Bank of America 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. As part of our efforts to streamline the Corporation’s organizational structure and reduce complexity and costs, the Corporation has reduced and intends to continue to reduce the number of its corporate subsidiaries, including through intercompany mergers.

Bank of America is one of the world’s largest financial institutions, serving individual consumers, small- and middle-market businesses, institutional investors, large corporations and governments with a full range of banking, investing, asset management and other financial and risk management products and services. Our principal executive offices are located in the

Bank of America Corporate Center, 100 North Tryon Street, Charlotte, North Carolina 28255.

Bank of America’s website is www.bankofamerica.com and the Investor Relations portion of our website is http://investor.bankofamerica.com. We use our website to distribute company information, including as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. We routinely post and make accessible financial and other information regarding usthe Corporation on our website. Accordingly, investors should monitor the Investor Relations portion of our website, in addition to following our press releases, ~~SEC~~U.S. Securities and Exchange Commission (SEC) filings, public conference calls and webcasts. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the

Securities Exchange Act of 1934 (Exchange Act) are available on the Investor Relations portion of our website under the heading

~~by and supervision of the Prudential Regulatory Authority for prudential matters, and the Financial Conduct~~ Authority (FCA) ~~for~~and, in Ireland, the ~~conduct~~European Central Bank and Central Bank of ~~business matters.~~Ireland.

Source of Strength

Under the Financial Reform Act and Federal Reserve policy, BHCs are expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each such subsidiary. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), in the event of a loss suffered or anticipated by the FDIC, either as a result of default of a bank subsidiary or related to FDIC assistance provided to such a subsidiary in danger of default, the affiliate banks of such a subsidiary may be assessed for the FDIC’s loss, subject to certain exceptions.

Transactions with Affiliates

Pursuant to Section 23A and 23B of the Federal Reserve Act, as implemented by the Federal Reserve’s Regulation W, the Banks are subject to restrictions that limit certain types of transactions between the Banks and their nonbank affiliates. In general, U.S. banks are subject to quantitative and qualitative limits on extensions of credit, purchases of assets and certain other transactions involving its nonbank affiliates. Additionally, transactions between U.S. banks and their nonbank affiliates are required to be on arm’s length terms and must be consistent with standards of safety and soundness.

Deposit Insurance

Deposits placed at U.S. domiciled banks ~~(U.S. banks)~~ are insured by the FDIC, subject to limits and conditions of applicable law and the FDIC’s regulations. Pursuant to the Financial Reform Act, FDIC insurance coverage limits are $250,000 per customer. All insured depository institutions are required to pay assessments to the FDIC in order to fund the DIF.

The FDIC is required to maintain at least a designated minimum ratio of the DIF to insured deposits in the U.S. The Financial Reform Act requires the FDIC to assess insured depository institutions to achieve a DIF ratio of at least 1.35 percent by September 30, 2020. ~~The~~In November 2018, the FDIC ~~has~~announced that the DIF ratio exceeded 1.35 in advance of the deadline and that the related surcharges ceased. Additionally, the FDIC adopted regulations that establish a long-term target DIF ratio of greater than two percent. ~~The~~As of the date of this report, the DIF ratio is ~~currently~~ below ~~the~~this required ~~targets~~target and the FDIC has adopted a restoration plan that may result in increased deposit insurance assessments. ~~In 2016, the FDIC implemented a surcharge to accelerate compliance with the 1.35 percentage requirement.~~ Deposit insurance assessment rates are subject to change by the FDIC and will be impacted by the overall economy and the stability of the banking industry as a whole. For more information regarding deposit insurance, see Item 1A. Risk Factors – Regulatory, Compliance and Legal on page ~~12.~~13.

Capital, Liquidity and Operational Requirements

As a financial holding company, we and our bank subsidiaries are subject to the regulatory capital and liquidity guidelines issued by the Federal Reserve and other U.S. banking regulators, including the FDIC and the OCC. These rules are complex and are evolving as U.S. and international regulatory authorities propose and enact enhanced capital and liquidity rules. The Corporation seeks to manage its capital position to maintain sufficient capital to meet these regulatory guidelines and to support our business activities. These evolving rules are likely to influence our planning processes ~~for,~~ and may require additional regulatory capital and liquidity, as well as impose additional operational and compliance costs on the Corporation. In addition, the Federal Reserve and the OCC have adopted guidelines that establish minimum standards for the design, implementation and board oversight of BHCs’ and national

~~national~~ banks’ risk governance frameworks. The Federal Reserve ~~has~~ also issued a final rule, ~~requiring us to maintain~~which became effective January 1, 2019, that includes minimum ~~amounts of~~external total loss-absorbing capacity (TLAC) and long-term debt ~~meeting specified eligibility~~ requirements.

For more information on regulatory capital rules, capital composition and pending or proposed regulatory capital changes, see Capital Management – Regulatory Capital in the MD&A on page ~~45,~~44, and Note 16 – Regulatory Requirements and Restrictions to the Consolidated Financial Statements, which are incorporated by reference in this Item 1.

Distributions

We are subject to various regulatory policies and requirements relating to capital actions, including payment of dividends and common stock repurchases. For instance, Federal Reserve regulations require major U.S. BHCs to submit a capital plan as part of an annual Comprehensive Capital Analysis and Review (CCAR). The purpose of the CCAR for the Federal Reserve is to assess the capital planning process of the BHC, including any planned capital actions, such as payment of dividends and common stock repurchases.

Our ability to pay dividends is also affected by the various minimum capital requirements and the capital and non-capital standards established under the FDICIA. The right of the Corporation, our shareholders and our creditors to participate in any distribution of the assets or earnings of our subsidiaries is further subject to the prior claims of creditors of the respective subsidiaries.

If the Federal Reserve finds that any of our Banks are not “well-capitalized” or “well-managed,” we would be required to enter into an agreement with the Federal Reserve to comply with all applicable capital and management requirements, which may contain additional limitations or conditions relating to our activities. Additionally, the applicable federal regulatory authority is authorized to determine, under certain circumstances relating to the financial condition of a bank or BHC, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof.

For more information regarding the requirements relating to the payment of dividends, including the minimum capital requirements, see Note 13 – Shareholders’ Equity and Note 16 – Regulatory Requirements and Restrictionsto the Consolidated Financial Statements.

Many of our subsidiaries, including our bank and broker-dealer subsidiaries, are subject to laws that restrict dividend payments, or authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to the parent company or other subsidiaries.

Resolution Planning

As a BHC with greater than $50 billion of assets, the Corporation is required by the Federal Reserve and the FDIC to periodically submit a plan for a rapid and orderly resolution in the event of material financial distress or failure.

Such resolution plan is intended to be a detailed roadmap for the orderly resolution of athe BHC and its material entities pursuant to the U.S. Bankruptcy Code and other applicable resolution regimes under one or more hypothetical scenarios assuming no extraordinary government assistance.

If both the Federal Reserve and the FDIC determine that the BHC’s plan is not credible, the Federal Reserve and the FDIC may jointly impose more stringent capital, leverage or liquidity requirements or restrictions on growth, activities or operations. A description of our plan is available on the Federal Reserve and FDIC websites.

The FDIC also requires the submission of a resolution plan for Bank of America, N.A. (BANA), which must describe how the insured depository institution would be resolved under the bank resolution provisions of the Federal Deposit Insurance Act. A description of this plan is available on the FDIC’s website.

We continue to make substantial progress to enhance our resolvability, including simplifying our legal entity structure and business operations, and increasing our preparedness to implement our resolution plan, both from a financial and operational standpoint.

~~Similarly,~~Across international jurisdictions, resolution planning is the responsibility of national resolution authorities (RA). Of most impact to the Corporation are the requirements associated with subsidiaries in the U.K., Ireland and France, where rules have been issued requiring the submission of significant information about ~~certain U.K.-incorporated~~locally-incorporated subsidiaries, ~~and other financial institutions,~~ as well as the Corporation’s affiliated branches ~~of non-U.K. banks~~ located in ~~the U.K.~~those jurisdictions (including information on intra-group dependencies, legal entity separation and barriers to resolution) to allow the ~~Bank of England~~RA to ~~develop~~plan their resolution ~~plans.~~strategies. As a result of the ~~Bank of England’s~~RA’s review of the submitted information, we could be required to take certain actions over the next several years which could increase operating costs and potentially result in the restructuring of certain businesses and subsidiaries.

For more information regarding our resolution plan, see Item 1A. Risk Factors – Liquidity on page 6.

Insolvency and the Orderly Liquidation Authority

Under the Federal Deposit Insurance Act, the FDIC may be appointed receiver of an insured depository institution if it is insolvent or in certain other circumstances. In addition, under the Financial Reform Act, when a systemically important financial institution (SIFI) such as the Corporation is in default or danger of default, the FDIC may be appointed receiver in order to conduct an orderly liquidation of such institution. In the event of such appointment, the FDIC could, among other things, invoke the orderly liquidation authority, instead of the U.S. Bankruptcy Code, if the Secretary of the Treasury makes certain financial distress and systemic risk determinations. The orderly liquidation authority is modeled in part on the Federal Deposit Insurance Act, but also adopts certain concepts from the U.S. Bankruptcy Code.

The orderly liquidation authority contains certain differences from the U.S. Bankruptcy Code. For example, in certain circumstances, the FDIC could permit payment of obligations it determines to be systemically significant (e.g., short-term creditors or operating creditors) in lieu of paying other obligations (e.g., long-term creditors) without the need to obtain creditors’ consent or prior court review. The insolvency and resolution process could also lead to a large reduction or total elimination of the value of a BHC’s outstanding equity, as well as impairment or elimination of certain debt.

Under the FDIC’s “single point of entry” strategy for resolving SIFIs, the FDIC could replace a distressed BHC with a bridge holding company, which could continue operations and result in an orderly resolution of the underlying bank, but whose equity is held solely for the benefit of creditors of the original BHC.

Furthermore, the Federal Reserve ~~Board has finalized regulations regarding the~~requires that BHCs maintain minimum levels of long-term debt required ~~for BHCs~~ to provide adequate loss absorbing capacity in the event of a resolution.

For more information regarding our resolution, see Item 1A. Risk Factors – Liquidity on page 6.

Limitations on Acquisitions

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permits a BHC to acquire banks located in states other

than its home state without regard to state law, subject to certain conditions, including the condition that the BHC, after and as a

result of the acquisition, controls no more than 10 percent of the total amount of deposits of insured depository institutions in the U.S. and no more than 30 percent or such lesser or greater amount set by state law of such deposits in that state. At June 30, ~~2017,~~2018, we held greater than 10 percent of the total amount of deposits of insured depository institutions in the U.S.

In addition, the Financial Reform Act restricts acquisitions by a financial institution if, as a result of the acquisition, the total liabilities of the financial institution would exceed 10 percent of the total liabilities of all financial institutions in the U.S. At June 30, ~~2017,~~2018, our liabilities did not exceed 10 percent of the total liabilities of all financial institutions in the U.S.

The Volcker Rule

The Volcker Rule prohibits insured depository institutions and companies affiliated with insured depository institutions (collectively, banking entities) from engaging in short-term proprietary trading of certain securities, derivatives, commodity futures and options for their own account. The Volcker Rule also imposes limits on banking entities’ investments in, and other relationships with, hedge funds and private equity funds. The Volcker Rule provides exemptions for certain activities, including market-making, underwriting, hedging, trading in government obligations, insurance company activities and organizing and offering hedge funds and private equity funds. The Volcker Rule also clarifies that certain activities are not prohibited, including acting as agent, broker or custodian. A banking entity with significant trading operations, such as the Corporation, is required to maintain a detailed compliance program to comply with the restrictions of the Volcker Rule.

Derivatives

Our derivatives operations are subject to extensive regulation globally. These operations are subject to regulation under the Financial Reform Act, the EUEuropean Union (EU) Markets in Financial Instruments Directive and Regulation, the European Market Infrastructure Regulationand similar regulatory regimes in other jurisdictions, that regulate or will regulate the derivatives markets in which we operate by, among other things: requiring clearing and exchange trading of certain derivatives; imposing new capital, margin, reporting, registration and business conduct requirements for certain market participants; imposing position limits on certain over-the-counter (OTC) derivatives; and imposing derivatives trading transparency ~~requirements; and requiring registration as swap dealers, major swap participants or analogous regulated entities. Most regulations~~requirements. Regulations of derivatives are already in effect in many markets in which we ~~operate are already in effect.~~operate.

In addition, many G-20 jurisdictions, including the U.S., U.K., Germany and Japan, have adopted resolution stay regulations to address concerns that the close-out of derivatives and other financial contracts in resolution could impede orderly resolution of global systemically important banks (G-SIBs), and additional jurisdictions are expected to follow suit. We and 24 other G-SIBs have adhered to a protocol amending certain financial contracts to provide for contractual recognition of stays of termination rights under various statutory resolution regimes and a stay on the exercise of cross-default rights based on an affiliate’s entry into U.S. bankruptcy proceedings. As resolution stay regulations of a particular jurisdiction go into effect, we amend financial contracts in compliance with such regulations.

Consumer Regulations

Our consumer businesses are subject to extensive regulation and oversight by federal and state regulators. Certain federal consumer finance laws to which we are subject, including ~~but not limited to,~~ the Equal Credit Opportunity Act, ~~the~~ Home Mortgage Disclosure Act, Electronic Fund

~~Act, the Electronic Fund~~ Transfer Act, ~~the~~ Fair Credit Reporting Act, ~~the~~ Real Estate Settlement Procedures Act, ~~the~~ Truth in Lending Act and Truth in Savings Act, are enforced by the CFPB. Other federal consumer finance laws, such as the Servicemembers Civil Relief Act, are enforced by the OCC.

Privacy and Information Security

We are subject to many U.S. federal, state and international laws and regulations governing requirements for maintaining policies and procedures to protect the non-public confidential information of our customers and employees. The Gramm-Leach-Bliley Act requires us to periodically disclose Bank of America’s privacy policies and practices relating to sharing such information and enables retail customers to opt out of our ability to share information with unaffiliated third parties, under certain circumstances. Other laws and regulations, at the international, federal and state level, impact our ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing ~~offers.~~offers, including California’s consumer privacy law that established basic rights of consumers in connection with their personal information. The Gramm-Leach-Bliley Act also requires us to implement a comprehensive information security program that includes administrative, technical and physical safeguards to provide the security and confidentiality of customer records and information. These security and privacy policies and procedures for the protection of personal and confidential information are in effect across all businesses and geographic locations. ~~The European Union (EU) has adopted~~In the EU, the General Data Protection Regulation (GDPR) ~~which replaces~~replaced the Data Protection Directive and related implementing national laws in its member states. The GDPR’s impact on the ~~Member States. The~~Corporation was assessed and addressed through a comprehensive compliance ~~date for the GDPR is May 25, 2018. It will have impacts across the enterprise~~implementation program. Additionally, other legislative and ~~impact assessments are underway. Meanwhile other legislation,~~ regulatory activity ~~(the proposed e-Privacy Regulation, elements of~~in the ~~Fourth Money Laundering Directive)~~U.S. and abroad, as well as court proceedings and ~~any impact of~~ bilateral U.S. and EU political developments on the validity of cross-border data transfer mechanisms from the EU, continue to lend uncertainty to privacy compliance ~~in the EU.~~globally.

Item 1A. Risk Factors

In the course of conducting our business operations, we are exposed to a variety of risks, some of which are inherent in the financial services industry and others of which are more specific to our own businesses. The discussion below addresses the most significant factors, of which we are currently aware, that could affect our businesses, results of operations and financial condition. Additional factors that could affect our businesses, results of operations and financial condition are discussed in Forward-looking Statements in the MD&A on page ~~19.~~20. However, other factors not discussed below or elsewhere in this Annual Report on Form 10-K could also adversely affect our businesses, results of operations and financial condition. Therefore, the risk factors below should not be considered a complete list of potential risks that we may face. For more information on how we manage risks, see Managing Risk in the MD&A on page ~~41.~~40.

Any risk factor described in this Annual Report on Form 10-K or in any of our other SEC filings could by itself, or together with other factors, materially adversely affect our liquidity, competitive position, business, reputation, results of operations, capital position or financial condition, including by materially increasing our expenses or decreasing our revenues, which could result in material losses.

Market

Our business and results of operations may be adversely affected by the U.S. and international financial markets, U.S. and non-U.S. fiscal and monetary policies and economic conditions generally.

Financial markets and general economic, political and social conditions in the U.S. and in one or more countries abroad, including the level and volatility of interest rates, unexpected changes in market financing conditions, gross domestic product (GDP) growth, inflation, consumer spending, employment levels, wage stagnation, prolonged federal government shutdowns, energy prices, home prices, bankruptcies, fluctuations or other significant changes in both debt and equity capital markets and currencies, liquidity of the global financial markets, the growth of global trade and commerce, trade policies, the availability and cost of capital and credit, terrorism, disruption of communication, transportation or energy infrastructure, investor sentiment and confidence, ~~and~~ the sustainability of economic growth ~~all~~and any potential slowdown in economic activity may affect markets in the U.S. and abroad and our businesses. Any market downturn in the U.S. or abroad would likely result in a decline in revenue and adversely affect our ~~business.~~results of operations and financial condition, including capital and liquidity levels.

In the U.S. and abroad, uncertainties surrounding fiscal and monetary policies present economic challenges. Actions taken by the Federal Reserve, including potential further increases in its target funds rate and the ~~planned~~ongoing reduction in its balance sheet, and other central banks are beyond our control and difficult to predict and can affect interest rates and the value of financial instruments and other assets, such as debt securities and mortgage servicing rights (MSRs), and impact our borrowers, potentially increasing delinquency ~~rates.~~and default rates as interest rates rise.

Changes to existing U.S. laws and regulatory policies including those related to financial regulation, taxation, international trade, fiscal policy and healthcare may adversely impact us. For example, significant fiscal policy initiatives may increase uncertainty surrounding the formulation and direction of U.S. monetary policy, and volatility of interest rates. Higher U.S. interest rates relative to other major economies could increase the likelihood of a more volatile and appreciating U.S. dollar. Changes, or proposed changes to certain U.S. trade policies, ~~or measures~~particularly with important trading partners, including China, could upset financial markets, ~~and~~ disrupt world trade and ~~commerce.~~commerce and lead to trade retaliation through the use of tariffs, foreign exchange measures or the large-scale sale of U.S. Treasury Bonds.

Any of these developments could adversely affect our consumer and commercial businesses, our securities and derivatives portfolios, our level of charge-offs and provision for credit losses, the carrying value of our deferred tax assets, our capital levels and liquidity and the costs of running our business, and our results of operations.

~~For more information about economic conditions~~ Additionally, events and ~~challenges discussed above, see Executive Summary – 2017 Economic~~ongoing uncertainty related to the planned exit of the U.K. from the EU could magnify any negative impact of these developments on our business and ~~Business Environment in the MD&A on page 19.~~results of operations.

Increased market volatility and adverse changes in other financial or capital market conditions may increase our market risk.

Our liquidity, competitive position, business, results of operations and financial condition are affected by market risks such as changes in interest and currency exchange rates, fluctuations in equity and futures prices, lower trading volumes and prices of securitized products, the implied volatility of interest rates and credit spreads and other economic and business factors. These market risks may adversely affect, among other things, (i) the value of our on- and off-balance sheet securities, trading assets, other financial instruments and MSRs, (ii) the cost of debt capital and our access to credit markets, (iii) the value of assets under management (AUM), (iv) fee income relating to AUM, (v) customer allocation of capital among investment alternatives, (vi)

the volume of client activity in our trading operations, (vii) investment banking fees, (viii) the general profitability and risk level of the transactions in which we engage and (ix) our competitiveness with respect to deposit pricing. For example, the value of certain of our assets is sensitive to changes in market interest rates. If the Federal

market volatility, disruption, shock or ~~shock,~~stress, fluctuations in interest rates, negative views about the Corporation or financial services industry generally or a specific news event, changes in the regulatory environment, actions by credit rating agencies or an operational problem that affects third parties or us. The impact of these events, whether within our control or not, could include an inability to sell assets or redeem investments, or unforeseen outflows of cash, ~~including customer deposits,~~the need to draw on liquidity facilities, debt repurchases to support the secondary market or meet client requests, the need for additional funding for commitments and contingencies, as well as unexpected collateral calls, among other ~~things.~~things, the result of which could be a liquidity shortfall and/or impact on our liquidity coverage ratio.

In the event of ~~our~~a resolution, whether in a bankruptcy proceeding or under the ~~single point~~orderly liquidation authority of ~~entry resolution strategy,~~the FDIC, such resolution could materially adversely affect our liquidity and financial condition and the ability to pay dividends to shareholders and to pay obligations.

Bank of America Corporation, our parent holding company, is required to periodically to submit a plan to the FDIC and Federal Reserve describing its resolution strategy under the U.S. Bankruptcy Code in the event of material financial distress or failure. In the current plan, Bank of America Corporation’s preferred resolution strategy is a ~~single~~“single point of ~~entry~~entry” strategy. This strategy provides that only the parent holding company files for resolution under the U.S. Bankruptcy Code and contemplates providing certain key operating subsidiaries with sufficient capital and liquidity to operate through severe stress and to enable such subsidiaries to continue operating or be wound down in a solvent

concentration with respect to this industry. Financial services institutions and other counterparties are inter-related because of trading, funding, clearing or other relationships. As a result, defaults by, or even market uncertainty about the financial stability of one or more financial services institutions, or the financial services industry generally, could lead to market-wide liquidity disruptions, losses and defaults. Many of these transactions expose us to credit risk and, in some cases, disputes and litigation in the event of default of a counterparty. In addition, our credit risk may be heightened by market risk when the collateral held by us cannot be liquidated or is liquidated at prices not sufficient to recover the full amount of the loan or derivatives exposure due to us. Further, disputes with obligors as to the valuation of collateral could increase in times of significant market stress, volatility or illiquidity, and we could suffer losses during such periods if we are unable to realize the fair value of the collateral or manage declines in the value of collateral.

In the ordinary course of business, we also enter into transactions with sovereign nations, U.S. states and U.S. municipalities. Unfavorable economic or political conditions, disruptions to capital markets, currency fluctuations, changes in oil prices, social instability and changes in government policies could impact the operating budgets or credit ratings of these government entities and expose us to credit risk.

We also have a concentration of credit risk with respect to our consumer real estate, ~~loans, including home equity lines of credit (HELOCs),~~ auto, ~~loans,~~ consumer credit card and commercial real estate portfolios, which represent a significant percentage of our overall credit portfolio. ~~Our~~Additionally, decreases in home ~~equity portfolio includes HELOCs not yet~~price valuations or commercial real estate valuations in ~~their amortization period. HELOCs that~~certain markets where we have ~~entered the amortization period are characterized by a higher percentage of early stage delinquencies and nonperforming status relative to the HELOC portfolio~~large concentrations, including as a ~~whole. Loans~~result of natural disasters, as well as more broadly within the U.S. or globally, could result in ~~our HELOC portfolio generally have an initial draw period of 10 years and 10 percent of these~~

financial, social or judicial instability, changes in governmental policies or policies of central banks, expropriation, nationalization and/or confiscation of assets, price controls, capital controls, redenomination risk, exchange controls, protectionist trade policies, increasing trade tensions between the U.S. and important trading partners, particularly China, increasing the risk of escalating tariffs and other restrictive actions, unfavorable political and diplomatic developments, oil price fluctuation and changes in legislation. These risks are especially elevated in emerging markets. A number of non-U.S. jurisdictions in which we do business have been or may be negatively impacted by ~~slow~~slowing growth ~~rates~~ or recessionary conditions, market volatility and/or political unrest. The political and economic environment in Europe, ~~has improved but~~including the debt concerns of certain EU countries, remains challenging and the current degree of political and economic uncertainty, including potential recessionary conditions, could increase. ~~In the U.K.,~~For example, the ongoing ~~negotiation~~negotiations of the terms of the U.K.’s planned exit ~~of the U.K.~~ from the EU ~~continues to inject uncertainty.~~may create uncertainty and increase risk, which could adversely affect us.

