corporate
Matthew M. Koder
Matthew M. Koder
and Investment Banking
Head of Global Corporate
Head of Global Corporate
Aron D. Levine
and Investment Banking
and Investment Banking
Head of Consumer Banking
Aron D. Levine
Aron D. Levine
and Investments
Head of Consumer Banking
Head of Consumer Banking
Bernard A. Mensah
and Investments
and Investments
President of Europe, Middle East
Bernard A. Mensah
Bernard A. Mensah
and Asia and Co-Head of Global
President of Europe, Middle East
President of Europe, Middle East
Fixed Income, Currencies &
and Asia and Co-Head of Global
and Asia and Co-Head of Global
Commodities Trading
Fixed Income, Currencies &
Fixed Income, Currencies &
Sharon L. Miller
Commodities Trading
Commodities Trading
Head of Small Business
Sharon L. Miller
Sharon L. Miller
Andrei Magasiner
Head of Small Business
Head of Small Business
Treasurer
Andrei Magasiner
Andrei Magasiner
E. Lee McEntire
Treasurer
Treasurer
Investor Relations Executive
E. Lee McEntire
E. Lee McEntire
Investor Relations Executive
Investor Relations Executive
Robert A. Schleusner
Head of Wholesale Credit
Lorna R. Sabbia
Head of Retirement and
Personal Wealth Solutions.
Lauren A. Mogensen
Global Compliance and
Lauren A. Mogensen
Lauren A. Mogensen
Operational Risk Executive
Global Compliance and
Global Compliance and
Tram V. Nguyen
Operational Risk Executive
Operational Risk Executive
Global Corporate Strategy
Tram V. Nguyen
Tram V. Nguyen
Executive and Head of Wealth
Global Corporate Strategy
Global Corporate Strategy
Management Banking Products
Executive and Head of Wealth
Executive and Head of Wealth
Lorna R. Sabbia
Management Banking Products
Management Banking Products
Head of Retirement and
Lorna R. Sabbia
Personal Wealth Solutions
Head of Retirement and
Robert A. Schleusner
Personal Wealth Solutions.
Head of Wholesale Credit
Robert A. Schleusner
Thomas M. Scrivener
Head of Wholesale Credit
Global Real Estate and
Thomas M. Scrivener
Thomas M. Scrivener
Enterprise Initiative Executive
Global Real Estate and
Global Real Estate and
Jiro Seguchi
Enterprise Initiative Executive
Enterprise Initiative Executive
Co-President, Asia Pacific and
Jiro Seguchi
Jiro Seguchi
Head of Asia Pacific Corporate
Co-President, Asia Pacific and
Co-President, Asia Pacific and
and Investment Banking;
Head of Asia Pacific Corporate
Head of Asia Pacific Corporate
Country Executive, Japan
and Investment Banking;
and Investment Banking;
Jin Su
Country Executive, Japan
Country Executive, Japan
Co-President, Asia Pacific and
Jin Su
Jin Su
Co-Head of Asia Pacific
Co-President, Asia Pacific and
Co-President, Asia Pacific and
Fixed Income, Currencies & Commodities
Co-Head of Asia Pacific
Co-Head of Asia Pacific
David C. Tyrie
Fixed Income, Currencies & Commodities
Fixed Income, Currencies & Commodities
Head of Advanced Solutions
David C. Tyrie
David C. Tyrie
and Digital Banking
Head of Advanced Solutions
Head of Advanced Solutions
Anne Walker
and Digital Banking
and Digital Banking
CFO Chief Operating Officer
Anne Walker
Anne Walker
and Corporate Financial
CFO, Chief Operating Officer
CFO, Chief Operating Officer
Planning Executive
and Corporate Financial
and Corporate Financial
Ather Williams III
Planning Executive
Planning Executive
Head of Business Banking
Ather Williams III
Ather Williams III
Sanaz Zaimi
Head of Business Banking
Head of Business Banking
Head of Global
Sanaz Zaimi
Sanaz Zaimi
Fixed Income, Currencies & Commodities
Head of Global
Head of Global
Sales and Country Executive, France
Fixed Income, Currencies & Commodities
Fixed Income, Currencies & Commodities
Sales and Country Executive, France
Sales and Country Executive, France
* Executive Officer
** All members of the Executive Management Team are also members of the Management Committee
* Executive Officer
* Executive Officer
** All members of the Executive Management Team are also members of the Management Committee
** All members of the Executive Management Team are also members of the Management Committee
186 Bank of America 2018
186 Bank of America 2018
186 Bank of America 2018
Disclosure Controls and Procedures
Board of Directors
Bank of America Corporation and Subsidiaries
Bank of America Corporation
Board of Directors
As of the end of the period covered by this report and pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended
Bank of America Corporation
(Exchange Act), Bank of America’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation
Board of Directors
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
Brian T. Moynihan
Board of Directors
disclosure controls and procedures were effective, as of the end of the period covered by this report.