Potential risks of default on or devaluation of sovereign debt in some non-U.S. jurisdictions could expose us to substantial losses. Risks in one nation can limit our opportunities for portfolio growth and negatively affect our operations in other nations, including our U.S. operations. Market and economic disruptions of all types may affect consumer confidence levels and spending, corporate investment and job creation, bankruptcy rates, levels of incurrence and default on consumer and corporate debt, economic growth rates and asset values, among other factors. Any such unfavorable conditions or developments could have an adverse impact on our company.

We also invest or trade in the securities of corporations and governments located in non-U.S. jurisdictions, including emerging markets. Revenues from the trading of non-U.S. securities may be subject to negative fluctuations as a result of the above factors. Furthermore, the impact of these fluctuations could be magnified because non-U.S. trading markets, particularly in emerging markets, are generally smaller, less liquid and more volatile than U.S. trading markets.

Our non-U.S. businesses are also subject to extensive regulation by governments, securities exchanges and regulators, central banks and other regulatory bodies. In many countries, the laws and regulations applicable to the financial services and securities industries are uncertain and evolving, and it may be difficult for

affected by any significant disruptions to us or to third parties with whom we interact or upon whom we rely. For example, technology project implementation challenges may cause business interruptions. In addition, our ability to implement backup systems and other safeguards with respect to third-party systems is more limited than with respect to our own systems. Our financial, accounting, data processing, backup or other operating or security systems and infrastructure or those of third parties with whom we interact or upon whom we rely may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our or such third party’s control, which could adversely affect our ability to process transactions or provide services. There could be sudden increases in customer transaction ~~volume;~~volume due to electronic trading platforms and algorithmic trading applications; electrical, telecommunications or other major physical infrastructure outages; newly identified vulnerabilities in key hardware or software; natural disasters such as earthquakes, tornadoes, hurricanes and floods; ~~disease~~ pandemics; and events arising from local or larger scale political or social matters, including terrorist ~~acts.~~acts, which could result in prolonged operational outages. In the event that backup systems are utilized, they may not process data as quickly as our primary systems and some data might not have been backed up. We continuously update the systems on which we rely to support our operations and growth and to remain compliant with all applicable laws, rules and regulations globally. This updating entails significant costs and creates risks associated with implementing new systems and integrating them with existing ones, including business interruptions. Operational risk exposures could adversely impact our results of operations, liquidity and financial condition, as well as cause reputational harm.

A ~~cyber attack,~~cyber-attack, information or security breach, or a technology failure of ours or of a third party could adversely affect our ability to conduct our business, manage our exposure to risk or expand our businesses, result in the disclosure or misuse of confidential or proprietary information, increase our costs to maintain and update our operational and security systems and infrastructure, and adversely impact our results of operations, liquidity and financial condition, as well as cause legal or reputational harm.

Our businesses are highly dependent on the security, controls and efficacy of our infrastructure, computer and data management systems, as well as those of our customers, suppliers, counterparties and other third parties with whom we interact or on whom we rely. Our businesses rely on effective access management and the secure collection, processing, transmission, storage and retrieval of confidential, proprietary, personal and other information in our computer and data management systems and networks, and in the computer and data management systems and networks of third parties. In addition, to access our network, products and services, our employees, customers, suppliers, counterparties and other third parties ~~may~~increasingly use personal mobile devices or computing devices that are outside of our network ~~environment~~and control environments and are subject to their own cybersecurity risks.

We, our employees and customers, regulators and other third parties have been subject to, and are likely to continue to be the target of, ~~cyber attacks.~~cyber-attacks. These ~~cyber attacks~~cyber-attacks include computer viruses, malicious or destructive code (such as ransomware), phishing attacks, denial of service or information or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of ours, our employees, our customers or of third parties, damages to systems, or otherwise material disruption to our or our customers’ or other third parties’ network

access or business

financial intermediaries such as clearing agents, exchanges and clearing houses; vendors; regulators; providers of critical infrastructure such as internet access and electrical power; and retailers for whom we process transactions. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure,

~~cyber attack~~ cyber-attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities or third-party or downstream service providers could have a material impact on counterparties or other market participants, including us. This consolidation, interconnectivity and complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis. Any ~~third-party~~ technology failure, ~~cyber attack~~cyber-attack or other information or security breach, termination or constraint of any third party, including downstream service providers, could, among other things, adversely affect our ability to conduct day-to-day business activities, effect transactions, service our clients, manage our exposure to risk, or expand our ~~businesses.~~businesses or result in the misappropriation or destruction of the personal, proprietary or confidential information of our employees, customers, suppliers, counterparties and other third parties.

~~Cyber attacks~~Cyber-attacks or other information or security breaches, whether directed at us or third parties, may result in ~~a material loss~~significant lost revenue, give rise to losses or have ~~material~~other negative consequences. Furthermore, the public perception that a ~~cyber attack~~cyber-attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third parties with whom we do business. AAlthough we maintain cyber insurance, there can be no assurance that liabilities or losses we may incur will be covered under such policies or that the amount of insurance will be adequate. Also, successful penetration or circumvention of system security could ~~cause us~~result in negative consequences, including loss of customers and business opportunities, ~~disruption~~the withdrawal of customer deposits, prolonged computer and network outages resulting in disruptions to our critical business operations and ~~business,~~customer services, misappropriation or destruction of our confidential information and/or ~~that~~the confidential, proprietary or personal information of certain parties, such as our employees, customers, suppliers, counterparties and other third parties, or damage to ~~our customers’ and/or third parties’~~their computers or ~~systems, and~~systems. This could result in a violation of applicable privacy ~~laws~~ and other laws in the U.S. and abroad, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs and our internal controls or disclosure controls being rendered ineffective. The occurrence of any of these events could adversely impact our results of operations, liquidity and financial condition.

Our mortgage loan repurchase obligations or claims from third parties could result in additional losses.

We and our legacy companies have sold significant amounts of residential mortgage loans. In connection with these sales, we or certain of our subsidiaries or legacy companies made various representations and warranties, breaches of which may result in a requirement that we repurchase the mortgage loans, or otherwise make whole or provide other remedies to counterparties. At December 31, ~~2017,~~2018, we had ~~$17.6~~$14.4 billion of unresolved repurchase claims, net of duplicate claims and excluding claims where the statute of limitations has expired without litigation being commenced. We have also received notifications pertaining to loans for which we have not received a repurchase request from sponsors of third-party securitizations with whom we engaged in whole-loan transactions and for which we may owe indemnity obligations.

~~We have recorded a~~At December 31, 2018, our liability ~~of $1.9 billion~~ for obligations under representations and warranties ~~exposures.~~exposures was $2.0 billion. We also have an estimated range of possible loss ~~of up~~(RPL) for

representations and warranties exposures that is combined with the litigation RPL, which we disclose in Note 12 – Commitments and Contingencies to ~~$1 billion over our recorded liability.~~the Consolidated Financial Statements. The recorded liability and estimated ~~range of possible loss~~RPL are based on currently available information, significant judgment and a number of assumptions that are subject to change. There can be no assurance that the Corporation will reach future settlements or, if it does, that the terms of past settlements can be relied upon to predict the terms of future settlements. Future representations and warranties losses may occur in excess of our recorded liability and estimated ~~range of possible loss~~RPL, and such losses could have ana material adverse effect on our liquidity, financial condition and results of operations.

Additionally, our recorded liability for representations and warranties exposures and the corresponding estimated ~~range of possible loss~~RPL do not consider certain losses related to servicing, including foreclosure and related costs, fraud, indemnity or claims (including for residential mortgage-backed ~~securities )~~securities) related to securities law. Losses with respect to one or more of these matters could be material to our results of operations or liquidity.

For more information about our representations and warranties exposure, ~~including the estimated range of possible loss,~~ see ~~Off-~~

change in business structure. There are several proposed approaches to reform that, if enacted, could change the structure and the relationship among the GSEs, the government and the private markets, including the trading markets for agency conforming mortgage loans and markets for mortgage-related securities in which weparticipate. WeAlthough the FHFA has taken steps to unify underwriting parameters and business practices between GSEs, we cannot predict the prospects for the enactment, timing or content of legislative or rulemaking proposals regarding the future status of any ~~GSEs.~~GSEs and/or their impact on the guarantees, demand or price of mortgage-related securities. Accordingly, uncertainty regarding their future continues to exist, including whether ~~they~~the GSEs will continue to exist in their current forms or continue to guarantee mortgages and provide funding for mortgage loans.

Any of these developments could adversely affect the value of our securities portfolios, capital levels and liquidity and results of operations.

Our risk management framework may not be effective in mitigating risk and reducing the potential for losses.

Our risk management framework is designed to minimize risk and loss to us. We seek to effectively identify, measure, monitor, report and control ~~our exposure to~~ the types of risk to which we are subject, including strategic, credit, market, liquidity, compliance, operational and reputational risks. While we employ a broad and diversified set of controls and risk ~~monitoring and~~ mitigation techniques, including hedging strategies and techniques that seek to balance our ability to profit from trading positions with our exposure to

potential losses, ~~those techniques are inherently limited because they cannot anticipate the existence or development of currently unanticipated or unknown risks and rely upon~~ our ability to control and mitigate risks that result in losses is inherently limited by our ability to identify all risks, including emerging and unknown risks, anticipate the timing of risks, apply effective hedging strategies, manage and aggregate ~~data. For instance, we use various~~data correctly and efficiently, and develop risk management models to assess and control ~~risk, which are subject to inherent limitations.~~risk.

Our ability to manage risk ~~management framework depends on~~is limited by our ability to develop and maintain a ~~sound~~culture of managing risk ~~culture existing~~well throughout the Corporation and ~~that we~~ manage risks associated with third parties and ~~vendors.~~vendors, to enable effective risk management and ensure that risks are appropriately considered, evaluated and responded to in a timely manner. Uncertain economic conditions, heightened legislative and regulatory scrutiny of the financial services industry and the overall complexity of our operations, among other developments, ~~have resulted~~may result in a heightened level of risk for us. Accordingly, we could suffer losses as a result of our failure to properly anticipate, ~~and~~ manage, control or mitigate risks.

For more information about our risk management policies and procedures, see Managing Risk in the MD&A on page ~~41.~~40.

We may not be successful in reorganizing the current business of Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) into two affiliated broker-dealers.

As a result of resolution planning, the current business of MLPF&S is expected to be reorganized, subject to regulatory approval, into two affiliated broker-dealers during 2019, MLPF&S and BofA Securities, Inc. In the event that the broker-dealer reorganization is not fully realized or takes longer to realize than expected, we could experience unexpected expenses, reputational damage, compliance and regulatory issues, and lost revenue. For more information about the broker-dealer reorganization, see Capital Management – Broker-dealer Regulatory Capital and Securities Regulation in the MD&A on page 47.

Regulatory, Compliance and Legal

We are subject to comprehensive government legislation and regulations, both domestically and internationally, which impact our operating costs, and could require us to make changes to our operations and result in an adverse impact on our results of operations. Additionally, these regulations and uncertainty surrounding the scope and requirements of the final rules implementing recently enacted and proposed legislation, as well as certain settlements and consent orders we have entered into, have increased and could continue to increase our compliance and operational risks and costs.

We are subject to comprehensive regulation under federal and state laws in the U.S. and the laws of the various jurisdictions in which we operate. These laws and regulations significantly affect and have the potential to restrict the scope of our existing businesses, limit our ability to pursue certain business opportunities, including the products and services we offer, reduce certain fees and rates or make our products and services more expensive for clients and customers.

In response to the financial crisis as well as other factors such as technological and market changes, the U.S. adopted the Financial Reform Act, which has resulted in significant rulemaking and proposed rulemaking by the U.S. Department of the Treasury, ~~the~~ Federal Reserve, ~~the~~ OCC, ~~the~~ CFPB, Financial Stability Oversight Council, ~~the~~ FDIC, ~~the~~ Department of Labor, ~~the~~ SEC and CFTC. ~~Under~~For example, under the provisions of the Financial Reform Act known as the “Volcker Rule,” we are prohibited from proprietary trading and limited in our sponsorship of, and investment in, hedge funds, private equity funds and certain other covered private funds. Non-U.S. regulators, such as the U.K. financial regulators and the European Parliament and Commission, have adopted or proposed laws and regulations regarding financial institutions located in their jurisdictions, which have required and could require us to make significant modifications to our non-U.S. businesses, operations and legal entity structure in order to comply with these requirements.

We continue to make adjustments to our business and operations, legal entity structure and capital and liquidity management policies, procedures and controls to comply with these laws and regulations, as well as final rulemaking, guidance and interpretation by regulatory authorities. Further, we could become subject to future regulatory requirements beyond those currently proposed, adopted or contemplated. ~~Accordingly, the~~The cumulative effect of all of the legislation and regulations on our business, operations and profitability remains uncertain. This uncertainty necessitates that in our business planning we make certain assumptions with respect to the scope and requirements of the proposed rules. If these assumptions prove incorrect, we could be subject to increased regulatory and compliance risks and costs

including related to anti-money laundering, anti-corruption and economic sanctions. Additionally, we are subject to laws in the U.S. and abroad, including GDPR, regarding personal and confidential information of certain parties, such as ~~the Foreign Corrupt Practices Act~~our employees, customers, suppliers, counterparties and ~~U.S. and international anti-money laundering regulations.~~ other third parties.

As part of their enforcement authority, our regulators have the authority to, among other things, assess significant civil or criminal monetary penalties, fines or restitution, issue cease and desist or removal orders and initiate injunctive actions. The amounts paid by us and other financial institutions to settle proceedings or investigations have been substantial and may ~~continue to~~ increase. In some cases, governmental authorities have required criminal pleas or other extraordinary terms as part of such settlements, which could have significant consequences for a financial institution, including reputational harm, loss of customers, restrictions on the ability to access capital markets, and the inability to operate certain businesses or offer certain products for a period of time.

The Corporation and its employees and representatives are subject to regulatory scrutiny across jurisdictions. Additionally, the complexity of the federal and state regulatory and enforcement regimes in the U.S., coupled with the global scope of our operations and the aggressiveness of the regulatory environment worldwide also means that a single event or practice or a series of related events or practices may give rise to a large number of overlapping investigations and regulatory proceedings, either by multiple federal and state agencies in the U.S. or by multiple regulators and other governmental entities in different jurisdictions. Responding to inquiries, investigations, lawsuits and proceedings, regardless of the ultimate outcome of the matter, is time-consuming and expensive and can divert the attention of our senior management from our business. The outcome of such proceedings may be difficult to predict or estimate until late in the proceedings, which may last a number of years.

We are currently subject to the terms of settlements and consent orders that we have entered into with government agencies and regulatory authorities and may become subject to additional settlements or orders in the future. Such settlements and consent orders impose significant operational and compliance costs on us as they typically require us to enhance our procedures and controls, expand our risk and control functions within our lines of business, invest in technology and hire significant numbers of additional risk, control and compliance personnel. Moreover, if we fail to meet the requirements of the regulatory settlements and orders to which we are subject, or more generally, to maintain risk and control procedures and processes that meet the heightened standards established by our regulators and other government agencies, we could be required to enter into further settlements and orders, pay additional fines, penalties or judgments, or accept material regulatory restrictions on our businesses.

While we believe that we have adopted appropriate risk management and compliance programs to identify, assess, monitor and report on applicable laws, policies and procedures, compliance risks will continue to exist, particularly as we adapt to new rules and regulations. Additionally, there is no guarantee that our risk management and compliance programs will be consistently executed to successfully manage compliance risk. We also rely upon third parties who may expose us to compliance and legal risk. Future legislative or regulatory actions, and any required changes to our business or operations, or those of third parties upon whom we rely, resulting from such developments and actions, could result in a significant loss of revenue, impose additional compliance and other costs or otherwise reduce our profitability, limit the products and services

that we offer or our ability to pursue certain business opportunities, require us to dispose of or curtail certain businesses, affect the value of assets

that we hold, require us to increase our prices and therefore reduce demand for our products, or otherwise adversely affect our businesses. In addition, legal and regulatory proceedings and other contingencies will arise from time to time that may result in fines, regulatory sanctions, penalties, equitable relief and changes to our business practices. As a result, we are and will continue to be subject to heightened compliance and operating costs that could adversely affect our results of operations.

We are subject to significant financial and reputational risks from potential liability arising from lawsuits and regulatory and government action.

We face significant legal risks in our business, and the volume of claims and amount of damages, penalties and fines claimed in litigation and other disputes, and regulatory and government proceedings against us and other financial institutions ~~remain~~continue to be high. Greater than expected litigation and investigation costs, substantial legal liability or significant regulatory or government action against us could have adverse effects on our financial condition, including liquidity, and results of operations or cause significant reputational harm to ~~us, which in turn could adversely impact our liquidity, financial condition and results of operations.~~us. We continue to experience a significant volume of litigation and other disputes, including claims for contractual indemnification with counterparties regarding relative rights and responsibilities. Consumers, clients and other counterparties continue to be litigious. Among other things, financial institutions, including us, continue to be the subject of claims alleging anti-competitive conduct with respect to various products and markets, including U.S. antitrust class actions claiming joint and several liability for treble damages. In addition, regulatory authorities have had a supervisory focus on enforcement, including in connection with alleged violations of law and customer harm. For example, U.S. regulators and government agencies have pursued claims against financial institutions under ~~FIRREA,~~ the Financial Institutions Reform, Recovery, and Enforcement Act, False Claims Act and ~~under the~~ antitrust laws. Such claims may carry significant and, in certain cases, treble damages. The ongoing environment of extensive regulation, regulatory compliance burdens, litigation and regulatory and government enforcement, combined with uncertainty related to the continually evolving regulatory environment, ~~have resulted in~~may affect operational and compliance costs and risks, which may limit our ability to continue providing certain products and services.

Additionally, misconduct by employees, including improper or illegal conduct, can cause significant reputational harm as well as litigation and regulatory action.

For more information on litigation risks, see Note 12 – Commitments and Contingencies to the Consolidated Financial Statements.

U.S. federal banking agencies may require us to increase our regulatory capital, ~~total loss absorbing capacity,~~TLAC, long-term debt or liquidity requirements, which could result in the need to issue additional qualifying securities or to take other actions, such as to sell company assets.

We are subject to U.S. regulatory capital and liquidity rules. These rules, among other things, establish minimum requirements to qualify as a “well-capitalized” institution. If any of our subsidiary insured depository institutions fails to maintain its status as “well capitalized” under the applicable regulatory capital rules, the Federal Reserve will require us to agree to bring the insured depository institution back to “well-capitalized” status. For the duration of such an agreement, the Federal Reserve may impose restrictions on our activities. If we were to fail to enter into or comply with such an agreement, or fail to comply with the terms of such agreement, the Federal Reserve may impose more severe restrictions on our activities, including requiring us to cease and desist activities permitted under the Bank Holding Company Act of 1956.

In the current regulatory environment, capital and liquidity requirements are frequently introduced and amended. It is possible that regulators may increase regulatory capital requirements including TLAC and long-term debt requirements, change how regulatory capital is calculated or increase liquidity requirements. Our risk-based capital surcharge (G-SIB surcharge) may increase from current estimates, and we are also subject to a countercyclical capital buffer which, while currently set at zero, may be increased by regulators. In 2018, the Federal Reserve issued a proposal to implement a stress capital buffer into its capital requirements, which may increase our regulatory capital requirements, if adopted. A significant component of regulatory capital ratios is calculating our risk-weighted assets ~~including operational risk,~~ and our leverage exposure which may increase. Additionally, in April 2016, the U.S. banking regulators proposed Net Stable Funding Ratio requirements which target longer term liquidity risk and would apply to us and our subsidiary insured depository institutions. The Basel Committee on Banking Supervision has also revised several key methodologies for measuring risk-weighted assets, including a standardized approach for credit risk, standardized approach for operational risk and constraints on the use of internal models, as well as a capital floor based on the revised standardized approaches. U.S. banking regulators may update the U.S. Basel 3 rules to incorporate the Basel Committee revisions. In 2018, U.S. banking regulators published a proposal outlining a standardized approach for counterparty credit risk, which updates the calculation of the exposure amount for derivative contracts under the regulatory capital rule. Additionally, Net Stable Funding Ratio requirements have been proposed, which would apply to us and our subsidiary depository institutions, and target longer term liquidity risk. While the impact of these proposals remains uncertain, they could have a negative impact on our capital and liquidity positions.

As part of its annual CCAR review, the Federal Reserve conducts stress testing on parts of our business using hypothetical economic scenarios prepared by the Federal Reserve. Those scenarios may affect our CCAR stress test results, which may have an effect on our projected regulatory capital amounts in the annual CCAR submission, including the CCAR capital plan affecting our dividends and stock repurchases.

We are also subject to the Federal Reserve’s rule effective January 1, 2019 requiring U.S. G-SIBs to maintain minimum amounts of external total loss-absorbing capacity (TLAC) to improve the resolvability and resiliency of large, interconnected BHCs, with minimum requirements for TLAC and long-term debt based on our risk-weighted assets, supplementary leverage exposure and G-SIB surcharge. Increases to these measures may impact our minimum external TLAC and long-term debt requirements.

Changes to and compliance with the regulatory capital and liquidity requirements may impact our operations by requiring us to liquidate assets, increase borrowings, issue additional equity or other securities, cease or alter certain operations, sell company assets, or hold highly liquid assets, which may adversely affect our results of operations. We may be prohibited from taking capital actions such as paying or increasing dividends, or repurchasing securities if the Federal Reserve objects to our CCAR capital plan.

For more information, see Capital Management – Regulatory Capital in the MD&A on page ~~45.~~44 and Note 16 – Regulatory Requirements and Restrictions to the Consolidated Financial Statements.

Changes in accounting standards or assumptions in applying accounting policies could adversely affect us.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these policies require use of estimates and assumptions that may affect the reported value of our assets or liabilities and results of operations and are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain. If those assumptions, estimates or judgments were incorrectly made, we could be required to correct and restate prior-period financial statements. Accounting standard-setters and those who interpret the accounting standards, the SEC, banking regulators and our independent registered public accounting firm may also amend or even reverse their previous interpretations or positions on how various standards should be applied. These changes may be difficult to predict and could impact how we prepare and report

our financial statements. In some cases, we could be required to

apply a new or revised standard retrospectively, resulting in us revising prior-period financial statements.

In June 2016, the Financial Accounting Standards Board issued a new accounting standard with respect to accounting for credit losses that will ~~require~~become effective for the ~~earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. The new guidance is effective~~Corporation on January 1, ~~2020, with early adoption permitted on January 1, 2019. This new accounting~~2020. The standard ~~is expected, on~~replaces the ~~date~~existing measurement of ~~adoption, to increase~~ the allowance for credit losses, which 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. 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 result in a ~~resulting~~ negative adjustment to retained earnings. The ultimate impact will depend on the characteristics of the Corporation’s portfolio at adoption date as well as the macroeconomic conditions and forecasts as of that date. For more information on some of our critical accounting policies and recent accounting changes, see Complex Accounting Estimates in the MD&A on page 8477 and Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.

We may be adversely affected by changes in U.S. and non-U.S. tax laws and regulations.

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (the Tax Act) which made significant changes to federal income tax law including, among other things, reducing the statutory corporate income tax rate to 21 percent from 35 percent and changing the taxation of our non-U.S. business activities. We have accounted for the effects of the Tax Act using reasonable estimates based on currently available information and our interpretations thereof. This accounting may change due to, among other things, changes in interpretations we have made and the issuance of new tax or accounting guidance.

In addition, we have U.K. net deferred tax assets which consist primarily of net operating losses that are expected to be realized by certain subsidiaries over an extended number of years. Adverse developments with respect to tax laws or to other material factors, such as prolonged worsening of Europe’s capital markets or changes in the ability of our U.K. subsidiaries to conduct business in the EU, could lead our management to reassess and/or change its current conclusion that no valuation allowance is necessary with respect to our U.K. net deferred tax assets.

It is possible that governmental authorities in the U.S. and/or other countries could further amend tax laws that would adversely affect ~~us.~~us, including the possibility that certain favorable aspects of the Tax Act could be amended in the future.

Reputation

Damage to our reputation could harm our businesses, including our competitive position and business prospects.

Our ability to attract and retain customers, clients, investors and employees is impacted by our reputation. Harm to our reputation can arise from various sources, including officer, director or employee misconduct, security breaches, unethical behavior, litigation or regulatory outcomes, compensation practices, the suitability or reasonableness of recommending particular trading or investment strategies, including the reliability of our research and models, prohibiting clients from engaging in certain transactions and sales ~~practices,~~practices. Additionally, our reputation may be harmed by failing to deliver products, subpar standards of service and quality expected by our customers, clients and the community, compliance failures, inadequacy of responsiveness to internal controls, unintended disclosure of personal, proprietary or confidential information, perception of our environmental, social and governance practices and disclosures, and the activities of our clients, customers and counterparties, including vendors. Actions by the financial services industry

generally or by certain members or individuals in the industry also can adversely affect our reputation. In addition, adverse publicity or negative information posted on social media, ~~websites,~~ whether or not factually correct, may adversely impact our business prospects or financial results.

We are subject to complex and evolving laws and regulations regarding privacy, know-your-customer requirements, data protection, including the ~~EU General Data Protection Regulation~~

employees. Current and potential future limitations on executive compensation imposed by legislation or regulation could adversely affect our ability to attract and maintain qualified employees. Furthermore, a substantial portion of our annual incentive compensation paid to our senior employees has in recent years taken the form of long-term ~~equity~~equity-based awards. Therefore, the ultimate value of this compensation depends on the price of our common stock when the awards vest. If we are unable to continue to attract and retain qualified individuals, our business prospects and competitive position could be adversely affected.

We could suffer losses if our models and strategies fail to properly anticipate and manage risk.

We use proprietary models and strategies extensively to measure and assess capital requirements for credit, country, market, operational and strategic risks and to assess and control

Assets

At December 31, ~~2017,~~2018, total assets were approximately ~~$2.3~~$2.4 trillion, up ~~$93.2~~$73.3 billion from December 31, ~~2016.~~2017. The increase in assets was primarily due to higher ~~loans and leases driven by client demand for commercial loans, higher trading assets and~~ securities borrowed or purchased under agreements to resell due to investment of excess cash levels in higher yielding assets and increased ~~customer~~client activity, and higher cash and cash equivalents ~~and debt securities~~ driven by ~~the deployment of~~ deposit ~~inflows.~~growth.

Cash and Cash Equivalents

Cash and cash equivalents increased ~~$9.7~~$20.0 billion primarily driven by deposit growth, ~~and net debt issuances,~~ partially offset by investment of short-term excess cash into securities purchased under agreements to resell, and loan growth ~~and net securities purchases.~~.

Federal Funds Sold and Securities Borrowed or Purchased Under Agreements to Resell

Federal funds transactions involve lending reserve balances on a short-term basis. Securities borrowed or purchased under agreements to resell are collateralized lending transactions utilized to accommodate customer transactions, earn interest rate spreads, and obtain securities for settlement and for collateral. Federal funds sold and securities borrowed or purchased under agreements to resell increased ~~$14.5~~$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 ~~$29.1~~$5.0 billion primarily driven by additional inventory in fixed-income, currencies and commodities (FICC) to meet expected client ~~demand and increased client financing activities in equities within~~ ~~Global Markets~~.demand.

Debt Securities

Debt securities primarily include U.S. Treasury and agency securities, ~~MBS,~~mortgage-backed securities (MBS), principally agency MBS, non-U.S. bonds, corporate bonds and municipal debt. We use the debt securities portfolio primarily to manage interest rate

and liquidity risk and to take advantage of market conditions that create economically attractive returns on these investments. Debt securities increased ~~$9.4~~$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 34 – Securities to the Consolidated Financial Statements.

Loans and Leases

Loans and leases increased ~~$30.1~~$10.1 billion ~~compared to December 31, 2016. The increase was~~ primarily due to net loan growth driven by ~~strong~~ client demand for commercial loans and increases in

Trading Account Liabilities

Trading account liabilities consist primarily of short positions in equity and fixed-income securities including U.S. Treasury and agency securities, corporate securities and non-U.S. sovereign debt. Trading account liabilities ~~increased $18.2~~decreased $13.0 billion primarily due to ~~higher equity~~lower levels of short positions in government and ~~higher levels of short~~

~~government~~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 ~~increased $8.7~~decreased $12.5 billion primarily due to ~~an increase~~a decrease in short-term ~~bank notes and short-term~~ FHLB ~~Advances.~~advances. For more information on short-term borrowings, see Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements, ~~and~~ Short-term Borrowings and Restricted Cash to the Consolidated Financial Statements.

Long-term Debt

Long-term debt increased ~~$10.6~~$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 ~~increased $1.0~~decreased $1.8 billion driven ~~by earnings, largely offset~~ by returns of capital to shareholders of ~~$18.4~~$27.0 billion through common and preferred stock dividends and share ~~repurchases.~~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 ~~49.~~47.

Business Segment Operations

We periodically review capital allocated to our businesses and allocate capital annually during the strategic and capital planning processes. We utilize a methodology that considers the effect of regulatory capital requirements in addition to internal risk-based capital models. Our internal risk-based capital models use a risk-adjusted methodology incorporating each segment’s credit, market, interest rate, business and operational risk components. For more information on the nature of these risks, see Managing Risk on page ~~41.~~40. The capital allocated to the business segments

is referred to as allocated capital. Allocated equity in the reporting

units is comprised of allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the reporting unit. For more information, including the definition of reporting unit, see Note 8 – Goodwill and Intangible Assets to the Consolidated Financial Statements.

For more information on the basis of presentation for business segments and reconciliations to consolidated total revenue, net income and year-end total assets, see Note 23 – Business Segment Information to the Consolidated Financial Statements.

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 ~~4,500~~4,300 financial centers, ~~16,000~~approximately 16,300 ATMs, nationwide call centers, and leading digital banking platforms with ~~approximately 35~~more than 36 million active users, including ~~approximately 24~~over 26 million active mobile ~~active~~ users.

Consumer Banking Results

Net income for Consumer Banking increased ~~$1.0~~$3.8 billion to ~~$8.2~~$12.0 billion in ~~2017~~2018 compared to ~~2016~~2017 primarily driven by higher ~~net interest~~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 and lower mortgage banking income.~~losses. Net interest income increased ~~$3.0~~$2.8 billion to ~~$24.3~~$27.1 billion primarily due to the beneficial impact of an increase in investable assets as a result of ~~higher~~an increase in deposits, as well as higher interest rates, pricing discipline and loan growth. Noninterest income ~~decreased $227~~increased $186 million to ~~$10.2~~$10.4 billion driven by higher card income, partially offset by lower mortgage banking income, ~~partially offset by higher card income and service charges.~~which is included in all other income.

The provision for credit losses increased ~~$810~~$139 million to ~~$3.5~~$3.7 billion ~~due to~~driven by portfolio seasoning and loan growth in the U.S. credit

card portfolio. Noninterest expense ~~increased $133~~decreased $82 million to ~~$17.8~~$17.7 billion driven by ~~higher personnel expense, including the shared success discretionary year-end bonus,~~operating efficiencies and ~~increased~~lower litigation and FDIC

~~expense, as well as~~ expense. These decreases were partially offset by investments in digital capabilities and business growth, including ~~increased~~ primary sales professionals, combined with investments in new financial centers and renovations. ~~These increases were partially offset by improved operating efficiencies.~~

The return on average allocated capital was 2233 percent, up from 2122 percent, asdriven by higher net ~~income was partially offset by an increased capital allocation.~~income. For more information on capital ~~allocations,~~allocated to the business segments, see Business Segment Operations on page 30.

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

~~Global Wealth & Investment Management~~

Global Banking, which includes Global Corporate Banking, Global Commercial Banking, Business Banking and Global Investment Banking, provides a wide range of lending-related products and services, integrated working capital management and treasury solutions, and underwriting and advisory services through our network of offices and client relationship teams. Our lending products and services include commercial loans, leases, commitment facilities, trade finance, commercial real estate lending and asset-based lending. Our treasury solutions business includes treasury management, foreign exchange and short-term investing options. We also provide investment banking products to our clients such as debt and equity underwriting and distribution, and merger-related and other advisory services. Underwriting debt and equity issuances, fixed-income and equity research, and certain market-based activities are executed through our global

broker-dealer affiliates, which are our primary dealers in several countries. Within Global Banking, Global Commercial Banking clients generally include middle-market companies, commercial real estate firms and not-for-profit companies. Global Corporate Banking clients generally include large global corporations, financial institutions and leasing clients. Business Banking clients include mid-sized U.S.-based businesses requiring customized and integrated financial advice and solutions.

Net income for Global Banking increased $1.2 billion to ~~$7.0~~$8.2 billion in ~~2017~~2018 compared to ~~2016~~2017 primarily driven by ~~higher revenue~~lower income tax expense from the reduction in the federal income tax rate and lower provision for credit ~~losses.~~losses, partially offset by lower revenue. Noninterest expense was relatively unchanged.

Revenue ~~increased $1.6~~decreased $355 million to $19.6 billion ~~to $20.0 billion in 2017 compared to 2016~~ driven by lower noninterest income, partially offset by higher net interest ~~income and noninterest~~ income. Net interest income increased ~~$1.0~~$377 million to $10.9 billion ~~to $10.5 billion~~primarily due to ~~loan and deposit-related growth, higher short-~~

Business Lending revenue ~~increased $271~~decreased $517 million in ~~2017~~2018 compared to ~~2016~~2017. The decrease was primarily driven by the impact of ~~loan~~tax reform on certain tax-advantaged investments and ~~lease-related growth and the allocation of ALM activities, partially offset by credit spread compression.~~lower leasing-related revenues.

Global Transaction Services revenue increased ~~$734~~$729 million to $7.9 billion in ~~2017~~2018 compared to ~~2016~~2017 driven by ~~the impact of~~ higher short-term rates ~~on an~~and increased ~~deposit base, as well as the allocation of ALM activities.~~deposits.

Average loans and leases increased ~~four~~two percent in ~~2017~~2018 compared to ~~2016~~2017 driven by growth in the commercial and industrial, and ~~leasing~~commercial real estate portfolios. Average deposits increased ~~three~~eight percent due to growth ~~with new~~in domestic and ~~existing clients.~~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 originates certain deal-related transactions with our corporate and commercial clients that are executed and distributed by Global Markets ~~under an internal revenue-sharing arrangement.~~. To provide a complete discussion of our consolidated investment banking fees, the following table

presents total Corporation investment banking Global Banking 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.and 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.Global MarketsGlobal 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. 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.

fees and the portion attributable to Global Banking.



Investment Banking Fees	Investment Banking Fees												Investment Banking Fees

	Global Banking						Total Corporation							Global Banking						Total Corporation
(Dollars in millions)	2017			2016			2017			2016				2018			2017			2018			2017
Products
Advisory	$	1,557		$	1,156		$	1,691		$	1,269			$	1,152		$	1,557		$	1,258		$	1,691
Debt issuance	1,506			1,407			3,635			3,276				1,327			1,506			3,084			3,635
Equity issuance	408			321			940			864				412			408			1,183			940
Gross investment banking fees	3,471			2,884			6,266			5,409				2,891			3,471			5,525			6,266
Self-led deals	(113		)	(49		)	(255		)	(168		)		(68		)	(113		)	(198		)	(255		)
Total investment banking fees	$	3,358		$	2,835		$	6,011		$	5,241			$	2,823		$	3,358		$	5,327		$	6,011

Total Corporation investment banking fees, excluding self-led deals, of ~~$6.0~~$5.3 billion, which are primarily included within Global Banking and Global Markets, ~~increased 15~~decreased 11 percent in ~~2017~~2018 compared to ~~2016 driven by higher~~2017 primarily due to declines in advisory fees and ~~higher~~ debt ~~and equity issuance fees due to an increase in overall client activity and market~~underwriting, the latter of which was driven by lower fee pools.

Global Markets offers sales and trading services ~~including~~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 internal revenue-sharing arrangement. Global Banking originates certain ~~deal-related~~deal 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 Ban

-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 3636.king 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. For information on investment banking fees on a consolidated basis, see page 36.

Net income for Global Markets ~~decreased $525~~ increased $686 million to ~~$3.3~~$4.0 billion in ~~2017~~2018 compared to ~~2016.~~2017. Net DVA losses were ~~$428~~$162 million compared to losses of ~~$238~~$428 million in ~~2016.~~2017. Excluding net DVA, net income ~~decreased $408~~increased $544 million to ~~$3.6 billion~~$4.1 billion. These increases were primarily driven by ~~higher noninterest~~lower income tax expense ~~lower sales and trading revenue and an increase~~from the reduction in the federal income tax rate, a decrease in the provision for credit losses ~~partially offset by~~and modestly higher ~~investment banking fees.~~revenue.

Sales and trading revenue, excluding net DVA, ~~decreased $423~~increased $19 million ~~primarily~~ due to ~~weaker performance in rates products and emerging markets.~~higher Equities revenue, largely offset by lower FICC revenue. The provision for credit losses ~~increased $133 million to~~decreased $164 million ~~reflecting~~ driven by Global Markets’ portion of a single-name non-U.S. commercial ~~charge-off.~~charge-off in 2017. Noninterest expense ~~increased $562~~decreased $45 million to $10.7 billion primarily due to ~~higher litigation expense and continued investments in technology.~~

~~Average trading-related assets increased $28.9 billion to $441.8 billion in 2017 primarily driven by targeted growth in client financing activities in the global equities business. Year-end~~lower operating costs.

~~trading-related~~Average total assets increased ~~$38.8~~$27.3 billion to ~~$419.4~~$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, ~~2017 driven by additional~~2018 due to increased levels of inventory in ~~FICC to meet expected client demand as well as targeted growth in client financing activities in the global equities business.~~FICC.

The return on average allocated capital ~~decreased to nine~~was 11 percent, up from 9 percent, reflecting ~~lower~~higher net ~~income, partially offset by a decrease in average~~income. For more information on capital allocated ~~capital.~~to the business segments, see Business Segment Operations on page 30.

Sales and Trading Revenue

Sales and trading revenue includes unrealized and realized gains and losses on trading and other assets, net interest income, and fees primarily from commissions on equity securities. Sales and trading revenue is segregated into fixed-income (government debt obligations, investment and non-investment grade corporate debt obligations, commercial MBS, residential mortgage-backed securities, collateralized loan obligations, interest rate and credit derivative contracts), currencies (interest rate and foreign exchange contracts), commodities (primarily futures, forwards, swaps and options) and equities (equity-linked derivatives and cash equity activity). The following table and related discussion present sales and trading revenue, substantially all of which is in Global Markets, with the remainder in Global Banking. In addition, the following table and related discussion present sales and trading revenue, excluding ~~the impact of~~ net DVA, which is a non-GAAP financial measure. ~~We believe the use of this non-GAAP financial measure provides additional useful~~For more information ~~to assess the underlying performance of these businesses and to allow better comparison of year-over-year operating performance.~~on net DVA, see Supplemental Financial Data on page 24.



Sales and Trading Revenue ^{(1, 2)}					Sales and Trading Revenue ^{(1, 2)}

(Dollars in millions)	2017		2016		2018		2017
Sales and trading revenue
Fixed-income, currencies and commodities	$	8,665	$	9,373	$	8,186	$	8,657
Equities	4,112		4,017		4,876		4,120
Total sales and trading revenue	$	12,777	$	13,390	$	13,062	$	12,777

Sales and trading revenue, excluding net DVA ⁽³⁾
Fixed-income, currencies and commodities	$	9,059	$	9,611	$	8,328	$	9,051
Equities	4,146		4,017		4,896		4,154
Total sales and trading revenue, excluding net DVA	$	13,205	$	13,628	$	13,224	$	13,205


⁽¹⁾	Includes FTE adjustments of $249 million and $236 million for 2018 and ~~$186 million~~ ~~for~~ 2017 ~~and~~ ~~2016~~. For more information on sales and trading revenue, see Note 23 – Derivatives to the Consolidated Financial Statements.


⁽²⁾	Includes Global Banking sales and trading revenue of $430 million and $236 million for 2018 and ~~$406 million~~ ~~for~~ 2017 ~~and~~ ~~2016~~.


⁽³⁾	FICC and Equities sales and trading revenue, excluding net DVA, is a non-GAAP financial measure. FICC net DVA losses were $142 million and $394 million for 2018 and ~~$238 million~~ ~~for~~ 2017 ~~and~~ ~~2016~~. Equities net DVA losses were $20 million and $34 million for 2018 and $0 ~~for~~ 2017 ~~and~~ ~~2016~~.

The following explanations for year-over-year changes in sales and trading, FICC and Equities revenue exclude net DVA, but would be the same ifwhether net DVA was ~~included.~~included or excluded. FICC revenue ~~excluding net DVA,~~ decreased ~~$552~~$723 million ~~from 2016~~in 2018 primarily due to lower ~~revenue~~activity and a less favorable market in ~~rates products and emerging markets as lower volatility led to reduced client flow.~~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 ~~excluding net DVA,~~ increased ~~$129~~$742 million ~~from 2016 due to higher revenue from the growth~~in 2018 driven by strength in client financing ~~activities which was partially offset by lower revenue in cash~~ and ~~derivative trading due to lower levels of volatility and client activity.~~ derivatives.

venture, see Note 12 – Commitments and Contingencies to the Consolidated Financial Statements. ~~Income tax is generally recorded in the business segments at the statutory rate; the initial impact of the Tax Act was recorded in~~ ~~All Other~~.

~~In 2017, the Corporation sold its non-U.S. consumer credit card business. For more information on the sale, see~~ ~~Note 1 – Summary of Significant Accounting Principles~~ ~~to the Consolidated Financial Statements.~~

The Corporation classifies consumer real estate loans as core or non-core based on loan and customer ~~characteristics such as origination date, product type, LTV, FICO score and delinquency status.~~characteristics. For more information on the core and non-core portfolios, see Consumer Portfolio Credit Risk Management on page ~~54.~~51. 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. ~~For more information on our interest rate and liquidity risk management activities, see Liquidity Risk on page 49 and Interest Rate Risk Management for the Banking Book on page 81.~~ During ~~2017,~~2018, residential mortgage loans held for ALM activities decreased ~~$6.1~~$3.6 billion to ~~$28.5~~$24.9 billion at December 31, ~~2017~~2018 primarily as a result of payoffs and ~~paydowns outpacing new originations.~~paydowns. Non-core residential mortgage and home equity loans, which are principally ~~run-off~~runoff portfolios, ~~including certain loans accounted for under the fair value option and MSRs pertaining to non-core loans serviced for others,~~ are also held in All Other. During ~~2017,~~2018, total non-core loans decreased ~~$11.8~~$17.8 billion to ~~$41.3~~$23.5 billion at December 31, ~~2017~~2018 due primarily to ~~payoffs and paydowns,~~loan sales of $10.8 billion, as well as ~~loan sales.~~payoffs and paydowns.

The net loss for All Other ~~increased $1.6~~ improved $3.2 billion to a ~~net~~ loss of ~~$3.3 billion,~~$113 million, driven by ~~an estimated~~a charge of $2.9 billion in 2017 due to enactment of the Tax Act. ~~For more information, see Financial Highlights on page 21.~~ The ~~pre-tax~~pretax loss for ~~2017~~2018 compared to ~~2016~~2017 decreased ~~$526 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~~$1.4 billion primarily due to lower ~~mortgage banking income. Mortgage banking income declined $1.2 billion~~noninterest expense.

Revenue increased $73 million to a loss of $711 million primarily due to ~~less favorable valuations on MSRs, net~~gains of ~~related hedges, and an increase in the provision for representations and warranties. All other noninterest loss decreased marginally and included a pre-tax gain of $793~~$731 million onfrom the sale of consumer real estate loans, primarily non-core, offset by a $729 million charge related to the ~~non-~~

~~U.S. credit card business and~~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. Gains on sales~~Act and a pretax gain of ~~loans included~~$793 million recognized in ~~all other loss, including nonperforming and other delinquent loans, were $134 million compared to gains of $232 million in the same period in 2016.~~

~~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~~connection with the sale of the non-U.S. consumer credit card ~~business.~~business in 2017.

Noninterest expense decreased $1.5 billion to ~~$4.1~~$2.6 billion ~~driven by~~primarily due to lower ~~litigation expense, lower personnel expense and a decline in~~ non-core mortgage ~~servicing~~ costs ~~partially offset by~~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 in the process of being sold.~~centers.

The income tax benefit was ~~$1.0~~$2.7 billion in ~~2017~~2018 compared to a benefit of ~~$3.1~~$1.0 billion in ~~2016.~~2017. The ~~decrease~~increase in the tax benefit was primarily driven by ~~the~~a charge of $1.9 billion in 2017 related to impacts of the Tax Act ~~including an estimated income tax expense of $1.9 billion related primarily to a~~for the lower valuation of certain deferred tax assets and liabilities. Both periods ~~include~~included income tax benefit adjustments to eliminate the FTE treatment of certain tax credits recorded in Global Banking.

Off-Balance Sheet Arrangements and Contractual Obligations

We have contractual obligations to make future payments on debt and lease agreements. Additionally, in the normal course of business, we enter into contractual arrangements whereby we commit to future purchases of products or services from unaffiliated parties. Purchase obligations are defined as obligations that are legally binding agreements whereby we agree to purchase products or services with a specific minimum quantity at a fixed, minimum or variable price over a specified period of time. Included in purchase obligations are vendor contracts, the most significant of which include communication services, processing services and software contracts. Debt, lease and other obligations are more fully discussed in Note 11 – Long-term Debt and Note 12 – Commitments and Contingencies to the Consolidated Financial Statements.

Other long-term liabilities include our contractual funding obligations related to the ~~Qualified Pension Plan,~~ Non-U.S. Pension Plans and Nonqualified and Other Pension Plans ~~and Postretirement Health and Life Plans (collectively,~~(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 ~~2017~~2018 and ~~2016,~~2017, we contributed ~~$514~~$156 million and ~~$256~~$514 million to the Plans, and we expect to make ~~$128~~$127 million of contributions during ~~2018.~~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.

Representations and Warranties Obligations

For ~~background~~more information on representations and warranties ~~see~~ ~~Note 7 – Representations and Warranties Obligations and Corporate Guarantees~~ ~~to the Consolidated Financial Statements. Breaches of representations and warranties made~~obligations in connection with the sale of mortgage loans, ~~have resulted in~~see Note 12 – Commitments and may continue to result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies to investors, securitization trusts, guarantors, insurers or other parties (collectively, repurchases).

At December 31, 2017 and 2016, we had $17.6 billion and $18.3 billion of unresolved repurchase claims, predominately related to subprime and pay option first-lien loans and home equity loans originated primarily between 2004 and 2008.