Chairman of the Board and
Brian T. Moynihan
Chief Executive Officer,
Chairman of the Board and
Bank of America Corporation
Chief Executive Officer,
Jack O. Bovender, Jr.
Bank of America Corporation
Lead Independent Director,
Jack O. Bovender, Jr.
Bank of America Corporation;
Lead Independent Director,
Former Chairman
Bank of America Corporation;
and Chief Executive Officer,
Former Chairman
HCA Inc.
and Chief Executive Officer,
Sharon L. Allen
HCA Inc.
Former Chairman,
Sharon L. Allen
Deloitte LLP
Former Chairman,
Susan S. Bies
Deloitte LLP
Former Member,
Susan S. Bies
Board of Governors of the
Former Member,
Federal Reserve System
Board of Governors of the
Frank P. Bramble, Sr.
Federal Reserve System
Former Executive Vice Chairman,
Frank P. Bramble, Sr.
MBNA Corporation
Former Executive Vice Chairman,
Pierre J.P. de Weck
MBNA Corporation
Former Chairman and
Pierre J.P. de Weck
Global Head of Private
Former Chairman and
Wealth Management,
Global Head of Private
Deutsche Bank AG
Wealth Management,
Arnold W. Donald
Deutsche Bank AG
President and
Arnold W. Donald
Chief Executive Officer,
President and
Carnival Corporation and
Chief Executive Officer,
Carnival plc
Carnival Corporation and
Linda P. Hudson
Carnival plc
Chairman and Chief Executive Officer,
Linda P. Hudson
The Cardea Group, LLC;
Chairman and Chief Executive Officer,
Former President and
The Cardea Group, LLC;
Chief Executive Officer,
Former President and
BAE Systems, Inc.
Chief Executive Officer,
BAE Systems, Inc.
Monica C. Lozano
Chief Executive Officer,
Monica C. Lozano
College Futures Foundation;
Chief Executive Officer,
Former Chairman,
College Futures Foundation;
US Hispanic Media Inc.
Former Chairman,
Thomas J. May
US Hispanic Media Inc.
Chairman, Viacom, Inc.;
Thomas J. May
Former Chairman, President,
Chairman, Viacom, Inc.;
and Chief Executive Officer,
Former Chairman, President,
Eversource Energy
and Chief Executive Officer,
Lionel L. Nowell, III
Eversource Energy
Former Senior Vice President
Lionel L. Nowell, III
and Treasurer, PepsiCo, Inc.
Former Senior Vice President
Clayton S. Rose
and Treasurer, PepsiCo, Inc.
President, Bowdoin College
Clayton S. Rose
Michael D. White
President, Bowdoin College
Former Chairman, President, and
Michael D. White
Chief Executive Officer, DIRECTV
Former Chairman, President, and
Thomas D. Woods
Chief Executive Officer, DIRECTV
Chairman, Hydro One Limited;
Thomas D. Woods
Former Vice Chairman and
Chairman, Hydro One Limited;
Senior Executive Vice President,
Former Vice Chairman and
Canadian Imperial Bank of Commerce
Senior Executive Vice President,
R. David Yost
Canadian Imperial Bank of Commerce
Former Chief Executive Officer,
R. David Yost
AmerisourceBergen Corporation
Former Chief Executive Officer,
Maria T. Zuber
AmerisourceBergen Corporation
Vice President for Research and
Maria T. Zuber
E.A. Griswold Professor of Geophysics,
Vice President for Research and
Massachusetts Institute of Technology
E.A. Griswold Professor of Geophysics,
Massachusetts Institute of Technology
* Executive Officer
* Executive Officer
Bank of America 2018 187
Bank of America 2018 187
Bank of America 2018 185
Corporate Information
Bank of America Corporation
Corporate Information
Corporate Information
Bank of America Corporation
Bank of America Corporation
Headquarters
The principal executive offices of Bank of America Corporation
Headquarters
Headquarters
(the Corporation) are located in the Bank of America Corporate
The principal executive offices of Bank of America Corporation
The principal executive offices of Bank of America Corporation
Center, 100 North Tryon Street, Charlotte, NC 28255.