In addition to unresolved repurchase claims, we have received notifications indicating that we may have indemnity obligations with respect to specific loans for which we have not received a repurchase request. These notifications were received prior to 2015, and totaled $1.3 billion at both December 31, 2017 and 2016. During 2017, we reached agreements with certain parties requesting indemnity. One such agreement is subject to acceptance by a securitization trustee. The impact of these agreements is included in the provision and reserve for representations and warranties.

The reserve for representations and warranties and corporate guarantees is included in accrued expenses and other liabilities on the Consolidated Balance Sheet and the related provision is included in mortgage banking income. At December 31, 2017 and 2016, the reserve for representations and warranties was $1.9 billion and $2.3 billion. The representations and warranties provision was $393 million for 2017 compared to $106 million for 2016 with the increase resulting from settlements or advanced negotiations with certain counterparties where we believe we will reach settlements on several outstanding legacy matters.

In addition, we currently estimate that the range of possible loss for representations and warranties exposures could be up to $1 billion over existing accruals at December 31, 2017. This estimate is lower than the estimate at December 31, 2016 due

~~to recent reductions in risk as we reach settlements with counterparties. The estimated range of possible loss represents~~

~~a reasonably possible loss, but does not represent a probable loss, and is based on currently available information, significant judgment and a number of assumptions that are subject to change.~~

Future provisions and/or ranges of possible loss associated with obligations under representations and warranties may be significantly impacted if future experiences are different from historical experience or our understandings, interpretations or assumptions. Adverse developments with respect to one or more of the assumptions underlying the reserve for representations and warranties and the corresponding estimated range of possible loss, such as counterparties successfully challenging or avoiding the application of the relevant statute of limitations, could result in significant increases to future provisions and/or the estimated range of possible loss. For more information on representations and warranties, see ~~Note 7 – Representations and Warranties Obligations and Corporate Guarantees~~Contingencies to the Consolidated Financial ~~Statements and, for~~Statements. For more information related to the sensitivity of the assumptions used to estimate our ~~liability~~reserve for representations and warranties, see Complex Accounting Estimates – Representations and Warranties Liability on page ~~86.~~79.

~~Other Mortgage-related Matters~~

We continue to be subject to mortgage-related litigation and disputes, as well as governmental and regulatory scrutiny and investigations, related to our past and current origination, servicing, transfer of servicing and servicing rights, servicing compliance obligations, foreclosure activities, indemnification obligations, and mortgage insurance and captive reinsurance practices with mortgage insurers. The ongoing environment of regulatory scrutiny, heightened regulatory compliance obligations, and enhanced regulatory enforcement, combined with ongoing uncertainty related to the continuing evolution of the regulatory environment, has resulted in increased operational and compliance costs and may limit our ability to continue providing certain products and services. For more information on management’s estimate of the aggregate range of possible loss for certain litigation matters and on regulatory investigations, see ~~Note 12 – Commitments and Contingencies~~ ~~to the Consolidated Financial Statements.~~

Board of Directors and Board Committees

The Board is ~~comprised~~composed of 1516 directors, all but one of whom are independent. The Board authorizes management to maintain an effective Risk Framework, and oversees compliance with safe and sound banking practices. In addition, the Board or its committees conduct inquiries of, and receive reports from management on risk-related matters to assess scope or resource limitations that could impede the ability of ~~independent risk management~~Independent Risk Management (IRM) and/or Corporate Audit to execute its responsibilities. The Board committees discussed below have the principal responsibility for enterprise-wide oversight of our risk management activities. Through these activities, the Board and applicable committees are provided with information on our risk profile and oversee executive management addressing key risks we face. Other Board committees, as described below, provide additional oversight of specific risks.

Each of the committees shown on the above chart regularly reports to the Board on risk-related matters within the committee’s responsibilities, which is intended to collectively provide the Board with integrated insight about our management of enterprise-wide risks.

Audit Committee

The Audit Committee oversees the qualifications, performance and independence of the Independent Registered Public Accounting Firm, the performance of our corporate audit function, the integrity of our consolidated financial statements, our compliance with legal and regulatory requirements, and makes inquiries of management or the Corporate General Auditor (CGA) to determine whether there are scope or resource limitations that impede the ability of Corporate Audit to execute its responsibilities. The Audit Committee is also responsible for overseeing compliance risk pursuant to the New York Stock Exchange listing standards.

Enterprise Risk Committee

The ERC has primary responsibility for oversight of the Risk Framework and key risks we ~~face.~~face and of the Corporation’s overall risk appetite. It approves the Risk Framework

and the Risk Appetite Statement and further recommends these documents to the Board for approval. The ERC oversees senior management’s

responsibilities for the identification, measurement, monitoring and control of key risks we face. The ERC may consult with other Board committees on risk-related matters.

Other Board Committees

Our Corporate Governance Committee oversees our Board’s governance processes, identifies and reviews the qualifications of potential Board members, recommends nominees for election to our Board, recommends committee appointments for Board approval and reviews our Environmental, Social and ~~Government (ESG)~~Governance and stockholder engagement activities.

Our Compensation and Benefits Committee oversees establishing, maintaining and administering our compensation programs and employee benefit plans, including approving and recommending our Chief Executive Officer’s (CEO) compensation to our Board for further approval by all independent directors, and reviewing and approving all of our executive officers’ compensation, as well as compensation for non-management directors.

Management Committees

Management committees may receive their authority from the Board, a Board committee, another management committee or from one or more executive officers. Our primary management-level risk committee is the Management Risk Committee (MRC). Subject to Board oversight, the MRC is responsible for management oversight of key risks facing the Corporation. ~~The MRC provides~~This includes providing management oversight of our compliance and operational risk programs, balance sheet and capital management, funding activities and other liquidity activities, stress testing, trading activities, recovery and resolution planning, model risk, subsidiary governance and activities between member banks and their nonbank affiliates pursuant to Federal Reserve rules and regulations, among other things.

integrated into our management-level governance structure. Each of these functional roles is described in more detail below.

Executive Officers

Executive officers lead various functions representing the functional roles. Authority for functional roles may be delegated to executive officers from the Board, Board committees or management-level committees. Executive officers, in turn, may further delegate responsibilities, as appropriate, to management-level committees, management routines or individuals. Executive officers review our activities for consistency with our Risk Framework, Risk Appetite Statement and applicable strategic, capital and financial operating plans, as well as applicable policies, standards, procedures and processes. Executive officers and other employees make decisions individually on a day-to-day basis, consistent with the authority they have been delegated. Executive officers and other employees may also serve on committees and participate in committee decisions.

Front Line Units

FLUs, which include the lines of business as well as the Global Technology and Operations Group, ~~and~~ are responsible for appropriately assessing and effectively managing all of the risks associated with their activities.

Three organizational units that include FLU activities and control function activities, but are not part of IRM are the Chief Financial Officer (CFO) Group, Global Marketing and Corporate Affairs (GM&CA) and the Chief Administrative Officer (CAO) Group.

Independent Risk Management

IRM is part of our control functions and includes Global Risk Management and Global ~~Compliance.~~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, ~~FLU~~front line unit risk teams and control function risk teams that work collaboratively in executing their respective duties.

Within IRM, Global Compliance independently assesses compliance risk, and evaluates adherence to applicable laws, rules and regulations, including identifying compliance issues and risks, performing monitoring and testing, and reporting on the state of compliance activities across the Corporation. Additionally, Global Compliance works with FLUs and control functions so that day-to-day activities operate in a compliant manner.

Corporate Audit

Corporate Audit and the CGA maintain their independence from the FLUs, IRM and other control functions by reporting directly to the Audit Committee or the Board. The CGA administratively reports to the CEO. Corporate Audit provides independent assessment and validation through testing of key processes and controls across the Corporation. Corporate Audit includes Credit Review which periodically tests and examines credit portfolios and processes.

Risk Management Processes

The Risk Framework requires that strong risk management practices are integrated in key strategic, capital and financial planning processes and in day-to-day business processes across

the Corporation, with a goal of ensuring risks are appropriately considered, evaluated and responded to in a timely manner.

We employ aour 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.

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 ~~Funding Plan~~ and Recovery Plan, which provide monitoring, escalation, actions and routines designed to enable us to increase capital, access funding sources and reduce risk through consideration of potential options that include asset sales, business sales, capital or debt issuances, or other de-risking strategies. We also maintain a Resolution Plan to limit adverse systemic impacts that could be associated with a potential resolution of Bank of America.

Strategic Risk Management

Strategic risk is embedded in every business and is one of the major risk categories along with credit, market, liquidity, compliance, operational and reputational risks. This risk results from incorrect assumptions about external or internal factors, inappropriate business plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic or competitive environments, in the geographic locations in which we operate, such as competitor actions, changing customer preferences, product obsolescence and technology developments. Our strategic plan is consistent with our risk appetite, capital plan and liquidity requirements, and specifically addresses strategic risks.

On an annual basis, the Board reviews and approves the strategic plan, capital plan, financial operating plan and Risk Appetite Statement. With oversight by the Board, executive management directs the lines of business to execute our strategic plan consistent with our core operating principles and risk appetite. The executive management team monitors business performance throughout the year and provides the Board with regular progress reports on whether strategic objectives and timelines are being met, including reports on strategic risks and if additional or alternative actions need to be considered or implemented. The regular executive reviews focus on assessing forecasted earnings and returns on capital, the current risk profile, current capital and liquidity requirements, staffing levels and changes required to support the strategic plan, stress testing results, and other qualitative factors such as market growth rates and peer analysis.

Significant strategic actions, such as capital actions, material acquisitions or divestitures, and resolution plans are reviewed and approved by the Board. At the business level, processes are in place to discuss the strategic risk implications of new, expanded or modified businesses, products or services and other strategic initiatives, and to provide formal review and approval where

required. With oversight by the Board and the ERC, executive management performs similar analyses throughout the year, and evaluates changes to the financial forecast or the risk, capital or liquidity positions as deemed appropriate to balance and optimize achieving the targeted risk appetite, shareholder returns and maintaining the targeted financial strength. Proprietary models are used to measure the capital requirements for credit, country, market, operational and strategic risks. The allocated capital assigned to each business is based on its unique risk profile. With oversight by the Board, executive management assesses the risk-adjusted returns of each business in approving strategic and financial operating plans. The businesses use allocated capital to define business strategies, and price products and transactions.

compensation awards. At December 31, ~~2017,~~2018, our remaining stock repurchase authorization was ~~$10.1~~$10.3 billion.

~~The timing and amount of common~~Our stock repurchases ~~will be~~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 ~~common stock~~ repurchases may be effected through open market purchases or privately negotiated transactions, including repurchase plans that satisfy the conditions of Rule 10b5-1 of the Securities Exchange Act of ~~1934.~~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 including~~regulators. Basel 3 ~~which includes certain transition provisions through January 1, 2019. The Corporation and its primary affiliated banking entity, BANA, are Basel 3 Advanced approaches institutions.~~

~~Basel 3 Overview~~

~~Basel 3 updated the composition of capital and~~ established a Common equity tier 1 capital ratio. Common equity tier 1 capital primarily includes common stock, retained earnings and accumulated other comprehensive income (OCI), net of deductions and adjustments primarily related to goodwill, deferred tax assets, intangibles and defined benefit pension assets. Under the Basel 3 regulatory capital transition provisions, certain deductions and adjustments to Common equity tier 1 capital were phased in through January 1, 2018. In 2017, under the transition provisions, 80 percent of these deductions and adjustments was recognized. Basel 3 also revised minimum capital ratios and buffer requirements ~~added a supplementary leverage ratio (SLR),~~ and ~~addressed the adequately capitalized minimum requirements under the Prompt Corrective Action (PCA) framework. Finally, Basel 3 established~~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. ~~During the fourth quarter of 2017, we obtained approval from U.S.~~

The Corporation and its primary affiliated banking ~~regulators to use our Internal Models Methodology (IMM) to calculate counterparty credit risk-weighted assets for derivatives under the Advanced approaches.~~

~~As an~~entity, BANA, are Advanced approaches ~~institution, we~~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 ~~PCA~~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 ~~are being~~were fully phased in ~~from January 1, 2014 through~~as of January 1, 2019. The PCA framework ~~establishes~~established categories of capitalization, including ~~“well~~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”~~well-capitalized banking ~~organizations, which included BANA at December 31, 2017.~~organizations.

~~We are subject~~In order to aavoid restrictions on capital ~~conservation buffer, a countercyclical capital buffer~~distributions and ~~a global systemically important bank (G-SIB) surcharge that are being phased in over a three-year period ending January 1, 2019. Once fully phased in,~~discretionary bonus payments, the ~~Corporation’s~~Corporation must meet risk-based capital ratio requirements ~~will~~that include a capital conservation buffer greater than 2.5 percent, plus any applicable countercyclical capital buffer and a ~~G-SIB surcharge in order to avoid restrictions on capital distributions and discretionary bonus payments.~~global systemically important bank (G-SIB) surcharge. The buffers and surcharge must be comprised solely of ~~Common equity tier~~CET1 capital and were phased in over a three-year period that ended January 1, ~~capital. Under the phase-in provisions, we were~~2019.

The Corporation is also required to maintain a ~~capital conservation buffer greater than 1.25~~minimum supplementary leverage ratio (SLR) of 3.0 percent plus a ~~G-SIB surcharge~~leverage buffer of ~~1.5~~2.0 percent in ~~2017. The countercyclical~~order to avoid certain restrictions on capital ~~buffer is currently set at zero. We estimate that our fully phased-in G-SIB surcharge will~~

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.

Bank of America, N.A. Regulatory Capital

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

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.

~~Regulatory Developments~~Revisions to Basel 3 to Address Current Expected Credit Loss Accounting

~~Minimum Total Loss-Absorbing Capacity~~

~~The Federal Reserve has established~~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, ~~2019,~~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 ~~includes minimum external~~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 ~~loss-absorbing capacity (TLAC) requirements~~consolidated assets of $250 billion or more. The SCCL rule is designed to ~~improve~~ensure that the ~~resolvability~~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 ~~resiliency of large, interconnected BHCs. We estimate our minimum required external TLAC would be~~nonbank financial institutions regulated by the ~~greater of 22.5~~Federal Reserve do not breach 15 percent of ~~risk-weighted assets or 9.5~~Tier 1 capital and exposures to most other counterparties do not breach 25 percent of SLR leverage exposure. In addition, U.S. G-SIBs must meet a minimum long-term debt requirement. Our minimum required long-term debt is estimated to be the greater of 8.5 percent of risk-weighted assets or 4.5 percent of SLR leverage exposure. As of December 31, 2017, the Corporation’s TLAC and long-term debt exceeded our estimated 2019 minimum requirements.

~~Revisions to Approaches for Measuring Risk-weighted Assets~~

On December 7, 2017, the Basel Committee on Banking Supervision (Basel Committee) finalized several key methodologies for measuring risk-weighted assets. The revisions include a standardized approach for credit risk, standardized approach for operational risk, revisionsTier 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 valuation adjustment (CVA) risk framework and constraints on the use of internal models. The Basel Committee had also previously finalized a revised standardized model for counterparty credit risk, revisions to the securitization framework and its fundamental review of the trading book, which updates both modeled and standardized approaches for market risk measurement. The revisions also include a capital floor set at 72.5 percent of total risk-weighted assets based on the revised standardized approaches to limit the extent to which banks can reduce risk-weighted asset levels through the use of internal models. U.S. banking regulators may update the U.S. Basel 3 rules to incorporate the Basel Committee revisions.limits.

~~Revisions to the G-SIB Assessment Framework~~

On March 30, 2017, the Basel Committee issued a consultative document with proposed revisions to the G-SIB surcharge assessment framework. The proposed revisions would include removing the cap on the substitutability category, expanding the scope of consolidation to include insurance subsidiaries in three

categories (size, interconnectedness and complexity) and modifying the substitutability category weights with the introduction of a new trading volume indicator. The Basel Committee has also requested feedback on a new short-term wholesale funding indicator, which would be included in the interconnectedness category. The U.S. banking regulators may update the U.S. G-SIB surcharge rule to incorporate the Basel Committee revisions.

Broker-dealer Regulatory Capital and Securities Regulation

The Corporation’s principal U.S. broker-dealer subsidiaries are Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) and Merrill Lynch Professional Clearing Corp (MLPCC). MLPCC is a fully-guaranteed subsidiary of MLPF&S and provides clearing and settlement services. Both entities are subject to the net capital requirements of Securities and Exchange Commission (SEC) Rule 15c3-1. Both entities are also registered as futures commission merchants and are subject to the Commodity Futures Trading Commission Regulation 1.17.

MLPF&S has elected to compute the minimum capital requirement in accordance with the Alternative Net Capital Requirement as permitted by SEC Rule 15c3-1. At December 31, ~~2017,~~2018, MLPF~~&S’s~~&S’ regulatory net capital as defined by Rule 15c3-1 was ~~$12.4~~$13.4 billion and exceeded the minimum requirement of ~~$1.7~~$2.0 billion by ~~$10.7~~$11.4 billion. MLPCC’s net capital of ~~$3.4~~$4.4 billion exceeded the minimum requirement of ~~$543~~$617 million by ~~$2.9~~$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, ~~2017,~~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-

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.

Merrill Lynch International (MLI), a U.K. investment firm, is regulated by the Prudential Regulation Authority and the ~~Financial Conduct Authority,~~FCA, and is subject to certain regulatory capital requirements. At December 31, ~~2017,~~2018, MLI’s capital resources were ~~$35.1~~$35.0 billion, which exceeded the minimum Pillar 1 requirement of ~~$16.5~~$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 to monitor liquidity requirements, maximizes access to funding sources, minimizes borrowing costs and facilitates timely responses to liquidity events.

The Board approves our liquidity risk policy and the Financial Contingency and Recovery Plan. The ERC ~~approves the contingency funding plan, including establishing~~establishes our liquidity risk tolerance levels. ~~The MRC monitors our liquidity position and reviews the impact of strategic decisions on our liquidity.~~ The MRC is responsible for overseeing liquidity risks and directing management to maintain exposures within the established tolerance levels. The MRC reviews and monitors our liquidity position and stress testing ~~scenarios and~~ results, ~~and reviews and~~ approves certain liquidity risk ~~limits.~~limits and reviews the impact of strategic decisions on our liquidity. For more information, see Managing Risk on page ~~41.~~40. Under this governance framework, we have developed certain funding and liquidity risk management practices which include: maintaining liquidity at the parent company and selected subsidiaries, including our bank subsidiaries and other regulated entities; determining what amounts of liquidity are appropriate for these entities based on analysis of debt maturities and other potential cash outflows,

(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.

~~For the three months ended December 31, 2017 and 2016, our~~Table 17 presents average GLS ~~were $522 billion and $515 billion, as shown in Table 17.~~

Table 17 Average Global Liquidity Sources

Three Months Ended December 31
(Dollars in billions) 2017 2016
Parent company and NB Holdings $ 79
$ 77
Bank subsidiaries 394
389
Other regulated entities 49
49
Total Average Global Liquidity Sources $ 522
$ 515

~~Parent company and NB Holdings average liquidity was~~ ~~$79 billion~~ ~~and~~ ~~$77 billion~~ for the three months ended December 31, ~~2017~~2018 and ~~2016. The~~ ~~increase~~ ~~in parent company and NB Holdings average liquidity was primarily due to debt issuances outpacing maturities.~~ 2017.




Table 17	Average Global Liquidity Sources

		Three Months Ended December 31
(Dollars in billions)		2018		2017
Parent company and NB Holdings		$	76	$	79
Bank subsidiaries		420		394
Other regulated entities		48		49
Total Average Global Liquidity Sources		$	544	$	522

Typically, parent company and NB Holdings liquidity is in the form of cash deposited with BANA.

~~Average liquidity held at our bank subsidiaries was~~ ~~$394 billion~~ ~~and~~ ~~$389 billion~~ ~~for the three months ended December 31, 2017 and 2016.~~ Our bank subsidiaries’ liquidity is primarily driven by deposit and lending activity, as well as securities valuation and net debt activity. Liquidity at bank subsidiaries excludes the cash deposited by the parent company and NB Holdings. Our bank subsidiaries can also generate incremental liquidity by pledging a range of unencumbered loans and securities to certain FHLBs and the Federal Reserve Discount Window. The cash we could have obtained by borrowing against this pool of specifically-identified eligible assets was ~~$308~~$344 billion and ~~$310~~$308 billion at December 31, ~~2017~~

2018 and ~~2016, with the decrease due to FHLB borrowings, which reduced available borrowing capacity, and adjustments to our valuation model.~~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.

~~Average liquidity~~Liquidity held ~~at our~~in other regulated entities, comprised primarily of broker-dealer subsidiaries, ~~was~~ ~~$49 billion~~ for both the three months ended December 31, 2017 and 2016. Our other regulated entities also held unencumbered investment-grade securities and equities that we believe could be used to generate additional liquidity. Liquidity held in an other regulated entity is primarily available to meet the obligations of that entity and transfers to the parent company or to any other subsidiary may be subject to prior regulatory approval due to regulatory restrictions and minimum requirements.

Our other regulated entities also hold unencumbered investment-grade securities and equities that we believe could be used to generate additional liquidity.

commitments, liquidity facilities and letters of credit; additional collateral that counterparties could call if our credit ratings were downgraded; collateral and margin requirements arising from market value changes; and potential liquidity required to maintain businesses and finance customer activities. Changes in certain market factors, including, but not limited to, credit rating downgrades, could negatively impact potential contractual and contingent outflows and the related financial instruments, and in some cases these impacts could be material to our financial results.

We consider all sources of funds that we could access during each stress scenario and focus particularly on matching available sources with corresponding liquidity requirements by legal entity.

We also use the stress modeling results to manage our asset and liability profile and establish limits and guidelines on certain funding sources and businesses.

We use a variety of metrics to determine the appropriate amounts of liquidity to maintain at the parent company and our subsidiaries. One metric we use to evaluate the appropriate level of liquidity at the parent company and NB Holdings is “time-to-required funding” (TTF). This debt coverage measure indicates the number of months the parent company can continue to meet its unsecured contractual obligations as they come due using only the parent company and NB Holdings’ liquidity sources without issuing any new debt or accessing any additional liquidity sources. We define unsecured contractual obligations for purposes of this metric as maturities of senior or subordinated debt issued or guaranteed by Bank of America Corporation. These include certain unsecured debt instruments, primarily structured liabilities, which we may be required to settle for cash prior to maturity. TTF was 49 months at December 31, 2017 compared to 35 months at December 31, 2016. The increase in TTF was driven by debt issuances outpacing maturities.

~~Net Stable Funding Ratio~~Contingency Planning

~~U.S. banking regulators issued~~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 ~~proposal~~Resolution Plan to limit adverse systemic impacts that could be associated with a potential resolution of Bank of America.

Strategic Risk Management

Strategic risk is embedded in every business and is one of the major risk categories along with credit, market, liquidity, compliance, operational and reputational risks. This risk results from incorrect assumptions about external or internal factors, inappropriate business plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic or competitive environments, in the geographic locations in which we operate, such as competitor actions, changing customer preferences, product obsolescence and technology developments. Our strategic plan is consistent with our risk appetite, capital plan and liquidity requirements, and specifically addresses strategic risks.

On an annual basis, the Board reviews and approves the strategic plan, capital plan, financial operating plan and Risk Appetite Statement. With oversight by the Board, executive management directs the lines of business to execute our strategic plan consistent with our core operating principles and risk appetite. The executive management team monitors business performance throughout the year and provides the Board with regular progress reports on whether strategic objectives and timelines are being met, including reports on strategic risks and if additional or alternative actions need to be considered or implemented. The regular executive reviews focus on assessing forecasted earnings and returns on capital, the current risk profile, current capital and liquidity requirements, staffing levels and changes required to support the strategic plan, stress testing results, and other qualitative factors such as market growth rates and peer analysis.

Significant strategic actions, such as capital actions, material acquisitions or divestitures, and resolution plans are reviewed and approved by the Board. At the business level, processes are in place to discuss the strategic risk implications of new, expanded or modified businesses, products or services and other strategic initiatives, and to provide formal review and approval where

required. With oversight by the Board and the ERC, executive management performs similar analyses throughout the year, and evaluates changes to the financial forecast or the risk, capital or liquidity positions as deemed appropriate to balance and optimize achieving the targeted risk appetite, shareholder returns and maintaining the targeted financial strength. Proprietary models are used to measure the capital requirements for credit, country, market, operational and strategic risks. The allocated capital assigned to each business is based on its unique risk profile. With oversight by the Board, executive management assesses the risk-adjusted returns of each business in approving strategic and financial operating plans. The businesses use allocated capital to define business strategies, and price products and transactions.

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 ~~Net Stable Funding Ratio (NSFR) requirement applicable~~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 ~~U.S. financial institutions~~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 30.

CCAR and Capital Planning

The Federal Reserve requires BHCs to submit a capital plan and requests for capital actions on an annual basis, consistent with the rules governing the CCAR capital plan.

On June 28, 2018, following the ~~Basel Committee’s final standard. The proposed U.S. NSFR would apply~~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 ~~Corporation~~previously announced repurchases associated with the 2018 CCAR capital plan, on February 7, 2019, we announced a ~~consolidated basis and~~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 ~~insured depository institutions. While the final requirement remains pending and is subject~~2017 CCAR capital plan that expired June 30, 2018, we repurchased $20.1 billion of common stock, which includes common stock repurchases to change, if finalized as proposed, we expect to be in compliance within the regulatory timeline. The standard is intended to reduce funding risk over a longer time horizon. The NSFR is designed to provide an appropriate amount of stable funding, generally capital and liabilities maturing beyond one year, given the mix of assets and off-balance sheet items.

~~Diversified Funding Sources~~

We fund our assets primarily with a mix of deposits and secured and unsecured liabilities through a centralized, globally coordinated funding approach diversified across products, programs, markets, currencies and investor groups.

The primary benefits of our centralized funding approach include greater control, reduced funding costs, wider name recognition by investors and greater flexibility to meet the variable funding requirements of subsidiaries. Where regulations, time zone differences or other business considerations make parent company funding impractical, certain other subsidiaries may issue their own debt.

~~We fund a substantial portion of our lending activities through our deposits, which were~~ ~~$1.31 trillion~~ ~~and $1.26 trillion at December 31, 2017 and 2016. Deposits are primarily generated by our~~ ~~Consumer Banking~~, ~~GWIM~~ ~~and~~ ~~Global Banking~~ segments. These deposits are diversified by clients, product type and geography, and the majority of our U.S. deposits are insured by the FDIC. We consider a substantial portion of our deposits to be a stable, low-cost and consistent source of funding. We believe this deposit funding is generally less sensitive to interest rate changes, market volatility or changes in our credit ratings than wholesale funding sources. Our lending activities may also be financed through secured borrowings, including credit card securitizations and securitizations with government-sponsored enterprises, the Federal Housing Administration (FHA) and private-label investors, as well as FHLB loans.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.

In order to avoid restrictions on capital distributions and discretionary bonus payments, the Corporation must meet risk-based capital ratio requirements that 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.

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.

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.

Bank of America, N.A. Regulatory Capital

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

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.

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-

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.

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 to monitor liquidity requirements, maximizes access to funding sources, minimizes borrowing costs and facilitates timely responses to liquidity events.

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 40. Under this governance framework, we have developed certain funding and liquidity risk management practices which include: maintaining liquidity at the parent company and selected subsidiaries, including our bank subsidiaries and other regulated entities; determining what 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

		Three Months Ended December 31
(Dollars in billions)		2018		2017
Parent company and NB Holdings		$	76	$	79
Bank subsidiaries		420		394
Other regulated entities		48		49
Total Average Global Liquidity Sources		$	544	$	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

		Three Months Ended December 31
(Dollars in billions)		2018		2017
Cash on deposit		$	113	$	118
U.S. Treasury securities		81		62
U.S. agency securities and mortgage-backed securities		340		330
Non-U.S. government securities		10		12
Total Average Global Liquidity Sources		$	544	$	522

Our GLS are ~~primarily funded~~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 ~~secured~~net basis, ~~through securities lending~~was $446 billion and ~~repurchase agreements~~$439 billion for the three months ended December 31, 2018 and ~~these~~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 ~~will vary~~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 ~~customer activity~~our historical experience, experience of distressed and ~~market conditions. We believe funding these activities~~failed financial institutions, regulatory guidance, and both expected and unexpected future events.

The types of potential contractual and contingent cash outflows we consider in ~~the~~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 is more cost-efficient~~markets; potential deposit withdrawals; increased draws on loan

commitments, liquidity facilities and ~~less sensitive to changes in~~letters of credit; additional collateral that counterparties could call if our credit ratings ~~than unsecured financing. Repurchase agreements are generally short-term~~were downgraded; collateral and often overnight. Disruptions in secured financing markets for financial institutions have occurred in prior market cycles which resulted in adverse changes in terms or significant reductions in the availability of such financing. We manage the liquidity risksmargin requirements arising from ~~secured funding by sourcing funding globally from a diverse group of counterparties, providing a range of securities collateral~~market value changes; and ~~pursuing longer durations, when appropriate. For more information on secured financing agreements, see~~ ~~Note 10 – Federal Funds Sold or Purchased, Securities Financing Agreements~~potential liquidity required to maintain businesses and ~~Short-term Borrowings~~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 ~~Consolidated Financial Statements~~.related financial instruments, and in some cases these impacts could be material to our financial results.

We ~~issue long-term unsecured debt in a variety~~consider all sources 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 borrowingsfunds that we ~~anticipate will mature within any month or quarter.~~

During 2017, we issued $53.3 billion of long-term debt consisting of $37.7 billion for Bank of America Corporation, substantially all of which was TLAC compliant, $8.2 billion for Bank of America, N.A.could access during each stress scenario and ~~$7.4 billion of other debt.~~

In December 2017, pursuant to a private offering, we exchanged $11.0 billion of outstanding long-term debt for new fixed/floating-rate senior notes, subject to certain terms and conditions, to extend maturities and improvefocus particularly on matching available sources with corresponding liquidity requirements by legal entity. We also use the structure of this debt for TLAC purposes. Based on the attributes of the exchange transactions, the newly issued securities are not considered substantially different, for accounting purposes, from the exchanged securities. Therefore, there was no impact to ourstress modeling results of operations as any amounts paid to debt holders were capitalized, and the premiums or discounts on the outstanding long-term debt were carried over to the new securities and will be amortized over their contractual lives using a revised effective interest rate.

~~Table 19 presents our long-term debt by major currency at December 31, 2017 and 2016.~~

Table 19 Long-term Debt by Major Currency

December 31
(Dollars in millions) 2017 2016
U.S. dollar $ 175,623
$ 172,082
Euro 35,481
28,236
British pound 7,016
6,588
Australian dollar 3,046
2,900
Japanese yen 2,993
3,919
Canadian dollar 1,966
1,049
Other 1,277
2,049
Total long-term debt $ 227,402
$ 216,823

Total long-term debt increased $10.6 billion, or five percent, in 2017, primarily due to issuances outpacing maturities. We may, from time to time, purchase outstanding debt instruments in various transactions, depending on prevailing market conditions, liquidity and other factors. In addition, our other regulated entities

~~may make markets in our debt instruments to provide liquidity for investors.~~

~~We use derivative transactions~~ to manage ~~the duration, interest rate~~our asset and ~~currency risks of our borrowings, considering the characteristics of the assets they are funding. For more information~~liability profile and establish limits and guidelines on ~~our ALM activities, see~~ ~~Interest Rate Risk Management for the Banking Book~~ ~~on page~~ 81.

~~We may also issue unsecured debt in the form of structured notes for client purposes,~~ certain of which qualify as TLAC eligible debt. During 2017, we issued $5.4 billion of structured notes, which are debt obligations that pay investors returns linked to other debt or equity securities, indices, currencies or commodities. We typically hedge the returns we are obligated to pay on these liabilities with derivatives and/or investments in the underlying instruments, so that from a funding perspective, the cost is similar to our other unsecured long-term debt. We could be required to settle certain structured note obligations for cash or other securities prior to maturity under certain circumstances, which we consider for liquidity planning purposes. We believe, however, that a portion of such borrowings will remain outstanding beyond the earliest put or redemption date.

~~Substantially all of our senior~~sources and subordinated debt obligations contain no provisions that could trigger a requirement for an early repayment, require additional collateral support, result in changes to terms, accelerate maturity or create additional financial obligations upon an adverse change in our credit ratings, financial ratios, earnings, cash flows or stock price. For more information on long-term debt funding, see ~~Note 11 – Long-term Debt~~ ~~to the Consolidated Financial Statements~~.businesses.

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

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 30.

CCAR and Capital Planning

The Federal Reserve requires BHCs to submit a capital plan and requests for capital actions on an annual basis, consistent with the rules governing the CCAR capital plan.

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.

In order to avoid restrictions on capital distributions and discretionary bonus payments, the Corporation must meet risk-based capital ratio requirements that 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.

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.

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.

Bank of America, N.A. Regulatory Capital

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

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.

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-

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.

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 to monitor liquidity requirements, maximizes access to funding sources, minimizes borrowing costs and facilitates timely responses to liquidity events.

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 40. Under this governance framework, we have developed certain funding and liquidity risk management practices which include: maintaining liquidity at the parent company and selected subsidiaries, including our bank subsidiaries and other regulated entities; determining what 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

		Three Months Ended December 31
(Dollars in billions)		2018		2017
Parent company and NB Holdings		$	76	$	79
Bank subsidiaries		420		394
Other regulated entities		48		49
Total Average Global Liquidity Sources		$	544	$	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

		Three Months Ended December 31
(Dollars in billions)		2018		2017
Cash on deposit		$	113	$	118
U.S. Treasury securities		81		62
U.S. agency securities and mortgage-backed securities		340		330
Non-U.S. government securities		10		12
Total Average Global Liquidity Sources		$	544	$	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

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 and unsecured liabilities through a centralized, globally coordinated funding approach diversified across products, programs, markets, currencies and investor groups.

The primary benefits of our centralized funding approach include greater control, reduced funding costs, wider name recognition by investors and greater flexibility to meet the variable funding requirements of subsidiaries. Where regulations, time zone differences or other business considerations make parent 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

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

		December 31
(Dollars in millions)		2018		2017
U.S. dollar		$	180,709	$	175,623
Euro		34,296		35,481
British pound		5,450		7,016
Japanese yen		3,036		2,993
Canadian dollar		2,935		1,966
Australian dollar		1,722		3,046
Other		1,192		1,277
Total long-term debt		$	229,340	$	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 74.

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

A reduction in certain of our credit ratings or the ratings of certain asset-backed securitizations may have a material adverse effect on our liquidity, potential loss of access to credit markets, the related cost of funds, our businesses and on certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical. In addition, under the terms of certain OTC derivative contracts and other trading agreements, in the event of downgrades of our or our rated subsidiaries’ credit ratings, the counterparties to those agreements may require us to provide additional collateral, or to terminate these contracts or agreements, which could cause us to sustain losses and/or adversely impact our liquidity. If the short-term credit ratings of our parent company, bank or broker-dealer subsidiaries were downgraded by one or more levels, the potential loss of access to short-term funding sources such as repo financing and the effect on our incremental cost of funds could be material.

While certain potential impacts are contractual and quantifiable, the full scope of the consequences of a credit rating downgrade to a financial institution is inherently uncertain, as it

depends upon numerous dynamic, complex and inter-related factors and assumptions, including whether any downgrade of a company’s long-term credit ratings precipitates downgrades to its short-term credit ratings, and assumptions about the potential behaviors of various customers, investors and counterparties. For more information on potential impacts of credit rating downgrades, see Liquidity Risk – ~~Time-to-required Funding and~~ Liquidity Stress Analysis on page ~~51.~~48.

For more information on ~~the~~ additional collateral and termination payments that could be required in connection with certain OTC derivative contracts and other trading agreements as a result of such a credit rating downgrade, see Note 23 – Derivatives to the Consolidated Financial ~~Statements.~~Statements and Item 1A. Risk Factors.

Common Stock Dividends

For a summary of our declared quarterly cash dividends on common stock during ~~2017~~2018 and through February ~~22, 2018,~~26, 2019, see Note 13 – Shareholders’ Equity to the Consolidated Financial Statements.

ongoing credit decisions, as well as portfolio management strategies, including authorizations and line management, collection practices and strategies, and determination of the allowance for loan and lease losses and allocated capital for credit risk.

Consumer Credit Portfolio

Improvement in ~~the U.S. unemployment rate and~~ home prices continued during ~~2017~~2018 resulting in improved credit quality and lower credit losses in the ~~consumer real estate~~home equity portfolio, partially offset by seasoning and loan growth in the U.S. credit card portfolio compared to ~~2016.~~2017.

Improved credit quality, ~~the sale of the non-U.S. consumer credit card business in 2017,~~ continued loan balance ~~run-off~~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 ~~$839~~$581 million decrease in the consumer allowance for loan and lease losses in ~~2017~~2018 to ~~$5.4~~$4.8 billion at December 31, ~~2017.~~2018. For ~~more~~additional information, see Allowance for Credit Losses on page ~~72.~~67.

For more information on our accounting policies regarding delinquencies, nonperforming status, charge-offs, ~~and~~ troubled debt restructurings (TDRs) for the consumer portfolio ~~including those related to bankruptcy~~ and ~~repossession,~~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 ~~(FNMA)~~ and Freddie Mac ~~(FHLMC)~~ (collectively, the fully-insured loan portfolio) are reported as accruing as opposed to nonperforming since the principal repayment is insured. Fully-insured loans included in accruing past due 90 days or more are primarily from our repurchases of delinquent FHA loans pursuant to our servicing agreements with the Government National Mortgage Association (GNMA). Additionally, nonperforming loans and accruing balances past due 90 days or more do not include the PCI loan portfolio or loans accounted for under the fair value option even though the customer may be contractually past due.

~~For more information on PCI loans, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 60 and~~ ~~Note 4 – Outstanding Loans and Leases~~ ~~to the Consolidated Financial Statements.~~

Net charge-offs, as shown in Tables 22 and 23, exclude write-offs in the PCI loan portfolio of ~~$131~~$154 million and ~~$144~~$131 million in residential mortgage and ~~$76~~$119 million and ~~$196~~$76 million in home equity for ~~2017~~2018 and ~~2016.~~2017. Net charge-off ratios including the PCI write-offs were ~~0.02~~0.09 percent and ~~0.15~~0.02 percent for residential mortgage and ~~0.47~~0.22 percent and ~~0.84~~0.47 percent for home equity in ~~2017~~2018 and ~~2016. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 60.~~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, ~~LTV, FICO~~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 ~~government-sponsored enterprise~~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 ~~run-off~~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. ~~For more information, see~~ ~~Note 4 – Outstanding Loans and Leases~~ ~~to the Consolidated Financial Statements.~~

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 ~~and loans accounted for under the fair value option~~ in certain credit quality statistics. We separately disclose information on the PCI loan portfolio on page ~~60.~~57.

Residential Mortgage

The residential mortgage portfolio ~~makes~~made up the largest percentage of our consumer loan portfolio at 4547 percent of consumer loans and leases at December 31, ~~2017.~~2018. Approximately 3744 percent of the residential mortgage portfolio iswas in Consumer Banking and ~~approximately 35~~37 percent iswas in GWIM. The remaining portion iswas in All Other and iswas comprised of originated loans, purchased loans used in our overall ALM activities, delinquent FHA loans repurchased pursuant to our servicing agreements with GNMA as well as loans repurchased related to our representations and warranties.

Outstanding balances in the residential mortgage portfolio ~~excluding loans accounted for under the fair value option,~~ increased ~~$12.0~~$4.7 billion in ~~2017~~2018 as retention of new originations was partially offset by loan sales of ~~$3.9~~$8.9 billion and ~~run-off.~~runoff.

At December 31, ~~2017~~2018 and ~~2016,~~2017, the residential mortgage portfolio included ~~$23.7~~$20.1 billion and ~~$28.7~~$23.7 billion of outstanding fully-insured ~~loans. On this portion~~loans, of the residential mortgage portfolio, we are protected against principal loss as a result of either FHA insurance or long-term standby agreements that provide for the transfer of credit risk to FNMA and FHLMC. At December 31, 2017 and 2016, $17.4which $14.0 billion and ~~$22.3~~$17.4 billion had FHA insurance with the remainder protected by long-term standby agreements. At December 31, 2018 and 2017, ~~and 2016, $5.2~~$3.5 billion and ~~$7.4~~$5.2 billion of the FHA-insured loan population were repurchases of delinquent FHA loans pursuant to our servicing agreements with GNMA.

Table 24 presents certain residential mortgage key credit statistics on both a reported basis ~~excluding loans accounted for under the fair value option,~~ and excluding the PCI loan portfolio and the fully-insured loan ~~portfolio and loans accounted for under the fair value option.~~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 and loans accounted for under the fair value option. For more information on the PCI loan portfolio, see page 60.~~portfolio.

Nonperforming residential mortgage loans decreased ~~$580~~$583 million in 2017 as outflows, including sales of $460 million and net transfers to held-for-sale of $132 million, outpaced new inflows which included the addition of $140 million of nonperforming loans as a result of clarifying regulatory guidance related to bankruptcy loans.2018 primarily driven by sales. Of the nonperforming residential mortgage loans at December 31, ~~2017, $860~~2018, $716 million, or 3538 percent, were current on contractual payments. Loans accruing past due 30 days or more decreased ~~$314~~$366 million due to continued improvement in ~~part to~~credit quality as well as loan sales in the ~~timing impact of a consumer real estate servicer conversion that occurred during the fourth quarter of 2016.~~non-core portfolio.

Net charge-offs ~~decreased $231~~increased $128 million to $28 million in 2018 compared to $100 million of net recoveries in 2017 ~~compared~~primarily due to ~~$131 million of net charge-offs in 2016. This decrease in net charge-offs was primarily driven by~~ net recoveries ~~of $105 million~~ related to loan sales in 2017, compared to loan sale-related net charge-offs of $26 million in 2016. Additionally, net charge-offs declined due to favorable portfolio trends and decreased write-downs on loans greater than 180 days past due driven by improvement in home prices and the U.S. economy.2017.

Loans with a refreshed LTV greater than 100 percent represented one percent ~~and three percent~~ of the residential mortgage loan portfolio at both December 31, ~~2017~~2018 and ~~2016.~~2017. Of the loans with a refreshed LTV greater than 100 percent, 99 percent and 98 percent were performing at ~~both~~ December 31, ~~2017~~2018 and ~~2016.~~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. ~~The majority of these loans have a refreshed LTV greater than 100 percent primarily due to home price deterioration since 2006, partially offset by subsequent appreciation.~~

Of the ~~$172.1~~$184.6 billion in total residential mortgage loans outstanding at December 31, ~~2017,~~2018, as shown in Table ~~25, 33~~

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 ~~$10.4~~$8.6 billion, or 1816 percent, at December 31, ~~2017.~~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, ~~2017, $283~~2018, $177 million, or ~~three~~two percent, of outstanding interest-only residential mortgages that had entered the amortization period were accruing past due 30 days or more compared to ~~$1.5~~$1.2 billion, or one percent, for the entire residential mortgage portfolio. In addition, at December 31, ~~2017, $509~~2018, $365 million, or ~~five~~four percent, of outstanding interest-only residential mortgage loans that had entered the amortization period were nonperforming, of which ~~$253~~$128 million were contractually current, compared to ~~$2.5~~$1.9 billion, or one percent, for the entire residential mortgage ~~portfolio, of which $860 million were contractually current.~~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. ~~More than 80~~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 ~~2020~~2022 or later.

Home Equity

At December 31, ~~2017,~~2018, the home equity portfolio made up 1311 percent of the consumer portfolio and iswas comprised of home equity lines of credit (HELOCs), home equity loans and reverse mortgages.

At December 31, ~~2017,~~2018, our HELOC portfolio had an outstanding balance of ~~$51.2~~$44.3 billion, or 8992 percent of the total home equity portfolio, compared to ~~$58.6~~$51.2 billion, or 8889 percent, at December 31, ~~2016.~~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, ~~2017,~~2018, our home equity loan portfolio had an outstanding balance of ~~$4.4~~$1.8 billion, or ~~seven~~four percent of the total home equity portfolio, compared to ~~$5.9~~$4.4 billion, or ~~nine~~seven percent, at December 31, ~~2016.~~2017. Home equity loans are almost all fixed-rate loans with amortizing payment terms of 10 to 30 years, and of the ~~$4.4~~$1.8 billion at December 31, ~~2017, 57~~2018, 68 percent have 25- to 30-year terms. At December 31, ~~2017,~~2018, our reverse mortgage portfolio had an outstanding balance ~~excluding loans accounted for under the fair value option,~~ of ~~$2.1~~$2.2 billion, or four percent of the total home equity portfolio, compared to ~~$1.9~~$2.1 billion, or ~~three~~four percent, at December 31, ~~2016.~~2017. We no longer originate reverse mortgages.

At December 31, ~~2017, approximately 69~~2018, 75 percent of the home equity portfolio was in Consumer Banking, 2317 percent was in All Other and the remainder of the portfolio was primarily in GWIM. Outstanding

balances in the home equity portfolio ~~excluding loans accounted for under the fair value option,~~ decreased ~~$8.7~~$9.5 billion in ~~2017~~2018 primarily due to paydowns and ~~charge-offs~~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 ~~2016,~~ $18.7 billion, ~~and $19.6 billion,~~ or 3236 percent and 2932 percent, were in first-lien ~~positions (34 percent and 31 percent excluding the PCI home equity portfolio).~~positions. At December 31, ~~2017,~~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 ~~$9.4~~$7.9 billion, or 17 percent of our total home equity portfolio excluding the PCI loan portfolio.

Unused HELOCs totaled ~~$44.2~~$43.1 billion and ~~$47.2~~$44.2 billion at December 31, ~~2017~~2018 and ~~2016.~~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 5451 percent and 5554 percent at December 31, ~~2017~~2018 and ~~2016.~~2017.

Table 26 presents certain home equity portfolio key credit statistics on both a reported basis ~~excluding loans accounted for under the fair value option,~~ and excluding the PCI loan ~~portfolio and loans accounted for under the fair value option.~~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 and loans accounted for under the fair value option. For more information on the PCI loan portfolio, see page 60.~~portfolio.

Nonperforming outstanding balances in the home equity portfolio decreased ~~$274~~$751 million in ~~2017~~2018 as outflows, including ~~$66 million of net transfers to held-for-sale and $51 million of~~ sales, outpaced new ~~inflows, which included the addition of $135 million of nonperforming loans as a result of clarifying regulatory guidance related to bankruptcy loans.~~inflows. Of the nonperforming home equity ~~portfolio~~loans at December 31, ~~2017, $1.4~~2018, $1.1 billion, or 5459 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~~first lien is 90 days or more past due, as well as loans that have not yet demonstrated a sustained period of payment performance following a TDR. In addition, ~~$693~~$463 million, or 2624 percent, of nonperforming home equity loans were 180 days or more past due and had been written down to the estimated fair value of the collateral, less costs to sell. Accruing loans that were 30 days or more past due decreased ~~$64~~$139 million in ~~2017.~~2018.