(the Corporation) are located in the Bank of America Corporate
(the Corporation) are located in the Bank of America Corporate
Center, 100 North Tryon Street, Charlotte, NC 28255.
Center, 100 North Tryon Street, Charlotte, NC 28255.
Stock Listing
The Corporation’s common stock is listed on the New York
Stock Exchange (NYSE) under the symbol BAC. The stock is
typically listed as BankAm in newspapers. As of December 31,
2018, there were 171,372 registered holders of the Corporation’s
common stock.
Stock Listing
Stock Listing
The Corporation’s common stock is listed on the New York
The Corporation’s common stock is listed on the New York
Stock Exchange (NYSE) under the symbol BAC. The stock is
Stock Exchange (NYSE) under the symbol BAC. The stock is
typically listed as BankAm in newspapers. As of December 31,
typically listed as BankAm in newspapers. As of December 31,
2018, there were 171,372 registered holders of the Corporation’s
2018, there were 171,372 registered holders of the Corporation’s
common stock.
common stock.
Investor Relations
Analysts, portfolio managers and other investors seeking
Investor Relations
Investor Relations
additional information about Bank of America stock should
Analysts, portfolio managers and other investors seeking
Analysts, portfolio managers and other investors seeking
contact our Equity Investor Relations group at 1.704.386.5681
additional information about Bank of America stock should
additional information about Bank of America stock should
or i_r@bankofamerica.com. For additional information about
contact our Equity Investor Relations group at 1.704.386.5681
contact our Equity Investor Relations group at 1.704.386.5681
Bank of America from a credit perspective, including debt and
or i_r@bankofamerica.com. For additional information about
or i_r@bankofamerica.com. For additional information about
preferred securities, contact our Fixed Income Investor Relations
Bank of America from a credit perspective, including debt and
Bank of America from a credit perspective, including debt and
group at 1.866.607.1234 or fixedincomeir@bankofamerica.com.
preferred securities, contact our Fixed Income Investor Relations
preferred securities, contact our Fixed Income Investor Relations
Visit the Investor Relations area of the Bank of America website,
group at 1.866.607.1234 or fixedincomeir@bankofamerica.com.
group at 1.866.607.1234 or fixedincomeir@bankofamerica.com.
http://investor.bankofamerica.com, for stock and dividend
Visit the Investor Relations area of the Bank of America website,
Visit the Investor Relations area of the Bank of America website,
information, financial news releases, links to Bank of America
http://investor.bankofamerica.com, for stock and dividend
http://investor.bankofamerica.com, for stock and dividend
SEC filings, electronic versions of our annual reports and other
information, financial news releases, links to Bank of America
information, financial news releases, links to Bank of America
items of interest to the Corporation’s shareholders.
SEC filings, electronic versions of our annual reports and other
SEC filings, electronic versions of our annual reports and other
items of interest to the Corporation’s shareholders.
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.
Customers
Customers
For assistance with Bank of America products and services,
For assistance with Bank of America products and services,
call 1.800.432.1000, or visit the Bank of America website
call 1.800.432.1000, or visit the Bank of America website
at www.bankofamerica.com. Additional toll-free numbers for
at www.bankofamerica.com. Additional toll-free numbers for
specific products and services are listed on our website at
specific products and services are listed on our website at
www.bankofamerica.com/contact.
www.bankofamerica.com/contact.
News Media
News media seeking information should visit our online
News Media
News Media
newsroom at http://newsroom.bankofamerica.com for news
News media seeking information should visit our online
News media seeking information should visit our online
releases, press kits and other items relating to the Corporation,
newsroom at http://newsroom.bankofamerica.com for news
newsroom at http://newsroom.bankofamerica.com for news
including a complete list of the Corporation’s media relations
releases, press kits and other items relating to the Corporation,
releases, press kits and other items relating to the Corporation,
specialists grouped by business specialty or geography.
including a complete list of the Corporation’s media relations
including a complete list of the Corporation’s media relations
specialists grouped by business specialty or geography.
specialists grouped by business specialty or geography.