In some cases, the junior-lien home equity outstanding balance that we hold is performing, but the underlying ~~first-lien~~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~~first lien is serviced by a third party, we utilize credit bureau data to estimate the delinquency status of the first-lien. Given that the credit bureau database we use does not include a property address for the mortgages, we are unable to identify with certainty whether a reported delinquent first-lien mortgage pertains to the same property for which we hold a junior-lien loan. For certain loans, we

~~utilize a third-party vendor to combine credit bureau and public record data to better link a junior-lien loan with the underlying first-lien mortgage.~~first lien. At December 31, ~~2017,~~2018, we estimate that ~~$814~~$610 million of current and ~~$141~~$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 ~~$184~~$114 million of these combined amounts, with the remaining ~~$771~~$579 million serviced by third parties. Of the ~~$955~~$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 ~~$330~~$221 million had first-lien loans that were 90 days or more past due.

Net charge-offs decreased ~~$192~~$215 million to a net recovery of $2 million in 2018 compared to net charge-offs of $213 million in 2017 ~~compared to $405 million in 2016~~ driven by favorable portfolio trends due in part to improvement in home prices and the U.S. ~~economy, partially offset by $32 million of charge-offs as a result of clarifying regulatory guidance related to bankruptcy loans.~~economy.

Outstanding balances with a refreshed CLTV greater than 100 percent comprised ~~four~~three percent and ~~seven~~four percent of the home equity portfolio at December 31, ~~2017~~2018 and ~~2016.~~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~~first lien that is available to reduce the

severity of loss on the ~~second-lien.~~second lien. Of those outstanding balances with a refreshed CLTV greater than 100 percent, 9596 percent of the customers were current on their home equity loan and 91 percent of second-lien loans with a refreshed CLTV greater than 100 percent were current on both their second-lien and underlying first-lien loans at December 31, ~~2017.~~2018.

Of the ~~$55.0~~$47.4 billion in total home equity portfolio outstandings at December 31, ~~2017,~~2018, as shown in Table ~~27, 30~~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 ~~$18.4~~$15.8 billion at December 31, ~~2017.~~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, ~~2017, $343~~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, ~~2017, $2.1~~2018, $1.7 billion, or 11 percent, of outstanding HELOCs that had entered the amortization period were ~~nonperforming, of which $1.1 billion were contractually current.~~nonperforming. Loans ~~in our HELOC portfolio generally~~that have ~~an initial draw period of 10 years and 10 percent of these loans will~~yet to enter the amortization period ~~during 2018~~in our interest-only portfolio are primarily post-2008 vintages and ~~will be required to make fully-amortizing payments.~~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

Purchased Credit-impaired Loan Portfolio

Loans acquired with evidence of credit quality deterioration since origination and for which it is probable at purchase that we will be unable to collect all contractually required payments are accounted for under the accounting standards for PCI loans. ~~For more information, see~~ ~~Note 1 – Summary of Significant Accounting~~

~~Principles~~ ~~and~~ ~~Note 4 – Outstanding Loans and Leases~~ ~~to the Consolidated Financial Statements.~~

Table 28 presents the unpaid principal balance, carrying value, related valuation allowance and the net carrying value as a percentage of the unpaid principal balance for the PCI loan portfolio.

The total PCI unpaid principal balance decreased ~~$3.1~~$6.1 billion, or 2256 percent, in ~~2017~~2018 primarily driven by ~~payoffs, paydowns, write-offs and PCI~~ loan sales with a carrying value of $4.4 billion compared to sales of $803 million ~~compared to $549 million~~ in ~~2016.~~2017.

Of the unpaid principal balance of ~~$10.9~~$4.8 billion at December 31, ~~2017, $9.6~~2018, $4.3 billion, or 8890 percent, was current based on the contractual terms, ~~$752~~$208 million, or ~~seven~~four percent, was in early stage delinquency and ~~$364~~$205 million was 180 days or more past due, including ~~$302~~$172 million of first-lien mortgages and ~~$62~~$33 million of home equity loans.

The PCI residential mortgage loan and home equity portfolios represented 7582 percent and 2518 percent of the total PCI loan portfolio at December 31, ~~2017.~~2018. Those loans to borrowers with a refreshed FICO score below 620 represented 2419 percent and 1721 percent of the PCI residential mortgage loan and home equity portfolios at December 31, ~~2017.~~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 1410 percent and 3428 percent of their respective PCI loan portfolios and 1611 percent and

3732 percent based on the unpaid principal balance at December 31, ~~2017.~~2018.

U.S. Credit Card

At December 31, ~~2017,~~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 ~~$4.0 billion to $96.3~~$2.1 billion in ~~2017~~2018 to $98.3 billion due to higher retail volume partially offset by payments as ~~retail volumes outpaced payments. Net~~well as the sale of a small portfolio. In 2018, net charge-offs increased ~~$244~~$324 million to ~~$2.5~~$2.8 billion, ~~in 2017 due to portfolio seasoning~~ and ~~loan growth.~~ U.S. credit card loans 30 days or more past due and still accruing interest increased ~~$252~~$142 million and loans 90 days or more past due and still accruing interest increased ~~$118~~$94 million, ~~in 2017,~~each driven by portfolio seasoning and loan growth.

Unused lines of credit for U.S. credit card totaled ~~$326.3~~$334.8 billion and ~~$321.6~~$326.3 billion at December 31, ~~2017~~2018 and ~~2016.~~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.

Direct/Indirect ~~and Other~~ Consumer

At December 31, ~~2017, approximately 54~~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 4645 percent was included in GWIM (principally securities-based lending loans). ~~At December 31, 2017, approximately 94 percent of the $2.7 billion other consumer portfolio was consumer auto leases included in~~ ~~Consumer Banking.~~

Outstandings in the direct/indirect portfolio ~~remained relatively unchanged at $93.8~~decreased $5.2 billion ~~at December 31, 2017.~~in 2018 to $91.2 billion primarily due to declines in

securities-based lending due to higher paydowns, and in our auto portfolio as paydowns outpaced originations. Net charge-offs ~~increased $77~~decreased $19 million to ~~$211~~$195 million in ~~2017~~2018 due largely to ~~portfolio seasoning and~~ clarifying regulatory guidance related to bankruptcy and ~~repossession.~~repossession issued during 2017.

Table 30 presents certain state concentrations for the direct/indirect consumer loan portfolio.



61~~Bank of America 2017~~

In addition to modifying consumer real estate loans, we work with customers who are experiencing financial difficulty by modifying credit card and other consumer loans. Credit card and other consumer loan modifications generally involve a reduction in the customer’s interest rate on the account and placing the customer on a fixed payment plan not exceeding 60 months, all of which are considered TDRs (the renegotiated TDR portfolio).

Modifications of credit card and other consumer loans are made through renegotiation programs utilizing direct customer contact, but may also utilize external renegotiation programs. The renegotiated TDR portfolio is excluded in large part from Table 31 as substantially all of the loans remain on accrual status until either charged off or paid in full. At December 31, ~~2017~~2018 and ~~2016,~~2017, our renegotiated TDR portfolio was ~~$490~~$566 million and ~~$610~~$490 million, of which ~~$426~~$481 million and ~~$493~~$426 million were current or less than 30 days past due under the modified terms. The ~~decline~~increase in the renegotiated TDR portfolio was primarily driven by ~~paydowns and charge-offs as well as lower program enrollments. For more information on the~~new renegotiated ~~TDR portfolio, see~~ ~~Note 4 – Outstanding Loans and Leases~~ ~~to the Consolidated Financial Statements.~~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,

cash flow, risk profile or outlook of a borrower or counterparty. In making credit decisions, we consider risk rating, collateral, country, industry and single-name concentration limits while also balancing these considerations with the total borrower or counterparty relationship. We use a variety of tools to continuously monitor the ability of a borrower or counterparty to perform under its obligations. We use risk rating aggregations to measure and evaluate concentrations within portfolios. In addition, risk ratings are a factor in determining the level of allocated capital and the allowance for credit losses.

As part of our ongoing risk mitigation initiatives, we attempt to work with clients experiencing financial difficulty to modify their loans to terms that better align with their current ability to pay. In situations where an economic concession has been granted to a borrower experiencing financial difficulty, we identify these loans as TDRs. For more information on our accounting policies regarding

delinquencies, nonperforming status and net charge-offs for the commercial portfolio, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.

Management of Commercial Credit Risk Concentrations

Commercial credit risk is evaluated and managed with the goal that concentrations of credit exposure ~~do not result in undesirable levels of risk.~~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, 4543 and 4644 summarize our concentrations. We also utilize syndications of exposure to third parties, loan sales, hedging and other risk mitigation techniques to manage the size and risk profile of the commercial credit portfolio. For more information on our industry concentrations, ~~including our utilized exposure to the energy sector which was three percent of total commercial utilized exposure at both December 31, 2017 and 2016,~~ see Commercial Portfolio Credit Risk Management – Industry Concentrations on page 6763 and Table 40.

We account for certain large corporate loans and loan commitments, including issued but unfunded letters of credit which are considered utilized for credit risk management purposes, that exceed our single-name credit risk concentration guidelines under the fair value option. Lending commitments, both funded and unfunded, are actively managed and monitored, and as appropriate, credit risk for these lending relationships may be mitigated through the use of credit derivatives, with our credit view and market perspectives determining the size and timing of the hedging activity. In addition, we purchase credit protection to cover the funded portion as well as the unfunded portion of certain other credit exposures. To lessen the cost of obtaining our desired credit protection levels, credit exposure may be added within an industry, borrower or counterparty group by selling protection. These credit derivatives do not meet the requirements for treatment as accounting hedges. They are carried at fair value with changes in fair value recorded in other income.

In addition, we are a member of various securities and derivative exchanges and clearinghouses, both in the U.S. and

other countries. As a member, we may be required to pay a pro-rata share of the losses incurred by some of these organizations as a result of another member default and under other loss scenarios. For ~~more~~additional information, see Note 12 – Commitments and Contingencies to the Consolidated Financial Statements.

Commercial and Industrial

Commercial and industrial loans include U.S. commercial and non-U.S. commercial portfolios.

U.S. Commercial

At December 31, ~~2017,~~2018, 70 percent of the U.S. commercial loan portfolio, excluding small business, was managed in Global Banking,17 16 percent in Global Markets, 1112 percent in GWIM (generally business-purpose loans for high net worth clients) and the remainder primarily in Consumer Banking. U.S. commercial loans ~~excluding loans accounted for under the fair value option,~~ increased ~~$14.5~~$14.4 billion in 2018 primarily in Global Banking. Reservable criticized utilized exposure decreased $1.9 billion, or ~~five~~19 percent, during 2017 to $284.8 billion at December 31, 2017 due to growth across most of the commercial businesses. Reservable criticized balances decreased $420 million, or four percent, and nonperforming loans

~~and leases decreased $442 million, or 35 percent, in 2017~~ driven by broad-based improvements inincluding the energy sector. ~~Net charge-offs increased $48 million for 2017 compared to 2016.~~

Non-U.S. Commercial

At December 31, ~~2017, 79~~2018, 81 percent of the non-U.S. commercial loan portfolio was managed in Global Banking and 2119 percent in Global Markets. ~~Outstanding loans, excluding loans accounted for under the fair value option, increased $8.4 billion in 2017.~~ Reservable criticized ~~balances~~utilized exposure decreased ~~$2.2 billion,~~$753 million, or 5643 percent, and nonperforming loans and leases decreased $219 million, or 73 percent, due primarily to paydowns, sales and ~~upgrades in the energy portfolio.~~charge-offs. Net charge-offs ~~increased $320~~decreased $372 million in ~~2017 to $440 million~~2018 primarily due to a single-name non-U.S. commercial charge-off of $292 million in ~~the fourth quarter of~~ 2017. For more information on the non-U.S. commercial portfolio, see Non-U.S. Portfolio on page ~~70.~~65.

U.S. Small Business Commercial

Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity

Table 38 presents the nonperforming commercial loans, leases and foreclosed properties activity during ~~2017~~2018 and ~~2016.~~2017. Nonperforming loans do not include loans accounted for under the fair value option. During ~~2017,~~2018, nonperforming commercial loans and leases decreased ~~$399~~$202 million to ~~$1.3~~$1.1 billion. ~~Approximately~~At December

7731, 2018, 93 percent of commercial nonperforming loans, leases and foreclosed properties were secured and ~~approximately 59~~55 percent were contractually current. Commercial nonperforming loans were carried at ~~approximately 87~~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 ~~property~~collateral value less costs to sell.

Industry Concentrations

Table 40 presents commercial committed and utilized credit exposure by industry and the total net credit default protection purchased to cover the funded and unfunded portions of certain credit exposures. Our commercial credit exposure is diversified across a broad range of industries. Total commercial committed exposure increased ~~$30.1~~$28.8 billion, or three percent, ~~in 2017~~during 2018 to ~~$981.2 billion at December 31, 2017.~~$1.0 trillion. The increase in commercial committed exposure was concentrated in the ~~Media, Food & Staples Retailing, Capital Goods, Food, Beverage and Tobacco and the~~ Asset Managers and Funds, Pharmaceuticals and Biotechnology, and Capital Goods industry sectors. Increases were partially offset by reduced exposure to the ~~Healthcare Equipment~~Media, Food and

~~Services, Telecommunications Services~~ Staples Retailing, and ~~the Technology Hardware and Equipment~~Energy industry sectors.

Industry limits are used internally to manage industry concentrations and are based on committed exposure that is

allocated on an industry-by-industry basis. A risk management framework is in place to set and approve industry limits as well as to provide ongoing monitoring. The MRC oversees industry limit governance.

Asset Managers and Funds, our largest industry concentration with committed exposure of ~~$91.1~~$107.9 billion, increased ~~$5.5~~$16.8 billion, or ~~six~~18 percent, ~~in 2017.~~during 2018. The ~~increase primarily reflected~~change reflects an increase in exposure to several counterparties.

Capital Goods, our third largest industry concentration with committed exposure of ~~$70.4~~$75.1 billion, increased ~~$6.2~~$4.7 billion, or ~~nearly 10~~seven percent, ~~in 2017.~~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 ~~manufacturers.~~companies.

Our energy-related committed exposure decreased ~~$2.5~~$4.5 billion, or ~~six~~12 percent, ~~in 2017~~during 2018 to ~~$36.8 billion at December 31, 2017.~~$32.3 billion. Energy sector net

charge-offs were $31 million in 2018 compared to $156 million in ~~2017 compared to $241 million in 2016.~~2017. Energy sector reservable criticized exposure decreased ~~$3.9 billion in 2017~~$833 million during 2018 to ~~$1.6 billion at December 31, 2017,~~$787 million due to ~~paydowns and upgrades~~improvement in ~~the energy portfolio.~~credit quality coupled with exposure reductions. The energy allowance for credit losses decreased ~~$365~~$225 million during 2018 to ~~$560 million at December 31, 2017.~~$335 million.

Risk Mitigation

We purchase credit protection to cover the funded portion as well as the unfunded portion of certain credit exposures. To lower the cost of obtaining our desired credit protection levels, we may add credit exposure within an industry, borrower or counterparty group by selling protection.

At December 31, ~~2017~~2018 and ~~2016,~~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 ~~$2.1~~$2.7 billion and ~~$3.5~~$2.1 billion. We recorded net losses of ~~$66~~$2 million ~~in 2017~~for 2018 compared to net losses of ~~$438~~$66 million in ~~2016~~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 ~~49.~~47. For ~~more~~additional information, see Trading Risk Management on page ~~77.~~

71.

Tables 41 and 42 present the maturity profiles and the credit exposure debt ratings of the net credit default protection portfolio at December 31, ~~2017~~2018 and ~~2016.~~2017.



Table 41	Net Credit Default Protection by Maturity					Net Credit Default Protection by Maturity

		December 31					December 31
		2017		2016			2018		2017
Less than or equal to one year	Less than or equal to one year	42	%	56	%	Less than or equal to one year	20	%	42	%
Greater than one year and less than or equal to five years	Greater than one year and less than or equal to five years	58		41		Greater than one year and less than or equal to five years	78		58
Greater than five years	Greater than five years	—		3		Greater than five years	2		—
Total net credit default protection	Total net credit default protection	100	%	100	%	Total net credit default protection	100	%	100	%



Table 42	Net Credit Default Protection by Credit Exposure Debt Rating											Net Credit Default Protection by Credit Exposure Debt Rating

		Net Notional ⁽¹⁾			Percent of Total		Net Notional ⁽¹⁾			Percent of Total			Net Notional ⁽¹⁾			Percent of Total		Net Notional ⁽¹⁾			Percent of Total
		December 31											December 31
(Dollars in millions)	(Dollars in millions)	2017					2016					(Dollars in millions)	2018					2017
Ratings ^{(2, 3)}	Ratings ^{(2, 3)}											Ratings ^{(2, 3)}
A	A	$	(280	)	13.2	%	$	(135	)	3.9	%	A	$	(700	)	26.3	%	$	(280	)	13.2	%
BBB	BBB	(459		)	21.6		(1,884		)	54.2		BBB	(501		)	18.8		(459		)	21.6
BB	BB	(893		)	41.9		(871		)	25.1		BB	(804		)	30.2		(893		)	41.9
B	B	(403		)	18.9		(477		)	13.7		B	(422		)	15.8		(403		)	18.9
CCC and below	CCC and below	(84		)	3.9		(81		)	2.3		CCC and below	(205		)	7.7		(84		)	3.9
NR ⁽⁴⁾	NR ⁽⁴⁾	(10		)	0.5		(29		)	0.8		NR ⁽⁴⁾	(31		)	1.2		(10		)	0.5
Total net credit default protection	Total net credit default protection	$	(2,129	)	100.0	%	$	(3,477	)	100.0	%	Total net credit default protection	$	(2,663	)	100.0	%	$	(2,129	)	100.0	%

A number of economic conditions and geopolitical events have given rise to risk aversion in certain emerging markets. Our ~~two~~ largest emerging market country ~~exposures~~exposure at December 31, ~~2017 were~~2018 was China, ~~and Brazil. At December 31, 2017,~~with net exposure ~~to China was $15.9~~of $14.6 billion, concentrated in large state-owned companies, subsidiaries of multinational corporations ~~and commercial banks. At December 31, 2017, net exposure to Brazil was $10.7 billion, concentrated in sovereign securities, oil and gas companies~~ and commercial banks.

The outlook for policy direction and therefore economic performance in the EU remains uncertain as a consequence of reduced political cohesion among EU countries. Additionally, we believe that the uncertainty in the U.K.’s ability to negotiate a favorable exit from the EU will further weigh on economic performance. Our largest EU country exposure at December 31, ~~2017~~2018 was the U.K. with net exposure of ~~$37.6~~$54.9 billion, ~~concentrated~~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

~~in multinational corporations~~monitoring our exposures to tariff-sensitive industries and ~~sovereign clients. For more information, see Executive Summary – 2017 Economic and Business Environment on page 19.~~our international exposure, particularly to countries that account for a large percentage of U.S. trade.

Table 4644 presents countries where total cross-border exposure exceeded one percent of our total assets. At December 31, ~~2017,~~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, ~~2017,~~2018, Germany and China had total cross-border exposure of ~~$21.6~~$20.4 billion and $19.5 billion representing ~~0.95~~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, ~~2017.~~2018.

Cross-border exposure includes the components of Country Risk Exposure as detailed in Table 4543 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.

Provision for Credit Losses

The provision for credit losses decreased ~~$201~~$114 million to ~~$3.4~~$3.3 billion in ~~2017~~2018 compared to ~~2016.~~2017 primarily due to improvement in the commercial portfolio, partially offset by an increase in the consumer portfolio. The provision for credit losses was ~~$583~~$481 million lower than net charge-offs for ~~2017,~~2018, resulting in a reduction in the allowance for credit losses. This compared to a reduction of ~~$224~~$583 million in the allowance for credit losses in ~~2016.~~2017.

The provision for credit losses for the consumer portfolio increased ~~$159~~$222 million to ~~$2.7~~$2.9 billion in ~~2017~~2018 compared to ~~2016.~~2017. The increase was primarily driven by a ~~provision increase~~slower pace of ~~$672 million~~improvement in the consumer real estate portfolio, and portfolio seasoning and loan growth in the U.S. credit card portfolio, ~~due to portfolio seasoning and loan growth, largely~~partially offset by the impact of the sale of the non-U.S. consumer ~~real estate portfolio due to continued portfolio improvement and increased home prices. Included~~credit card business in ~~the provision is an expense of $76 million related to the PCI loan portfolio for 2017 compared to a benefit of $45 million in 2016.~~2017.

The provision for credit losses for the commercial portfolio, including unfunded lending commitments, decreased ~~$360~~$336 million to ~~$669~~$333 million in ~~2017~~2018 compared to ~~2016~~2017. The decrease was primarily driven by ~~reductions in energy exposures, partially offset by~~ a 2017 single-name non-U.S. commercial ~~charge-off.~~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 ~~LHFS~~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

the portion of loans that will default based on individual loan attributes, the most significant of which are refreshed LTV or CLTV, and borrower credit score as well as vintage and geography, all of which are further broken down into current delinquency status. Additionally, we incorporate the delinquency status of underlying first-lien loans on our junior-lien home equity portfolio in our allowance process. Incorporating refreshed LTV and CLTV into our probability of default allows us to factor the impact of changes in home prices into our allowance for loan and lease losses. These loss forecast models are updated on a quarterly basis to incorporate information reflecting the current economic environment. As of December 31, ~~2017,~~2018, the loss forecast process resulted in reductions in the allowance related to the residential mortgage and home equity portfolios compared to December 31, ~~2016.~~2017.

The allowance for commercial loan and lease losses is established by product type after analyzing historical loss experience, internal risk rating, current economic conditions, industry performance trends, geographic and obligor concentrations within each portfolio and any other pertinent information. The statistical models for commercial loans are generally updated annually and utilize our historical database of actual defaults and other data, including external default data. The loan risk ratings and composition of the commercial portfolios used to calculate the allowance are updated quarterly to incorporate the most recent data reflecting the current economic environment. For risk-rated commercial loans, we estimate the probability of default and the loss given default (LGD) based on our historical experience of defaults and credit losses. Factors considered when assessing the internal risk rating include the value of the underlying collateral, if applicable, the industry in which the obligor operates, the obligor’s liquidity and other financial indicators, and other quantitative and qualitative factors relevant to the obligor’s credit risk. As of December 31, ~~2017,~~2018, the allowance ~~decreased~~ for the U.S. commercial and non-U.S. commercial portfolios decreased compared to December 31, ~~2016.~~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. We also consider factors that are applicable to unique portfolio segments. For example, we consider the risk of uncertainty in our loss forecasting models related to junior-lien home equity loans that are current, but have first-lien loans that we do not service that are 30 days or more past due. In addition, we consider the increased risk of default associated with our interest-only loans that have yet to enter the amortization period. Further, we consider the inherent uncertainty in mathematical models that are built upon historical data.

We monitor differences between estimated and actual incurred loan and lease losses. This monitoring process includes periodic assessments by senior management of loan and lease portfolios and the models used to estimate incurred losses in those portfolios.

The allowance for loan and lease losses for the consumer portfolio, as presented in Table ~~48,~~45, was ~~$5.4~~$4.8 billion at December 31, ~~2017,~~2018, a decrease of ~~$839~~$581 million from December 31, ~~2016.~~2017. The decrease was primarily in the consumer real estate portfolio, ~~and the non-U.S. card portfolio which was sold in 2017,~~ partially offset by an increase in the U.S. credit card portfolio. The reduction in the 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 ~~48,~~45, was ~~$5.0~~$4.8 billion at December 31, ~~2017,~~2018, a decrease of ~~$248~~$211 million from December 31, ~~2016~~2017 primarily driven by ~~decreased~~improvement in energy ~~reserves due to reductions in the higher risk energy sub-sectors.~~exposures. Commercial ~~utilized~~ reservable criticized utilized exposure decreased to ~~$13.6~~$11.1 billion at December 31, ~~2017~~2018 from ~~$16.3~~$13.6 billion (to ~~2.65~~2.08 percent from ~~3.35~~2.65 percent of total commercial reservable utilized ~~reservable~~ exposure) at December 31, ~~2016, largely due to paydowns and net upgrades in~~2017, driven by broad-based improvements including the energy ~~portfolio.~~sector. Nonperforming commercial loans decreased to ~~$1.3~~

$1.1 billion at December 31, ~~2017~~2018 from ~~$1.7~~$1.3 billion (to 0.22 percent from 0.27 ~~percentfrom0.38~~ percent of outstanding commercial loans excluding loans accounted for under the fair value option)

at December 31, ~~2016 with the decrease primarily in the energy and metal and mining sectors.~~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 compared to 1.26 percent at December 31, 2016. The decrease in the ratio was primarily due to improved credit quality in the consumer real estate portfolio driven by improved economic conditions. The December 31, 2017 and 2016 ratios above include the PCI loan portfolio. Excluding the PCI loan portfolio, the allowance for loan and lease losses as a percentage of total loans and leases outstanding was 1.10 percent and 1.24 percent at December 31, 2017 and 2016.2017.

Reserve for Unfunded Lending Commitments

In addition to the allowance for loan and lease losses, we also estimate probable losses related to unfunded lending commitments such as letters of credit, financial guarantees, unfunded bankers’ acceptances and binding loan commitments, excluding commitments accounted for under the fair value option. Unfunded lending commitments are subject to the same assessment as funded loans, including estimates of probability of default and LGD. Due to the nature of unfunded commitments, the estimate of probable losses must also consider utilization. To estimate the portion of these undrawn commitments that is likely to be drawn by a borrower at the time of estimated default, analyses of our historical experience are applied to the unfunded commitments to estimate the funded exposure at default (EAD). The expected loss for unfunded lending commitments is the product of the probability of default, the LGD and the EAD, adjusted for any qualitative factors including economic uncertainty and inherent imprecision in models.

The reserve for unfunded lending commitments was $797 million at December 31, 2018 compared to $777 million at December 31, ~~2017 compared to $762 million at December 31, 2016.~~2017.

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 ~~81.~~74.

Our traditional banking loan and deposit products are non-trading positions and are generally reported at amortized cost for assets or the amount owed for liabilities (historical cost). However, these positions are still subject to changes in economic value based on varying market conditions, with one of the primary risks being changes in the levels of interest rates. The risk of adverse changes in the economic value of our non-trading positions arising from changes in interest rates is managed through our ALM activities. We have elected to account for certain assets and liabilities under the fair value option.

Our trading positions are reported at fair value with changes reflected in income. Trading positions are subject to various changes in market-based risk factors. The majority of this risk is generated by our activities in the interest rate, foreign exchange, credit, equity and commodities markets. In addition, the values of assets and liabilities could change due to market liquidity, correlations across markets and expectations of market volatility. We seek to manage these risk exposures by using a variety of techniques that encompass a broad range of financial instruments. The key risk management techniques are discussed in more detail in the Trading Risk Management section.

Global Risk Management is responsible for providing senior management with a clear and comprehensive understanding of the trading risks to which we are exposed. These responsibilities

include ownership of market risk policy, developing and maintaining quantitative risk models, calculating aggregated risk measures, establishing and monitoring position limits consistent with risk appetite, conducting daily reviews and analysis of trading inventory, 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.

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 respective limitations. Additionally, risk managers independently evaluate the risk of the portfolios under the current market environment and potential future environments.

VaR is a common statistic used to measure market risk as it allows the aggregation of market risk factors, including the effects of portfolio diversification. A VaR model simulates the value of a portfolio under a range of scenarios in order to generate a distribution of potential gains and losses. VaR represents the loss a portfolio is not expected to exceed more than a certain number of times per period, based on a specified holding period, confidence level and window of historical data. We use one VaR model consistently across the trading portfolios and it uses a historical simulation approach based on a three-year window of historical data. Our primary VaR statistic is equivalent to a 99 percent confidence level. This means that for a VaR with a one-day holding period, there should not be losses in excess of VaR, on average, 99 out of 100 trading days.

Within any VaR model, there are significant and numerous assumptions that will differ from company to company. The accuracy of a VaR model depends on the availability and quality of historical data for each of the risk factors in the portfolio. A VaR model may require additional modeling assumptions for new products that do not have the necessary historical market data or for less liquid positions for which accurate daily prices are not consistently available. For positions with insufficient historical data for the VaR calculation, the process for establishing an appropriate proxy is based on fundamental and statistical analysis of the new product or less liquid position. This analysis identifies reasonable alternatives that replicate both the expected volatility and correlation to other market risk factors that the missing data would be expected to experience.

Table 4947 presents year-end, average, high and low daily trading VaR for ~~2017~~2018 and ~~2016~~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.

Backtesting

The accuracy of the VaR methodology is evaluated by backtesting, which compares the daily VaR results, utilizing a one-day holding period, against a comparable subset of trading revenue. A backtesting excess occurs when a trading loss exceeds the VaR for the corresponding day. These excesses are evaluated to understand the positions and market moves that produced the trading loss ~~and~~with a goal to ~~assess whether~~ensure that the VaR methodology accurately represents those losses. We expect the frequency of trading losses in excess of VaR to be in line with the confidence level of the VaR statistic being tested. For example, with a 99 percent confidence level, we expect one trading loss in excess of VaR every 100 days or between two to three trading losses in excess of VaR over the course of a year. The number of backtesting excesses observed can differ from the statistically expected number of excesses if the current level of market volatility is materially different than the level of market volatility that existed during the three years of historical data used in the VaR calculation.

The trading revenue used for backtesting is defined by regulatory agencies in order to most closely align with the VaR component of the regulatory capital calculation. This revenue differs from total trading-related revenue in that it excludes revenue from trading activities that either do not generate market risk or the market risk cannot be included in VaR. Some examples of the types of revenue excluded for backtesting are fees, commissions, reserves, net interest income and intraday trading revenues.

We conduct daily backtesting on ~~our portfolios, ranging from the total market-based portfolio to individual trading areas. Additionally, we conduct daily backtesting on~~ the VaR results used for regulatory capital calculations as well as the VaR results for key legal entities, regions and risk factors. These results are reported to senior market risk management. Senior management regularly reviews and evaluates the results of these tests.

During ~~2017,~~2018, there were nothree days in which there was a backtesting excess for our total ~~market-based~~covered portfolio VaR, utilizing a one-day holding period.

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 ~~41.~~40.

The management of Bank of America Corporation is responsible for establishing and maintaining adequate internal control over financial reporting.

The Corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Corporation’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of management and directors of the Corporation; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporation’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, ~~2017~~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, ~~2017,~~2018, the Corporation’s internal control over financial reporting is effective.

The Corporation’s internal control over financial reporting as of December 31, ~~2017~~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, ~~2017.~~2018.

Brian T. Moynihan

Chairman, Chief Executive Officer and President

Paul M. Donofrio

Chief Financial Officer

To the Board of Directors and Shareholders of Bank of America Corporation:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Bank of America Corporation and its subsidiaries as of December 31, ~~2017~~ 2018and December 31, ~~2016,~~ 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, ~~2017,~~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, ~~2017,~~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, ~~2017~~2018 and December 31, ~~2016,~~ 2017, and the results of ~~their~~ itsoperations and ~~their~~ itscash flows for each of the three years in the period ended December 31, ~~2017~~ 2018in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2017,~~2018, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.

~~Change In Accounting Principle~~

As discussed in Note 1 to the consolidated financial statements, the Corporation changed the manner in which it accounts for the determination of when certain stock-based compensation awards are considered authorized for purposes of determining their service inception date.

Basis for Opinions

The Corporation’s management is responsible for 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”)~~(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.

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 financial statements are free of material misstatement, whether due to error or fraud, and whether effective

internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material

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 the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Charlotte, North Carolina

February ~~22, 2018~~26, 2019

We have served as the Corporation’s auditor since 1958.

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~~current-period presentation.

On June 1, 2017, the Corporation completed the sale of its non-U.S. consumer credit card business to a third party. The Corporation has indemnified the purchaser for substantially all payment protection insurance (PPI) exposure above reserves assumed by the purchaser. The impact of the sale was an after-tax gain of $103 million, and is presented in the Consolidated Statement of Income as other income of $793 million and an income tax expense of $690 million. The income tax expense was related to gains on the derivatives used to hedge the currency risk of the net investment. Total cash proceeds from the sale were $10.9 billion. The assets of the business sold primarily included consumer credit card receivables of $9.8 billion and $9.2 billion at June 1, 2017 and December 31, 2016 and goodwill of $775 million at both of those period ends. This business was includedin ~~All Other~~.

~~Change in Tax Law~~

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (the Tax Act) which made significant changes to federal income tax law including, among other things, reducing the statutory corporate income tax rate to 21 percent from 35 percent and changing the taxation of the Corporation’s non-U.S. business activities. On the same date, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 which

specifies, among other things, that reasonable estimates of the income tax effects of the Tax Act should be used, if determinable. The Corporation has accounted for the effects of the Tax Act using reasonable estimates based on currently available information and its interpretations thereof. This accounting may change due to, among other things, changes in interpretations the Corporation has made and the issuance of new tax or accounting guidance. GAAP requires that the effects of a change in tax rate from revaluing deferred tax assets and deferred tax liabilities be recognized upon enactment, resulting in $1.9 billion of estimated incremental income tax expense recognized in 2017. The change in tax rate also resulted in a downward valuation adjustment, primarily related to tax-advantaged energy investments, of $946 million recorded in other income.

~~Change in Accounting Method~~

GAAP requires that stock-based compensation awards be expensed over the service period (the period they are earned), based on their grant-date fair value. Awards to retirement-eligible employees have no future service requirement, and historically, the Corporation has deemed these awards to be authorized on the grant date, resulting in full recognition of the related expense at that time. Effective October 1, 2017, the Corporation changed its accounting method for determining when these awards are deemed authorized, changing from the grant date to the beginning of the year preceding the grant date when the incentive award plans are generally approved. As a result, the estimated value of the awards is now expensed ratably over the year preceding the grant date. The Corporation believes this change is a preferable method of accounting as it is consistent with the accounting method used by several peer institutions for similar awards and results in an improved pattern of expense recognition.

Adoption of this change is voluntary and has been adopted retrospectively with all prior periods presented herein being restated. The change in accounting method resulted in a decrease in retained earnings of $635 million at January 1, 2015. All other effects of the change on the Consolidated Statement of Income and diluted earnings per share were not material for any period presented; additionally, the impact of the change in accounting method was not material to any interim periods. The change affected consolidated financial information and ~~All Other; it did not affect the business segments.~~

~~The following Notes have been impacted by the change in accounting method:~~ ~~Note 13 – Shareholders’ Equity~~, ~~Note 15 – Earnings Per Common Share~~, ~~Note 16 – Regulatory Requirements and Restrictions~~ ~~and~~ ~~Note 18 – Stock-based Compensation Plans~~.

New Accounting ~~Pronouncements~~Standards

~~Accounting for Share-based Compensation~~

Effective January 1, 2017, the Corporation adopted the new accounting standard that simplifies certain aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Under this new accounting standard, all excess tax benefits and tax deficiencies on the delivery of share-based awards are recognized as discrete items in income tax expense or benefit in the Consolidated Statement of Income. Previously such amounts were recorded in shareholders’ equity. The adoption of this new accounting standard resulted in $236 million of tax benefits upon the delivery of share-settled awards in 2017.

~~The Corporation’s policy is~~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 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 createestimate incurred losses in those portfolios.

~~material credit risk due to these collateral provisions; therefore, an~~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.

Reserve for Unfunded Lending Commitments

In addition to the allowance for loan and lease losses, we also estimate probable losses related to unfunded lending commitments such as letters of credit, financial guarantees, unfunded bankers’ acceptances and binding loan commitments, excluding commitments accounted for under the fair value option. Unfunded lending commitments are subject to the same assessment as funded loans, including estimates of probability of default and LGD. Due to the nature of unfunded commitments, the estimate of probable losses must also consider utilization. To estimate the portion of these undrawn commitments that is ~~unnecessary.~~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.

~~In transactions where~~The reserve for unfunded lending commitments was $797 million at December 31, 2018 compared to $777 million at December 31, 2017.

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 ~~acts as~~(e.g., our ALM activities). In the ~~lender~~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 74.

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 ~~a securities lending agreement~~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 ~~receives securities that can be pledged or sold as collateral, it recognizes an asset on~~liabilities under the ~~Consolidated Balance Sheet~~fair value option.

Our trading positions are reported at fair value with changes reflected in income. Trading positions are subject to various changes in market-based risk factors. The majority of this risk is generated by our activities in the interest rate, foreign exchange, credit, equity and commodities markets. In addition, the values of assets and liabilities could change due to market liquidity, correlations across markets and expectations of market volatility. We seek to manage these risk exposures by using a variety of techniques that encompass a broad range of financial instruments. The key risk management techniques are discussed in more detail in the Trading Risk Management section.

Global Risk Management is responsible for providing senior management with a clear and comprehensive understanding of the trading risks to which we are exposed. These responsibilities include ownership of market risk policy, developing and maintaining quantitative risk models, calculating aggregated risk measures, establishing and monitoring position limits consistent with risk appetite, conducting daily reviews and analysis of trading inventory, approving material risk exposures and fulfilling regulatory requirements. Market risks that impact businesses outside of Global Markets are monitored and governed by their respective governance functions.

Quantitative risk models, such as VaR, are an essential component in evaluating the market risks within a portfolio. The Enterprise Model Risk Committee (EMRC), a subcommittee of the MRC, is responsible for providing management oversight and approval of model risk management and governance. The EMRC defines model risk standards, consistent with our risk framework and risk appetite, prevailing regulatory guidance and industry best practice. Models must meet certain validation criteria, including effective challenge of the model development process and a sufficient demonstration of developmental evidence incorporating a comparison of alternative theories and approaches. The EMRC oversees that model standards are consistent with model risk requirements and monitors the effective challenge in the model validation process across the Corporation. In addition, the relevant stakeholders must agree on any required actions or restrictions to the models and maintain a stringent monitoring process for continued compliance.

Interest Rate Risk

Interest rate risk represents exposures to instruments whose values vary with the level or volatility of interest rates. These instruments include, but are not limited to, loans, debt securities,

certain trading-related assets and liabilities, deposits, borrowings and derivatives. Hedging instruments used to mitigate these risks include derivatives such as options, futures, forwards and swaps.

Foreign Exchange Risk

Foreign exchange risk represents exposures to changes in the values of current holdings and future cash flows denominated in currencies other than the U.S. dollar. The types of instruments exposed to this risk include investments in non-U.S. subsidiaries, foreign currency-denominated loans and securities, future cash flows in foreign currencies arising from foreign exchange transactions, foreign currency-denominated debt and various foreign exchange derivatives whose values fluctuate with changes in the level or volatility of currency exchange rates or non-U.S. interest rates. Hedging instruments used to mitigate this risk include foreign exchange options, currency swaps, futures, forwards, and foreign currency-denominated debt and deposits.

Mortgage Risk

Mortgage risk represents exposures to changes in the values of mortgage-related instruments. The values of these instruments are sensitive to prepayment rates, mortgage rates, agency debt ratings, default, market liquidity, government participation and interest rate volatility. Our exposure to these instruments takes several forms. For example, we trade and engage in market-making activities in a variety of mortgage securities including whole loans, pass-through certificates, commercial mortgages and collateralized mortgage obligations including collateralized debt obligations 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 76.

Equity Market Risk

Equity market risk represents exposures to securities that represent an ownership interest in a corporation in the form of domestic and foreign common stock or other equity-linked instruments. Instruments that would lead to this exposure include, but are not limited to, the following: common stock, exchange-traded funds, American Depositary Receipts, convertible bonds, listed equity options (puts and calls), OTC equity options, equity total return swaps, equity index futures and other equity derivative products. Hedging instruments used to mitigate this risk include options, futures, swaps, convertible bonds and cash positions.

Commodity Risk

Commodity risk represents exposures to instruments traded in the petroleum, natural gas, power and metals markets. These instruments consist primarily of futures, forwards, swaps and options. Hedging instruments used to mitigate this risk include options, futures and swaps in the same or similar commodity product, as well as cash positions.

Issuer Credit Risk

Issuer credit risk represents exposures to changes in the creditworthiness of individual issuers or groups of issuers. Our portfolio is exposed to issuer credit risk where the value of an asset may be adversely impacted by changes in the levels of credit spreads, by credit migration or by defaults. Hedging instruments

used to mitigate this risk include bonds, CDS and other credit fixed-income instruments.

Market Liquidity Risk

Market liquidity risk represents the risk that the level of expected market activity changes dramatically and, in certain cases, may even cease. This exposes us to the risk that we will not be able to transact business and execute trades in an orderly manner which may impact our results. This impact could be further exacerbated if expected hedging or pricing correlations are compromised by disproportionate demand or lack of demand for certain instruments. We utilize various risk mitigating techniques as discussed in more detail in Trading Risk Management.

Trading Risk Management

To evaluate risk in our trading activities, we focus on the actual and potential volatility of revenues generated by individual positions as well as portfolios of positions. Various techniques and procedures are utilized to enable the most complete understanding of these risks. Quantitative measures of market risk are evaluated on a daily basis from a single position to the portfolio of the Corporation. These measures include sensitivities of positions to various market risk factors, such as the potential impact on revenue from a one basis point change in interest rates, and statistical measures utilizing both actual and hypothetical market moves, such as VaR and stress testing. Periods of extreme market stress influence the reliability of these techniques to varying degrees. Qualitative evaluations of market risk utilize the suite of quantitative risk measures while understanding each of their respective limitations. Additionally, risk managers independently evaluate the risk of the portfolios under the current market environment and potential future environments.

VaR is a common statistic used to measure market risk as it allows the aggregation of market risk factors, including the effects of portfolio diversification. A VaR model simulates the value of a portfolio under a range of scenarios in order to generate a distribution of potential gains and losses. VaR represents the loss a portfolio is not expected to exceed more than a certain number of times per period, based on a specified holding period, confidence level and window of historical data. We use one VaR model consistently across the trading portfolios and it uses a historical simulation approach based on a three-year window of historical data. Our primary VaR statistic is equivalent to a 99 percent confidence level. This means that for a VaR with a one-day holding period, there should not be losses in excess of VaR, on average, 99 out of 100 trading days.

Within any VaR model, there are significant and numerous assumptions that will differ from company to company. The accuracy of a VaR model depends on the availability and quality of historical data for each of the risk factors in the portfolio. A VaR model may require additional modeling assumptions for new products that do not have the necessary historical market data or for less liquid positions for which accurate daily prices are not consistently available. For positions with insufficient historical data for the VaR calculation, the process for establishing an appropriate proxy is based on fundamental and statistical analysis of the new product or less liquid position. This analysis identifies reasonable alternatives that replicate both the expected volatility and correlation to other market risk factors that the missing data would be expected to experience.

VaR may not be indicative of realized revenue volatility as changes in market conditions or in the composition of the portfolio can have a material impact on the results. In particular, the historical data used for the VaR calculation might indicate higher

or lower levels of portfolio diversification than will be experienced. In order for the VaR model to reflect current market conditions, we update the historical data underlying our VaR model on a weekly basis, or more frequently during periods of market stress, and regularly review the assumptions underlying the model. A 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 43.

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.

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.

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.

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 ~~securities received,~~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 ~~liability, representing~~regular basis and the ~~obligation~~results are presented to ~~return those securities.~~senior management.

~~Collateral~~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 40.

Interest Rate Risk Management for the Banking Book

The ~~Corporation accepts~~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 ~~loans as collateral that it is permitted by contract or practice to sell or repledge. At~~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

		December 31, 2018
		Federal Funds		Three-month LIBOR		10-Year Swap
Spot rates		2.50	%	2.81	%	2.71	%
12-month forward rates		2.50		2.64		2.75

		December 31, 2017
Spot rates		1.50	%	1.69	%	2.40	%
12-month forward rates		2.00		2.14		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 ~~2016,~~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 ~~this collateral was $561.9 billion~~debt securities and, ~~$452.1 billion, of which $476.1 billion~~accordingly, for debt securities classified as AFS, may adversely affect accumulated OCI and ~~$372.0 billion was sold or repledged. The primary source of this collateral~~thus capital levels under the Basel 3 capital rules. Under instantaneous upward parallel shifts, the near-term adverse impact to Basel 3 capital is ~~securities borrowed or purchased under agreements~~reduced over time by offsetting positive impacts to ~~resell.~~net interest income. For more information on Basel 3, see Capital Management – Regulatory Capital on page 44.




Table 50	Estimated Banking Book Net Interest Income Sensitivity to Curve Changes

		Short Rate (bps)	Long Rate (bps)
				December 31
(Dollars in millions)				2018			2017
Parallel Shifts
+100 bps instantaneous shift		+100	+100	$	2,651		$	3,317
-100 bps instantaneous shift		-100	-100	(4,109		)	(5,183		)
Flatteners
Short-end instantaneous change		+100	—	1,977			2,182
Long-end instantaneous change		—	-100	(1,616		)	(2,765		)
Steepeners
Short-end instantaneous change		-100	—	(2,478		)	(2,394		)
Long-end instantaneous change		—	+100	673			1,135

The ~~Corporation also pledges company-owned~~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 ~~loans~~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

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 ~~collateral~~an efficient tool to manage our interest rate and foreign exchange risk. We use derivatives to hedge the variability in ~~transactions that include repurchase agreements, securities loaned, public~~cash flows or changes in fair value on our balance sheet due to interest rate 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~~foreign exchange components. For more information on our hedging activities, see Note 3 – Derivatives to the ~~transactions, is parenthetically disclosed on the~~ Consolidated ~~Balance Sheet.~~Financial Statements.

~~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~~Our interest rate contracts are ~~included on the Consolidated Balance Sheet in Assets of Consolidated VIEs.~~

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 ~~Corporation obtains collateral in connection~~foreign exchange risk associated with its derivative contracts. Required collateral levels vary depending on the credit risk rating and the type of counterparty. Generally, the Corporation accepts collateral in the form of cash, U.S. Treasury securities and other marketable securities. Based on provisions contained in master netting agreements, the Corporation nets cash collateral received against derivative assets. The Corporation also pledges collateral on its own derivative positions which can be applied against derivative liabilities.

~~Trading Instruments~~

~~Financial instruments utilized in trading activities are carried at fair value. Fair value is generally based on quoted market prices or quoted market prices for similar~~foreign currency-denominated assets and liabilities. ~~If these market prices~~

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 ~~not available, fair values are estimated~~ based on ~~dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques where~~ the ~~determination~~current assessment of ~~fair value may require significant management judgment or estimation. Realized gains~~economic and ~~losses are recorded on a trade-date basis. Realized and unrealized gains and losses are recognized in trading account profits.~~

~~Derivatives and Hedging Activities~~

Derivatives are entered into on behalf of customers, for trading or to support risk management activities. Derivatives used in risk management activities include derivatives that are both designated in qualifying accounting hedge relationships and derivatives used to hedge market risks in relationships that are not designated in qualifying accounting hedge relationships

~~(referred to as other risk management activities). The Corporation manages~~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 – Derivativesto 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.