Annual Report on Form 10-K
The Corporation’s 2018 Annual Report on Form 10-K is available
at http://investor.bankofamerica.com. The Corporation also will
provide a copy of the 2018 Annual Report on Form 10-K (without
exhibits) upon written request addressed to:
Annual Report on Form 10-K
Annual Report on Form 10-K
The Corporation’s 2018 Annual Report on Form 10-K is available
The Corporation’s 2018 Annual Report on Form 10-K is available
at http://investor.bankofamerica.com. The Corporation also will
at http://investor.bankofamerica.com. The Corporation also will
provide a copy of the 2018 Annual Report on Form 10-K (without
provide a copy of the 2018 Annual Report on Form 10-K (without
exhibits) upon written request addressed to:
Bank of America Corporation
exhibits) upon written request addressed to:
Office of the Corporate Secretary
Hearst Tower, 214 North Tryon Street
NC1-027-20-05
Charlotte, NC 28255
Bank of America Corporation
Bank of America Corporation
Office of the Corporate Secretary
Office of the Corporate Secretary
Hearst Tower, 214 North Tryon Street
Hearst Tower, 214 North Tryon Street
NC1-027-20-05
NC1-027-20-05
Charlotte, NC 28255
Charlotte, NC 28255
Shareholder Inquiries
For inquiries concerning dividend checks, electronic deposit of
dividends, dividend reinvestment, tax statements, electronic
delivery, transferring ownership, address changes or lost or
stolen stock certificates, contact Bank of America Shareholder
Services at Computershare Trust Company, N.A., via the Internet
at www.computershare.com/bac; call 1.800.642.9855; or write
to P.O. Box 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.
Shareholder Inquiries
Shareholder Inquiries
For inquiries concerning dividend checks, electronic deposit of
For inquiries concerning dividend checks, electronic deposit of
dividends, dividend reinvestment, tax statements, electronic
dividends, dividend reinvestment, tax statements, electronic
delivery, transferring ownership, address changes or lost or
delivery, transferring ownership, address changes or lost or
stolen stock certificates, contact Bank of America Shareholder
stolen stock certificates, contact Bank of America Shareholder
Services at Computershare Trust Company, N.A., via the Internet
Services at Computershare Trust Company, N.A., via the Internet
at www.computershare.com/bac; call 1.800.642.9855; or write
at www.computershare.com/bac; call 1.800.642.9855; or write
to P.O. Box 505005, Louisville, KY 40233. For general shareholder
to P.O. Box 505005, Louisville, KY 40233. For general shareholder
information, contact Bank of America Office of the Corporate
information, contact Bank of America Office of the Corporate
Secretary at 1.800.521.3984. Shareholders outside of the United
Secretary at 1.800.521.3984. Shareholders outside of the United
States and Canada may call 1.781.575.2621.
States and Canada may call 1.781.575.2621.
Electronic Delivery
As part of our ongoing commitment to reduce paper
Electronic Delivery
Electronic Delivery
consumption, we offer electronic methods for customer
As part of our ongoing commitment to reduce paper
As part of our ongoing commitment to reduce paper
communications and transactions. Customers can sign up to
consumption, we offer electronic methods for customer
consumption, we offer electronic methods for customer
receive online statements through their Bank of America or
communications and transactions. Customers can sign up to
communications and transactions. Customers can sign up to
Merrill Lynch account website. In 2012, we adopted the SEC’s
receive online statements through their Bank of America or
receive online statements through their Bank of America or
Notice and Access rule, which allows certain issuers to inform
Merrill Lynch account website. In 2012, we adopted the SEC’s
Merrill Lynch account website. In 2012, we adopted the SEC’s
shareholders of the electronic availability of Proxy materials,
Notice and Access rule, which allows certain issuers to inform
Notice and Access rule, which allows certain issuers to inform
including the Annual Report, which significantly reduced the
shareholders of the electronic availability of Proxy materials,
shareholders of the electronic availability of Proxy materials,
number of printed copies we produce and mail to shareholders.
including the Annual Report, which significantly reduced the
including the Annual Report, which significantly reduced the
Shareholders still receiving printed copies can join our efforts
number of printed copies we produce and mail to shareholders.