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 43.

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

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 40.

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.

A key operational risk facing the Corporation is information security, which includes cybersecurity. Cybersecurity 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 withinternal 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.

The Corporation manages reputational risk through established policies and controls in its businesses and risk management processes to mitigate reputational risks in a timely manner and through proactive monitoring and identification of potential reputational risk events. 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.

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 Principlesto 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 ~~predominantly through~~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 ~~derivatives. Derivatives utilized by~~observable inputs and minimize the ~~Corporation include swaps, futures~~use of unobservable inputs in measuring fair value. We classify fair value measurements of financial instruments and ~~forward settlement contracts, and option contracts.~~

~~All derivatives are recorded~~MSRs based on the ~~Consolidated Balance Sheet at~~three-level fair value ~~taking into consideration~~hierarchy in the ~~effects~~accounting standards.

The fair values of ~~legally enforceable master netting agreements~~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 ~~allow~~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 ~~Corporation to settle positive and negative positions and offset cash collateral held~~valuation process. In keeping with the ~~same counterparty on a net basis. For exchange-traded contracts,~~prudent application of estimates and management judgment in determining the fair value of assets and liabilities, we have in place various processes and controls that include: a model validation policy that requires review and approval of quantitative models used for deal pricing, financial statement fair value determination and risk quantification; a trading product valuation policy that requires verification of all traded product valuations; and a periodic review and substantiation of daily profit and loss reporting for all traded products. Primarily through validation controls, we utilize both broker and pricing service inputs which can and do include both market-observable and internally-modeled values and/or valuation inputs. Our reliance on this information is affected by our understanding of how the broker and/or pricing service develops

its data with a higher degree of reliance applied to those that are more directly observable and lesser reliance applied to those developed through their own internal modeling. 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 ~~quoted market prices in active or inactive markets or is derived from observable market- based pricing parameters, similar~~valuation techniques that require inputs that are both unobservable and are significant to ~~those applied to over-the-counter (OTC) derivatives. For non-exchange traded contracts,~~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 ~~based on dealer quotes,~~determined using pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value ~~may require~~requires significant management judgment or estimation.

~~Valuations~~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 ~~derivative~~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 ~~reflect~~became unobservable or observable, respectively, in the ~~value~~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 ~~instrument including counterparty credit risk. These values also take into account the Corporation’s own credit standing.~~Consolidated Financial Statements.

~~Trading Derivatives~~Accrued Income Taxes and ~~Other Risk Management Activities~~Deferred Tax Assets

~~Derivatives held for trading purposes are included in derivative~~Accrued income taxes, reported as a component of either other assets or ~~derivative~~accrued expenses and other liabilities on the Consolidated Balance Sheet, ~~with changes~~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 ~~fair value included~~more than 100 jurisdictions and consider many factors, including statutory, judicial and regulatory guidance, in ~~trading account profits.~~estimating the appropriate accrued income taxes for each jurisdiction.

~~Derivatives used for~~Net deferred tax assets, reported as a component of 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 inon the Consolidated ~~Statement of Income to~~Balance Sheet, represent the ~~extent effective. The changes~~net decrease in the fair value of derivatives that serve to mitigate certain risks associated with mortgage servicing rights (MSRs), interest rate lock commitments (IRLCs) and first mortgage loans held-for-sale (LHFS) that are originated by the Corporation are recorded in mortgage banking income. Changes in the fair value of derivatives that serve to mitigate interest rate risk and foreign currency risk are included in other income. Credit derivatives are also used by the Corporation to mitigate the risk associated with various credit exposures. The changes in the fair value of these derivatives are included in other income.

~~Derivatives Used For Hedge Accounting Purposes (Accounting Hedges)~~

For accounting hedges, the Corporation formally documents at inception all relationships between hedging instruments and hedged items, as well as the risk management objectives and strategies for undertaking various accounting hedges. Additionally, the Corporation primarily uses regression analysis at the inception of a hedge and for each reporting period thereafter to assess whether the derivative used in an accounting hedge transaction istaxes expected to be paid in the future because of net operating loss (NOL) and ~~has been highly effective~~tax credit carryforwards and because of future reversals of temporary differences in ~~offsetting~~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 ~~fair value or cash flows~~courts and regulatory authorities. These revisions of ~~a hedged item or forecasted transaction. The Corporation discontinues hedge accounting when it is determined that a derivative is not expected~~our estimates, which also may result from our income tax planning and from the resolution of income tax audit matters, may be material 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.~~our operating results for any given period.

~~Fair value hedges~~See Note 19 – Income Taxes to the Consolidated Financial Statements for a table of significant tax attributes and additional information. For more information, see page 13 under Item 1A. Risk Factors – Regulatory, Compliance and Legal.

Goodwill and Intangible Assets

The nature of and accounting for goodwill and intangible assets are ~~used~~ 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 ~~protect against changes in~~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 ~~Corporation’s assets~~qualitative assessments include, among other things, macroeconomic conditions, industry and ~~liabilities~~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 ~~are attributable to interest rate or foreign exchange volatility. Changes in~~ the fair value of ~~derivatives designated as~~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 ~~hedges are recorded in earnings, together~~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 ~~same income statement line item~~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 ~~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~~sensitivity.

For more information on representations and warranties exposure, see Note 12 – Commitments and Contingencies to the ~~carrying value~~Consolidated Financial Statements.

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 ~~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~~Consolidated Financial Statements and ~~interest-bearing liabilities, such adjustments are amortized to earnings over the remaining life of the respective asset or liability.~~related Notes.

Cash flow hedges are used primarily to minimize the variability in cash flows of assets and liabilities, or forecasted transactions caused by interest rate or foreign exchange rate fluctuations. Changes in the fair value of derivatives used in cash flow hedges are recorded in accumulated OCI and are reclassified into the line item in the income statement in which the hedged item is recorded in the same period the hedged item affects earnings. Hedge ineffectiveness and gains and losses on the component of a derivative excluded in assessing hedge effectiveness are recorded in the same income statement line item.Overview

Net ~~investment hedges are used~~Income

Net income was $18.2 billion, or $1.56 per diluted share in 2017 compared to ~~manage the foreign exchange rate sensitivity arising from~~$17.8 billion, or $1.49 per diluted share in 2016. The results for 2017 included a ~~net investment in a foreign operation. Changes in the fair value~~charge of ~~derivatives designated as net investment hedges of foreign operations, to the extent effective, are recorded as a component of accumulated OCI.~~

~~Securities~~

Debt securities are reported on the Consolidated Balance Sheet at their trade date. Their classification is dependent on the purpose for which the assets were acquired. Debt securities purchased for use in the Corporation’s trading activities are reported in trading account assets at fair value with unrealized gains and losses included in trading account profits. Substantially all other debt securities purchased are used in the Corporation’s asset and liability management (ALM) activities and are reported on the Consolidated Balance Sheet as either debt securities carried at fair value or as debt securities held-to-maturity (HTM). Debt securities carried at fair value are either available-for-sale (AFS) securities with unrealized gains and losses net-of-tax included in accumulated OCI or carried at fair value with unrealized gains and losses reported in other income. Debt securities HTM, which are certain debt securities that management has the intent and ability to hold to maturity, are reported at amortized cost.

The Corporation regularly evaluates each AFS and HTM debt security where the value has declined below amortized cost to assess whether the decline in fair value is other than temporary. In determining whether an impairment is other than temporary, the Corporation considers the severity and duration of the decline in fair value, the length of time expected for recovery, the financial condition of the issuer, and other qualitative factors, as well as whether the Corporation either plans to sell the security or it is more-likely-than-not that it will be required to sell the security before recovery of the amortized cost. For AFS debt securities the Corporation intends to hold, an analysis is performed to determine how much of the decline in fair value is$2.9 billion related to the ~~issuer’s credit and how much is related~~Tax Act. The pretax results for 2017 compared to ~~market factors (e.g., interest rates). If any~~2016 were driven by higher revenue, largely the result of ~~the decline~~an increase 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~~net interest income, ~~at a constant effective yield over the contractual lives of the securities. Realized gains and losses from the sales of debt securities are determined using the specific identification method.~~

Marketable equity securities are classified based on management’s intention on the date of purchase and recorded on the Consolidated Balance Sheet as of the trade date. Marketable equity securities that are bought and held principally for the purpose of resale in the near term are classified as trading and are carried at fair value with unrealized gains and losses included in trading account profits. Other marketable equity securities are accounted for as AFS and classified in other assets. All AFS marketable equity securities are carried at fair value with net unrealized gains and losses included in accumulated OCI, net-of-tax. If there is an other-than-temporary decline in the fair value of any individual AFS marketable equity security, the cost basis is reduced and the Corporation reclassifies the associated net unrealized loss out of accumulated OCI with a corresponding charge to other income. Dividend income on AFS marketable equity securities is included in other income. Realized gains and losses on the sale of all AFS marketable equity securities, which are recorded in other income, are determined using the specific identification method.

~~Loans and Leases~~

Loans, with the exception of loans accounted for under the fair value option, are measured at historical cost and reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and for purchased loans, net of any unamortized premiums or discounts. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income over the lives of the related loans. Unearned income, discounts and premiums are amortized to interest income using a level yield methodology. The Corporation elects to account for certain consumer and commercial loans under the fair value option with changes in fair value reported in other income.

Under applicable accounting guidance, for reporting purposes, the loan and lease portfolio is categorized by portfolio segment and, within each portfolio segment, by class of financing receivables. A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine the allowancelower provision for credit losses and a ~~class~~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 ~~financing receivables is defined as~~ the ~~level~~non-U.S. consumer credit card business in the second quarter of ~~disaggregation~~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 ~~segments based on~~and credit quality improvements in the ~~initial measurement attribute, risk characteristics~~consumer real estate portfolio. This was partially offset by portfolio seasoning 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~~loan growth in 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 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 ~~(sold~~business and lower litigation expense, partially offset by a $316 million impairment charge related to certain data centers that were in ~~2017), direct/indirect consumer~~the process of being sold 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~~$145 million for the shared success discretionary year-end bonus awarded to certain employees.

~~Purchased loans with evidence~~Income Tax Expense

Tax expense for 2017 included a charge of ~~credit quality deterioration as~~$1.9 billion reflecting the impact of the ~~purchase date~~Tax Act. Other than the impact of the Tax Act, the effective tax rate for ~~which it is probable that~~2017 was driven by our recurring tax preference benefits as well as an expense recognized in connection with the ~~Corporation will not receive all contractually required payments receivable are accounted~~sale of the non-U.S. consumer credit card business, largely offset by benefits related to the adoption of the new accounting standard for ~~as purchased credit-impaired (PCI) loans. Evidence~~the tax impact associated with share-based compensation, and the restructuring of ~~credit quality deterioration since origination may include past due status, refreshed credit scores~~certain subsidiaries. The effective tax rate for 2016 was driven by our recurring tax preferences and ~~refreshed loan-to-value (LTV) ratios. At acquisition, PCI loans are recorded at fair value with no allowance~~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 ~~accounted~~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 ~~individually or aggregated~~credit losses increased $810 million to $3.5 billion due to portfolio seasoning and loan growth in ~~pools based~~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 ~~similar risk characteristics such as~~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 in2017compared to2016 driven byhigherrevenueandlower

provision for credit ~~risk, collateral type~~losses. Revenue increased $1.6 billion to $20.0 billion driven by higher net interest income and noninterest income. Net interest ~~rate risk. The Corporation estimates~~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 ~~amount and timing of expected cash flows for each loan or pool of loans. The expected cash flows in excess~~impact of the ~~amount paid~~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 ~~the loans is referred~~credit lossesdecreased$671millionto$212 millionin2017primarily 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 ~~as the accretable yield~~$8.6 billion in 2017 primarily driven by higher investments in technology and ~~is recorded as interest~~higher deposit insurance, partially offset by lower litigation costs.

Global Markets

Net income ~~over the remaining estimated life~~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 ~~the loan or pool of loans. The excess of the PCI loans’ contractual principal~~$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 interest over the expected cash flows is referred to as the nonaccretable difference. Over the life of the PCI loans, the expected cash flows continue to be estimated using models that incorporate management’s estimate of current assumptions such as default rates, loss severitytrading revenue and ~~prepayment speeds. If, upon subsequent valuation, the Corporation determines it is probable that the present value of the expected cash flows has decreased, a charge to~~an increase in the provision for credit losses, ~~is recorded with a corresponding increase~~partially offset by higher investment banking fees. Sales and trading revenue, excluding net DVA, decreased $423 million primarily due to weaker performance in ~~the allowance for credit losses. If it is probable that there is a significant increase in the present value of expected cash flows, the allowance~~rates products and emerging markets. The provision for credit losses ~~is reduced or, if there is no remaining allowance~~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.

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

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, 2018and 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 itsoperations and itscash flows for each of the three years in the period ended December 31, 2018in 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.

Basis for Opinions

The Corporation’s management is responsible for these ~~PCI loans,~~consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the ~~accretable yield~~effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is ~~increased through~~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 ~~reclassification~~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.

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 financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material

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 the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Charlotte, North Carolina

February 26, 2019

We have served as the Corporation’s auditor since 1958.

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 ~~nonaccretable difference,~~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, and.


●	Hedge Accounting– The new accounting standard simplifies and expands the ability to apply hedge accounting to certain risk management activities. For additional information,see .


●	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 and .


●	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 .

Effective January 1, 2018, the Corporation adopted the following new accounting standards on a retrospective basis, resulting in ~~a prospective increase~~restatement of all prior periods presented in ~~interest income. Reclassifications to or from nonaccretable difference can also occur for~~the Consolidated Statement of Income and the Consolidated Statement of Cash Flows. The changes in presentation are not material to the PCI loans’ estimated lives. If a loan within a PCI pool is sold, foreclosed, forgiven or the expectation of any future proceeds is remote, the loan is removed from the pool at its proportional carrying value. If the loan’s recovery value is less than the loan’s carrying value, the difference is first applied against the PCI pool’s nonaccretable difference and then against the allowance for credit losses.individual line items affected.

~~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.

●

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 .


●	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 .

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

the portion of loans that will default based on individual loan attributes, the most significant of which are refreshed LTV or CLTV, and borrower credit score as well as vintage and geography, all of which are further broken down into current delinquency status. Additionally, we incorporate the delinquency status of underlying first-lien loans on our junior-lien home equity portfolio in our allowance process. Incorporating refreshed LTV and CLTV into our probability of default allows us to factor the impact of changes in home prices into our allowance for loan and lease losses. These loss forecast models are updated on a quarterly basis to incorporate information reflecting the current economic environment. As of December 31, 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.

The allowance for commercial loan and lease losses is established by product type after analyzing historical loss experience, internal risk rating, current economic conditions, industry performance trends, geographic and obligor concentrations within each portfolio and any other pertinent information. The statistical models for commercial loans are generally updated annually and utilize our historical database of actual defaults and other data, including external default data. The loan risk ratings and composition of the commercial portfolios used to calculate the allowance are updated quarterly to incorporate the most recent data reflecting the current economic environment. For risk-rated commercial loans, we estimate the probability of default and the 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.



67Bank of America 2018

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.

Reserve for Unfunded Lending Commitments

In addition to the allowance for loan and lease losses, we also estimate probable losses related to unfunded lending commitments such as letters of credit, financial guarantees, unfunded bankers’ acceptances and binding loan commitments, excluding commitments accounted for under the fair value option. Unfunded lending commitments are subject to the same assessment as funded loans, including estimates of probability of default and LGD. Due to the nature of unfunded commitments, the estimate of probable losses must also consider utilization. To estimate the portion of these undrawn commitments that is likely to be drawn by a borrower at the time of estimated default, analyses of our historical experience are applied to the unfunded commitments to estimate the funded exposure at default (EAD). The expected loss for unfunded lending commitments is the product of the probability of default, the LGD and the EAD, adjusted for any qualitative factors including economic uncertainty and inherent imprecision in models.

The reserve for unfunded lending commitments was $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

		Amount		Percent of Total		Percent of Loans and Leases Outstanding ⁽¹⁾		Amount		Percent of Total		Percent of Loans and Leases Outstanding ⁽¹⁾
(Dollars in millions)		December 31, 2018						December 31, 2017
Allowance for loan and lease losses
Residential mortgage		$	422	4.40	%	0.20	%	$	701	6.74	%	0.34	%
Home equity		506		5.27		1.05		1,019		9.80		1.76
U.S. credit card		3,597		37.47		3.66		3,368		32.41		3.50
Direct/Indirect consumer		248		2.58		0.27		264		2.54		0.27
Other consumer		29		0.30		n/m		31		0.30		n/m
Total consumer		4,802		50.02		1.08		5,383		51.79		1.18
U.S. commercial ⁽²⁾		3,010		31.35		0.96		3,113		29.95		1.04
Non-U.S. commercial		677		7.05		0.69		803		7.73		0.82
Commercial real estate		958		9.98		1.57		935		9.00		1.60
Commercial lease financing		154		1.60		0.68		159		1.53		0.72
Total commercial		4,799		49.98		0.97		5,010		48.21		1.05
Allowance for loan and lease losses ⁽³⁾		9,601		100.00	%	1.02		10,393		100.00	%	1.12
Reserve for unfunded lending commitments		797						777
Allowance for credit losses		$	10,398					$	11,170

⁽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.


⁽²⁾	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.


⁽³⁾	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



		Bank of America 2018 68

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)		2018			2017
Allowance for loan and lease losses, January 1		$	10,393		$	11,237
Loans and leases charged off
Residential mortgage		(207		)	(188		)
Home equity		(483		)	(582		)
U.S. credit card		(3,345		)	(2,968		)
Non-U.S. credit card⁽¹⁾		—			(103		)
Direct/Indirect consumer		(495		)	(491		)
Other consumer		(197		)	(212		)
Total consumer charge-offs		(4,727		)	(4,544		)
U.S. commercial ⁽²⁾		(575		)	(589		)
Non-U.S. commercial		(82		)	(446		)
Commercial real estate		(10		)	(24		)
Commercial lease financing		(8		)	(16		)
Total commercial charge-offs		(675		)	(1,075		)
Total loans and leases charged off		(5,402		)	(5,619		)
Recoveries of loans and leases previously charged off
Residential mortgage		179			288
Home equity		485			369
U.S. credit card		508			455
Non-U.S. credit card⁽¹⁾		—			28
Direct/Indirect consumer		300			277
Other consumer		15			49
Total consumer recoveries		1,487			1,466
U.S. commercial ⁽³⁾		120			142
Non-U.S. commercial		14			6
Commercial real estate		9			15
Commercial lease financing		9			11
Total commercial recoveries		152			174
Total recoveries of loans and leases previously charged off		1,639			1,640
Net charge-offs		(3,763		)	(3,979		)
Write-offs of PCI loans		(273		)	(207		)
Provision for loan and lease losses		3,262			3,381
Other ⁽⁴⁾		(18		)	(39		)
Allowance for loan and lease losses, December 31		9,601			10,393
Reserve for unfunded lending commitments, January 1		777			762
Provision for unfunded lending commitments		20			15
Reserve for unfunded lending commitments, December 31		797			777
Allowance for credit losses, December 31		$	10,398		$	11,170

Loan and allowance ratios:
Loans and leases outstanding at December 31 ⁽⁵⁾		$	942,546		$	931,039
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 ⁽⁵⁾		1.02		%	1.12		%
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 ⁽⁶⁾		1.08			1.18
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 ⁽⁷⁾		0.97			1.05
Average loans and leases outstanding ⁽⁵⁾		$	927,531		$	911,988
Net charge-offs as a percentage of average loans and leases outstanding ^{(5, 8)}		0.41		%	0.44		%
Net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding ⁽⁵⁾		0.44			0.46
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 ⁽⁵⁾		194			161
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs ⁽⁸⁾		2.55			2.61
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs and PCI write-offs		2.38			2.48
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⁾		$	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.


⁽³⁾	Includes U.S. small business commercial recoveries of $47 million and $43 million in 2018 and 2017.


⁽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 57.


⁽⁹⁾	Primarily includes amounts allocated to U.S. credit card and unsecured consumer lending portfolios in Consumer Banking and PCI loans in All Other.



69Bank 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 74.

Our traditional banking loan and deposit products are non-trading positions and are generally reported at amortized cost for assets or the amount owed for liabilities (historical cost). However, these positions are still subject to changes in economic value based on varying market conditions, with one of the primary risks being changes in the levels of interest rates. The risk of adverse changes in the economic value of our non-trading positions arising from changes in interest rates is managed through our ALM activities. We have elected to account for certain assets and liabilities under the fair value option.

Our trading positions are reported at fair value with changes reflected in income. Trading positions are subject to various changes in market-based risk factors. The majority of this risk is generated by our activities in the interest rate, foreign exchange, credit, equity and commodities markets. In addition, the values of assets and liabilities could change due to market liquidity, correlations across markets and expectations of market volatility. We seek to manage these risk exposures by using a variety of techniques that encompass a broad range of financial instruments. The key risk management techniques are discussed in more detail in the Trading Risk Management section.

Global Risk Management is responsible for providing senior management with a clear and comprehensive understanding of the trading risks to which we are exposed. These responsibilities include ownership of market risk policy, developing and maintaining quantitative risk models, calculating aggregated risk measures, establishing and monitoring position limits consistent with risk appetite, conducting daily reviews and analysis of trading inventory, approving material risk exposures and fulfilling regulatory requirements. Market risks that impact businesses outside of Global Markets are monitored and governed by their respective governance functions.

Quantitative risk models, such as VaR, are an essential component in evaluating the market risks within a portfolio. The Enterprise Model Risk Committee (EMRC), a subcommittee of the MRC, is responsible for providing management oversight and approval of model risk management and governance. The EMRC defines model risk standards, consistent with our risk framework and risk appetite, prevailing regulatory guidance and industry best practice. Models must meet certain validation criteria, including effective challenge of the model development process and a sufficient demonstration of developmental evidence incorporating a comparison of alternative theories and approaches. The EMRC oversees that model standards are consistent with model risk requirements and monitors the effective challenge in the model validation process across the Corporation. In addition, the relevant stakeholders must agree on any required actions or restrictions to the models and maintain a stringent monitoring process for continued compliance.

Interest Rate Risk

Interest rate risk represents exposures to instruments whose values vary with the level or volatility of interest rates. These instruments include, but are not limited to, loans, debt securities,

certain trading-related assets and liabilities, deposits, borrowings and derivatives. Hedging instruments used to mitigate these risks include derivatives such as options, futures, forwards and swaps.

Foreign Exchange Risk

Foreign exchange risk represents exposures to changes in the values of current holdings and future cash flows denominated in currencies other than the U.S. dollar. The types of instruments exposed to this risk include investments in non-U.S. subsidiaries, foreign currency-denominated loans and securities, future cash flows in foreign currencies arising from foreign exchange transactions, foreign currency-denominated debt and various foreign exchange derivatives whose values fluctuate with changes in the level or volatility of currency exchange rates or non-U.S. interest rates. Hedging instruments used to mitigate this risk include foreign exchange options, currency swaps, futures, forwards, and foreign currency-denominated debt and deposits.

Mortgage Risk

Mortgage risk represents exposures to changes in the values of mortgage-related instruments. The values of these instruments are sensitive to prepayment rates, mortgage rates, agency debt ratings, default, market liquidity, government participation and interest rate volatility. Our exposure to these instruments takes several forms. For example, we trade and engage in market-making activities in a variety of mortgage securities including whole loans, pass-through certificates, commercial mortgages and collateralized mortgage obligations including collateralized debt obligations 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 76.

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 70