number of printed copies we produce and mail to shareholders.
by electing to receive an electronic copy of the Annual Report
Shareholders still receiving printed copies can join our efforts
Shareholders still receiving printed copies can join our efforts
and Proxy materials. If you have an account maintained in your
by electing to receive an electronic copy of the Annual Report
by electing to receive an electronic copy of the Annual Report
name at Computershare Investor Services, you may sign up
and Proxy materials. If you have an account maintained in your
and Proxy materials. If you have an account maintained in your
for this service at www.computershare.com/bac. If your shares
name at Computershare Investor Services, you may sign up
name at Computershare Investor Services, you may sign up
are held by a broker, bank or other nominee, you may elect
for this service at www.computershare.com/bac. If your shares
for this service at www.computershare.com/bac. If your shares
to receive an electronic copy of the Proxy materials online at
are held by a broker, bank or other nominee, you may elect
are held by a broker, bank or other nominee, you may elect
www.proxyvote.com, or contact your broker.
to receive an electronic copy of the Proxy materials online at
to receive an electronic copy of the Proxy materials online at
www.proxyvote.com, or contact your broker.
www.proxyvote.com, or contact your broker.
188 Bank of America 2018
188 Bank of America 2018
188 Bank of America 2018
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 guid-
ance) and self-directed online investing.
U.S. Trust, Bank of America Private Wealth Management operates through Bank of America, N.A., and other subsidiaries of BofA Corp.
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.
Please review the Merrill Guided Investing Program Brochure (PDF) at merrilledge.com/guided-investingprogram-brochure (PDF) for import-
ant information including pricing, rebalancing and the details of the investment advisory program. Your recommended invest ment strategy
will be based solely on the information you provide to us for this specific investment goal and is separate from any other advisory program
offered with us. If there are multiple owners on this account, the information you provide should reflect the views and circumstances of all
owners on the account. If you are the custodian of this account for the benefit of another person, please keep in mind that these assets will
be invested for the benefit of the other person. Guided Investing is offered with and without an advisor. Merrill, Merrill Lynch, and/or Merrill
Edge investment advisory programs are offered by Merrill Lynch, Pierce, Fenner and Smith Incorporated (“MLPF&S”). MLPF&S and Managed
Account Advisors LLC (“MAA”) are registered investment advisors. Investment advisor registration does not imply a certain level of skill or
training. https://www.merrilledge.com/guided-investing
BofA Merrill Lynch Global Research is research produced by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) and/or one
or more of its affiliates.
Case studies are intended to illustrate brokerage products and services available at Merrill and banking products and services available
at Bank of America. You should not consider these as an endorsement of Merrill as an investment adviser or as a testimonial about a
client’s experiences with us as an investment adviser. Case Studies do not necessarily represent the experiences of other clients, nor do
they indicate future performance. Investment results may vary. The investment strategies discussed are not appropriate for every inves-
tor and should be considered given a person’s investment objectives, financial situation and particular needs. Clients should review with
their Merrill Lynch Wealth Management Advisor the terms, conditions and risks involved with specific products and services.
Zelle should only be used to send money to friends, family or others you trust.
We recommend that you do not use Zelle to send money to persons that you do not know. Transfers require enrollment in the service and
must be made from an eligible Bank of America consumer deposit account to a domestic bank account or debit card. Recipients have
14 days to enroll to receive money or the transfer will be canceled. Transactions typically occur in minutes when the recipient’s email address
or U.S. mobile number is already enrolled with Zelle. 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 at bankofamerica.com/ serviceagreement for
details, including cut-off and delivery times. Payment requests to persons not already enrolled in Zelle must be sent to a U.S. email address.
Data connection required. Message and data rates may apply. Neither Bank of America nor Zelle offers a protection program for any
authorized payments made with Zelle.
Zelle and the Zelle related marks are wholly owned by Early Warning Services, LLC and are used herein under license.
The ranking or ratings shown herein may not be representative of all client experiences because they reflect an average or sampling of
the client experiences. These rankings or ratings are not indicative of any future performance or investment outcome.
Please recycle. The annual report is printed on 30% post-consumer waste (PCW) recycled paper.
© 2019 Bank of America Corporation. All rights reserved.
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© 2019 Bank of America Corporation
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